The CSHC is a concession card for self-funded retirees of age pension age who are not eligible for the age pension.
It provides access to discounts on medical expenses and travel concessions, certain concessions provided by state and territory governments, as well as the Seniors Supplement - however (at the time of writing) a related 2014 Budget measure proposes to eliminate this payment to CSHC holders.
To be eligible for the CSHC an individual must have adjusted taxable income below certain thresholds of singles, $51,500 and couples, $82,400 combined.
Account-based pension (ABP) income from taxed superannuation funds paid to those aged 60 or over was, before 1 January 2015, not included in the income test for CSHC eligibility, because this income is not included in taxable income.
The new legislation applies deeming to ABPs for those aged 60 or more from 1 January 2015, in the same way, financial assets are deemed under the age pension income test, using the same thresholds and rates.
The key difference is that only the value of the ABP will be used to determine the deemed income - no other assets are included in this calculation.
To prevent double counting, ABP income received by a spouse under age 60 will not be deemed, as some or all of this income may be included as adjusted taxable income.
Under grandfathering arrangements, existing ABPs remain exempt where both the ABP and CSHC were held prior to 1 January 2015 and both continue to be held.
Guidance from the Department of Social Services indicates that the grandfathering provisions will continue where a pension reverts automatically to a reversionary beneficiary, provided at the time of reversion the beneficiary holds a CSHC.
Strategies to Obtain/Retain the CSHC
Existing ABP and CSHC holders should monitor their income levels during the year to ensure they stay below the relevant threshold. Once eligibility for the CSHC is lost, the grandfathering of an ABP is lost permanently.
For new or existing cardholders in danger of breaching the thresholds, the following strategies may help to obtain/retain the CSHC:
Manage taxable income - consider restructuring investments that generate taxable income. Possible solutions could be to contribute to super (if eligible), invest in an insurance bond or family trust, or gift assets that generate taxable income to family members.
Reduce non-grandfathered ABP value - in the legislation, the expanded income test only includes deemed income received from ABPs for recipients aged 60 and over. It does not include super accumulation balances in this calculation. Moving pension funds back to accumulation phase may provide an opportunity to reduce deemed income.
Choose the income year - normally the previous year's notice of assessment is used to determine the adjusted taxable income of an applicant or cardholder. If this income exceeds the relevant threshold, there is the ability to apply to use an estimate of the current year's income. This is usually relevant where one-off events occur in the income year of application, such as retirement or the sale of an investment (in limited circumstances).
Of course, any change recommended would need to consider the client's overall needs and objectives.
Please call us if you would like more information. (07) 4771 4577