New year, new CSHC?
The Commonwealth Seniors Health Card (CSHC) is a concession card that is available to older Australians who are of Age Pension age or Department of Veterans' Affairs qualifying age, and do not receive an income support payment from the Department of Human Services or the Department of Veterans' Affairs due to the level of their assets and/or income.
Benefits available to CSHC holders include:
- medicines listed under the Pharmaceutical Benefits Scheme (PBS) at the concessional rate;
- access to PBS prescriptions, generally without charge, for the remainder of the calendar year after reaching the PBS Safety Net;
- bulk billing for doctor appointments (at doctor discretion);
- a reduction in the cost of out-of-hospital medical expenses above a concessional threshold through the extended Medicare Safety Net;
- payment of the Seniors Supplement (currently under review and may cease subject to passage of legislation. The current rate of the Supplement is $886.60 p/a for singles and $1,336.40 p/a combined for couples);
- payment of the Energy Supplement (currently $366.60 p/a for singles and $511.20 p/a combined for couples);
- · concessional travel on Great Southern Rail services;
- · in some instances, additional health, household, transport, education and recreation concessions which may be offered by state or territory and local governments.
The CSHC is subject to an adjusted taxable income plus deemed income from an Account Based Pension (ABP) test unless the ABP is grandfathered.
The CSHC is not subject to the Assets Test.
Indexation of CSHC Income Thresholds
On 20 September 2014, income thresholds for the CSHC have increased for the first time since 2001.
The increase was due to indexation of income thresholds at Consumer Price Index (CPI). Income thresholds for the CSHC will continue to be indexed at CPI in September each year. The Government estimated a further 27,000 people will be able to access the CSHC by June 2018 as a result of annual indexation of income thresholds for the CSHC.
Table 1 (below) outlines the income thresholds for the CSHC from 20 September 2014.
Changes to the CSHC Income Test
Prior to 1 January 2015, the CSHC was subject to an adjusted taxable income test only.
From 1 January 2015, the CSHC income assessment also includes deemed amount from ABPs unless grandfathered. The adjusted taxable income for this purpose includes:
- taxable income,
- target foreign income,
- total net investment losses,
- employer-provided benefits or reportable fringe benefits,
- reportable superannuation contributions.
From 1 January 2015, any deemed amount from ABPs (unless grandfathered) is added to an individual's adjusted taxable income to determine eligibility for the card.
ABPs that commenced before 1 January 2015 are grandfathered and are not assessed using the deeming provisions, provided the individual was eligible for the CSHC immediately before 1 January 2015 and remained eligible for the CSHC since 1 January 2015.
How would these changes impact clients?
With the deeming rates being historically low currently an individual would need to have a substantial amount invested in an ABP to exceed the income thresholds assuming they do not have other income.
For example, a single person would need to have just under $1.5 million and a couple would need to have under $2.4 million invested in an ABP that is not grandfathered before exceeding income thresholds for the CSHC (assuming they have no other income and/or deemed financial investments).
The following case studies explain the new assessment of income for CSHC purposes and how these changes will impact the client.
Case Study 1
George is a single self-funded retiree who turned age 65 on 5 January 2015. George has $1.4 million invested in an ABP from which he has been drawing the minimum pension to meet his lifestyle expenses. George does not have any other income from other sources. George also has $50,000 held in his bank account.
George will be eligible for the CSHC as his income for CSHC purposes is estimated to be $50,030. This includes the deemed income from George's bank account and ABP. As George's income falls below the income threshold of $51,500 for a single person, he will be eligible for the CSHC post 5 January 2015, following his 65th birthday.
Case Study 2
Edward (aged 79) was a holder of a CSHC on 1 January 2015. Edward has $1.2 million held in an ABP that commenced in July 2009.
Edward's wife, Lorraine (aged 70) was also a holder of a CSHC on 1 January 2015. Lorraine was a Public Servant and receives a Public Service Pension of $40,000 p/a which is fully taxed.
As Edward's ABP is grandfathered and not included in the CSHC income test assessment, the combined income for Edward and Lorraine will continue to be assessed at $40,000 p/a for the CSCH purposes post 1 January 2015. This means Edward and Lorraine will continue to be eligible for the CSHC post 1 January 2015.
Edward has made a reversionary death benefit nomination within his ABP, which means the pension will revert to Lorraine on his death.
When Edward passes away, his ABP will retain its grandfathered status and will not be deemed in the CSHC income test assessment for Lorraine. This means Lorraine will continue to be eligible for the CSHC following Edward's death as her income for CSHC purposes will not exceed the income threshold of $51,500 for a single person.
Case Study 3
Emma (aged 68) is a single self-funded retiree and a holder of a CSHC. Emma has an annual adjusted taxable income of $40,000 from various investments. Emma has $350,000 invested in an ABP which commenced in 2011.
As Emma's ABP commenced before 1 January 2015 and she was a holder of the CSHC at that point in time, the ABP will be grandfathered post 1 January 2015, allowing Emma to maintain the eligibility for the CSHC.
On 15 January 2015 Emma decides to transfer her grandfathered ABP to another provider. As a result she loses the grandfathering status of the ABP, and deemed income of $11,530 is now assessed against the new ABP that commenced on 20 January 2015.
Emma's income for CSHC purposes will increase from $40,000 p/a to $51,530 p/a which means Emma will lose her eligibility for the CSHC. This is because only ABPs purchased prior to 1 January 2015 are grandfathered.
However, if Emma decides to make a lump sum commutation of $20,000 from her new ABP and either rollover this amount back into the accumulation account OR spend on lump sum expenses (such as home improvements, holiday), she will be able to reduce her income for CSHC purposes to $50,830 p/a and more importantly, will be able to maintain the CSHC.
Anna Mirzoyan is a technical services consultant at Fiducian Portfolio Services.
Recommended for you
When entering paid employment, it’s not long before we are told that we’ll need to lodge a tax return but there are times when a person will be excepted.
Anna Mirzoyan examines how grandfathering affects income support payments and how factors such as paying for aged care can impact them.
There are specific requirements that only apply to trustees of self-managed superannuation funds, writes Tim Howard, including the allocation in their investment strategy.
Investments bonds offer a number of flexible, tax-advantaged benefits, writes Emma Sakellaris, but these are often overlooked as old fashioned when it comes to portfolio allocations.
