Pensions, Strategy

Consider CSHC test with pension change

CSHC income test pension

SMSF practitioners should be cautious about changes to pensions that could negatively interact with new thresholds for the Commonwealth Seniors Health Card.

SMSF practitioners helping their clients secure a Commonwealth Seniors Health Card (CSHC) for the first time following increases to income limits should ensure any seemingly unrelated pension changes do not bring income from those pensions under the CSHC income test.

Smarter SMSF chief executive Aaron Dunn said the October budget increased the income test thresholds for the CSHC from $61,284 to $90,000 for a single person and from $98,054 to $144,000 for a couple, and while practitioners may see this as an opportunity for clients, it may backfire where changes are made to older pension streams.

“You may have clients that are the qualifying age for the CSHC and who have started income streams. Even though the income streams are non-assessable, non-exempt income in their hands as pensioners, for the CSHC it is counted for income test purposes,” Dunn said during a recent webinar.

“Those clients may be drawing large tax-free pensions out of their SMSF, but due to the level of pension they are taking and lower value of the income test, they were not eligible to obtain that card. The new threshold will now bring them into contention through that substantial increase.

“In that case, make sure you understand the importance of pre-1 January 2015 pensions.”

He noted these pensions were not only tax-free for the annual income tax return, they were also exempt from the income calculations for the CSHC.

“You may have clients that qualify for the CSHC because it is an exempted level of pension that is being assessed to them, so they could have a $5 million fund and qualify for the card because the pensions were established some time ago,” he said.

“If those pensions blow up in one way, shape or form, what will transpire is that one or more of those income streams will then be calculated and included in the CSHC income test because it is now a post-January 2015 income stream.

“Be conscious of these things when looking at the CSHC as those new income limits apply from 4 November 2022.”

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