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Assessment of account based pensions for Commonwealth Seniors Health Card
Article published on: 27-09-2023
My clients are a husband (aged 75) and wife (aged 59). The husband started an account based pension (ABP) before 1 January 2015 and has held the Commonwealth Seniors Health Card (CSHC) since then. Recently, the wife permanently retired and commenced her own ABP. How are the ABPs assessed for the CSHC?
ANSWER
Background
The CSHC is income tested (not asset tested) based on adjusted taxable income, plus deemed income from certain ABPs (ie ABPs that are not grandfathered and the holder is at least 60 years of age). A grandfathered ABP is not assessed under the income test for the CSHC. To be grandfathered, an ABP must have started prior to 1 January 2015. Also, the owner must have held the CSHC immediately before this time and continued to hold the CSHC.
Assessment prior to wife reaching age pension age
The husband’s ABP is grandfathered and not assessed under the CSHC income test. As the wife is less than pension age, she does not hold the CSHC and her ABP is not grandfathered. She is less than age 60 on the CSHC test day, so her ABP is not deemed. The taxable portion of the ABP payment is already captured in the wife’s taxable income and taxable income is included in the CSHC income test.
Example – Wife is less than age 60
The wife’s ABP commenced with 20% tax free and 80% taxable component. She draws an annual ABP payment of $30,000. The taxable portion of this pension payment is $24,000 ($30,000 x 80%). As the wife is less than age 60 on the CSHC test day, her taxable income for the reference year included $24,000 (the taxable pension payment). The wife’s taxable income is included in the CSHC income test for her husband. At the next test day (CSHC renewal), the wife will be at least age 60 and her ABP will be deemed for the CSHC income test.
Example – CSHC renewal after wife attains age 60
The wife’s ABP is valued at $600,000. As the wife is at least age 60 on the test day for the CSHC renewal, the ABP is deemed under the CSHC income test and $11,496 of deemed income is included under the CSHC income test. From age 60, the ABP payments are no longer taxable.
Assessment when wife reaches age pension age
Upon attaining pension age, the wife will apply for the CSHC. Assuming the husband continued to hold the CSHC, his ABP remains grandfathered. No income is assessed from the ABP under the combined income test for the CSHC. As the wife is over age 60, her ABP will be deemed under the income test (taxable income is only assessed whilst she was under age 60 on the CSHC test day).
The table below summarises the CSHC income assessment for couples:
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Grandfathered or non-grandfathered
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CSHC income test assessment |
Grandfathered
ABP commenced prior to 1 January 2015, the owner held the CSHC immediately before this time and continued to hold the CSHC
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The ABP is not assessed for the CSHC income test
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Non-grandfathered
Income stream commenced on or after 1 January 2015 OR owner did not hold the CSHC immediately before this time and continue to hold the CSHC
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If the owner is less than age 60 on the test day:
The CSHC income test includes taxable income. This will capture the taxable portion of the ABP payment
If the owner is at least age 60 on the test day:
The account based is deemed under the CSHC income test
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For more information about the CSHC, please refer to the below resources. |
