Summary: Someone who receives the disability support pension and also has a sum of money in super which is due to mature may wish to know how their super will affect pension payments. Eligibility for the disability support pension is assessed based on someone’s age, impairment, residency, assets and income. |
Key take-out: A disabled person who is a member of a home owning couple will receive the full disability pension if their total assets are less than $286,500 and their combined income is less than $160 a fortnight, and they meet the other eligibility tests. |
Key beneficiaries: SMSF trustees and superannuation accountholders. Category: Superannuation. |
Keeping the disability pension
My husband is on a disability pension and I am his carer. He has around $65,000 to $70,000 in super that is due to mature when he turns 57. How will this affect his pension?
Answer: There are a series of tests that are applied to assess a person’s eligibility for a disability support pension. The first tests applied relate to whether a person meets the definition of disabled or not.
To be regarded as disabled a person must either be permanently blind, or assessed as having a physical, intellectual or psychiatric impairment that means that they either cannot work or be retrained for work, or if they can work for more than 15 hours a week they will earn less than the minimum wage for the next two years as a result of their impairment.
The next test is based on a person’s age. To receive a disability pension a person must be between the ages of 16 years and age pension age. Once a disabled person reaches age pension age they then go on to the age pension.
The next test to pass is a residency test. A person who has been an Australian resident for a continuous period of at least 10 years, was a refugee or a former refugee, whose inability to work or their permanent blindness happened while they were an Australian resident, or was a dependent child of an Australian resident at the time the disability occurred and they became an Australian resident while a dependent child, will pass the residency test.
The last two tests are exactly the same as those applied to a person’s eligibility for the age pension, being the assets test and the income test. Under the assets test a disabled person that is a member of a home owning couple will receive the full disability pension if their total assets are less than $286,500. For a non-home owning couple this limit is $433,000.
For the full disability pension to be received for a member of a couple their combined income must be less than $160 a fortnight.
If it is the case that your husband’s superannuation is worth no more than $70,000, you do not have any other assets of significant value, and there is no other income being earned by you or your husband, he will still be eligible for the full disability pension after gaining access to his superannuation.
Super vs the age pension
I will shortly receive my Australian age pension as I turn 65 in July. My husband passed away in 2010, so I decided to return to Ireland to be with family after living in Australia for 39 years. I now find that Ireland is no longer for me so I plan to return to Australia as soon as I sell the house that I bought here in Ireland.
I have in Australia personal super valued at $197,766 and a standard income stream valued at $111,648. Would I be better off combining my personal super sum with my income stream sum? How would that affect my age pension?
Answer: Under the current assets test a single home owner can have up to $202,000 in assets and a non-home owner can have up to $348,500, and receive the full pension. This assets test will change from January 1, 2017 so that a single home owner’s assets can be $250,000 and they still receive the full pension.
Once the assets limit is exceeded the age pension is currently reduced by $1.50 per fortnight for every $1000 a person’s assets exceed the limit. From January 1, 2017 the pension will decrease by $3 per fortnight for every $1000 the assets limit is exceeded.
The assets test is applied to all of your financial and other assets, except for the family home, and as such it does not matter whether you combine your income stream account with your Australian superannuation account.
You will also be affected by the income test as there will be a deemed earning rate applied to the total value of your income stream, superannuation account, and any other financial assets that you have. The pension that you receive will be whatever test results in the least amount of age pension being received by you.
Although it will not make any difference to your eligibility for the age pension it does not make sense having a pension account and a superannuation account due to the doubling up of administration fees. In addition there are some tax and estate planning strategies open to you that should be considered around combining your super. You should get professional advice from someone who specialises in this area.
Weighing up super contribution options
I have a question relating to the short and long-term benefits, if any, of making a concessional tax-deductible contribution to my superannuation account versus a non-concessional contribution of an equal amount. Tax-deductible concessional contributions are rarely discussed or explained in superannuation articles, it’s all about salary sacrificing.
Answer: Unfortunately when it comes to tax effective super contributions for most Australians salary sacrificed as extra super is all that is available. To be able to make a self-employed concessional tax deductible super contribution a person must either not receive, or not be eligible to receive, superannuation contributions from an employer, or their salaries and wages income must be less than 10 per cent of their total taxable income.
The other reason why tax deductible concessional contributions are rarely discussed is because there is a major focus on being able to maximise superannuation. Given that a person can contribute up to $180,000 as a non-concessional contribution, or $540,000 using the three year contribution limit, with an emphasis on maximising a person’s superannuation it is understandable why non-concessional contributions are more often written about.
You have raised a valid point because for people who are not employed and either earn their income from running a business or from investments, it makes a great deal of sense to maximise their tax-deductible self-employed concessional super contributions.
By making a self-employed tax-deductible super contribution of $30,000, after allowing for the contributions tax of 15 per cent, after tax a person’s superannuation increases by $25,500. If the self-employed super contribution is not made, and tax is paid at the lowest tax rate including Medicare levy of 21 per cent, only $23,700 can be made as a non-concessional contribution.
When investors have lumpy investments, such as real estate or share portfolios outside of superannuation with large unrealised capital gains, timing their sale is vitally important. To ensure that income tax is minimised in these situations, and non-concessional contributions maximised, the investments should be sold when a person’s taxable income is at its lowest, and they can use the self-employed tax super contribution to reduce income tax on the gain.
The reason why timing is important, especially where large shareholdings are involved, is to stagger the sales over a number of financial years. For a person whose only income will be dividends and a tax exempt superannuation pension, after the $35,000 self-employed super contribution and before the 50 per cent general discount, capital gains of $140,000 can be realised with tax being limited to between 15 per cent and 21 per cent.
Max Newnham is a partner with TaxBiz Australia, a chartered accounting firm specialising in small businesses and SMSFs. Also go to www.smsfsurvivalcentre.com.au.
Note: We make every attempt to provide answers to readers’ questions, however, answers are of a general nature only. Subscribers should seek independent professional advice for more in-depth information that is specific to their situation.
Do you have a question for Max? Send an email to askmax@eurekareport.com.au
