Summary: Commonwealth Seniors Health Card holders are subject to restrictions on the amount of time they can be absent from Australia before the card is cancelled. Currently, card holders can be absent for six weeks, but legislation is before the parliament to extend this period to 19 weeks.
Key take-out: If passed, the new legislation will apply from January 1, 2015.
Key beneficiaries: SMSF trustees and superannuation accountholders. Category: Superannuation.
Keeping the Seniors Health Card
We are somewhat confused by your recent answer on the Commonwealth Seniors Health Card (Tax with Max, October 29). We have heard from various sources that this card would be cancelled after 19 weeks of a person being absent from Australia. However, we read on the Centrelink website that it is six weeks. This is important to us as my husband is retiring before the end of this year and we intend to take an overseas trip next year and would like to be away for around eight weeks. Can you please clarify the number of weeks card holders can be absent from Australia before the card is cancelled?
Answer: In my answer last week I stated that I was not sure what the grandfathering rules would be in relation to people who currently hold a CSHC. I have been able to locate a statement by the minister for social services, Kevin Andrews, that details new legislation about changes to the time period that a person or couple can be absent from Australia before they lose the CSHC.
The Abbott government currently has legislation before the parliament that will increase the length of time that CSHC holders can travel overseas temporarily before having their card cancelled. The legislation will add an extra 13 weeks to the current period of six weeks. This will mean people can travel outside of Australia for up to 19 weeks without having the CSHC cancelled.
The reason why the Centrelink website states that the absence period is six weeks is because the legislation will not apply until after January 1, 2015. The legislation was meant to be passed last week but unfortunately did not get voted on. It is hoped that it will be passed by the parliament in November.
With the income test rules changing from January 1, 2015 for the CSHC (see Seven weeks left to sort out your super), and because the absence period will also be changing from that date, anyone who currently holds the CSHC, and is planning a trip that will result in them being overseas for more than six weeks, should reconsider their travel plans.
In a situation where the income counted under the current test is close to the income limits of $51,500 for singles and $82,400 for couples, people could find after including the deemed superannuation income they would not qualify again for a CSHC.
Subdividing a block
My mother died in November 2013 leaving her residence to me and my five siblings. She purchased the block in 2006 and paid $1.6 million. It is currently valued at $1.3 million but could be subdivided. We are contemplating subdivision of the block to keep either the existing or the new property in the family, with the likelihood of one family member residing there. What are the tax implications?
Answer: First, if the property were sold by the estate now, a capital loss would be made that you and your siblings would not get any tax benefit from. If ownership of the property transferred to you and your siblings the purchase cost would be the same as your mother’s. If the property was subdivided the capital gains tax implications would differ depending on whether the family member owned the property or rented it.
If on the other hand the subdivided property were sold, capital gains tax would be payable by you and your siblings if the selling value exceeded the $1.6 million cost base plus any subdivision costs. This is a complicated area of income tax law, especially considering what you are planning to do in relation to having a family member live in one of the properties, and you should seek professional advice before taking any action.
Working out a separation
I am 67 years old and live in Perth. I am separated from my wife and we intend getting a divorce. For financial reasons my wife wants to put the divorce off for about four years when she will be eligible for the age pension.
She does not have any superannuation to speak of. I have a defined benefit super fund worth about $750,000, and we are joint owners in our current dwelling. At divorce we intend to split our assets 50-50 which at present means that she will get 50% of my super and I will have to pay her 50% of the value of the house. This will leave me only a modest amount of super and I will also then be largely reliant on the pension.
I am concerned that over the next four years the price of houses may escalate as we have seen recently in Sydney, to the point where I cannot afford to pay my wife out for her share of our current property. I am considering purchasing a second house in an SMSF and wondering whether this makes sense.
I am also considering taking retirement earlier than planned, hopefully with a redundancy payment, and using part of my super to buy a second house at current prices, which I can then transfer to her in four years time as part of the divorce settlement. Do you see any problems with my strategy as outlined?
Answer: We are not licensed to give personal advice, but here are some general observations. The first point I would make is one spouse wanting to delay a divorce for four years should have no effect on a couple reaching a property settlement sooner, and I am not sure if it will be a benefit when applying for the age pension. My worry is that one partner delaying the property settlement for four years may mean they are provided with a financial benefit that will leave the other in a worse position.
Those aged over 65 should be able to access their superannuation in a defined benefit fund. This will however depend on what the rules are in the trust deed for that fund. The idea of accessing super so that it can be rolled into an SMSF that buys a house does not make a great deal of sense. If one spouse did do this, while it was owned by their SMSF, the other would not be able to live in it.
If one spouse wanted to continue in full-time employment another option would be to purchase a property that would be rented out. The equity in the existing house could be used to secure a loan to finance all of the purchase costs. This would allow the purchase of a property at today's values that, if the settlement were still delayed for four years, protects the buyer from large increases in house prices over that time.
Because there is a high likelihood of you being disadvantaged financially by delaying the property settlement you should seek advice from a lawyer that specialises in family law, and also from an accountant that specialises in tax and retirement planning.
The lawyer will advise you on what needs to happen in relation to your divorce so that you are not disadvantaged by what your wife wants to do. The accountant can do cash flow projections that will show the effect of the alternatives open to you, and make sure your tax benefits are maximised.
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.
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