Tax with Max: The Seniors Card post budget

The Commonwealth Seniors Health Card post budget, earnings limits for a spouse super co-contribution, changing the maximum superannuation contribution age, and more.

Summary: Federal budget changes, if approved, mean that eligibility for the Commonwealth Seniors Health Card will be based on adjusted taxable income plus, where an individual or a couple are receiving an account-based pension, a deemed amount of earnings based on the value of their pension account.

Key take-out: Currently the value of account-based pensions is not included in assessing a person or couple’s eligibility for the CSHC. This means a couple receiving $100,000 a year in account-based pensions can be eligible to receive a benefit.

Key beneficiaries: SMSF trustees and superannuation accountholders. Category: Superannuation.

The Commonwealth Seniors Health Card post budget

Would you please give a simple but detailed explanation as to the dates and conditions for the continued eligibility of the Commonwealth Seniors Health Card as would be applicable under the 2014 budget once it is passed by both the Upper and Lower houses?

Answer:  Currently eligibility for the Commonwealth Seniors Health Card is dependent upon the adjusted taxable income for an individual or a couple. Adjusted taxable income is calculated by adding:

  • reportable employer superannuation contributions,
  • self-employed deductible personal super contributions,
  • reportable fringe benefits,
  • tax-free government pensions and benefits,
  • certain targeted foreign income,
  • net financial losses from the gearing of investments,
  • net rental losses, and
  • any child support payments provided to another person

to the taxable income of an individual or a couple. To be eligible for the CSHC an individual must have less than $50,000 in adjusted taxable income, and a couple less than $80,000 in adjusted taxable income.

Because superannuation pensions received by people 60 and over is non-taxable income the value of account-based pensions is not included in assessing a person or couple’s eligibility for the CSHC. This means a couple receiving $100,000 a year in account-based pensions can be eligible to receive a benefit that was originally designed to only assist low income earners.

If the budget measure is passed eligibility for the CSHC will be based on adjusted taxable income plus, where an individual or a couple are receiving an account-based pension, a deemed amount of earnings based on the value of their pension account.

The deeming rates are currently 2% for the first $48,000 of financial assets and 3.5% on the excess for individuals, and 2% on the first $79,600 of financial assets and 3.5% on the excess for couples.

What are the earnings limits to receive a spouse super co-contribution?

I would like you to clarify something Bruce Brammall said in his article Eight super things to do before June 30. It relates to the low-earning spouse super contribution offset and the $500 government co-contribution. Both benefits depend on certain income levels not being exceeded. Do the limits quoted relate to taxable income or something else?

Answer:  The income counted for the spouse super contribution tax offset is the spouse’s assessable income plus reportable fringe benefits and reportable employer super contributions. This means eligibility for the offset cannot be achieved by a spouse salary sacrificing so that their assessable income is below the threshold.

Eligibility for the Commonwealth co-contribution is based on two tests. To receive the full $500 co-contribution a person’s total income must be less than $33,516. The second test requires a person to earn at least 10% of their total taxable income from employment or from carrying on a business. This means a person who earns more than 90% of their income from investments would not be eligible for the co-contribution.

I looked for a definition of total income on the ATO website and could not find one. In the absence of further information I believe total income would be all income received by an individual. This would possibly include both assessable and non-assessable income.

Are changes likely to the maximum superannuation contribution age?

Given the proposed changes to retirement age, has there been any suggestion of a change to the age when individuals are unable to make contributions to superannuation? Currently once they attain the age of 65 individuals must pass a working hours test.

Answer:  To the best of my knowledge there have not been any suggested changes to the age at which an individual can make super contributions. There has been some discussion about raising the retirement age from 65 to 67 so that it would match the age at which an individual becomes eligible for the age pension. If this were to happen one could only expect that the contribution age would also increase to 67.

Do all SMSF trustees need to be listed as asset owners?

We have a four-member SMSF and after many years of operation an auditor is advising that we need to change the name that investments are held in from just two trustees to all four trustees. I understood that this was an ATO preference to list all trustees, but it is not required by superannuation law. Is this correct? Also, what will happen if one or more of the four trustees dies or leaves? Will we need to change everything each time a trustee change occurs? Would an asset ownership name change trigger a capital gains event?

Answer:  You are correct about there being no legal requirement for all trustees of an SMSF to be shown as owners of investments or bank accounts. In fact, to quote from the ATO website, where the ownership of assets by SMSFs is explained, “it is your responsibility as trustees to ensure your fund’s assets are securely held in a legally recognised ownership arrangement”.

Also included in the information provided by the ATO is the following: “if a new trustee joins your SMSF you may need to consider changing the name on the ownership documents for each fund assets”. The actual legal requirement is for trustees to keep separate from their own personal assets the investments of an SMSF, and not that all trustees must be shown on ownership documents.

The ATO further states that “it is important that you clearly document ownership of the fund’s assets to support evidence of the fund’s rights and title over the asset”. If the ownership documents for your SMSF clearly detail that your SMSF is the owner there is no legal requirement for all trustees to be shown. Unfortunately some fund managers do require this but this is not a superannuation requirement.

You should contact the auditor of your SMSF and discuss the matter with them. If, after pointing out what the ATO states in its information about the ownership of SMSF assets, they still require all trustees to be shown as owners you should look for another.

When there is a change of trustees, either the appointment of a new individual trustee or the appointment of a corporate trustee, and the legal name changes on the investments there are no capital gains tax implications. This is because the beneficial ownership of the investments has not changed.

Can a SMSF be maintained if the trustees move overseas?

We have a two-member SMSF, with both members being under 50 who want to live overseas but maintain the SMSF because it has properties in the USA we do not want to sell. Switching to an APRA managed fund seems out of the question as that would mean selling and transferring cash.

Bringing in one or two other related members does not appeal as they would need to own over 50% of the fund, and things could go pear shaped. Do you have any ideas how we could maintain the SMSF from overseas and what issues arise from this move?

Answer:  Switching to an APRA approved fund does not necessarily require all of the assets of your SMSF to be converted to cash. Your problem will be in finding an APRA trustee that will allow the SMSF to continue to hold the overseas property investments. If these investments do not put the trustees at risk of not being able to pay out a member’s benefits, such as in the event of a member’s death, you may be able to retain the current investments of the SMSF.

Another option would be for the SMSF trustees to visit Australia at least once a year, at which time they deal with the management issues of the SMSF. Where trustees are living overseas an SMSF must be wound up in the event that the central management and control of the fund is conducted from overseas. Before taking any action you should seek professional advice.


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