The assets test and pension cards
Summary: How exactly income and assets are counted for singles and couples for health care and concession card purposes, and how the age pension is determined for home owners and renters. As well, weighing up demolishing and moving on, or subdividing and staying. |
Key take-out: You could have assets up to almost $1.6 million as a couple and still be eligible for the low income health care card. A married couple cease to be eligible to receive the age pension when their assets exceed $827,000 if they are a homeowner, and $1,030,000 if they are non-home owners – but don't go divorcing to get the cherry on top. |
Question. In January 2017 I was just below the asset test threshold limit for the Age Pension. I had a significant reduction in my pension but I did continue to receive a small fortnightly amount, and therefore, also retained the Pensioner Concession Card. I have read that people who lost their pension in January 2017, because of the change in the assets test, could still keep the Commonwealth Seniors Health Card and concession card.
I have not seen any reference to what happens to those people who lose the pension after January 1, 2017 because of changes that came into effect at that time. It is quite possible that I may just exceed the asset test limit later this year. Can I keep the Commonwealth Seniors Health Card and concession card, or am I excluded because I didn't lose it in January?
Answer. To the best of my knowledge, and according to the Department of Human Services website, it was only those people who lost their entitlement to income support on January 1, 2017 who automatically received a health care card that was exempt from the usual income tests. That included those who received the Age Pension.
You may still be eligible for a Low Income Health Care Card depending on what income is counted by Centrelink. If you are single, you will be eligible for the Low Income Health Care Card if your weekly income is less than $543. If you have a partner, you will be eligible if your weekly income is less than $939.
The income counted under this test includes normal income such as employment, rent, and distributions from private trusts and companies. In addition, the deeming rates are applied to your investment assets and potentially the value of your superannuation assets, depending on whether you receive an account-based pension that commenced prior to January 1, 2015 when the rules changed.
Under the deeming rules, if you only have financial assets and superannuation, you could have assets worth up to approximately $891,900 if you are single, and just over $1.54 million if you have a partner, and be eligible for the seniors Low Income Health Care Card.
Question. I am planning to update my will and superannuation Binding Death Benefit Nomination (BDBN). The intention of both is to leave my estate and super fund balance to my spouse, or to our children if she predeceases me.
The simplest approach from my perspective would be to specify my estate as the beneficiary in the BDBN. This would mean that my executor would distribute the super funds according to my wishes as specified in my will. I would only need to update my will in future if anything changed.
However, the default approach and recommendation is to specify an individual beneficiary in the BDBN. Is this the preferred approach for tax or other reasons not to my knowledge?
Answer. In general terms, when it comes to a BDBN, a person's superannuation can only be left to their dependants and/or their legal personal representative. A deceased person's personal legal representative is the executor of their will or the administrator of their estate.
If all your children are adults, and not financially dependent on you, they could not be listed as beneficiaries under a BDBN. Instead you could nominate your wife as the primary beneficiary of the BDBN and, in the event she predeceases, you nominate your executor or administrator as the secondary beneficiary. You should seek advice from the lawyer who will be updating your will as they should have some knowledge and experience regarding incorporating a BDBN into your estate planning.
Question. I am still quite a way off pension age, but I do read the occasional story. Is it true that a couple, who divorced before retiring, have a higher assets test threshold? Is this becoming a pension strategy?
Answer. You are right that two single people have a higher assets test threshold than a married couple. A married couple cease to be eligible to receive the Age Pension when their assets exceed $827,000 if they are a homeowner, and $1,030,000 if they are non-home owners.
A single person does not lose the Age Pension until their assets exceed $550,000 if they are a homeowner, or $753,000 if they are a non-home owner. Theoretically, this means two single home owning people have a combined total of $1,100,000 before they would each lose the pension.
I have never heard of a strategy based around a couple getting divorced so that they would each be eligible to receive the Age Pension. For this to be a feasible strategy the couple would actually have to divorce and separate and meet all of the requirements laid down by the courts to qualify for getting a divorce.
Question. I bought a house with a friend and we demolished and built two houses on the block with the view of living in them, however, we now can't afford to live there. We are both renting separately with our families and we do not own any other property in Australia.Â
We have not subdivided the property yet and are now wondering what to do. Are we subject to capital gains tax, and how would we subdivide the property now that there are two houses on it? Should we subdivide and allocate one title per person, or do we each have a half share in both properties?
Answer. Your question has raised an important point when it comes to investing in partnership with someone else. To make sure there was no doubt what the intention was for the investment property, a document should have been drawn up. This is effectively a partnership agreement detailing what you both wanted to achieve, and what was expected regarding capital contributions from each of you.
A determining factor in relation to how you will be treated with regard to finally subdividing the property will be how your names were recorded on the title of the property. Hopefully you were advised to own the property as tenants in common, as opposed to joint tenants where the remaining living person gains ownership of the property, with a percentage ownership shown for each of you.
Subdividing the property should not result in a capital gains tax event and you should not have to pay tax on any increase in the value of the property. You should seek legal advice on the best way of subdivide the property. In addition, you will need to document what the original purchase cost of the property was that would be split 50-50 between you both, and then the cost of each new residence constructed.
Question. We are in our 60s, still working, and like many people, much of our wealth is tied up in our home that we purchased in 2010. What are the tax implications if we subdivide the land and either knock down our current home and build two new residences, or keep the current home and build one house, and then sell one thereby freeing up some capital?
Answer. From an income tax point of view, you would have a higher likelihood of paying tax on the gain you if you demolished your current home, build two new residences, and then sold one of these and moved into the other. If instead you subdivided the property, built a new residence that you shifted into, and sold your existing home, no tax should be payable on the profit you make.