Could you be eligible for the Commonwealth Seniors Health Card?

If you are ineligible for the Age Pension due to your wealth but still have an annual income below $50,000 pa for singles or $80,000 pa for a couple, you might be eligible to receive the Commonwealth Seniors Health Card (CSHC).  And the benefits are nothing to shirk at. 

As a holder of the card, you can access a whole host of things you might never have known about, the first of which is cheap medicine.  And it is worthwhile noting up front that there is no assets test to qualify.

The main attraction of CSHC is that eligible pharmaceuticals under the PBS are available at just $6.00 per script.

In addition to this, you can receive a Seniors Supplement from the Government of up to $858 pa (singles) and $647.40 (for each member of a couple). You may also be able to take advantage of bulk billed GP appointments and a range of other benefits at concessional rates.  So if you think you might qualify, it is definitely worth a look.

More money in your pocket
As detailed above, CSHC holders are entitled to receive the Seniors Supplement and the Clean Energy Supplement, both annual payments made to cardholders. The maximum seniors supplement is currently $858 pa for single people and $647.40 pa for each member of a couple, paid quarterly. The clean energy supplement is currently $356.20 pa for a single person or $267.80 pa for each member of a couple.

Services and Benefits of the CSHC
The services specifically available through the CSHC may include:

  • Bulk-billed GP appointments, at the discretion of the GP.
  • A reduction in the cost of out-of-hospital medical expenses in excess of a concessional threshold, through the Medicare Safety Net.
  •  In some instances, additional health, household, transport, education and recreation concessions which may be offered by State or Territory and local governments and private providers. These concessions are offered at the discretion of the private providers, and their availability may vary from state to state.

Could you be eligible?
So, could you be eligible? In order to receive the CSHC, certain criteria must be met:

Residence
You must be an Australian resident, or a holder of a special category visa, and be living in Australia at the time of lodging the claim.

Age
You must have reached Age Pension age or qualifying age for DVA recipients.

Payments
You must not be receiving:

  • A social security pension or benefit (eg age pension), or
  • A DVA service pension or income support supplement.

Income test
You must have an adjusted taxable income of less than:

  • $50,000 for a single person
  • $80,000 for a couple

Assets test
There are no asset limitations or requirements.

 

I think I’m eligible, what do I do now?

If you believe you are eligible for the CSHC then contact your Prosperity Financial Adviser who can help with any questions you have. Alternatively you can contact the Department of Human Services on 13 23 00 or visit their  website on:
http://www.humanservices.gov.au/customer/services/centrelink/commonwealth-seniors-health-card

 

 

Tax Tips to consider before 30 June 2013

With less than two weeks until the end of the financial year and after a federal budget designed to take away a bigger share of income than in previous years, there is no better time to put some effort into year-end planning.

To help you with this we have summarised some things that need to be done before year-end and some other useful ideas that may assist with reducing the tax payable when tax returns are lodged.

Trust distribution minutes

Similar to last year if you operate a trust, it is crucial that prior to 30 June 2013, the trust has resolved how it will distribute the income of the trust. Your adviser is aware of the importance of this issue and is currently in the process of preparing the required minutes. If the required resolution is not completed on time it can result in some unfavourable implications.

Don’t forget also that this year 30 June falls on Sunday. Therefore the target date for completing these resolutions needs to be Friday, 28 June. If you don’t hear from you adviser by 25 June please take steps to contact them.

Trust distributions to companies

Following on from the above distributing net income to a company can be an effective strategy to reduce tax.

While this will have the effect of capping the tax at 30%, consideration will need to be given to what is done with these funds once they are in the company.

In such a case our firm has designed some investment structures that you may find appealing. Please consult your adviser if you wish to find out more.

Loss carry-back rules

A new measure that is currently before the Senate and likely to be passsed soon, provides tax relief to companies by allowing them to carry-back tax losses so they receive a refund against tax previously paid.

These rules are new this year and will allow a one-year loss carry-back in the current financial year. These rules allow tax losses incurred to be carried back and offset against tax paid in the 2012 financial year.

For 2013/14 and later years, tax losses can be carried back and offset against tax paid up to two years earlier.

Loss carry-back will:

  • be available to companies and entities taxed like companies who elect to carry-back losses
  • be capped at $1 million of losses per year
  • apply to revenue losses only
  • be limited to the company’s franking account balance.

Are you thinking about buying a car?

If you operate a small business then there have been some changes from last year that mean that if you have purchased a new car since 1 July 2012, you can claim an instant tax write-off of the first $5,000.

The balance over $5,000 is depreciated as per usual.

Therefore if the business is in the process of buying a new car it is likely to be worthwhile ensuring the purchase happens before 30 June. This could combine with the year end run out sales to produce real benefit.

Purchase of depreciating business assets

In a similar vein to the previous point, the changes implemented from 1 July 2012 also mean that an eligible small business can claim an immediate deduction for depreciating assets costing less than $6,500.

If your business is therefore in need of any new equipment, such as computers or printers, then it might make sense to make those purchases before 30 June.

Superannuation contributions for the year ending 30 June 2013

Just like prior years don’t forget to lock some money away. While superannuation has taken a few punches from the government and the media during the year it is still the most tax effective environment for saving for the future.

It’s therefore critical that contributions are paid before 30 June. It is also critical that care is taken to not exceed the contribution limits.

The maximum concessional contributions for the year ending 30 June 2013 are $25,000. This limit applies on a per person basis and includes concessional contributions from all sources.

The concessional cap will increase to $35,000 for individuals over the age of 60 from 1 July 2013.

At this point it is also useful to note another widely publicised change to the super rules. This change will increase the contributions tax from 15% to 30% for individuals who have income of more than $300,000. It is proposed that this change will apply from 1 July 2012. These changes however are not yet law as their application depends on the passage of the law through parliament.

Government co-contribution

If you have a spouse, parent or child on a low income then consideration should also be given to paying a non-concessional contribution for them.

Non-concessional contributions up to $1,000 will be matched by a government co-contribution of $500 for people earning less than $31,920. Transitional rules apply for incomes up to $46,920.

To be eligible the person must be employed or self-employed.

Non-concessional contributions

While on the topic of superannuation it is also necessary to note non-concessional contributions. These contributions are broadly contributions you make to super from after tax dollars. This is typically used to get additional money into the low taxed super environment

The non-concessional contribution limits are $150,000 per member per year, or $450,000 per three-year period.

As penalties can apply to excess non-concessional contributions, please discuss this with your adviser before making a large non-concessional contributions.

Superannuation pensioners

If your superannuation fund is in pension phase then an important thing to remember is to make the minimum pension payments from your SMSF before 30 June.

While the table below provides further details, we recommend that you discuss this with your adviser before making the payment to ensure the correct amount is paid and to also ensure an appropriate buffer.

Age Minimum
Under   65 3%
65 to   74 3.75%
75 to   79 4.5%
80 to   84 5.25%
85 to   89 6.75%
90 to   94 8.25%
95 to whenever! 10.5%

 

Are you over age 60?

If you are over age 60 and have not started a superannuation pension then you need to call your adviser ASAP, because you are missing out. The taxation benefits of starting a pension mean that there is no tax in the hands of the fund and no tax on the pension income in your hands.

Medical expenses claim

For the current financial year the net medical expenses rebate, which currently allows you to claim a 20% tax offset on out-of-pocket medical expenses above $2,120 (this includes medical costs for all family members), is means tested.

The test applies to people with adjusted taxable incomes in excess of $84,000 and in excess of $168,000 for couples. For people in this income category, the offset will only be available for out of pocket expenses above $5,000 allowing a claim of 10% only.

However the more important point this year is that the net medical expenses tax offset is being phased out from 1 July 2013. This basically means that you need to claim it this year to be able to claim it next year. Therefore if you are close to the line it may be worthwhile bringing forward the payment of some medical expenses to protect access to this concession next year.

Tax rates for 2012/13 and 2013/14

As previously advised new tax rates apply from 1 July 2012. These new rates broadly mean that individuals earning less than $80,000 will pay less tax than in previous years. If your trust distributes to multiple family members then this will be to your advantage.

The tax rates for 2012/13 and 2013/14 are shown below:

Taxable income Tax on this income
0 to $18,200 Nil
$18,201 to $37,000 19 cents for every dollar over $18,200
$37,001 to $80,000 $3,572 plus 32.5 cents for every dollar over $37,000
$80,001 to $180,000 $17,547 plus 37 cents  for every dollar over   $80,000
$180,001 and more $54,547 plus 45 cents for every dollar over $180,000

 

Other items

While there are various other year-end tax planning items that can be considered, it is impossible to provide a comprehensive list in an article such as this, please therefore discuss this with your adviser if there are other items you wish to consider.

This could include prepaying expenses, other issues that affect the timing of deductions, other issues that affect the timing of income receipts, or managing the sale of different assets to either delay a tax payment or offset other capital gains.

Please note that our comments above are general in nature, and should not be relied upon without seeking further advice from your adviser.

Grant Ellis is an Associate Director with Prosperity Advisers Group.

Superannuation Pensions – Implications of not playing by the rules

Many Australians who are either approaching retirement or have permanently retired from the workforce are running ‘Account Based Pensions’ through their superannuation structures. It is important to understand the rules of running an Account Based Pension in order to avoid potential taxation penalties in the future.

Under the current legislation it is a requirement for individuals to make a minimum drawdown payment from their pension account each financial year. This minimum payment is calculated based on two factors, firstly a percentage factor which is dependent on the member’s age (as detailed in the table below) and secondly the persons account balance.

Age at start of account based pension (and 1 July each year)                      

2012/13
Minimum Drawdown

2013/14
Minimum Drawdown

Under 65

3%

4%

65-74

3.75%

5%

75-79

4.5%

6%

80-84

5.25%

7%

85-89

6.75%

9%

90-94

8.25%

11%

95+

10.5%

14%

The current tax rate that applies to investment income derived from superannuation assets is 15% and the tax rate for realised capital gains is 10% to 15% (depending on whether the asset has been held for more than 12 months).

Once a superannuation fund commences to pay an Account Based Pension, the fund maybe entitled to an exemption on the payment of tax for the investment income and realised capital gains derived from fund assets backing the Account Based Pension. This income is referred to as ‘exempt current pension income’.

For trustees running Self-Managed Superannuation Fund (SMSF), these rules are particularly important given that the ultimate responsibility for making the minimum pension payment each year lies with the trustees.

So what are the implications under the current superannuation regulations if the trustee of the superannuation fund fails to pay the minimum pension?

The pension will be deemed to have ceased for income tax purposes at the start of the financial year (or the start date of the pension if it’s a new pension). As a result, the superannuation fund will not be entitled to treat any investment income or realised capital gains as ‘exempt current pension income’ for that year. Also any payments made to the member during the financial year will be treated as superannuation lump sum payments for both taxation and superannuation purposes.

Under what circumstances will the Australian Taxation Office (ATO) exercise discretion to allow an SMSF to continue to claim the tax exemption on pension income even if the minimum pension payment is not met?

  1. If the SMSF has failed to pay the minimum pension amount due to a trustee error or honest mistake that has resulted in a small underpayment (i.e. is less than one twelfth of the annual minimum payment); and
  2. The entitlement to exempt pension income would have continued but for the trustees failing to make the minimum payment; and
  3. The SMSF endeavours to make a catch up payment as soon as possible (within 28 days of the trustee becoming aware of the underpayment) in the following financial year which would has resulted in the minimum payment being satisfied in the previous financial year; and
  4. The SMSF treats the catch up payment as if it was made in the prior financial year.

Does a superannuation income stream cease in the event of a member’s death if the account based pension does not automatically revert to a dependent beneficiary?

In August 2011 the ATO released a draft tax ruling (TR 2011/D3). The purpose of this ruling was to address ‘when a superannuation pension commences and ceases’. This ruling indicated that superannuation pensions cease as soon as a member dies unless the member had in place a reversionary pension nomination (which means that the pension automatically reverts to a dependent beneficiary upon death). Therefore, in the event that the member did not have a reversionary beneficiary in place, then the member’s assets would revert back to superannuation phase and subsequently loose the tax exempt pension income status. Therefore, should these assets be disposed of, then capital gains tax maybe applicable upon sale at the rate of 10% to 15%. This draft ruling resulted in confusion amongst superannuation advisers.

As a result of this confusion the Government released amendments to the regulations on 29 January 2013 which aimed to clarify that if a superannuation fund member was receiving a pension and then died, the superannuation fund will continue to be entitled to the earnings tax exemption in the period from the members date of death until their benefit is paid out by the fund. This amendment will  be a welcome relief for beneficiaries of death benefits as no capital gains tax will be payable from the superannuation fund when the pension assets are sold or transferred to fund the payment of death benefits.