Monday, July 18, 2016

Reducing the impact of the 2017 Age Pension changes

Maybe you are one of the two-thirds of age pensioners who are going to have their entitlements reduced, or withdrawn, on Jan 1 2017? Some households will be up to $15,000 pa worse off. How can you supplement your income to minimise the impact?

The 2017 amendments to the age pension are primarily targeted towards ‘asset based’ age pensioners. The lowering of the asset thresholds may result in ‘earning’ additional income not in fact impacting on revised age pension entitlements.

The following is a brief summary of the issues surrounding the options being discussed by clients and ‘the web’. Of course the following is generic and is therefore primarily designed to highlight the issues. Please contact us for specific guidance.

Odd Jobs
‘John’ decides to do some odd jobs for neighbours and friends. John sets himself up as self-employed and works from a shed ‘out the back’. He expects to earn around $20,000 pa.
A few matters that he should be careful with:
  • Being self-employed, John is NOT eligible for the $6,500 pa Work Bonus Scheme(WBS). Therefore, the $20,000 would be income assessed, not $13,500 if he worked as an employee and the WBS was applicable. John could set up a company structure and pay himself a wage but many issues and costs are involved with establishing this framework.
  • Centrelink may deem that part of his home is no longer an exempt asset as it is being used for income generating purposes. Centrelink does not use the same rules as the ATO. Even if he earned less than the tax threshold, Centrelink work under different rules and may still consider the asset value of the shed. Additionally, if John were to claim tax exemptions for part of his utilities – e.g. power – it is always possible that the ATO would consider capital gains tax.

Charging Children Rent
’Julie’ is an age pensioner and has two children still as university. She expects to lose $5,000 next year with the changes to the age pension. Her children have offered to contribute towards living expenses, but they are concerned about the impacts for Centrelink and if these payments would be deemed as income.

If the situation were reversed then Centrelink may regard the $5,000 of benefits as a gift. However, receiving ‘living expenses’ from siblings is exempt from income tests. Of course if these payments were in excess of actual costs then the ‘remainder’ would ‘appear’ in revised bank balances and therefore be assessed via the normal asset testing.

Charging Board & Loadings – renting out a room.
‘Colin’ decides to compensate for the loss of an estimated $3,000 pa in age pension by renting out a room. Colin decides to charge $120 pw for the room which includes breakfast. Centrelinks default position is that 50% of that $120pw is treated as additional income (approx. $3,000 pa). The remaining 50% is assumed by Centrelink as required to cover costs such as utilities, food etc. If the costs were higher than the 50%, then a submission to Centrelink could see that 50/50 standard approach being adjusted. Colin is an asset based part pensioner so in his case the additional $3,000 does not further impact on his pension.

If Colin were to offer “accommodation, breakfast and meals” then the percentage of income that would be assessed by Centrelink would drop from 50% to 20% as again Centrelink would default to the assumption of 80% of income would be directed towards costs. Therefore, if Colin charged $240pw then only $48pw – or approx. $2,400 pa – would be assessed as income. 

For more details on this and the standard income assessment guidelines, please refer to the following link.

It is understood that Centrelink are reviewing this scenario. At this stage it could be treated in the same was as ‘renting out a room’. However, it could be seen as more of a commercial enterprise and treated in the same way as a small business/sole trader etc.

As with AirBnB – it could be seen as a business operation.

Granny Flat
Shirley and Jack give up! The reduction in age pension means they can no longer live on the age pension in 2017. They expect to have a $14,000 pa reduction in their pensions. They are considering the option of a granny flat, as their daughter has offered to renovate her house via an extension - adding a bedroom and ensuite. Shirley and Jack would then transfer the title of their house to their daughter.

Shirley approaches Centrelink to obtain a formal position in relation to the proposal. Of course, Centrelink can not make that statement without a formal agreement. Shirley does not wish to sell the house without a guarantee from Centrelink that she can use the proceeds from the sale of the house towards both the cost for the renovations to her daughter’s house and ‘life time’ living costs. Shirley however does receive an informal ‘guestimate’ from Centrelink - that being $400,000 could be treated as a “life interest or right to use certain accommodation for life”.

Centrelink rightly would “recommend that you have a legal document drawn up by a solicitor to have evidence of the arrangement. This can help to prevent problems in the future if your personal circumstances change”.

Now Shirley is still worried. Their property is worth approx. $700,000; so approx. $300,000 is above the expected $400,000 ‘life interest’ granny flat value. Therefore, the additional $300,00 may be added to her asset base and further impact on their pension. Although some of these funds could be used for the required extensions and renovations.

Shirley decides to ‘transfer’ her house to her daughter and advises Centrelink that they are looking for an alternate home, preferably a brand new home. She gets 24 months of assets exemption for the proceeds of the sale of the house. Shirley now has 24 months to decide if the granny flat is the best option, or is able to obtain an improved assessment from Centrelink.

For further information on granny flat rights or interest, refer

Monday, June 27, 2016

Income and Assets Test Updates – July 2016.

Our age pension calculator has been updated for the 1 July 2016 updates at

Income Test

Income test limits for the full Age Pension are indexed on 1 July each year and for part Age Pensions are indexed in March, July and September of each year.

Income Test – 1 July 2016
For full pension/allowance (per fortnight)
For part pension(pf) 
up to $164
less than $1911.80
Couple (combined)
up to $292
less than $2926.80
Illness separated (couple combined)
up to $288
less than $3787.60

Work Bonus SchemeThe WBS is an incentive for age pensioners to “participate in the workforce” by providing an income threshold of $6,500 pa. This threshold remains unchanged since its inception.

Asset Test

Asset Test FULL age pension– 1 July 2016
Couple (combined)
Illness separated (couple combined)
One partner eligible (combined assets)

Asset Test PART age pension– 1 July 2016
Couple (combined)
Illness separated (couple combined)
One partner eligible (combined assets)

Deeming Rates

Deeming rates from 1 July 2016
Assets Threshold
Rate of Deemed Income
$0 – $49,200
Above $49,200
Allowee Couple - per person (1)
$0 – $40,800
Above $40,800
Pensioner Couple - combined (2)
$0 – $81,600
Above $81,600

Sunday, May 15, 2016

Age Pensions and Deeming

With the recent lowering of the cash rate by the Reserve Bank of Australia (RBA) there has been renewed concerns over the Centrelink deeming rates applied for the age pension. 

We have discussed this topic before and suggested that while it is a relatively simple mechanism to ‘average’ the various investments returns, we are concerned with the growing discrepancy between the applied rate and the cash rate.

The current (May 3 2016) RBA cash rate is 1.75% while the Centrelink deeming rate continues be as high as 3.25%. While even the most common term deposit rates are less than 2.5%. Four years ago there was virtually no difference between the cash rate and the highest deeming rate. The result? Pensioners are receiving less!

Some of the arguments put forward by those supporting the 3.25% rate include:

Q. “Commercial superannuation returns are more than 7%, what’s wrong with 3.25%?”
A. Super ‘funds’ generally recommend a more conservative fund balance balance for those in retirement. If we use web sites such as Super Ratings we can see that the majority of super funds reported on this site have a return rate of less than 2% for the last 12 months. This site also reports that those funds largely exposed to the share market report negative returns. It should be noted that these returns are also gross returns.

Q. “The Government sets the deeming rate based on the CPI. Isn’t that the fairest benchmark?”
A. Of course the Government’s decision is based on advice from the Department of Human Services and Centrelink. Also the deeming rates consider the simple Consumer Price Index (CPI). However, that index does not usually reflect costs of the age pensioner. That is why the Government has a number of price indexes. The one that covers age pensioners is the Selected Living Cost Indexes.

Of course also remember that on the Jan 1 2017 the Government is reducing the deeming rate thresholds - further negatively impacting on age pension payments.

Sunday, April 3, 2016

2017 Changes to the Age Pension assets test

We continue to have enquiries regarding the changes to the Age Pension scheduled for 1 Jan 2017.

Approximately 50,000 Age Pensioners are projected to be better off under the government’s changes and receive the full pension and about 120,000 part pensioners are predicted to add around $30 per fortnight to their wallet.

However, recent reports have indicated that far more will be disadvantaged with more than 300,000 Age Pensioners having at least part of their pension cut, and just under 100,000 of these people losing all Age Pension entitlements.
The government has said that people who do lose their pensions in 2017 will automatically be entitled to receive a Commonwealth senior’s health card or a low income health card. These cards will provide access to Medicare bulk billing and less expensive pharmaceuticals. Of course, this is not a concession as a result of the proposed changes this simply remains the current situation. The Low Income/Concession cards are income based and the proposed changes affect assets.
Our Age Pension calculator provides an estimate of how you could be impacted by these changes
Health Care Cards
Low Income Health Care Card
If you are not entitled to the Age Pension then you may be entitled to a health care card. For example, the Low Income Health Care card has a eight-week income test as follows
Qualifying income limits from 20 March 2016
 Weekly income
 Eight-week period
 Single, no children
 Couple, no children

Commonwealth Seniors Health Care Card

The Dept. of Human Services quotes the eligibility criteria as follows
“The Commonwealth Seniors Health Card is subject to an income test which is indexed on 20 September each year and includes:
·       adjusted taxable income, and
·       a deemed amount from account based income streams
There is no assets test.
You should have an annual income of less than:
·       $52,273 for singles
·       $83,636 for couples combined, or
·       $104,546 for couples combined, who are separated by illness or respite care, or where one partner is in prison
The income limit is increased by $639.60 for each dependent child you care for.”