IMPORTANT: Since 1 January 2015, new applicants for CSHC need to include tax-free superannuation income when assessing CSHC eligibility. Effective from September 2014, the government indexed the income test thresholds for the CSHC. The income test thresholds will be now indexed annually from September of each year.
Any Australian hoping to be a self-funded retiree should also ask, ‘Am I eligible for a Commonwealth Seniors Health Card (CSHC)?’ Any Australian affected by the Age Pension assets test changes announced in the May 2015 Federal Budget may also be asking themselves whether they can now claim the CSHC.
CSHC eligibility is a popular prospect for budding self-funded retirees, and the answer can be best explained by dividing the question into four parts:
A. What is the Commonwealth Seniors Health Card (CSHC)?
The CSHC gives you access to cheaper prescriptions via the Pharmaceutical Benefits Scheme, and an increase in benefits for medical expenses above a certain threshold via the Medicare Safety Net. You may also be eligible for bulk-billing for doctor’s appointments (at the doctor’s discretion).
As a CSHC holder you can also travel on the Ghan, Indian Pacific and the Overland rail services at concessional rates. Depending on the state that you live in, you may also be entitled to concessions from your state government and, from some private businesses. You can find out about the other discounts that you’re entitled to by reading the Centrelink guide to concession cards on the Department of Human services website. I have included the link for the guide at the bottom of the article.
The Clean Energy Supplement continues to be paid and the Liberals planned to fix it at the rate that was applicable before July 2014 (that is, $361.40 for a single person, and $546 for a couple, that is $273 for each member of the couple). From September 2014, the Clean Energy Supplement increased $5.20 to $366.60 a year (for a single), paid quarterly in arrears, and increased by $5.20 to $551.20 for a couple, that is $275.60 for each member of a couple. This change is now law which means the rates set at 20 September 2014 will remain fixed going forward, and the supplement has been renamed Energy Supplement.
Background: The CSHC was introduced in 1994 to encourage individuals to become self-funded retirees. The income thresholds for eligibility steadily increased from 1994 to 2001 to reflect cost of living increases. Since 2001 however, the income thresholds for eligibility had not changed for 13 years; until the government committed to indexing the CSHC income test thresholds each year, effective from 20 September 2014.
B. Who is eligible for the Commonwealth Seniors Health Card (CSHC)?
The CSHC is available to Australians of Age Pension or older age or older (at least 65 for men and since 1 July 2013, at least 65 years for women), and who don’t qualify for the Age Pension or who don’t qualify for a Department of Veterans’ Affairs pension. You must also be an Australian resident and currently living in Australia.
You must satisfy an income test (currently based on ‘adjusted taxable income’ and this ATI includes a deemed income amount for applicable applicants post-December 2014), but you do not have to satisfy an assets test to be eligible for the CSHC.
Income thresholds for CSHC: Effective since 20 September 2014, the CSHC income test thresholds have increased. Your annual adjusted taxable income must now be less than $51,500 (for a single person) or less than $82,400 (for a couple, combined). If a couple is separated due to illness, respite care or prison, then the combined income threshold rises to $103,000. Before 20 September 2014, the income test thresholds were $50,000 (for a single person) and $80,000 (for a couple) or $100,000 (for a couple separate due to illness or jail).
What is annual adjusted taxable income (ATI)?: The current definition of ‘adjusted taxable income’ is an individual’s taxable income plus total net investment losses, plus foreign income not normally taxed in Australia, plus employer-provided fringe benefits (if worth more than $1,000), and plus reportable super contributions. From 1 January 2015, ATI will also include a ‘deemed income amount’ for new applicants. I explain what all of these items mean later in the article.
Super benefits not counted as taxable income (except for payments from some public sector funds): Any super benefits paid to individuals aged 60 or over are tax-free and, importantly, do not form part of an individual’s taxable income. As a consequence, the removal of super benefits (from a taxed source) received by over-60s from the income tax system since July 2007 means that a greater number of retirees are eligible for a CSHC. The one exception to the exclusion of superannuation benefits from taxable income (since July 2007), however, is where an individual receives pension income from an untaxed source, which is the case for some retired public servants. Pension income from an untaxed source is still counted when considering CSHC eligibility because this income forms part of a person’s taxable income. This is another example of retired public servants missing out under the tax-free super rules.
New rules for new CSHC applicants since 1 January 2015
Note: Since 1 January 2015, new applicants for CSHC need to include superannuation pension income when assessing CSHC eligibility. For more information on this proposed change see SuperGuide article Seniors Health Card (CSHC) changes to hit retirees.
Salary sacrifice super contributions count for adjusted taxable income: For the 2008-09 year and earlier years, salary sacrificing didn’t count when determining eligibility for the CSHC. Since July 2009 however, the definition of income for the purposes of the CSHC, includes salary sacrificed contributions.
You can confirm your CSHC eligibility with Centrelink.
For the convenience of readers who are eligible for the CSHC under the OLD rules, I have included an extract that explains ‘adjusted taxable income’ (applicable for those eligible for CSHC before 1 January 2015):
Adjusted taxable income is a combination of taxable income, foreign income, total net investment losses, employer-provided benefits, and reportable superannuation contributions:
This is income that you would pay tax to the Australian Government on, for example bank interest and earnings. Although you may not be required to lodge a taxation return due to the level of your income, you may still have taxable income.
This is income from overseas that you do not pay Australian income tax on.
Total net investment losses
Total net investment losses are the sum of net losses from rental-property income plus net losses from financial investment income. The losses will be added back on to adjusted taxable income.
A net loss from rental property income is the amount by which the expenses of owning the property (e.g. mortgage-interest payments and maintenance costs) exceed the gross rental income from it.
A net loss from financial-investment income is the amount by which the expenses of owning the investment (e.g. interest payments on the money lent to purchase the investments) exceed the income that the investments are earning. Such investments are often referred to as ‘negatively geared’.
Employer-provided benefits that are taken into account for the Commonwealth Seniors Health Card include benefits such as cars, school fees, loans, housing, and health insurance. Employer-provided benefits in excess of $1000 form part of a person’s adjusted taxable income.
Reportable superannuation contributions
Reportable superannuation contributions are discretionary or voluntary contributions. They can also be referred to as ‘concessional’ or ‘before-tax contributions’. They include:
- reportable employer superannuation contributions, such as voluntary salary-sacrificed contributions (which are on top of those required by law, such as those included in industrial awards or by the superannuation guarantee levy—currently 9.5 per cent), and
- personal deductible superannuation contributions, if they can be claimed as a tax deduction on a personal tax return.
Note: Post-tax contributions to superannuation are not reportable superannuation contributions
This is where it gets tricky. The income assessment for the CSHC is based on the verified taxable income from one of the two financial years prior to the year the claim is lodged. For example, if the claim is lodged in the 2014/2015 year, the CSHC assessment is based on the taxable income for the 2013/2014 year or the 2012/2013 year. “Verified taxable income” generally means the taxable income shown on a person’s Tax Notice of Assessment.
Since 1 January 2015, new applicants also have to include deemed income amounts from super pensions.
Note: For the thousands of Australians who have just retired and hoping to receive a CSHC for the first time in the 2014/2015 year, based on an income that you no longer receive, then your entitlement to the CSHC could be problematic. Fortunately, Centrelink has anticipated this issue. If the verified taxable income for the previous year is above the CSHC income limits, then it is possible for an individual to supply an estimate of their taxable income for the current financial year using the calculation table (see pages 7 and 8) provided in Centrelink’s ‘Information you need to know about your claim for Commonwealth Seniors Health Card’ booklet (the link is at the bottom of this article).
Warning: When you do receive your Tax Notice of Assessment for the year that you used for testing your CSHC eligibility, and if you discover that your estimate is incorrect and that your taxable income is in fact above CSHC income limits, then you must notify Centrelink immediately.
D. Where can I find more information about the CSHC and eligibility?
Your first port of call is the Department of Human services website (which now manages all Centrelink information). The Centrelink section of the DHS website contains plenty of information about the CSHC, or you can contact them by phone on 13 23 00. I suggest you write down this phone number because when I first searched for this phone number it took me 20 minutes to find it on the DHS website, and it was hidden away in a 19-page booklet. More recently however the number is more prominent on the website although it only invites you to use the number if you have lost your CSHC, when it is the main phone number for any CSHC question.
For more information on the CSHC, check out the following documents:
- A Guide to Centrelink Concession Cards
- Information you need to know about your claim for the Commonwealth Seniors Health Card booklet
- Claim for a Commonwealth Seniors Health Card form
For more information on the proposed changes to the CSHC income test see the following SuperGuide articles:
- Seniors Health Card (CSHC) changes hit retirees
- CSHC income test: What is untaxed superannuation and taxed super?