Good news: Super pension income excluded from Health Card test

Contrary to pre-Budget announcements, the Government is not proceeding with the measure to include gross tax-free superannuation pension income in the adjusted taxable income test for the Commonwealth Seniors Health Card.

The Budget papers use the term ‘gross tax-free superannuation income’ so I assume that lump withdrawals are also excluded from the CSHC income test. I will provide an update to this article when I can confirm what the Government means by ‘gross tax-free superannuation income’.

This policy turnaround is great news for the thousands of retirees who were expecting to lose their recently acquired access to the CSHC.

Background: Before July 2007, a tax-free amount (representing a return of an individual’s after-tax contributions over a period of time) of an income stream from a pension was not counted under the CSHC rules. The pension income that formed part of an individual’s taxable benefit, or what we now call the taxable component, had been counted.

When the Government introduced tax-free super for over-60s in July 2007, an apparent unintended consequence was that thousands of Australians became eligible for the CSHC for the first time. Under the tax-free super changes pension income from a taxed source paid to over-60s was not part of a person’s taxable income.

An individual can apply for a CSHC if they earn an “adjusted taxable income” of less than $50,000, or $80,000 for a couple Until June 30, 2009, adjusted taxable income is an individual’s taxable income plus net rental property loss, foreign income not normally taxed in Australia, and employer-provided fringe benefits (if worth more than $1000). Pension income from a taxed source is not counted.

Thanks to the turnaround by the Government, the tax-free superannuation income continues not to count towards the income test from July 2009 onwards.

Note: The measure to include salary sacrificed contributions in the CSHC income test will still take effect from July 2009.