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Seven questions from 2022

Each year, Challenger Tech answers some of the frequently asked questions relating to retirement and aged care. Here are seven questions from 2022.

The Commonwealth Seniors Health Card (CSHC) is a concession card which is beneficial for eligible self-funded retirees who have reached Age Pension age (for veterans, Service Pension age). It provides assistance with cheaper medications, earlier access to Medicare Safety Net assisting with out-of-pocket medical costs, state and territory specific as well as private organisation discounts and concessions.

Recent legislative change has significantly increased the income test allowing some previously ineligible clients to now qualify for the CSHC. Advisers may want to reach out to clients who previously failed the income test to gauge whether they now qualify with the higher income limits as well as take into account the higher income limits for future clients.

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When an adult child lives in their parent’s property, there are a number of social security issues to contend with for both parties.

The social security outcomes may depend on how the arrangement is structured. This FAQ takes you through some of the common social security related questions in our conversations with advisers.

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Broadly, the Commonwealth Seniors Health Card (CSHC) income test assesses an individual’s adjusted taxable income (ATI) and deemed income from non-grandfathered account-based pensions.

ATI for the purposes of the CSHC income test includes:

  • taxable income, disregarding the individual’s assessable First Home Super Savers(FHSS) scheme released amount;
  • total net investment loss;
  • target foreign income;
  • employer provided fringe benefits; and
  • reportable superannuation contributions, including income that is salary sacrificed to superannuation.

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During the election campaign both the current and former Federal Government announced superannuation and social security measures that can impact retirees and pre-retiree clients.

The current Government while in opposition supported some of the announcements made by the former Government and disagreed on a few others.

This article is a summary of some of these announcements.

It is important to note that at the time of writing these are only proposed measures and are not yet law and could change through implementation, if and when legislated.

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If you’re thinking, ‘that’s a simple one – two years!’, then that’s only part of the answer. The cause for confusion with this question stems from the fact that the assessment of the former principal home differs for social security and aged care purposes. If the assessment is for a social security payment, for example Age Pension, then it is at least two years and depending on the person’s circumstances. However, that may not be the case for the aged care assessment.

For social security purposes, where a person enters residential aged care and keeps the former home, they are considered a homeowner and the home is exempt under the assets test for two years from the date they vacate the home. After the two year exemption period, the person is considered a non-homeowner and the value of the home is assessed as an asset.

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Since the advent of downsizer contributions on 1 July 2018 until January 2022, around 37,000 individuals have contributed approximately $9 billion[1] as a downsizer contribution. Rules relating to downsizer contribution continues to be a topic of interest in the financial planning community given its touch points with many issues relating to advice.

In further loosening of the rules, from 1 July 2022, the eligibility age for downsizer contributions will be reduced to 60. This is expected to initiate more opportunities for advice from eligible clients who sell their main residence and are wanting to contribute to super.

For individuals under age 75, removal of the work test for non-concessional contributions (NCC) combined with new bring forward opportunities, 1 July 2022 heralds a positive legislative change. Future financial years could bring about more opportunities to contribute up to $1.26 million in one hit for eligible members of a couple – for example, $330,000 each as a NCC and $300,000 each as a downsizer contribution.

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The transfer balance cap was introduced on 1 July 2017 to limit the amount of superannuation that an individual can transfer into retirement phase income streams, including annuities. An individual will have their own transfer balance cap when they commence a retirement phase income stream.

An individual’s transfer balance account is measured against their transfer balance cap to determine if they have exceeded the cap. Like account-based pensions, superannuation lifetime annuities commenced since 1 July 2017 have their commencement value credited towards the individual’s transfer balance account and any withdrawal/commutation amount debited from their account.

Non-superannuation (ordinary money) lifetime annuities do not count towards an individual’s transfer balance account.

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