Nick Bruining Q+A: Handy, little-known fact about Centrelink’s asset, income tests and why it pays to check

Question

My wife and I are both aged 77, and we both have Commonwealth Defined Benefit pensions.

My income is currently about $75,000 and my wife’s is about $16,000. Both will increase on July 1.

When we reached pension age, we were told by Centrelink and a financial adviser that we would not qualify for the age pension, so we were granted the Commonwealth Seniors Health Card.

My wife also has an account-based pension with about $370,000 in the fund and a few thousand dollars in term deposits.

Looking now at the current income and asset test thresholds we thought we might just squeeze in for a part pension.

However, the X-factor for us is how would Centrelink value our defined benefit pension. Is there an associated asset value?

Answer

Your question highlights the importance of keeping on top of changes to the rules and also the means test thresholds.

Many people don’t realise that Centrelink’s means-testing cut-off thresholds effectively change three times each year. In March and September the payment rate changes, which effectively increases the maximum amount you can earn or have in assets. In July, the lower thresholds change, which affects all part-pensioners.

The age pension is subject to an income test and asset test. Whichever test produces the lowest pension is the one used.

Under the asset test, your household items and personal affects can be valued at a “scrap” value of about $10,000. Your other fixed asset — such as cars — are valued at the amount you might receive if sold privately.

While you haven’t provided values of the deposits, if your total assets as a couple exceed $451,500 your Centrelink age pension will be reduced at the rate of $3 per $1000. If you are non-homeowners, the threshold is increased to $693,500.

The defined benefit pensions, in this case, are not included in the asset test. Under the income test, the full payments from the pension funds are counted, or a total of $91,000 a year. To this, we need to add the deemed income derived from the total amount in term deposits, plus the deemed income value of your wife’s ABP.

The ABP alone has a deemed income of $6321 a year. At least this amount will be added to the other income, providing a total of at least $97,321 a year — or $3743 a fortnight.

The upper cut-off threshold for a couple under the income test is currently $3725.60, so unfortunately you are over the upper cut-off threshold and wouldn’t qualify for a part-age pension.

In any event, you should be aware that you are fortunate in that your Commonwealth Seniors Health Card was probably issued before important rule changes kicked in on January 1, 2015. In essence, you are operating under grandfathered rules which mean your wife’s ABP is not currently being counted under the deeming provisions.

Even if you qualify for a small part-pension in the future, it risks being cancelled if the deeming rates change. In other words, be very careful about doing anything that may have your CSHC cancelled.

Question

I want to make a payment to my adult grandson’s superannuation fund before the end of the financial year and want to know if I can claim a tax deduction for it?

Answer

Unfortunately, the simple answer is no, with one exception. If you employ your grandson then, as an employer, you are obliged to pay 11.5 per cent of his ordinary time earnings to super and he could elect to either salary sacrifice his pay into super or make a personal deductible (concessional) contribution to superannuation.

The paperwork to do this can become quite complicated and you need to weigh up the overall benefits.

If you simply gave your grandson the money, he could make the contribution to super himself and claim it as a personal tax deduction, but this provides no tax relief for you.

Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association