Nick Bruining Q+A: Here’s when (and how) pensioners need to tell Centrelink of a change in their finances

Question

I am a part-age pensioner who is currently asset tested.

I want to withdraw some money from my account-based pension to pay for an overseas trip.

How and when do I need to advise Centrelink of the withdrawal? Do I need to provide any proof of where the money has been used?

Answer

Centrelink requires you to notify it of any changes in your financial circumstances within 14 days of the change. Generally speaking, you do not need to notify it if the matter involves a change of less than $2000 in value.

If you are using a good retirement financial planner, the withdrawal Centrelink notification will be done by them. If you are do-it-yourself, the easiest and most efficient way is to first download or ask your super fund for an updated “Centrelink schedule”.

Do this after you have withdrawn the money and paid for the trip. Then upload the new schedule online via the Centrelink service connected to your myGov account.

To ensure the new schedule is updated in a timely manner, book a telephone appointment online or call the Services Australia line on 13 23 00 and follow the prompts.

When you receive the call, you can tell them the new schedule has been uploaded and your changes should be processed immediately.

Alternatively, you can provide the document to Centrelink by personally visiting an office.

You do not normally need to provide proof of expenses when you advise it of a change, though depending on the amount and nature of the transaction it may request further information and will provide a due date with the request.

Many people routinely provide copies of invoices or receipts with the original notification to save a follow-up request.

If you are making sizeable lump sum withdrawals in addition to the regular payments from an ABP, ensure you consult a Centrelink financial information service staff member. Some big withdrawals can affect the way Centrelink assesses your ABP under the income test.

If you were in receipt of a Centrelink payment and held the ABP before January 2015, you might be better off rolling over to a new ABP. The newer rules may see you receive more pension from Centrelink if the withdrawals result in you now being assessed under the income test. You will know this once the withdrawal has been processed by Centrelink.

Question

My accountant has just completed my tax return and tells me I will have to pay tax, based on distributions from managed funds which invested only in Australian shares.

I made these investments to specifically make use of the franking credits attached to my Australian shares and to avoid having to pay tax.

Can you please explain how these distributions have generated a tax liability?

Answer

You are correct in assuming that franking credits are passed through a managed fund unit trust structure.

This results in the dividends and their associated credits being taxed in your hands, not the trust’s. However, depending on the nature of the trust, the regular distributions might also include a component of capital gain.

Capital gains distributions do not come with franking credits.

Funds which are actively managed will see the fund manager buy and sell shares on a regular basis. Generally, “active” managers seek to maximise returns by taking advantage of movements in share prices and can transact quite frequently.

If the individual shares were bought and sold within 12 months, the full capital gain will be taxable and will form part of the fund’s total distribution. If the share was held for more than 12 months, a 50 per cent discount may apply.

You can see the various tax components in the annual tax statements provided by the fund manager.

Note that even if you don’t physically receive the distribution, perhaps through reinvestment, the tax liabilities will still apply.

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