An overview of changes to the adjusted taxable income test
From 1 July 2009 the adjusted taxable income test for the Commonwealth Seniors Health Card (CSHC) was expanded to include reportable superannuation contributions, including income voluntarily salary sacrificed to superannuation.
The changes ensure that cardholders with similar levels of income, but who derive their income from different sources, have the income test applied to them in a similar way.
To qualify for a CSHC, a person must make a claim for the card, and meet the following criteria:
- not be receiving an income support payment from Centrelink or the Department of Veterans’ Affairs;
- be of age pension age;
- have an annual adjusted taxable income of less than $50,000 for singles or $80,000 combined for couples - $639.60 per year is added for each dependent child; and
- be an Australian resident or special category visa holder.
Adjusted taxable income
From 1 July 2009, the adjusted taxable income for a person's tax year is the sum of their:
- taxable income,
- employer provided benefits,
- target foreign income,
- total net investment loss,
- reportable superannuation contributions (including income voluntarily salary sacrificed to superannuation).
Reportable superannuation contributions
This means the sum of:
- any reportable employer superannuation contributions (certain salary sacrificed employer contributions to superannuation) for the income year that are to be reported to individuals on their payment summary from 1 July 2009; and
- total amount of deductible personal superannuation contributions made by a self-employed person for the income year.
Employer contributions refer to the total amount of contributions made to a superannuation fund or Retirement Savings Account by an employer or their associate, including contributions to a foreign superannuation fund.
Personal superannuation contributions made by a self-employed person are fully deductible provided the self-employed person meets particular requirements.
Reportable employer superannuation contributions do not include contributions over which an employee has no capacity to influence or which they could not reasonably be expected to have, or have had, capacity to influence. Examples include:
- post-tax contributions to superannuation; or
- superannuation guarantee contributions (9 per cent); or
- employer contributions that are less than or equal to an amount the employer must contribute in relation to a defined benefit interest of a person or pursuant to an industrial agreement, trust deed or law.
Total net investment loss
This means the sum of any net rental property loss and net financial investment loss. These amounts are more commonly known as losses arising from negative gearing.
Net rental property loss - The amount by which allowable deductions in respect of a rental property exceeds the gross income from that property.
Net financial investment loss - The amount by which allowable deductions in respect of financial investments exceed gross income from those investments. For example, a net financial investment loss is the amount by which deductible interest expenses on a loan taken out to buy shares exceeds the dividend income from those shares, assuming no other share income or expenses.
Deductions in respect of a financial investment may be claimed for expenses such as the costs of borrowing to invest in the financial investment or management fees charged on the investment. These losses do not relate to capital losses such as those arising from changes in share value through share price movements.
In determining an individual’s ‘total net investment loss’ the amount of the deductions must be those allowed by the Australian Taxation Office.
The inclusion of net financial investment loss, is similar to, and introduces parity with customers who have rental properties who are already required to add back net rental property losses. While sections of the taxation system may treat these income sources (financial investments and rental properties) as a loss, thereby reducing a customer’s taxable income, this is not the case within the social security system.
Financial Information Service
Centrelink’s Financial Information Service (FIS) is an education and information service available to everyone in the community. FIS helps people to make informed decisions about investment and financial issues for their current and future financial needs. FIS is independent, free and confidential and provides services through seminars, and by phone and by appointment. Contact FIS by calling 13 2300.