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Compliance & Regulation

Pensions need immediate start for CSHC grandfathering

SMSF clients wanting to take advantage of the grandfathering rules applying to the Commonwealth Seniors Health Card (CSHC) should commence pensions immediately, according to an industry expert.

“If people are uncertain and haven’t started their pensions yet, then maybe now’s the time to do it,” Heffron SMSF Solutions head of customer Meg Heffron said.

The new rules are an added driver for trustees to switch entirely into pension phase, especially if they already have a CSHC, as this will allow them to take advantage of the grandfathering provisions beyond 1 January 2015 contained in the amended legislation, she said.

Heffron was quick to assure trustees there was nothing to worry about if they felt the move ended up providing them with too much income.

“At some point in the future you can wind that back,” she said.

New legislation governing the CSHC will be implemented from 1 January 2015, whereby deemed income from superannuation pensions will be included as part of the eligibility test for individuals wanting to have the card.

However, the grandfathering rules contained within the new legislation mean if an individual has a CSHC and a pension in place as at 31 December this year, their pension income will continue to be exempt from the eligibility test for the card.

The new CSHC income thresholds, ignoring indexation, are $50,000 for singles and $80,000 for couples, meaning if an SMSF member had no other assessable income apart from a superannuation pension, even having the new deeming rules apply, a single person could have a pension balance of $1.45 million and a couple $2.3 million.

Heffron said trustees needed to be aware of those parameters when assessing their CSHC options.

“Watch out for the income because the threshold on this test is really arbitrary. If you’re single and you’ve got $50,000 of taxable or deemed income, you don’t get the card,” she warned.

“So given that grandfathering switches off as soon as you lose the card, there will be all sorts of things to consider in terms of making sure adjusted taxable income doesn’t go over the $50,000 threshold.”

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