CSHC changes to help clients trapped in SMSFs

The passage of the bill means that the income limits for the Commonwealth Seniors Healthcare Card (CSHC) will increase from this Friday (4 November).

The income limits for singles and couples will increase to $90,000 and $144,000 respectively.

For illness separated couples it will increase to $180,000 and for each additional child, individuals or couples an additional $639.60 will be included in the income limit.

The government has estimated that approximately 50,000 additional older Australians will be eligible for the card.

Both the legislated increase in income limits, plus frozen deeming rates of 0.25 per cent and 2.25 per cent that apply to deemed account based pensions, will assist more clients to be eligible for the card.

Speaking to SMSF Adviser, Colonial First State head of technical services, Craig Day said for SMSF clients with grandfathered account based pensions these changes may give them the ability to cease pensions without the fear of losing their CSHC.

Mr Day explained that the income test for the CSHC is based on adjusted taxable income plus deeming on any non-grandfathered account based pensions held by an individual or their partner who are aged 60 or over.

However, individuals who own an account based pension purchased before 1 January 2015 and held a CSHC on 31 December 2014 will not have their account-based pension included in the income test for as long as they continue to hold a CSHC and retain the same account-based pension.

This means that where a client is reasonably close to the thresholds or above them but the pension is grandfathered, they are essentially locked into their current fund whether that’s an SMSF or public offer fund.

“If they were to commute that grandfathered pension to rollover to a different provider, when they start the new pension, it will no longer be subject to grandfathering and they could lose their CSHC,” he explained.

Mr Day said the potential loss of the CSHC has been a barrier to winding up an SMSF for many trustees who are self-funded trustees. 

“What this [latest change] means is that some of these clients may now be able to review their particular circumstances and decide to commute and rollover to a more appropriate fund or product without the fear of losing out on their entitlement if their income is well below these new thresholds that have come through,” he said.

While clients with income levels close to the threshold would still need to be careful, rolling over to another fund may now be a viable option for many clients who previously feared losing their CSHC, he explained.