Centrelink changes and strategies Presented by Cathy Allen and Jarrod Owen

advertisement
Centrelink changes and strategies
Presented by Cathy Allen and Jarrod Owen
19 November 2015
Audit | Tax | Advisory | Financial Advice
Cathy Allen
Jarrod Owen
Senior Advisor – Financial Advice
Representative
Financial Advisor
Representative
Tel
Tel
03 5234 0200
[email protected]
Audit | Tax | Advisory | Financial Advice
03 5234 0200
[email protected]
2
Disclaimer
All information, opinions, conclusions, forecasts or recommendations are current at the time
of compilation but are subject to change without notice. Findex Advice Services Pty Ltd
trading as Crowe Horwath Financial Advice assumes no obligation to update this content
after it has been issued.
Findex Advice Services Pty Ltd trading as Crowe Horwath Financial Advice has exercised
reasonable care in preparing this content but accepts no liability, under any theory of liability,
including but not limited to in tort, in contract, under statute or in equity, for any loss
sustained by any person as a result of relying on any advice contained herein. Findex Advice
Services Pty Ltd trading as Crowe Horwath Financial Advice recommends that you seek
personal financial advice tailored to your needs before making any decisions in relation to
financial products.
Please read the relevant Product Disclosure Statement before acquiring any financial
product. Past performance is not a reliable indicator of future performance.
Findex Advice Services Pty Ltd trading as Crowe Horwath Financial Advice is the holder of
Australian Financial Services Licence number 243253 ABN 88 090 684 521.
Audit | Tax | Advisory | Financial Advice
3
Our service offering
Audit
Tax
Advisory
Financial Advice

Audit and Assurance

Specialist Tax Advice

Accounting


Corporate Governance

Business Structuring

Business Advisory
Estate and Succession
Planning

Internal Audit and
Risk Consulting

GST, State and Indirect
Taxation

Corporate Finance

Financial Advisory and
Wealth Management

Forensic Accounting

Lending and Finance

Business Recovery


Performance Consulting
Risk and General
Insurance

Mergers and Acquisitions

Superannuation and
SMSF



International Tax
and Expats
Research &
Development
Customs and Excise
The relationship you can count on
Audit | Tax | Advisory | Financial Advice
4
Centrelink proposed changes have you
confused?
Let’s try to clarify some of the changes.
Audit | Tax | Advisory | Financial Advice
5
Learning outcomes






How the Age Pension age is increasing
Understand the proposed changes to deeming rates
Understand the proposed changes to the assets test limits
How the new limits may affect your Age Pension in future
Strategies to assist in Age Pension maximisation
Find out why it is important to consider estate planning in conjunction
with your retirement planning
Audit | Tax | Advisory | Financial Advice
6
Seniors Health Care Card
The Commonwealth Seniors Health Card provides discounts on
Pharmaceutical Benefits Scheme (PBS) prescription medicines.
You may also get a discount or concession on:
 Bulk billed doctor appointments, at the discretion of the doctor
 Cheaper out of hospital medical expenses through the Medicare
Safety Net
 Concessional rail travel on Great Southern Rail services, such as
The Indian Pacific, The Ghan, and The Overland
Also,
 Household, transport, education, and recreation concessions that are
offered by state or territory and local governments and private
businesses
Audit | Tax | Advisory | Financial Advice
7
Seniors Health Care Card
The Commonwealth Seniors Health Card is subject to an income test that
includes:
 Adjusted taxable income, which is indexed on 20 September each
year, and a deemed amount from account based income streams
 There is no assets test
 You should have an annual income of less than:
$52,273 for singles
$83,636 for couples combined
Audit | Tax | Advisory | Financial Advice
8
Seniors Health Care Card
The current account balance of an account based income stream is
subject to deeming where it is:
 Purchased or changed on or after 1 January 2015.
 Owned by someone granted Commonwealth Seniors Health Card on
or after 1 January 2015 .
 Owned by a card holder’s partner who is aged 60 or more.
Portability for the Commonwealth Seniors Health Card
 Has been increased from 6 to 19 weeks from 1 January 2015. This
means that holders of the card can travel overseas for up to 19 weeks
before having their card cancelled.
Audit | Tax | Advisory | Financial Advice
9
Current Pension qualifying age
Date of Birth
Male qualifying age
Female qualifying age
1 July 1947 - 31 Dec 1948
65
64.5
1 Jan 1949 – 30 June 1952
65
65
1 July 1952 – 31 Dec 1953
65.5
65.5
1 Jan 1954 – 30 June 1955
66
66
1 July 1955 – 31 Dec 1956
66.5
66.5
67
67
1 Jan 1957 and Later
Audit | Tax | Advisory | Financial Advice
10
At what age are you eligible for the Age Pension
2014 Federal Budget Proposal
Date of Birth
Male & Female
qualifying age
Commencing from
1 July 1958 - 31 Dec 1959
67.5
1 July 2025
1 Jan 1960 – 30 June 1961
68
1 July 2027
1 July 1961 – 31 Dec 1962
68.5
1 July 2029
1 Jan 1963 – 30 June 1964
69
1 July 2031
1 July 1964 – 31 Dec 1965
69.5
1 July 2033
70
1 July 2035
1 Jan 1966 and Later
Audit | Tax | Advisory | Financial Advice
11
What is deeming?
 Deeming is the process whereby Centrelink assess a certain level of
investment income from a persons financial assets
 Financial assets are:
 Cash
 Shares
 Superannuation (over Age Pension age)
 Account based pensions commenced after 1 January 2015
Audit | Tax | Advisory | Financial Advice
12
Current deeming rates
Deeming rate
Single Pensioner
Pensioner couple
1.75%
First $48,600
First $80,600
3.25%
$48,600+
$80,600+
Source: Department of Human Services, rates effective 20 September 2015
Example: Couple with $150,000 of financial assets
First $80,600 assessed at 1.75%
Remaining $69,400 assessed at 3.25%
TOTAL
Audit | Tax | Advisory | Financial Advice
= $1,411
= $2,256
= $3,667
13
Proposed changes to the asset test at 1 January 2017
Minimum limits
Current 20 Sept 2015
Proposed 1 Jan 2017
Single
$205,500
$250,000
Couple
$291,500
$375,000
Maximum limits
Current 20 Sept 2015
Proposed 1 Jan 2017
Single
$783,500
$547,000
Couple
$1,163,000
$823,000
Audit | Tax | Advisory | Financial Advice
14
How will this affect you?
 If your assets are less than the lower limit (which will be higher), you will
get an increased level of Age Pension
 If your income is between the upper and lower limits, the amount which you
will receive will reduce faster
 Previously the “taper” rate reduced the pension by $1.50 for each $1,000
over the lower limit
 The proposed changes will reduce the pension by $3.00 for each $1,000
over the lower limit
 If your assets are above the proposed new upper limits, no pension will be
payable, when previously you may have qualified for some Age Pension
Audit | Tax | Advisory | Financial Advice
15
How will this affect you?
Centrelink calculator
SINGLE
ASSETS
Full Pension
$ 891.00
HOME OWNER $ 547,000.00
Yes
ANNUAL
COUPLE
ASSETS
Full Pension
$ 1,343.20
HOME OWNER $ 900,000.00
Yes
ANNUAL
Current Test 1 July 2015
Proposed 1 Jan 2017
$
378.75
$
-
$
9,847.50
$
-
Current Test 1 July 2015
Proposed 1 Jan 2017
$
430.45
$
-
$
11,191.70
$
-
Centrelink calculator link
Audit | Tax | Advisory | Financial Advice
16
Strategies to consider prior to retirement
Gifting
 Centrelink allows you to “give away” $10,000 per annum in a
financial year and up to $30,000 over a 5 year period.
 If you gift more than this level of assets – you are deemed to
still have these assets and deemed to still earn income on
them for 5 years.
 After 5 years, the assets are no longer deemed and will no
longer count under the income or the assets test.
Audit | Tax | Advisory | Financial Advice
17
Strategies to consider prior to retirement
Spending your own funds
 Currently, your own home is generally not counted as an
asset. If you spend money on your own home (i.e. renovating)
this will reduce your assessed assets.
 If you spend money on upgrading your own home, this also
will reduce your assets.
 Spending money on holidays, weekends away etc. reduces
your assets.
Audit | Tax | Advisory | Financial Advice
18
Risks of these strategies
 Gifting
 You are actually giving up control of these funds
 If you transfer property, you may incur stamp duty for doing so
 Transferring some assets can result in Capital Gains Tax – taxation
needs to be taken into account
 If you reduce your own funds by spending – you will have less funds
from your own assets to fund your retirement
Audit | Tax | Advisory | Financial Advice
19
Questions?
Audit | Tax | Advisory | Financial Advice
Other strategies to maximise the Age Pension
Audit | Tax | Advisory | Financial Advice
Re-contribution strategy – to maximise Centrelink
 Re-contribution strategy is where an amount is taken from a super
account and then contributed back into a super account in a younger
spouse’s name
 The benefit drawn is generally as a lump sum
 One of the purposes of this is to remove this amount as an assessable
asset for Centrelink means testing
 You need to have met a condition of release
 Age 65 is a condition of release
Audit | Tax | Advisory | Financial Advice
22
Case study – Re-contribution strategy
 Jim has recently reached age 65,
is married to Joan who is age 60.
They have two adult children
 Jim has $600,000 in super, all
taxable
 Other non-financial assets are
$25,000
 Financial assets are $50,000
 Jim would like to apply for the Age
Pension and maximise his
entitlements
Audit | Tax | Advisory | Financial Advice
23
Case study – Re-contribution strategy
Jim has met a condition of release and can draw up to 100% of his
super fund balance as a tax-free lump sum being aged over 60.
 Prior to applying for the Age Pension, Jim could withdraw $540,000
 Joan could then contribute the $540,000 to a superannuation account
in her name as a tax-free contribution
 As Joan is under Age Pension age, her superannuation balance is not
assessed by Centrelink
 The contribution to Joan also increases the tax-free nature of her
superannuation balance and will assist from a tax perspective if this is
received by her adult children in the future
Audit | Tax | Advisory | Financial Advice
24
Case study – Results: Age Pension
 Prior to the re-contribution, $675,000 in assets would have been
assessed by Centrelink
 Jim would be eligible under current rules for $9,513 in Age Pension
 Under future proposed rules he would be eligible for $5,291 in Age
Pension
 By cashing out and recontributing $540,000 of his super balance to
Joan’s name, assessable assets will now be $135,000 (below lower
limit of $291,500)
 Jim would now be eligible for full Age Pension totalling $16,991 both
under current rules and the proposed rules
Audit | Tax | Advisory | Financial Advice
25
Case study – Results: Age Pension
Why do we like this?
 Jim has reduced his assessable assets for Centrelink by $540,000
 He has also reduced the deemed level of financial assets by $540,000
 Jim has made the $540,000 withdrawn more tax effective by
contributing funds to Joan’s name
 It can mitigate against potential tax changes that may be applied to
superannuation in the future (unknown risk)
 Helps Jim to maximise his Age Pension entitlements prior to Joan
reaching Age Pension age
Audit | Tax | Advisory | Financial Advice
26
Income stream strategy requires regular review
It is critical that members review their pension strategy and documentation
regularly to ensure that the structure they have in place remains
appropriate.
The most common things that should be reviewed on a regular basis are:
 Does the income stream strategy remain relevant to current
circumstances?
 Have new legislative changes impacted on existing pension strategies
 Tax benefits versus Centrelink benefits
Audit | Tax | Advisory | Financial Advice
27
Income stream strategy requires regular review
Crowe Horwath has designed a Pension
Health Check, please contact your Advisor to
review your existing income streams.
Audit | Tax | Advisory | Financial Advice
28
Estate planning issues
Audit | Tax | Advisory | Financial Advice
Superannuation Beneficiary Options
 Reversionary beneficiary
 Binding death benefit nomination (valid for 3 years)
 Non-lapsing binding death benefit nomination
 No beneficiary nominated, super balance will be treated as an estate
asset
Audit | Tax | Advisory | Financial Advice
30
Superannuation Industry Supervision (SIS) vs tax dependants
 Death benefits are references in two different Acts – Income Tax
Assessment Act (ITAA) and Superannuation Industry Supervision Act
(SISA)
 SISA determines which dependants can receive a superannuation
death benefit
 The ITAA defines which dependants are considered “tax dependants” in
regards to how a death benefit will be taxed in their hands
Audit | Tax | Advisory | Financial Advice
31
SIS vs tax dependants
 Who is a SIS dependant? (i.e. who can a member nominate for their
superannuation death benefits to be paid to on their death)
 A spouse (does not have to be a legally married to the person, as
long as they live with the person on a genuine domestic basis in a
relationship as a couple)
 A child (includes an adopted child, a stepchild or an ex-nuptial child)
 An interdependent relationship (This is recognising financial and
domestic support. It also enables couples who are separated due to
illness or disability to be recognised as dependant)
Audit | Tax | Advisory | Financial Advice
32
SIS vs tax dependants
 Tax dependants can receive superannuation benefits much more tax
effectively than non-tax dependants. They include:
 Spouse
 A child less than 18 years old
 Any person who had an interdependency relationship with the
deceased before death
 Any person who was a dependant of the deceased before death
Audit | Tax | Advisory | Financial Advice
33
Concept of “Death Taxes”
 Benefits paid to non-tax dependants are taxed at 15% plus Medicare
levy on the taxable portion of the lump sum
 Insurance proceeds could represent both taxed and untaxed elements
and subject to 30% plus Medicare levy
 Benefits paid to the estate are not charged Medicare levy
 For tax purposes it could be better to direct the death benefits to the
estate and have the estate subject to any taxes
The tax-free component of a superannuation interest is paid out
tax-free where no tax is payable by any dependant
Audit | Tax | Advisory | Financial Advice
34
What you have learnt






How the Age Pension age is increasing
Understand the proposed changes to deeming rates
Understand the proposed changes to the assets test limits
How the new limits may affect your Age Pension in future
Strategies to assist in Age Pension maximisation
Understand the importance of constantly reviewing your retirement
position, even after you have retired
 Find out why it is important to consider estate planning in conjunction
with your retirement planning
Audit | Tax | Advisory | Financial Advice
35
Questions?
Audit | Tax | Advisory | Financial Advice
Follow up
 We offer a complimentary consultation to new (non Financial Advisory)
clients to review your personal financial circumstances
 Seminar survey– Please complete print out today or complete
online version which will be emailed through to you, we would
greatly appreciate if you would provide us with some feedback
 Completing feedback also gives you the option to subscribe to our free
eNewsletter, which provides details on upcoming events and other
useful financial updates
Audit | Tax | Advisory | Financial Advice
37
Tel 03 5234 0200
www.crowehorwath.com.au
The relationship you can count on
Disclaimer
Crowe Horwath (Aust) Pty Ltd is a member of Crowe Horwath International, a Swiss verein. Each member firm of Crowe Horwath is a separate
and independent legal entity. Liability limited by a scheme approved under Professional Standards Legislation (other than for the acts or
omissions of financial services licensees) in each State or Territory other than Tasmania. ABN 84 006 466 351
Audit | Tax | Advisory | Financial Advice
38
Download