The income test forms a major part of your likelihood of receiving an Age Pension. That’s well-known and the thresholds are quite clear. Which income is included and which is excluded can be more complex, which is why we covered this topic in some detail in recent articles. But many reader comments highlighted yet another level of detail when it comes to retirees and their income. You would probably assume that the method Centrelink uses to calculate your eligibility, based upon income, would be the same regardless of the entitlement. But no, this is not the case. Here’s how Ryley Brito, Technology Product Officer, explains it in a brief Q and A sparked by a member’s need for clarification:
Q. Is the definition of income exactly the same for both Age Pension and Commonwealth Seniors Health Card (CSHC) applications?
If not, how does it vary? I’m not asking about the limits, just the definition of what’s in and what’s exempt?
Says Ryley:
Yes, they are different.
There are a lot of ways that different forms of income can be assessed for an Age Pension, but generally most would be just the gross value that is assessable (e.g. employment income) or deemed income (e.g. on your investment income or superannuation).
For the Commonwealth Seniors Health Card, Centrelink applies an ‘adjusted taxable income’, so this is essentially a three-step process:
- Income is taken directly from your (ATO) Tax Return
- Some extra assessables (e.g. foreign income, fringe benefits or rental losses) are added and the total adjusted.
- Deeming of any account-based income streams is also added.
Why does this matter?
Many people start retirement on the Age Pension – but nearly 40% do not typically qualify due to their assets being over the asset test limit. But usually, along the way, their super will be spent down and sooner or later, 80% will find themselves applying for an Age Pension. You can then keep your eye on your super balance and when it decreases to the point that you will be deemed to earn much lower income, and therefore you are approaching eligibility, ensure that you apply well beforehand so you don’t lose any potential Age Pension benefits.
But even more importantly, if you are not eligible for an Age Pension, then as a self-funded retiree you are most probably entitled to the above-mentioned Commonwealth Seniors Health Card. This is a very handy concession card which offers discounts on health care, pharmaceuticals and other government, transport and energy charges. If you haven’t yet applied for a CSHC, then you can use the free Age Pension Eligibility Calculator which also tells you if you are likely to be eligible.
As always, knowing the way the rules are applied keep you up to date and connected with any entitlements you might receive.
Here’s more information from Services Australia on the way adjusted income works for the Commonwealth Seniors Health Card.
Here’s how Retirement Essentials helps explain concession cards:
- A comparative guide to all cards for older Australians is on the Retirement Essentials website.
- If you are unsure whether you qualify for a Pension Concession Card or a Commonwealth Seniors Health Card you can quickly check eligibility using our free Age Pension Entitlements Calculator.
- We can help you to apply for the Commonwealth Seniors Health Card if you have yet to do so.
Did you know about this difference in income testing?
Do you believe it should vary? Or do you think one calculation on income should be applied?
If I gift $400000 each to my 2 children, how long before I could apply for old age pension?
Hi Paul, funds gifted remain assessable for the remainder of the financial year within which they are given as well as the next 4 financial years.
Does it remain assessable as an asset or income?
Primarily as an asset however the deeming rules are applied to it to determine income that could have been generated by it also.
I see Paul’s message and inquiry .. Now $400,000 each to 2 kids so you can get a pension … I say are you nuts as by investing that wisely you could still help the kids no end and not give them a lump sum to waste. How financially savvy are the kids otherwise a stupid move .
Talk to someone with the smarts and you could assist them and still receive more than the pension from your investment . The pension crown once they see what you did with the $800,000. They will have a laugh and put you on the back burner … DURH!
I am unfortunately, not in an fortunate position ,to fund my sons ,with a donation of any amount of ,money , it is a pity ,as they, especially ,my eldest son ,have done so much for me.
Archaic gifting rules are ridiculous in this day and age of having to assist kids into property only to be penalised for 5 possible pension years !
Yet if I go and waste it on luxury, I then qualify for the pension immediately !
Hard work and saving penalised yet again !
BJM. There are some really tight rules on gifting and how you do it . Kids can need assistance but think back to yourself and did you get a hand out ?
I never did and I never had kids BUT I watch a lot of my mates and what they do and so many stuff their own lives up by trying to assist the kids. They get bitten big time so tread your own path as the paper guru says .
Talk with a financial smart and then make the decision as there are the right and wrong always … get it right .
I am on a part pension and part NZ pension due to still working at 69yrs of age. I am wanting to sell my home for around $680,000 and will have to bank that till I can find a home in NZ (I have no other savings). My question is will I lose my pension during that time or is there lee-way to purchase new home and when I go to NZ will I still get an Australian pension under reciprocal agreement and will it be fortnightly or monthly like my current NZ pension is?
Hi Jenny, Centrelink allow 24 months from the sale of your home where the money you received is exempt from the assets test to allow you time to build/buy another home and not lose your Age Pension in the meantime.
My husband retired 4 yrs ago and can’t apply for an age pension as I’m still working full time. I retired end of August this year, however, I’m taking my 6 months long service leave until end of
March. Therefore, technically I am still employed. Can we please check if we are now able to apply for an Age Pension. Thank youz
Hi Thelma, you can book a consultation with us to review your situation HERE.
If I pay for my daughter & grandchildren to go on a cruise with me, will the amount be classed as a gift when applying for a pension?
Hi Deborah, thankfully no this would not count so long as you are the one making the purchase. Gifting is when you give or sell something for less then or no value. If you buy tickets for a cruise you get a cruise. What I would avoid is transferring the money to your daughter to make the payment as that would be considered a gift.
cCentrelink has insisted that they use my tax return to calculate my income. however there are differences between what the ATO use to assess my income, how Centrelink assesses my income. for example my share income as dividends is included by ATO, and deemed by Centrelink. ATO includes Aged Pension as income, but not Centrelink.
if Centrelink uses the ATO tax return, do they take these differences into account? If Centrelink uses the tax return, then determines that I have been overpaid, this makes the Aged Pension portion of taxed income as assessed by ATO no longer accurate.
I have tried to submit income and expenses documents online , but not successful. And have just submitted documents for my tax return to my tax accountant for 23-24 FY.
Hi,
You guys doing awesome work at least giving some clear picture about old age pension.
I am 65 planing to retire knowing that I am not eligible for pension on turning 67.
Between the age 65 and 67 if spend my superannuation money on travel, some home renovation , etc such that on reaching 67 I will meet Centrelink asset limit to qualify for old age pension.
Do I have to keep proof of how much I spend on travel , how much I spend on home renovation etc
Hi Anil, thank you for the compliment, we don’t always know whether people are finding our content of help or not so we appreciate the feedback! Centrelink assess your financial position as it is on the day you lodge your claim moving forward so no, you do not have to keep proof of what you have been spending money on in the preceding years.
Hi Steven,
On the day I apply for Age Pension, will Centrelink take my last 12 months employment income as assessable income and subject this to income test?
Hi Peter, if you are self-employed or run a private company then yes Centrelink will ask for the most recent financial year’s tax return and factor that income into your assessment. If you were just an employee and have now retired or reduced your days/hours then no Centrelink will not look at your previous earnings and will instead assess you as of the day you lodge the claim moving forward.
Hi Steve, my wife shares a joint bank account with our 40 years old daughter.
When declaring the amount in the Age Pension application do we just declare half the amount?
Hi Peter, great question! The answer is no, you should declare the full balance. Your wife will also need to declare the names on the account/her % ownership so when Centrelink see it is a joint account they will automatically assess only half of the balance as your wife’s.
Hi Steven,
I would just like some clarification on when to notify Centrelink of changes to superannuation balances, specifically when there has been a withdrawal. Is there a minimum withdrawal amount that needs to be declared? Do I notify the actual amount withdrawn or the new balance in my superannuation account. With the money initially going into say a bank savings account, to be withdrawn at some later date, does the change in bank balance, albeit only temporary, also need to be declared. Hope you can assist.