Financial Care Services Newsletter

by Christine Hopper
Volume 13 Edition 4 – 28 April 2023

Christine at Financial Care Services, the specialist adviser to seniors in transition to new lifestyles

Deemed income from financial assets

The income tests for Commonwealth Seniors Health Cards, Means Tested Aged Care fees and Pensions allow for a ‘deemed income’ rather than your actual income from certain financial assets.
Thus the Centrelink deeming rates could impact self-funded retirees as well as Centrelink Pensioners.

Deemed income in the Commonwealth Seniors Health Card Income Test

The Commonwealth Seniors Health Card Income Test uses Adjusted Taxable Income.
One of the major ‘adjustments’ is to include the deemed income from your superannuation accounts.

As part of your Claim for a Commonwealth Seniors Health Card Income Test you must declare each of your allocated pension accounts and accumulation phase superannuation accounts.
Centrelink calculate the deemed income from the total of your superannuation accounts balances.
Then the deemed income amount is added into your Adjusted Taxable Income for the Commonwealth Seniors Health Card Income Test.

Permanent residents in Commonwealth regulated, and potentially subsidized, aged care pay a Means Tested Aged Care Fee.

The ‘income component’ of the Means Tested Aged Care fee calculation utilises the same ‘income’ definition as the Age Pension Income Test.
Centrelink collect the asset and income details of self-funded residents in Commonwealth regulated aged care facilities to undertake the calculation of the Means Tested Aged Cae fees.

The Age Pension Income Tests use your deemed financial income rather than your actual income from financial assets.

Why a deemed financial income

Deeming Pensioners to be earning interest on financial assets has two potential ‘advantages’.

Firstly, deeming financial assets to be earning a modest rate of interest could encourage Pensioners to use bank accounts rather than hoard cash or gold at home.
Secondly, deeming provides a mechanism for counting the ‘income’ forgone by lending money to family at low or no interest or by ‘excess gifting’.

Setting the deemed rate

The deemed rates of investment earnings on financial assets are set, and adjusted, by the Commonwealth Government.
Centrelink does not discuss the timing or the basis for adjustments to the deeming rates.
Any adjustments to the deeming rates are announced on the day that the new rates start to apply.

The most recent adjustment was in May 2020 when the deeming rates were lowered slightly.
Another adjustment to the deeming rates could be announced soon.

Remember, banks set their own interest rates and you might not find a bank account offering interest at the Centrelink deemed rates.

Calculation of deemed financial income

The calculation of your deemed financial income is based on the current Centrelink formula and the value of your ‘financial assets’.
The steps for determining your deemed financial income are:

Step 1 of the deemed financial income calculation is to determine if you are a single person or a member of a couple at Centrelink.

If you are a member of a couple at Centrelink, you must use the total value of all of the financial assets of your partner and yourself in the ‘couples’ formula for the deemed financial income calculation.

If you are a single person not a member of a couple at Centrelink, then you just use the value of your own financial assets in the single, non-partnered formula for the deemed financial income calculation.

Step 2 is to value all of your ‘financial assets’ for Centrelink purposes.

The Centrelink definition of ‘financial assets’ includes all of your plain banking accounts and financial investments together with less obvious financial assets.
Your superannuation accounts both accumulation phase and allocated pension accounts, are included in your ‘financial assets’.
Centrelink also count your ‘excess gift’ amounts as part of your ‘financial assets’.
Help with understanding what is counted as a ‘financial asset’ for the Age Pension deemed financial income calculation is in the Financial Assets section of the Age Pension Guide.

Step 3 is to apply the Centrelink formula for calculating your annual rate of deemed financial income.
Effective from May 2020, the lower deeming rate applicable to the first tranche of financial assets is 0.25% and the higher deeming rate is 2.25%.

Also from July 2022, the changeover level capping the first tranche of financial assets is $56,400 for a single Age Pensioner and $93,600 for an Age Pensioner couple at Centrelink.

Deemed financial income for a single Age Pensioner

Thus for a single person, the annual rate of deemed financial income is calculated as 0.25% of the first $56,400 of financial assets plus 2.25% of any additional financial assets.

For a single person with no more than $56,400 of financial assets, the deemed financial income is 0.25% of her financial assets.

For a single person with over $56,400 of financial assets, the deemed financial income is 0.25% of the first $56,400 plus 2.25% of her financial assets in excess of $56,400.

Example of calculation of deemed financial income for an Age Pensioner

Consider Betty, a single Age Pensioner who has $84,000 of financial assets.
Betty’s annual rate of deemed financial income is calculated as
0.25% of $56,400 plus 2.25% of ($84,000 less $56,400)
That is, 0.25% of $56,400 plus 2.25% of $27,600
$(141.00+621.00) equals $762
Thus at Centrelink Betty has an annual deemed financial income of $762 per year.

For a couple at Centrelink, the annual rate of deemed financial income is calculated as 0.25% of the first $93,600 of financial assets plus 2.25% of any additional financial assets.

Consider Anne and Albert, a couple at Centrelink, who have only $84,000 of financial assets.
In April 2023, the annual rate of deemed financial income for Anne and Albert is calculated as 0.25% of $84,000, that is, $210.

Centrelink calculate your deemed financial income

Centrelink calculate the deemed financial income for Age Pensioners and aged care residents, based on the asset and income details submitted by the Age Pensioners or their administrators.
Centrelink will also recalculate your deemed financial income amount whenever the deeming rates change or the changeover asset levels change.

A small change in Age Pension rules for when you are between homes.

You could be treated more kindly under the Assets and Income Tests for the Age Pension if the sale of your principal residence settles after 2022.

The two main changes relate to the period that you are holding the money you received on the sale of your principal residence.

Centrelink understand that Age Pensioners might not be ready to buy and move into their new home immediately their home is sold.

The first change is to extend the period as an ongoing ‘homeowner’ between actually living in places that you own, from twelve months to twenty four months.

The maximum extension period has been fixed as twelve months for when the renovation or building works are delayed for reasons beyond the control of the Age Pensioners.

Consider Sam and Sue who sold their suburban home and are living in a friend’s holiday house while they wait for their new home to be built.
Centrelink would continue to count Sam and Sue as ‘homeowners’ for the Age Pension Asset Test.
The money that Sam and Sue collected on the sale of their suburban home would be exempt from the Age Pension Asset Test for two years, twenty four months.
The ‘homeowner’ Asset Test would be applied to their assets excluding their home sale proceeds, during this period.
But their builder is very slow; their new home would not be ready for thirty months after Sam and Sue sold their former home.
Sam and Sue could apply for an extension to their Age Pension Asset Test exemption period because of the delays with the building work.

The second change relates to how Centrelink calculate the income earned on the house sale proceeds during the period between homes.

While Age Pensioners are between actual homeownership, Centrelink count their home purchase money as earning interest.
For home sales settled before 2023, the proceeds of sale of the former home were treated as additional ‘financial assets’.
Thus most of the house sale proceeds money was deemed to be earning interest at the higher deeming rate.

The new rule is that for home sales that are settled in 2023 or later, the money that is being held to finance the Age Pensioners’ new home is deemed to earn interest at the lower deeming rate.

Currently the higher deeming rate is 2% per annum more than the lower deeming rate.

The Centrelink website does not clarify how Centrelink would determine the portion of the home sale proceeds that are not required, or not initially intended, for purchasing the Age Pensioner’s next home.

Age Pensioners may be treated as ongoing ‘homeowners’ while holding the cash from their home sale for two years before moving into their new home.

Any part of the money received on the sale of the former principal residence that is not used for the new home purchase could be counted as a financial asset.
But how much is left over from changing homes could not be accurately determined until after the Age Pensioners settle into their new home.

Expect more rules and procedures as Centrelink process real Age Pensioner home moves.

Christine at Financial Care Services your independent adviser

Christine at Financial Care Services is an independent adviser specialising in retirees of modest means and aged care entrants.
Our core values include working with clients in claiming DVA and Centrelink entitlements.

Christine at Financial Care Services is here to answer your Health Card and Age Pension questions and guide your understanding of aged care costs.

Help with Centrelink challenges is available from Christine Hopper at Financial Care Services, the specialist adviser to seniors in transition to new lifestyles.

Christine has neat handwriting just right for inserting your data into small printed spaces.
She helps clients complete Centrelink forms.
Christine could help you with collating your supporting documents and then mailing your form to Centrelink.

Assistance with completing Age Pension, Low Income Health Card and Commonwealth Seniors Health Card Claims and the Commonwealth aged care means testing forms is available to clients of Christine at Financial Care Services.

Christine charges fees based on the work involved in advising you about health cards, pensions and aged care fee solutions.

To make an appointment for confidential, independent and professional advice about aged care, retirement lifestyle costs, granny flat or Age Pension issues please contact Christine Hopper or call +61 3 9808 0338.
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Christine Hopper
Financial Care Services
Independent aged care, strategic lifestyle and Social Security advice for seniors in Melbourne, Victoria, Australia
Telephone – call +61 3 9808 0338
Email – contact Christine@financialcareservices.com.au
Address – mail to 2B Thomas Street, Camberwell Victoria 3124
Website – visit financialcareservices.com.au
LinkedIn – connect https://www.linkedin.com/in/christinehopper1
Past newsletters – see http://financialcareservices.com.au/newsletters/
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Disclaimer: The information contained in this newsletter is of a general nature only and does not constitute “financial advice”.
All eligibility for Commonwealth benefits will be determined by Centrelink or DVA, based on your personal position as documented and the legislation and Regulations in force at that time.