Should we give away some super so we qualify for the age pension?

We keep hearing about the advantages of qualifying for even a small part-age pension. Apart from the fortnightly payment, what are the benefits, and why is it considered so important? Our combined superannuation balances put us above the assets test limit, and we’re wondering whether we should give some money to our children to bring ourselves below the threshold.

Even a small part-age pension can be valuable because it generally comes with a Pensioner Concession Card, which provides access to cheaper PBS medicines, bulk-billed medical appointments where available, and various state government concessions on expenses such as electricity, council rates, water and transport.

Depending on where you live, these savings can be substantial. There may also be advantages under the proposed capital gains tax changes from July 2027, which include an exemption from the minimum 30 per cent tax for people receiving the age pension in the year of sale.

However, don’t rush into giving money away to qualify. Centrelink’s gifting rules allow a couple to give away $10,000 in a financial year, subject to a maximum of $30,000 over five financial years, without affecting their pension assessment.

Amounts above those limits continue to count as assets for five years and are subject to deeming. You could therefore give away a substantial sum and still find yourselves ineligible for a pension.

Before making any gifts, check exactly how far you are above the assets test cutoff and whether you might qualify for a Commonwealth Seniors Health Card instead. That card has no assets test and can provide valuable concessions without the need to give away your savings.

My wife, 77, and I, 83, have been retired since 2014 and hold Commonwealth Seniors Health Cards under the grandfathering provisions. We operate our own SMSF, and our individual total superannuation balances are below the relevant limits, with our transfer balance accounts also within our allowances. Our investment income is approximately equal to our minimum annual pension withdrawals, so we have not needed to draw down our capital. Our super fund currently pays no tax.

Our SMSF also owns all 600 units in a fixed unit trust, which holds a holiday rental property and cash investments in several registered first mortgage loans. At present, the trust distributes its profits to our SMSF as the sole unitholder, and neither the trust nor the fund pays tax on that income.

My concern is the proposed minimum 30 per cent tax on capital gains made by trusts from July 1, 2027. Would this tax apply to gains made within our fixed unit trust before the profits are distributed to our SMSF, even though the fund itself is tax-exempt?

There is an important distinction between the proposed minimum 30 per cent tax on capital gains and the separate proposed rules for trust distributions. They should not be confused.

The capital gains legislation has been enacted, while the wider trust taxation arrangements are still being developed. The critical issue in your situation is whether a fixed unit trust wholly owned by an SMSF will retain the benefit of the fund’s tax-exempt status when distributing income and capital gains.

Given the substantial amounts potentially involved, I would seek specialist advice on the application of the new rules to your particular structure before drawing any firm conclusions.

I have a hypothetical question about the proposed capital gains tax changes commencing on July 1, 2027. Suppose a 75-year-old retiree lives in a modest home, has a low income derived entirely from a self-managed superannuation fund and has not needed to lodge a tax return for several years. They purchase some Australian shares and subsequently sell them at a small profit. Would the capital gain automatically attract the proposed minimum 30 per cent tax, regardless of how little other income they receive? And would they have to start lodging tax returns simply because they made a capital gain?

Julia Hartman of Bantacs confirms that you’ve raised an excellent point, and it highlights one of the more extraordinary consequences of the proposed changes. If the minimum 30 per cent tax applies to the gain, even somebody whose income is below the tax-free threshold could face a tax liability.

In theory, you could make a taxable capital gain of just $1 and find yourself liable for 30 cents in tax. Fortunately, the low-income tax offset and the seniors and pensioners tax offset can be used to offset the minimum tax, so minuscule gains would not in themselves require an income tax return to be lodged.

Nevertheless, it could create a tax return lodgement obligation for somebody who hasn’t lodged one for years. There’s an important exception: under the proposed rules, people receiving the age pension in the year of sale would be exempt from the minimum 30 per cent tax. Even a small part pension could therefore make an enormous difference.

Remember, a capital gain itself is generally not treated as income under Centrelink’s age pension income test, although the proceeds and any resulting financial assets may affect your pension entitlement. It’s another example of how complicated these changes could become.

My spouse and I are homeowners receiving a part-age pension, which we understand is assessed under the assets test. Our assets comprise $30,000 in household contents, $250,000 in shares, $150,000 in cash and $50,000 in motor vehicles. I’m finding Centrelink’s deeming rules difficult to understand. Could you explain how deeming works and whether it affects our pension?

The age pension is assessed under both an assets test and an income test, with whichever produces the lower pension determining your entitlement. Deeming is Centrelink’s method of calculating a notional income from financial assets such as shares, cash and superannuation, regardless of what they actually earn.

In your case, the $250,000 in shares and $150,000 in cash give you $400,000 subject to deeming, producing assessable income of approximately $492 a fortnight. Household contents and motor vehicles are not subject to deeming.

Based on the figures you’ve supplied, and assuming you have no other assessable income or assets, my calculations indicate that you would receive a pension of approximately $909 each per fortnight under the income test. Importantly, it is the income test, not the assets test, that would determine your pension entitlement in this situation.

Noel Whittaker is the author of Retirement Made Simple and other books on personal finance. Email: noel@noelwhittaker.com.au.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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