Bills Digest no. 99 2008–09
Social Security and Veterans' Entitlements Amendment
(Commonwealth Seniors Health Card) Bill 2009
WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.
CONTENTS
Passage history
Purpose
Background
Financial implications
Main provisions
Concluding comments
Contact officer & copyright details
Passage history
Date introduced: 12 February 2009
House: House of Representatives
Portfolio: Families, Housing, Community Services
and Indigenous Affairs
Commencement:
The provisions of this
Bill are to commence at a variety of times as set out in the Table
in section 2.
Links: The
relevant links to the Bill, Explanatory Memorandum and second
reading speech can be accessed via BillsNet, which is at http://www.aph.gov.au/bills/.
When Bills have been passed they can be found at ComLaw, which is
at http://www.comlaw.gov.au/.
The Bill proposes amendments to
the adjusted taxable income test that is used for the Commonwealth
Seniors Health Card (CSHC) to take into account income from a
superannuation income stream with a taxed source and also income
being salary sacrificed into superannuation.
Glossary
Abreviation Definition
AP Age Pension
CCB Child Care Benefit
CSHC Commonwealth Seniors Health Card
FTB-A Family Tax Benefit Part A
FTB-B Family Tax Benefit Part B
HCC Health Care Card
ITAA1997 Income Tax Assessment Act 1997
ITAA1936 Income Tax Assessment Act 1936
PCC Pensioner Concession Card
PBS Pharmaceutical Benefits Scheme
SSA Social Security Act 1991
SG Superannuation Guarantee
TFN Tax File Number
VEA Veterans Entitlements Act 1986
The government announced its intention to make adjustments to
the income test used for the CSHC in the 2008-09 Budget.[1] The Budget announcement
stated that:
The measure will increase fairness by ensuring
that, in applying the existing income test, all income received by
seniors whether from superannuation or another source such as a
managed fund or interest from a bank account, is treated in the
same way.[2]
The Budget announcement detailed that the delivery of the
measure was estimated to cost $19.4 million in administrative costs
over four years.[3]
The Explanatory Memorandum details that the combined estimated
expenditure and savings on the income test changes results in net
expenditure of $12.3 million in 2008-09. However, over the
following three years the measure results in net savings: $30.2
million in 2009-10, $32.3 million in 2010-11 and $34.6 million in
2011-12. This realises net savings of $84.8 million over the four
years.[4] These
savings would be achieved by reduced numbers of seniors able to
access the CSHC. The government further detailed that these cost
savings estimates were based on about 984 000 scripts moving from
the concessional to the general category in the first full year
(2009-10), rising to about 1.1 million in 2011-12.[5] Cost savings would also be
achieved with lesser numbers of persons being provided with the
Seniors Concession Allowance and the Telephone Allowance. The
government detailed it estimated that around 22 000 CSHC holders
would lose eligibility to the card in 2009-10.[6]
The CSHC is available to persons over Age Pension (AP)
age[7] who are not in
receipt of an income support payment and whose adjusted taxable
income is below certain limits. The main income support payments
for persons over AP age are the AP, Age Service Pension and Partner
Service Pension. Persons over AP age may also be in receipt of
Disability Support Pension or Special Benefit in cases where they
have insufficient residence for the AP.
The current yearly income test limits for the CSHC are:
- Single $50,000
- Partnered (combined) $80,000
The income limits for the CSHC are not indexed in any way and
are only increased when a government sees the need to do so.
The current income test for the CSHC uses adjusted taxable
income , which refers to net taxable income with three additional
elements:
- foreign income,
- certain employer-provided fringe benefits, and
- the value of net rental property losses.
The CSHC provides access to concessional pharmaceuticals under
the Pharmaceutical Benefits Scheme (PBS). The CSHC may also
provide:
- Bulk-billed GP appointments. This is at the discretion of the
general practitioner but the Commonwealth government provides
financial incentives for doctors to bulk-bill concession card
holders,
- A reduction in the cost of out-of-hospital medical expenses
above a concessional threshold, through the
Medicare Safety Net, and
- In some instances, additional health, household, transport,
education and recreation concessions which may be offered by a
State or Territory and local governments and private providers.
These providers offer these concessions at their own discretion,
and the availability of these concessions may vary from state to
state.
Retired aged persons on a government income support payment are
issued with a Pensioner Concession Card (PCC) or a Health Care Card
(HCC), which also provide access to concessional pharmaceuticals
under the PBS.
The CSHC also provides access to the:
-
Seniors Concession Allowance - a non-taxable payment of $128.50
made every three months to help with regular bills such as energy,
rates and motor vehicle registration fees that are not available at
a concessional rate.
-
Telephone Allowance - a non-taxable payment of $23 made every
three months if the CSHC holder has a telephone connected in
Australia. A higher rate of $34.60 is paid every three months where
the person has an Internet connection.
As at June 2008 there were 278 378 CSHC holders.[8]
The CSHC was introduced from July 1994.[9] The CSHC then provided access to
concessional prescription medicines under the PBS, free hearing
aids and certain free basic dental services. The CSHC was available
to people of AP age who were not eligible for AP for reasons other
than the income test, for example, insufficient length of residence
or assets exceeding the asset test cut-off limits.
The original purpose of the CSHC was to provide assistance to
retired persons who were on low-income. When introduced, the income
limits for the CSHC were the same as the income test limits that
applied for the AP, so the vast majority of retired persons issued
with a CSHC were those who were asset rich but income poor, that is
mainly farmers.
From January 1999, the income test limits for the CSHC was
changed to one based on taxable income and also the income limits
were substantially increased.[10] Set out below are the income limits prior to the
January 1999 change and the then new January 1999 limits.
The income test change involved the very basis of the income
test being changed from income assessed under the Social
Security Act 1991 (SSA) to adjusted taxable income assessed
under the Income Tax Assessment Act 1997 (ITAA1997). The
new higher income limits meant that the CSHC could no longer be
described as a low-income health card. The Budget papers at the
time stated that the reason for the changes to the income test
limits and the income test basis was:
to address the low take-up of the CSHC by
simplifying the claim process. Extending the income limit will
allow more self-funded retirees access to pharmaceutical
concessions.[11]
Not only did the raised income test limits allow more
self-funded retirees access to the CSHC but the changed income test
also did likewise. This is because the income test under the SSA is
more stringent than that used under the ITAA1997, even when it is
adjusted. The definitions of income differ between the ITAA1997 and
the SSA and this is largely due to the different purposes of the
two acts. The ITAA1997 is a tax revenue act and assesses income in
order to tax it to provide revenue to government regardless of a
person s need. The SSA is a welfare act and assesses income as one
means of measuring need for welfare assistance. This difference in
purpose is also the origin for the different treatment exemptions
and income deductions between the two acts.
The SSA provides a very broad definition of income in subsection
8(1).[12]
Therefore, the SSA starts off with an all-encompassing income
definition, and then sets out specific exclusions that are not to
be classified as income. There are the general income exclusions
that apply largely across the SSA, and there are other specific
purpose exclusions for individual payments. The ITAA1997 does not
contain a definition of income but relies on an unspecified
accepted general meaning of income. There are then many and various
deductions, rebates and offsets allowed for income generating
purposes, for incentive purposes or to target a tax advantage to a
specified group, like the senior Australians tax offset. Many of
the deductions, rebates and offsets are not allowed under the SSA
so a person s income for the SSA may be very different to their
income for the ITAA1997. In most cases the net taxable income for
the ITAA1997 will be less than income for the SSA.
While the CSHC does use the ITAA1997 income definitions and
deductions, there are a few deductions not allowed. For the CSHC,
taxable income is adjusted to add back in to net taxable
income:
- foreign income,
- certain employer-provided fringe benefits, and
- the value of net rental property losses.
While the move to adjusted taxable income is explained in the
1998 Budget decision as a move to expand access to concessional
pharmaceuticals for self-funded retirees, it was not explained why
some deductions like negatively geared property loses were
excluded. Perhaps it was thought there was some merit in not
allowing some deductions like negatively geared property losses to
artificially reduce taxable income. This appears to also be the
motivation for the changes to adjusted taxable income presented in
this Bill, that is the government wants to see some targeting of
access to the CSHC to self-funded retirees with lesser real
incomes, not necessarily those with lower taxable incomes.
A further extension of the income limits for the CSHC was
announced in the 2001-02 Budget and took effect from 1 September
2001.[13] The new
income limits brought the limit to their current levels, that
is:
- Single $50,000
- Partnered (combined) $80,000
As mentioned above, these income limits are not indexed in any
way and are only increased when a government sees the need to do
so.
CSHC claimants have, from 1 January 2009, been required to
provide a Tax File Number (TFN).[14] Prior to 1 January 2009, CSHC claimants have not
been required to provide a TFN, just their latest tax assessment
notice. The main impetus to provide a TFN is for Centrelink to be
able to confirm tax assessment details for a claimant with the
Australian Tax Office and to obtain more detailed information
necessary to determine adjusted taxable income, details like salary
sacrificed superannuation and superannuation from a taxed
source.
The then government first announced changes to the taxability of
superannuation from a taxed source in the 2006-07 Budget.[15] In short,
superannuation from a taxed source is no longer taxable income
where the taxpayer is aged 60 or more. The changes to the taxation
legislation were achieved with the Tax Laws Amendment
(Simplified Superannuation) Act 2007.[16] A taxed source superannuation fund
refers to the private commercial superannuation product providers
like AMP, Virgin Money, MLC etc, who pay tax on their fund
earnings. Non-taxed superannuation refers to government provided
superannuation like the Public Sector Superannuation Scheme (PSS),
who do not pay tax on their fund earnings.
Under the ITAA1997, where a person has income from an employer,
for employment provided, paid into a superannuation account instead
as taken as wages in hand, they are liable to a tax rate of 15 per
cent on that amount. This amount is taxed pre the gross amount paid
to the employee for their employment and can serve to reduce the
gross amount of salary paid to the employee in the form of wages or
salary. This reduction of gross salary or wages paid by the
employer to the employee also has the effect of reducing the
employee s taxable income. This concessional tax rate of 15 per
cent is aimed at encouraging employees to make contributions into
superannuation to provide for their own retirement income, rather
than calling on the taxpayer to provide for their retirement income
by way of the AP.
Since July 2007, persons aged 60 or more with income from
private taxed superannuation sources (lump sums or periodic
payments) have had their superannuation income treated as being tax
free. This was as a result of a 2006-07 Budget announcement by the
then government, implemented by subsequent legislation.[17] The CSHC adjusted
taxable income test as it is currently configured does not included
this tax free income from a taxed superannuation source.
Adjusted taxable income is used by the government in several
forums to determine access to assistance and also to determine a
level of income for a claimant. The test is used for the three main
family assistance payments, being Family Tax Benefit Part A
(FTB-A), Family Tax Benefit Part B (FTB-B) and also the Child Care
Benefit (CCB) provided under the A New Tax System Family
Assistance Act 1999. The adjusted taxable income test is also
used for the measurement of payer and payee parents incomes for the
Child Support Scheme maintenance formula calculations under the
Child Support Scheme (Assessment) Act 1989.
The reason the taxable incomes of claimants for the CSHC is
adjusted, adding back in negatively geared property losses, foreign
income and employer provided fringe benefits, recognises that
allowable tax deductions may not result in an appropriate indicator
of real income or means. The government announced changes to the
application of adjusted taxable income test in the 2008-09
Budget.[18] The
changes to the legislation to give affect to these income testing
arrangements which use adjusted taxable income is provided for in
the Tax Laws Amendment (2009 Measures No. 1) Bill
2009.
There are advantages both to government and to claimants in
using adjusted taxable income as an income measure. Firstly, the
most recent tax assessment can be used and this removes the need
for a separate income measurement and assessment. This results in a
reduced cost to government in not having to administer and deliver
a separate income test. It also has time and effort savings for
claimants to not have to provide documents and evidence necessary
for a separate income test. The only readily available alternative
to using adjusted taxable income is to use the income test applied
for pension and allowance income support payments under the SSA
(and also the Veterans Entitlements Act 1986 (VEA)). As
explained above, this test is tighter and does not allow as many of
the tax deductions allowed under the ITAA1997 or the Income Tax
Assessment Act 1936 (ITAA1936) to reduce income, thereby
achieving better targeting. The use of the SSA (and VEA) income
test to measure and test income is more administratively expensive
as it often requires an extra and separate measurement and
assessment of income.
The original costing of this CSHC income test initiative was
presented in the Budget in May 2008. The cost/savings estimates
would have been done in early 2008. There is now a significant
difference in the general economy and in the performance of private
(taxed) superannuation funds since then. Some previously
self-funded retirees will have suffered a drop in income and may be
now entitled to payment of the AP. On AP they get access to the PBS
by being issued with a PCC. Others, with higher levels of income,
also suffering a drop in income may now be below the CSHC income
test limits to qualify for a CSHC.
Item 1 proposes to amend section 1071 3 in the
SSA which provides a definition of adjusted taxable income for the
sections in the SSA that refer to the maximum yearly income
qualification to the CSHC. The amendments will add to the items
that are added back into net taxable income both the tax free
amounts of private taxed superannuation benefits and also the
person s reportable superannuation contributions for the year.
Item 2 amends section 1071 3 adding a note
clarifying that reportable superannuation contributions are
described in subsection 10A(2) of the SSA. A new subsection 10A(2)
is inserted into the SSA in Part 2 of
Schedule 1 of this Bill see below.
Item 3 refers to the application of these new
provisions in the SSA saying that the changes in Item
1 applies to claims for the CSHC made on or after 1 July
2009. In short, the application of the provisions in Item
1 are not retrospective to apply for claims lodged before
1 July 2009.
Items 4 to 6 make the same amendments to the
definition of adjusted taxable income in the VEA as are made in the
SSA in Items 1 to 3.
Item 7 inserts a new definition of reportable
superannuation contributions into the SSA detailing that it has the
same meaning as is in the ITAA1997. There is a complimentary Bill
before the Parliament with associated amendments to both the
ITAA1997 and also the ITAA1936, inserting a definition of
reportable superannuation contributions . This Bill is the Tax
Laws Amendment (2009 Measures No. 1) Bill 2009.
The definition in Schedule 3 of that Bill is proposed to be:
Part (a) of this definition refers to both salary sacrificed
superannuation contributions made by the employer on behalf of the
employee and also to contributions to superannuation made over and
above the minimum required 9 per cent of the employee s salary
under the Superannuation Guarantee (SG).[19] Part (b) refers to deductions in
respect of superannuation from a private (taxed) superannuation
source.
The date of commencement of the proposed amendment in
Part 2 of Schedule 1 of this Bill
is either the date of Royal Assent of this Bill or the date of
commencement of Schedule 3 of the Tax Laws Amendment (2009
Measures No. 1) Bill 2009, which is 1 July 2009, whichever is
the latter. See comments about Division 2 Amendments repealing
definitions below.
Item 8 does the same as Item 7
but for the application of the CSHC income test provisions in the
VEA.
Item 9 inserts a reference to reportable
employer superannuation contribution into section 10A of the SSA.
Section 10A is the definitions section in the SSA for the purposes
of the CSHC.
Item 10 inserts a new subsection 10A(2) into
the SSA defining reportable superannuation contribution .
Reportable superannuation contribution is to be defined as the sum
of both:
- an individual s reportable employer superannuation
contributions, and
- the total amount of personal deductions for superannuation
contributions in a tax year.
The Explanatory Memorandum describes this as being both:
- employer superannuation payments a person received from their
employer in excess of the minimum 9 per cent SG payment,[20] and
- amounts salary sacrificed into superannuation.[21]
Item 11 proposes to insert a definition of
reportable employer superannuation contributions into the SSA. The
definition is the same proposed to be inserted into the ITAA1997 by
the Tax Laws Amendment (2009 Measures No. 1) Bill 2009.
The definition is to apply to the SSA from 1 July 2009, but only if
the Tax Laws Amendment (2009 Measures No. 1) Bill 2009 is
not passed or does not commence from 1 July 2009. See the
contingent provisions in this Bill in Division 2 Amendments
repealing definitions at the end of this part.
The definition of reportable employer superannuation
contributions is to include amounts paid into an employee s
superannuation account by the employer where either the employee
had the capacity to:
- influence the amount, or
- influence the way the amount is paid so as to reduce their
taxable income.
So this definition basically refers to any amounts of
superannuation paid in addition to the minimum required amount paid
by the employer under the SG regime (9 per cent).[22] The net effect is that this
definition will include salary sacrificed superannuation.
Items 12 to 14 make like
amendments to the provisions VEA that apply for the CSHC income
test in respect of definitions of reportable superannuation
contribution and reportable employer superannuation contributions
that were made to the SSA in Items 9 to
11.
The repealing definitions items in this Division are a part of
the insurance scheme that will apply just in case the Tax Laws
Amendment (2009 Measures No. 1) Bill 2009 is not passed or
does not commence from 1 July 2009. The provisions in Items
9 to 11 amending the SSA and also the
provisions in Items 12 to 14
amending the VEA in this Bill are not to apply if the Tax Laws
Amendment (2009 Measures No. 1) Bill 2009 is passed commences
from 1 July 2009.
With superannuation received from private taxed superannuation
sources (that is, private non-government superannuation), not being
counted as taxable income for those aged 60 or more, it means there
is the potential for persons with substantial incomes from these
superannuation sources to qualify for the CSHC. While the CSHC does
target self-funded retirees, it still has income limits (see
above), which indicates the government still wants to target the
CSHC to self-funded retirees on lower levels of income. If the
government did not want to target access to the CSHC, then it would
make it available to all self-funded retirees not on a government
income support payment. It should be noted there is no asset test
applying to the CSHC as does apply to the AP.
The number of persons using salary sacrificed superannuation
arrangements aged over AP age[23] is probably not large. However, with the more
recent downturn in economic circumstances, the lower performance of
superannuation market linked funds and the other more recent
government initiatives encouraging persons to work longer, the
numbers using salary sacrifice arrangements aged 65 or more will
probably increase.
The adjustments to the definition of adjustment taxable income
used for the CSHC will continue the targeting of access to the CSHC
to self-funded retirees on lower levels of income. The targeting of
the CSHC is limited compared to government income support payment
for the retired aged. The income limits are higher, the application
of the income measure is more generous and the CSHC does not have
an asset test like the government income support payment for the
retired aged.
The CSHC recipient population is probably different to that
existent when early 2008 when this Budget initiative was costed and
presented in the 2008-09 Budget. There is now a significant
difference in the general economy and in the performance of private
(taxed) superannuation funds since then. Some previously
self-funded retirees will have suffered a drop in income and may be
now entitled to payment of the AP. On AP they get access to the PBS
by being issued with a PCC. Others, with higher levels of adjusted
taxable income, also suffering a drop in income may now be below
the CSHC income test limits and so may qualify for a CSHC
Members, Senators and Parliamentary staff can obtain further
information from the Parliamentary Library on (02) 6277 2413.
[1]. Australian Government, Budget Paper No. 2: Budget
Measures 2008 09, Responsible Economic Management Commonwealth
Seniors Health Card adjusted taxable income test, Canberra, 13 May
2008, pp. 381-382, http://www.budget.gov.au/2008-09/content/bp2/html/index.htm,
accessed on 13 February 2009.
[7]. The age pension
age for males is age 65. Pension age for females is being raised by
six months every two years so that by 1 January 2014, female and
male pension ages will be age 65. The table below show when females
qualify.
Date of Birth Qualifying age
Before 30 June 1944 63 yrs
Between 1 July 1944 to 31 Dec 1945 63.5 yrs
Between 1 Jan 1946 to 30 June 1947 64 yrs
Between 1 July 1947 to 31 Dec 1948 64.5 yrs
After 1 Jan 1949 65 yrs
[12]. 8.(1) In
this
Act, unless the contrary intention appears:
"income", in relation to a person, means:
(a) an income amount
earned, derived or received by the
person for the person's own use or benefit; or
(b) a periodical payment by way of gift or allowance; or
(c) a periodical benefit by way of gift or allowance;
but does not include an amount that is excluded under subsection (4), (5), (7A) or (8).
[15]. Treasury, A Plan to Simplify and Streamline
Superannuation - Detailed Outline, Canberra, 9 May 2006. A
Plan to Simplify and Streamline Superannuation Outcome of
Consultation, Canberra, 5 September 2006. The Hon. Peter
Costello MP, A Plan To Simplify and Streamline Superannuation
Transitional Issues That Apply Immediately , Media Release, No
57 of 2006, Canberra, 14 June 2006. Simplified Superannuation
Final Decisions , Media Release No 93 2006, Canberra, 5
September 2006.
[19]. An
employer must pay superannuation for an eligible employee. An
eligible employee is an employee who is:
- aged 18 years or over but under 70 years of age, and
- paid at least $450 (before tax) in a calendar month.
[20]. ibid.
Peter Yeend
24 February 2009
Bills Digest Service
Parliamentary Library
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