Explanatory Memorandum
(Circulated by the authority of the Minister for Social Services, the Hon Kevin Andrews MP)Schedule 7 - Seniors health card
Summary
This Schedule will include untaxed superannuation income in the assessment for the Commonwealth Seniors Health Card (with products purchased before 1 January 2015 by existing cardholders exempt from the new arrangements), and extend from six to 19 weeks the portability period for cardholders.
Background
This Schedule will include tax-free superannuation income in the assessment of income for qualification for the seniors health card, ensuring people on similar incomes will be treated the same for concession card purposes. The income will be calculated using the same method as for income support payments from 1 January 2015, using income deemed to be generated by various account-based superannuation income streams, regarding them as financial investments.
From 1 January 2015, various long-term financial assets which produce an income stream will be counted as financial investments, and subject to the deemed income rules. The products to be treated in this way are an asset-tested income stream (long term) that is an account-based pension within the meaning of the Superannuation Industry (Supervision) Regulations 1994, and an asset-tested income stream (long term) that is an annuity (within the meaning of the Superannuation Industry (Supervision) Act 1993) provided under a contract that meets the standards, if any, determined under subsection 9(1EA).
Holders of a seniors health card immediately before commencement of this measure will not have the deemed rate of their tax-free superannuation income for products held prior to commencement counted in the income test from commencement, unless they cease to be the holder of a card after this time. However, if they have a partner who does not hold a seniors health card, then their partner's income from a superannuation product will be counted from commencement. Income from superannuation products cardholders purchase following commencement will be included in the test.
A related measure will extend the period for which seniors health card holders may travel temporarily overseas without losing qualification for the card from six weeks to up to 19 weeks. This will ease the regulatory burden for cardholders whose qualification for the card has remained unchanged, apart from the fact they have temporarily travelled overseas for more than six weeks. Currently, the supplement paid to holders of the card stops accruing after six weeks, and this will remain the case with this change.
The amendments made by this Schedule commence on 1 January 2015.
Explanation of the changes
Part 1 - Seniors health card income test
Division 1 - Main amendments
Amendments to the Social Security Act
Items 1 to 4 amend section 1071, which provides the seniors health card income test. Item 1 inserts two new steps into the method statement at point 1071-1. New step 1A identifies whether the person or their partner at the test time has at least one long-term financial asset. This term is defined at new point 1071-13, inserted by item 4, to mean a financial investment within the meaning of paragraph (i) or (j) of the definition of financial investment in subsection 9(1). These paragraphs will be inserted into the Act at 1 January 2015 by the Social Services and Other Legislation Amendment Act 2014 (see item 4 of Schedule 11), to mean:
- (i)
- an asset-tested income stream (long term) that is an account-based pension within the meaning of the Superannuation Industry (Supervision) Regulations 1994; or
- (j)
- an asset-tested income stream (long term) that is an annuity (within the meaning of the Superannuation Industry (Supervision) Act 1993) provided under a contract that meets the requirements determined in an instrument under subsection (1EA).
The new definition in paragraph (i) of the definition of financial investment in subsection 9(1) is modified by requiring that the asset-tested income stream (long term) arises under a complying superannuation plan (within the meaning of the Income Tax Assessment Act 1997) that is not a constitutionally protected fund (within the meaning of that Act). These terms limit the type of fund which will come within the definition to avoid the possibility that assessable income may also be produced by the income stream.
A note to this provision alerts the reader that this Schedule contains provisions preserving the rules in the Calculator for a certain kind of long-term financial asset that was being provided to a person immediately before 1 January 2015 where the person held a seniors health card immediately before that day, provided that, since that day, the person has held a seniors health card.
New step 1B adds the person's deemed income amount under point 1071-11A or 1071-11B to the person's adjusted taxable income amount generated at step 1 of the existing method statement.
If the person is not a member of a couple, and has such an asset, their deemed income from the asset is worked out under new point 1071-11A, inserted by item 3. If the person is a member of a couple, and either they or their partner has such an asset, their deemed income amount is worked out under new point 1071-11B, also inserted by item 3.
New point 1071-11A works out an unpartnered person's deemed income amount using a method statement. The method involves working out the total value of all the person's long-term financial assets at the test time, and then applying existing section 1076 to generate an amount of ordinary income the person would be taken to receive per year on the assumption that the only financial assets of the person were their long-term financial assets. This amount of ordinary income is then the person's deemed income amount for the purposes of the seniors health card income test.
New point 1071-11B works out a partnered person's deemed income amount, also using a method statement. The method involves working out the value of all of the person's long-term financial assets and the value of the person's partner's long-term financial assets, if the partner has reached the minimum age mentioned in section 301-10 of the Income Tax Assessment Act 1997. Currently, section 301-10 specifies age 60, so that, if a person aged 60 or over receives a superannuation benefit, the benefit is not assessable income. This ensures that only tax-free income of a cardholder's partner is included in the seniors health card income test as a deemed income amount in addition to taxable income already captured by the test. No age need be specified for the cardholder because, to be qualified for a seniors health card, a person must have reached pension age, which is a minimum of 60 years.
The method then applies existing section 1077 to generate an amount of ordinary income for the couple, on the assumption that the only financial assets of the couple were their long-term financial assets. The total ordinary income deemed for the couple is then divided by two to give the person's deemed income amount for the purposes of the seniors health card test. This matches the approach taken in existing point 1071-11 where, if a person is a member of a couple, the couple's adjusted taxable incomes are added and then divided by two to work out the amount of the person's adjusted taxable income for the reference tax year.
Item 2 amends steps 3, 4 and 5 of the method statement, such that the method statement compares the sum of the person's adjusted taxable income and their deemed income from long-term financial assets against the person's seniors health card taxable income limit generated at step 2.
Item 5 provides for the application of these amendments. The amendments are prospective only, applying to working out whether a person is qualified for a seniors health card on a day on or after 1 January 2015. However, some exceptions to this will apply. If a person held a seniors health card immediately before 1 January 2015, and a relevant long-term financial asset was being provided to the person immediately before 1 January 2015, then that asset is not to be included in the seniors health card income test, if it would otherwise be caught by the test. This only applies while the person continuously holds a seniors health card. If the person ceases to hold a seniors health card under the Social Security Act, then the amendments would apply to the income test for any card they later hold.
Amendments to the Veterans' Entitlements Act
Items 6 to 9 amend section 118ZZA, which provides the seniors health card income test. Item 6 inserts two new steps into the method statement at point 118ZZA-1. New step 1A identifies whether the person or their partner at the test time has at least one long-term financial asset. This term is defined at new point 118ZZA-12, inserted by item 9, to mean a financial investment within the meaning of paragraph (i) or (j) of the definition of financial investment in subsection 5J(1). These paragraphs will be inserted into the Veterans' Entitlements Act at 1 January 2015 by the Social Services and Other Legislation Amendment Act 2014 (see item 35 of Schedule 11), to mean:
- (i)
- an asset-tested income stream (long term) that is an account-based pension within the meaning of the Superannuation Industry (Supervision) Regulations 1994; or
- (j)
- an asset-tested income stream (long term) that is an annuity (within the meaning of the Superannuation Industry (Supervision) Act 1993) provided under a contract that meets the requirements determined in an instrument under subsection (1G).
The new definition in paragraph (i) of the definition of financial investment in subsection 5J(1) is modified by requiring that the asset-tested income stream (long term) arises under a complying superannuation plan (within the meaning of the Income Tax Assessment Act 1997) that is not a constitutionally protected fund (within the meaning of that Act). These terms limit the type of fund which will come within the definition in order to avoid the possibility that assessable income may also be produced by the income stream.
A note to this provision alerts the reader that this Schedule contains provisions preserving the rules in the Calculator for a certain kind of long-term financial asset that was being provided to a person immediately before 1 January 2015 where the person held a seniors health card immediately before that day, provided that, since that day, the person has held a seniors health card.
New step 1B adds the person's deemed income amount under point 118ZZA-10A or 118ZZA-10B to the person's adjusted taxable income amount generated at step 1 of the existing method statement.
If the person is not a member of a couple, and has such an asset, their deemed income from the asset is worked out under new point 118ZZA-10A, inserted by item 8. If the person is a member of a couple, and either they or their partner has such an asset, their deemed income amount is worked out under new point 118ZZA-10B, also inserted by item 8.
New point 118ZZA-10A works out an unpartnered person's deemed income amount using a method statement. The method involves working out the total value of all the person's long-term financial assets at the test time, and then applying existing section 46D to generate an amount of ordinary income the person would be taken to receive per year on the assumption that the only financial assets of the person were their long-term financial assets. This amount of ordinary income is then the person's deemed income amount for the purposes of the seniors health card test.
New point 118ZZA-10B works out a partnered person's deemed income amount, also using a method statement. The method involves working out the value of all of the person's long-term financial assets and the value of the person's partner's long-term financial assets, if the partner has reached the minimum age mentioned in section 301-10 of the Income Tax Assessment Act 1997.
Currently, section 301-10 specifies age 60 so that, if a person aged 60 years or over receives a superannuation benefit, the benefit is not assessable income. This ensures that only tax-free income of a cardholder's partner is included in the seniors health card income test as a deemed income amount in addition to taxable income already captured by the test. No age need be specified for the cardholder because, to be qualified for a seniors health card, a person must have reached pension age, which is a minimum of 60 years.
The method then applies existing section 46E to generate an amount of ordinary income for the couple, on the assumption that the only financial assets of the couple were their long-term financial assets. The total ordinary income deemed for the couple is then divided by two to give the person's deemed income amount for the purposes of the seniors health card test. This matches the approach taken in existing point 118ZZA-10 where, if a person is a member of a couple, the couple's adjusted taxable incomes are added and then divided by two to work out the amount of the person's adjusted taxable income for the reference tax year.
Item 7 amends steps 3, 4 and 5 of the point 118ZZA-1 method statement, such that the method statement compares the sum of the person's adjusted taxable income and their deemed income from long-term financial assets against the person's seniors health card taxable income limit generated at step 2.
Item 10 provides for the application of these amendments. The amendments are prospective only, applying to working out whether a person is qualified for a seniors health card on a day on or after 1 January 2015. However, some exceptions to this will apply. If a person held a seniors health card immediately before 1 January 2015, and a relevant long-term financial asset was being provided to the person immediately before 1 January 2015, then that asset is not to be included in the seniors health card income test. This only applies while the person continuously holds a seniors health card. If the person ceases to hold a seniors health card under the Veterans' Entitlements Act, then the amendments would apply to the income test for any card they later hold.
Division 2 - Technical amendments
This Division makes amendments to rename the income test for the seniors health card the 'seniors health card income test', omitting the word 'taxable', to reflect the fact the test will now include tax-free elements.
Items 11 to 28 make technical amendments to the Social Security Act to substitute 'seniors health card income test' and 'seniors health card income limit' for the existing labels which include the word 'taxable'.
Item 29 makes a technical amendment to the table in point 118ZZA-11 of Veterans' Entitlements Act to reference correctly the 'seniors health card income limit table'.
Part 2 - Portability
Non-cancellation of concession cards for temporary overseas absences is provided for by Division 4 of Part 2A.1 of the Social Security Act. Section 1061ZUB sets a maximum non-cancellation period of up to six weeks beginning on the day the person leaves Australia. The person ceases to be qualified for the card after the end of the period of six weeks beginning on the day the person leaves Australia (see subsection 1061ZUB(2)).
Item 30 makes a consequential amendment, narrowing the application of subsection 1061ZUB(2) to concession cards other than a seniors health card.
Item 31 inserts new subsection 1061ZUB(2A), providing that person is not qualified for a seniors health card for any period of absence after the end of the period of 19 weeks beginning on the day the person leaves Australia.
Item 32 substitutes two subparagraphs for former paragraph 1061ZUB(3)(b), to provide for a maximum non-cancellation period of six weeks for concession cards other than a seniors health card, and 19 weeks for a seniors health card.
Item 33 provides that the amendments made by items 30, 31 and 32 apply to periods of absence from Australia beginning on or after the commencement of those items. The amendments also apply to periods of absence from Australia beginning before the commencement of those items, where the person is continuously absent from Australia during the period beginning on the day the person leaves Australia and ending immediately before 1 January 2015, and the length of that absence if less than 19 weeks.
In other words, if a person leaves Australia in September 2014, and returns on 31 December 2014, their card will have been cancelled, and they will have to reapply for a card. They would need to be re-granted a card on 31 December 2014 if they are to retain the benefit of the provisions preserving the previous application of the income test for continuing cardholders. However, if the person leaves Australia in late 2014, and returns in January 2015, having been continuously absent in the intervening period, the new provisions may apply, provided the person was absent for fewer than 19 weeks in total. In these cases, where the person's card had been cancelled in 2014 because they had been absent for more than six weeks, and they return in 2015, having been continuously absent for less than 19 weeks, the Secretary may retrospectively reinstate their card.