Commonwealth Seniors Health Card (CSHC) income test and reference tax year 065-06030020

Example

Description

1

Investments commonly reported by Commonwealth Seniors Health Card (CSHC) customers include:

• dividends from Australian company shares
• dividends from foreign shares
• managed investment schemes
• cash management trusts
• property trusts
• Australian equity (share) trusts
• international equity trusts
• film schemes
• timeshare schemes
• mortgage schemes
• actively managed strata title schemes
• forestry managed investment schemes
• rights or options from any of the above investments, and
• distributions from a partnership (but not a trust) that includes the above financial investments

2

The following are not managed investment schemes:

• regulated super funds
• approved deposit funds
• debentures issued by a body corporate
• barter scheme
• franchises
• direct purchases of shares and other equities
• schemes operated by an Australian bank in the ordinary course of banking business such as a term deposit

3

Deductions

Deductions in respect of a financial investment may be claimed for expenses such as:

• the costs of borrowing to invest in the financial investment
• managed fees charged on the investment
• financial investment advice

Rental property and financial investment losses are calculated separately and the income made from a rental property cannot be offset against any losses from the financial investments, and vice versa.

Item

Description

1

Purchase of an investment property

Tom bought an investment unit for $400,000. The property was negatively geared. That is, the interest on the mortgage Tom took out to buy the property ($20,000 per annum) exceeded the rental income ($15,600 per annum). In addition to the mortgage payments, Tom also had to pay $4,000 per annum in other expenses (rates, management fees and body corporate).

Sometime later, Tom was retrenched and was forced to sell the property for $350,000 because he couldn't keep up with the mortgage payments.

2

What was Tom's net rental property income?

Total income less costs = profit/loss

$15,600 - ($20,000 + $4,000) = -$8,400

Tom's net rental property income is a loss of $8,400.

3

What was Tom's capital gain/loss?

Purchase price - sale price = capital gain/loss

$400,000 - $350,000 = $50,000

Tom's capital loss is $50,000. For Commonwealth Seniors Health Card (CSHC) purposes, a capital gain or loss is a component of taxable income. This means Tom's capital loss is not shown separately to his taxable income.

In the interests of not putting all his investment eggs in one basket, Tom had also borrowed $150,000 to invest in shares. The interest on Tom's loan was $10,500 per annum. Tom's shares paid dividend income of $6,000. The difficult economic conditions that had caused Tom's retrenchment had also caused share prices to tumble. Tom was forced to sell his shares at a loss. They sold for a total of $135,000.

4

What was Tom's net financial investment income?

Total income less costs = profit/loss

$6,000 - $10,500 = $4,500

Tom's net financial investment income is a loss of $4,500.

5

What was Tom's capital gain/loss?

Purchase price less sale price = capital gain/loss

$150,000 - $135,000 = -$15,000

Tom's capital loss is $15,000. For CSHC purposes, a capital gain or loss is a component of taxable income. This means Tom's capital loss is not shown separately to his taxable income.

6

For Commonwealth Seniors Health Card (CSHC) purposes, what was Tom's total net investment loss?

Total net investment losses = Net rental property income losses + net financial investment income losses

-$8,400 + (-$4,500) = -$12,900

Tom's total net investment loss is $12,900.

For income tax purposes these losses would reduce Tom's taxable income. For CSHC purposes they are added back to Tom's taxable income to get his ATI.

For income tax purposes Tom's capital losses are a component of his taxable income. For CSHC purposes they are also a component of his taxable income and are not listed separately.

Example

Description

1

Reportable employer superannuation contributions

Tim works for ABC Pty Ltd. Under the superannuation guarantee, ABC pays nine per cent of Tim's ordinary time earnings into a superannuation fund of Tim's choice. Under ABC's industrial agreement, employees are able to have additional amounts of their salary paid to superannuation. Tim decided to contribute a further $5,000 to his superannuation fund under a salary sacrifice agreement. This $5,000 is a reportable employer superannuation contribution.

2

Personal deductible superannuation contributions

Susan runs a small retail business. During the year she makes contributions to her superannuation fund. When she prepares her tax return at the end of the financial year, Susan claims a deduction for these superannuation contributions. Such contributions are called personal deductible contributions.