Nick Bruining: Source of income for retirees subject to Centrelink’s deeming rates

Centrelink assessable income is very different to the taxable income many of us disclose in returns to the Australian Taxation Office. Income tax includes the actual dividends paid on shares, investments and the interest on bank accounts. But these crucial sources of income for retirees are subject to deeming provisions under Centrelink means testing rules, along with other financial assets such as bonds and investment funds. This means your pension is based on what you are deemed to earn on these assets, as opposed to what you actually earn and on which you might have to pay income tax. Under deeming, the first $60,400 of the grand total of financial assets for a single pensioner is deemed to be earning 0.25 per cent each year. For couples, the combined lower deeming rate threshold is $100,200. Everything above those thresholds is deemed to be earning 2.25 per cent each year. This total is divided by 26 to give a fortnightly amount that’s included in your income test calculations. The Centrelink income test includes the deemed income, plus gross employment income, net rental receipts, foreign pensions and special defined benefit income streams. Here’s an example: Tina is a single retiree with $50,000 in bank accounts, $10,000 in shares and $200,000 in an account-based pension which pays her $385 a fortnight. Tina also earns $320 a fortnight from her local cafe, helping out on Sunday mornings, when it’s busy. We’ll assume she’s already used up the extra $4000 working bonus credit. Under the income test, she qualifies for a full age pension and when added to her other income. This gives her a grand-total income of more than $49,238 per annum, tax-free. Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association