To lessen the effect of low interest rates on income from savings, the Government is reducing deeming rates from 1 May 2020.
The ‘deeming rate’ is used by the Government to assess a person’s income from financial investments such as account-based pensions, bank accounts and direct shares, amongst others for social security pensions and allowances. It assumes that financial assets are earning a certain rate of income, regardless of the amount of income a person is actually earning or drawing down from some income streams.
There are two bands of deeming rates: referred to as lower and upper thresholds. The Government has approved new deeming rates for financial investments which take effect from 1 May 2020. The deeming rates will reduce as follows:
Deeming rates are used to determine your income from financial assets. Your ‘deemed income’ is then included as income under the income test that is conducted when you are being assessed for a variety of social security payments including the Government Age Pension. Different deeming rate threshold amounts apply depending of your circumstances but the deeming rates remain the same.
The first $51,800 of your financial assets use the lower deeming rate to assess your income from those assets. Anything over $51,800 uses the upper deeming rate.
The first $86,200 of your combined financial assets use the lower deeming rate to assess your income from those assets. Anything over $86,200 uses the upper deeming rate.
The first $43,100 of each of your own and your share of joint financial assets use the lower deeming rate to assess your income from those assets. Anything over $43,100 uses the upper deeming rate.
To find out more about the Government’s economic response to Covid-19, visit treasury.gov.au/coronavirus.
If you want to know what the reduction in deeming rates could mean for you, please contact one of our financial planners.
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