What new income tests? In last year's federal budget, the Government decided to remove some of the inconsistencies and inequities from the means tests on government benefits and tax offsets. Presently, different definitions of income apply for different means tests, allowing some people to structure their affairs so they can qualify for benefits they might otherwise not get.

How do they do that? The most common strategies are to sacrifice salary into super or to negatively gear into a rental property or other investment. For example, eligibility for the popular superannuation co-contribution is based on your assessable income plus reportable fringe benefits. The upper limit at which the co-contribution cuts out is $60,342 and the full co-contribution only applies on incomes up to $30,342. So someone earning $70,000 would not normally be eligible. However, if they asked their employer to sacrifice $20,000 of their salary into super, then made a $1000 after-tax contribution, they would receive a $517 super co-contribution from the Government as their income for co-contribution purposes would be $50,000. From July 1, the extra $20,000 will still be included in their salary and they will no longer qualify.

What other benefits are affected? There's quite a list. It includes the pensioner and mature-age worker tax offsets, the Medicare levy surcharge (but not the Medicare levy itself), the senior Australians tax offset, the spouse super contributions tax offset, dependency tax offsets, the baby bonus, child-care benefit, child support, the higher-education loan program, youth allowance and Family Tax Benefit parts A and B. All these are currently means tested but the income tests don't include salary sacrifices to super.

According to MLC technical services, the 10 per cent test that determines whether you are eligible to claim a tax deduction on personal super contributions (the amount you earn as an employee must be less than 10 per cent of your assessable income plus reportable fringe benefits) will also include salary-sacrificed super from July1. This will affect people like medical specialists who work in the public health system as well as running their own private practices.

You mentioned negative gearing losses would be included as well? Income from rental losses is already included in a number of means tests but MLC's head of technical services, Andrew Lawless, says this is being expanded to include all investment losses and will apply across most benefits and tax offsets.

That means losses made from geared share and managed fund investments will be included in your income for the means tests. Fringe benefits will also be included in the means tests for the seniors and dependency tax offsets but the tax office will apply the modified "adjusted fringe benefits" used for family tax benefits, the baby bonus, youth allowance and child-care benefit rather than the full value of the fringe benefit. In simple terms, says Lawless, your adjusted fringe benefits are the fringe benefits reported by your employer multiplied by 54.5 per cent.

Lawless says changes will be made to eligibility for the Commonwealth Seniors Health Card. Parliament has already passed legislation incorporating investment losses into the means test but a separate bill (yet to be passed) will also include reportable super contributions and benefits paid from a taxed super fund.

Lawless says this means any tax-free withdrawals or income that you take from your fund from age 60 (or the tax-free component paid out before 60) will now be included in your income for determining your health-card eligibility.

The health card is available to people of age-pension age who do not receive a government pension. You need an adjusted taxable income of less than $50,000 for singles or $80,000 for couples living together. That adjusted taxable income currently comprises your taxable income plus net rental property losses, foreign income not normally taxed in Australia including fringe benefits and employer-provided fringe benefits in Australia. So a couple drawing a super pension of $50,000 each would currently receive the card provided they are both 60 or older but will be ineligible after July 1 if the changes are passed.

Do I need to change my financial strategies as a result of these changes? Lawless says popular strategies such as salary sacrificing to qualify for a

co-contribution will no longer be possible although you do have the remaining months of this financial year to claim a last bite of the cherry. It is worth reviewing your strategies in light of these changes but most investors undertake strategies such as gearing or salary sacrifice for their broader benefits and view improved access to Government benefits as a bonus.

What does it all mean?

Confused by all the means tests? That's hardly surprising. Even with the new more-consistent rules it's still enough to make your head spin.

As Lawless points out, some income tests are based on family (rather than personal) income, some include a modified definition of reportable fringe benefits and-or reportable super contributions and some include other forms of income, such as the benefits from a taxed super scheme counted for the Commonwealth Seniors Health Card.

Detailed information on particular benefits is available from the tax office (ato.gov.au), the Family Assistance Office (familyassist.gov.au) and Centrelink (centrelink.gov.au).