# 3.1.3 Apportioning Income Test Reductions between FTB Part A Components

## Apportioning FTB components

The components making up the maximum rate of FTB are reduced proportionately by the income test where an individual's ATI is above the income free area.

**Explanation:** The maximum FTB rate, whether calculated using Method 1 or Method 2, is made up of components. The maximum rate is reduced by an individual's ATI above the income free area (1.1.I.40) or the higher income free area (1.1.H.10).

**Note:** Past period claims made for a period in the current financial year and payments made by instalment are based on:

- an estimate provided by the individual and assessed as reasonable by Centrelink, or
- the indexed current estimate (most recent estimate of income available to Centrelink adjusted by movements in average weekly earnings over the relevant 12 month period), or
- the indexed actual income (the previous year's taxable income as determined by the ATO and adjusted by movements in average weekly earnings over the relevant 12 month period).

The method of apportioning differs between Method 1 and Method 2 FTB rate calculations as under Method 1, only the above base rate components are reduced by the income test where income is below the higher income free area.

## Method 1

The rate is apportioned by working out the percentage of the difference between the FTB Part A maximum rate and the FTB Part A base rate that is made up of the components of FTB Part A (i.e. the above base rate portion). Each above base rate component is reduced proportionately by the income test.

**Example:** John receives FTB Part A for 2 children under 13 years. John also receives RA as a component of his FTB Part A because he pays private rent. As John's income is above the lower income threshold, his FTB Part A payment rate (including RA) is reduced under the income test. To determine how the income test reduction affects his RA, work out the difference between the individual's FTB Part A maximum rate and the FTB Part A base rate. This difference will be made up of RA and other applicable above base rate components of FTB Part A. Then work out the difference between the individual's FTB Part A income-tested rate and the FTB Part A base rate. RA, and the other applicable components, will constitute the same percentage of the difference between the individual FTB Part A income-tested rate and the FTB Part A base rate as they do the difference between the individual's FTB Part A maximum rate and the FTB Part A base rate.

**Explanation:** This means, if the RA component makes up 18% of the difference between the FTB Part A maximum rate and the FTB Part A base rate, it will also make up 18% of the difference between the applicable FTB Part A base rate and the new FTB Part A rate after income test reductions have been applied.

A more detailed way of calculating the apportioned rate under Method 1 is as follows:

Step | Action |
---|---|

1 | Work out the difference between the maximum rate and the base rate of each component of FTB Part A. The sum of the results will give the above base rate portion of the total FTB Part A payment that is affected by the excess income. Excess income reduces each above base rate component proportionally. Note that for NBS, MBA and the FTB Part A supplement, the maximum and the base rate are the same, so the above base rate portion for these components is nil. For RA, there is no base rate, so the above base rate portion for RA is the maximum RA rate. |

2 | Work out the proportion of each above base rate component as a percentage of the total above base rate portion of the total FTB Part A payment. |

3 | Work out the reduction due to income by multiplying the difference between the family's ATI and the income free area by 0.2. |

4 | Multiply the amount from step 3 by the percentages calculated in step 2. |

5 | Reduce each above base rate component of step 1 according to the results of step 4. |

**Note:** The ES ceased on 20 March 2017 for new FTB recipients. For individuals who became new recipients of FTB after 20 September 2016, they will no longer be paid ES after 19 March 2017. However, eligible individuals and ACOs may continue to be paid ES as part of their FTB rate under grandfathering rules. See 8.2.

**Note:** If the excess income reduces FTB to base rate or below then only the base rate is paid.

**Example:** A couple has a newborn child, they are paying private rent of $400 per week and they have combined ATI of $55,000 per annum.

- FTB Part A maximum standard rate = $4,766.90 per annum,
- FTB Part A base standard rate = $1,529.35 per annum,
- NBS higher annualised rate = $6,398.45 per annum,
- RA maximum rate = $3,989.45,
- RA base rate = $0,
- ES Part A maximum rate = $91.25 per annum,
- ES Part A base rate = $36.50 per annum,
- FTB Part A Supplement = $726.35.

Step | Amount |
---|---|

1 | FTB Part A maximum standard rate ($4,766.90) minus FTB base standard rate ($1,529.35) = $3,237.55. NBS maximum annualised rate ($6,398.45) minus base annualised rate ($6,398.45) = $0. RA maximum rate ($3,989.45) minus RA base rate ($0) = $3,989.45. ES Part A maximum rate ($91.25) minus ES Part A base rate ($36.50) = $54.75. FTB Part A supplement maximum rate ($726.35) minus FTB Part A supplement base rate ($726.35) = $0. Above base rate portion affected by the income test = $3,237.55 + $0 + $3,989.45 + $54.75 + $0 = $7,281.75. |

2 | Above base rate FTB Part A standard rate = $3,237.55 ÷ $7,281.75 × 100 = 44.46%. Above base rate RA = $3,989.45 ÷ $7,281.75 × 100 = 54.79%. Above base rate ES Part A = $54.75 ÷ $7,281.75 × 100 = 0.75%. |

3 | Reduction due to income = ($55,000.00 − $51,903.00) × 0.2 = $619.40. |

4 | FTB Part A standard rate = $619.40 × 44.46% = $275.39. RA = $619.40 × 54.79% = $339.37. ES Part A = $619.40 × 0.75% = $4.65. |

5 | FTB Part A income tested standard rate = $4,766.90 − $275.39 = $4,491.51. NBS income tested higher annualised rate = $6,398.45. RA income tested rate = $3,989.45 − $339.37 = $3,650.08. ES Part A income tested rate = $91.25 − $4.65 = $86.60. FTB Part A supplement income tested rate = $726.35. Total income tested FTB Part A rate = $4,491.51 + $6,398.45 + $3,650.08 + $86.60 + $726.35 = $15,352.99. |

## Method 2

Under Method 2, each component is reduced proportionately by the income test.

**Example:** John receives FTB Part A for 2 children under 13 years. As John's income is above the higher income free area, his FTB Part A payment rate is reduced under the income test. To determine how the income test reduction affects his Part A components, work out the proportion that each component represents in relation to the individual's maximum rate. Then work out the individual's income tested rate. The applicable Part A components will constitute the same percentage of the income tested rate and the maximum rate.

**Explanation:** This means, if the standard Part A rate component makes up 88% of the maximum rate, it will also make up 88% of the income tested rate.

A more detailed way of calculating the apportioned rate under Method 2 is as follows:

Step | Action |
---|---|

1 | Work out the proportion of each component of the base rate of FTB Part A as a percentage of the total maximum rate. Each component of the maximum total FTB Part A payment is affected by excess income. Excess income reduces each component proportionally. |

2 | Work out the reduction due to income by multiplying the difference between the family's ATI and the higher income free area by 0.3. |

3 | Multiply the amount from step 2 by the percentages calculated in step 1. |

4 | Reduce each component of the base rate of FTB Part A according to the results of step 3. |

**Example:** A couple has a newborn child and they have combined ATI of $98,000 per annum.

- FTB Part A base standard rate = $1,529.35 per annum.
- NBS higher annualised rate = $6,493.35 per annum.
- ES Part A base rate = $36.50 per annum.
- Total Part A base rate (including NBS) = $8,059.20.

Step | Action |
---|---|

1 | FTB Part A standard rate = $1,529.35 ÷ $8,059.20 × 100 = 18.98%. NBS = $6,493.35 ÷ $8,059.20 × 100 = 80.57%. ES Part A = $36.50 ÷ $8,059.20 × 100 = 0.45%. |

2 | Reduction due to income = ($98,000 − $94,316) × 0.3 = $1,105.20. |

3 | FTB Part A standard rate = $1,105.20 × 18.98% = $209.77. NBS = $1,105.20 × 80.57% = $890.46. ES Part A = $1,105.20 × 0.45% = $4.97. |

4 | FTB Part A income tested standard rate = $1,529.35 − $209.77 = $1,319.58. NBS income tested higher annualised rate = $6,493.35 − $890.46 = $5,602.89. ES Part A income tested rate = $36.50 − $4.97 = $31.53. Total income tested FTB Part A rate = $1,319.58 + $5,602.89 + $31.53 = $6,954.00. |

## Method 1 Method 2 comparison

If an individual's income is above the higher income free area, their Method 1 income and maintenance tested rate is compared with their Method 2 income tested rate and the higher of the 2 is paid. If this comparison results in a higher rate under the Method 1 calculation, the rate is then apportioned using the Method 2 apportioning rules above.

**Act reference:** FA(Admin)Act section 20 Determination of rate may be based on estimate, indexed estimate or indexed actual income, section 20A Indexed estimates, section 20B Indexed actual incomes

**Policy reference:** FA Guide 3.1.4.10 Method 1 - Calculating the Maximum Rate of FTB Part A, 3.1.4.20 Standard Rate - FTB Part A Method 1, 3.1.8.10 Method 2 - Calculating the Maximum Rate of FTB Part A, 1.1.I.85 Indexed income - actual or estimate (FTB)