3.6.7.34 Treatment of Income Components for CA

Introduction

The CA income test is based on the applicant's, and their current partner's (where applicable), ATI (3.6.7.32) for the reference tax year (1.1.R.103), usually evidenced by their TNA plus any other income documents required to determine the person's ATI. For the purposes of the CA income test, for CA and CA (child) HCC only, a person's, and their current partner's (where applicable), income for a particular year tax year includes:

  • taxable income, plus
  • employer provided fringe benefits above $1,000, plus
  • target foreign income, plus
  • total net investment losses, plus
  • tax free government pensions or benefits, plus
  • reportable superannuation contributions, plus
  • deemed income from account-based income streams if the account holder is 60 years of age or older,
  • LESS deductible child maintenance expenditure.

Taxable income disregarding a person's First Home Super Saver (FHSS) scheme released amount

Taxable income is gross income minus allowable deductions as assessed by the ATO. It could include income from:

  • wages,
  • a business (e.g. partnership and trust distributions),
  • investments (e.g. interest, dividends, rental income),
  • any Centrelink or DVA payments if they are taxable (e.g. many income support payments, PLP, DAPP), and
  • taxable lump sum payments (e.g. eligible termination payments, superannuation released early (do not include amounts released under the FHSS scheme)).

Income under the tax-free threshold still counts as taxable income.

If the allowable deductions are greater than the gross income, taxable income is taken to be nil for the purpose of calculating ATI.

The FHSS allows people to save money for their first home inside their superannuation fund. For the purpose of the CA income test a person's ATI for the current tax year disregards any assessable FHSS released amount (within the meaning of the Income Tax Assessment Act 1997) for that year.

Act reference: SSAct section 957B Adjusted taxable income

Fringe benefits value

A person's employer provided fringe benefits value for a particular tax year is the amount by which the total assessable fringe benefit received or to be received by the person in the tax year exceeds $1,000.

Act reference: SSAct section 957C Accepted estimates, section 8(1) Income test definitions

Policy reference: SS Guide 1.1.F.180 Fringe benefits (income test assessment)

Target foreign income

Target foreign income is income received from outside Australia for which a person does not pay Australian income tax.

Target foreign income is the amount of an individual's foreign income that is neither taxable income nor received in the form of a reportable fringe benefit. It also includes income exempted from tax under the Income Tax Assessment Act 1997.

Target foreign income for a particular tax year is the amount of the person's target foreign income for that year.

Act reference: SSAct section 10A(2)-'fringe benefit', section 23(1)-'taxable income'

Policy reference: FA Guide 3.2.4 Target Foreign Income

Total net investment loss

A person's total net investment loss for a particular tax year is the amount of the person's total net investment loss (within the meaning of the Income Tax Assessment Act 1997) for that year.

Total net investment losses are the sum of net losses from rental property income, plus net losses from financial investment income as assessed by the ATO.

Assessing net rental property loss

The ATO allows net rental property loss as a deduction from assessable income in deriving a person's taxable income.

The amount of net rental property loss that an applicant and/or their partner (1.1.P.85) receives from rental property is assessed for CA. This applies to residential AND commercial land and buildings regardless of:

  • the nature of the ownership (the person may be an owner, mortgagee, lessee or lessor), OR
  • whether the income results from a property investment or not (if part of a person's principal home is rented out, any rental property losses will be assessed as well as any rental property losses a person has from investment properties).

Assessing investment losses

In determining an individual's net financial investment loss amount, the deductions must be those allowed by the ATO. This may include expenses such as the costs of borrowing to invest in the financial investment or managed fees charged on the investment.

Losses do not relate to changes in share value through share price movements.

For CA purposes, total net investment losses are added back to the person's taxable income to determine their assessable income.

A net investment loss declared as a loss by a partnership or trust is NOT to be added back in the assessment of income for CA even where it is declared to the ATO on a person's income tax return.

Act reference: SSAct section 957B Adjusted taxable income

Policy reference: SS Guide 1.1.T.53 Total net investment loss

Tax free pensions or benefits

An individual and/or their partner may not pay taxes on some types of pensions or benefits, however these amounts will be included as part of their ATI for the CA Income test.

Tax free pensions and benefits will be included in the income assessment.

Act reference: FAAct Schedule 3, clause 7 Tax free pension or benefit

Policy reference: SS Guide 1.1.S.190 Social security benefit, 3.2.6 Tax Free Pensions or Benefits

Reportable superannuation contributions

A person's reportable superannuation contributions are the sum of any reportable superannuation contribution (certain salary sacrificed employer contributions to superannuation) for the income year that are to be reported to individuals on their payment summary, or the total amount of deductible personal superannuation contributions made by a self-employed person for the income year.

Act reference: SSAct section 957C Accepted estimates

Deductible child maintenance expenditure

Where a person has child maintenance expenditure for a particular income year, 100% of the amount is deducted from their income when calculating their ATI for that year.

Act reference: SSAct section 957B Adjusted taxable income

FAAct Schedule 3 clause 8(1) Deductible child maintenance expenditure

Account-based income streams

Deeming is used to calculate income from the current account balance of an account-based income stream.

Deeming will apply to account-based income streams held by either the carer or their current partner if the account holder is 60 years of age or older. The deemed income will be added to the person's ATI.

If the account holder is under 60 years of age, the income from their account-based income stream is taxable and is included as taxable income.

Last reviewed: 20 September 2018