# 3.1.8.20 Method 2 - FTB Part A income test

## Income test - FTB Part A Method 2

The income test assesses whether an individual and/or their partner's (1.1.P.30) ATI (1.1.A.20) is greater than their higher income free area (1.1.H.10). If their income is more than the higher income free area, the rate of FTB is reduced as described below.

## Reduction after reaching the higher income free area

When an individual and/or their partner's ATI exceeds their higher income free area, their FTB Part A is reduced by 30% of the income excess until FTB Part A is no longer payable. This reduction from the maximum rate (1.1.M.26) results in the individual's provisional FTB Part A rate.

The Method 2 calculation also requires the individual's income and maintenance tested rate to be calculated under Method 1. However, when doing so, income in excess of the income free area, but equal to or below the higher income free area, reduces the rate by 20%, while income in excess of the higher income free area reduces the rate by 30%. The individual's provisional FTB Part A rate is compared to their income and maintenance tested rate and the higher of the two is payable.

Act reference: FAAct Schedule 1 clause 25 Method of calculating Part A rate

Policy reference: FA Guide 3.1.8.10 Method 2 - calculating the maximum rate of FTB Part A

## Example - calculating FTB Part A rate under Method 2

Kanika and her partner have 2 FTB children, Rahul aged 6, and Pallavi aged 8. Her combined ATI with her partner for the 2019-20 income year is \$102,000.

The following table shows how to calculate the family's FTB Part A rate. As the family's combined ATI is greater than the higher income free area, their rate of FTB Part A will be calculated using Method 2. However, as Step 3 of Method 2 requires a comparative Method 1 calculation using a 30% taper for income above the higher income free area, the Method 1 FTB child rates have also been calculated. The higher of the 2 rates calculated under Method 1 and Method 2 will be Kanika's rate.

Step Action Amount
1

Determine the FTB child rate (1.1.F.57) for each child under Method 1 and Method 2.

Note: This calculation uses maximum and base standard rates as at 1 July 2019.

Method 1 \$4,854.50
Method 2 \$1,558.55

2

Determine the ES child rate (3.1.1.25) payable for each FTB child under Method 1 and Method 2.

Method 1 \$91.25
Method 2 \$36.50
3 Determine the FTB Part A supplements for each FTB child. Not eligible (ATI over \$80,000.00)
4 Maximum rate (including FTB Part A supplement and ES Part A). Method 1 (\$4,945.75 x 2)= \$9,891.50
Method 2 (\$1,595.05 x 2)= \$3,190.10
5

Apply ATI test

Method 1
Calculate income excess

• Higher income free area less the income free area
\$98,988.00 − \$54,677.00 = \$44,311.00
• Reduction for ATI = 20% of the income excess
\$44,311.00 × 20% = \$8,862.20
• ATI less the higher income free area
\$102,000.00 - \$98,988.00 = \$3,012.00
• Reduction for ATI = 30% of the income excess
\$3,012.00 x 30% = \$903.60
• Income excess
\$8,862.20 + \$903.60 = \$9,765.80
• Income tested rate
\$9,891.50 − \$9,765.80 = \$125.70

Method 2
Calculate income excess

• ATI less the higher income free area
\$102,000.00 − \$98,988.00 = \$3,012.00
• Apply income reduction
\$3,012.00 × 30% = \$903.60
\$3,190.10 − \$903.60 = \$2,286.50

Rate using Method 1 = \$125.70

Rate using Method 2 = \$2,286.50

6 Kanika's rate of FTB Part A is the higher of the rates worked out using Method 1 and Method 2. \$2,286.50

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