3.2.6 Tax free pensions or benefits
Tax free pensions or benefits included in ATI
Even though an individual and/or their partner (1.1.P.30) may not pay taxes on some types of pensions or benefits, these amounts are included as part of their ATI (1.1.A.20) for FTB, CCS and SBP income test purposes.
Act reference: FAAct Schedule 3 clause 2 Adjusted taxable income
Tax free pensions or benefits
The following payments are tax free pensions or benefits that are included for the purposes of calculating ATI for an income year for FTB and CCS purposes and for calculating ATI for the relevant 6-month income test period for SBP.
- DSP where the individual is under age pension age (including youth disability supplement when paid with DSP)
- CP where both the carer and the person being cared for are under age pension age
- DVA invalidity service pension where the individual is below age pension age
- DVA disability pension, war widow's and war widower's pension (paid under Part II of the Veterans' Entitlements Act 1986 (the VEA) for war related incapacity or death and Part IV of the VEA for Peacekeeping Force related incapacity or death)
- DVA invalidity service pension and partner service pension where both partners are under age pension age and where a partner receives a partner service pension for a veteran who has died, the veteran must have received an invalidity service pension at the time of death (paid under Part III of the VEA)
- DVA income support supplement paid on the grounds of invalidity if the person is under age pension age (paid under Part IIIA of the VEA)
- DVA DFISA, where DFISA is exempt from income tax (paid under Part VII of the VEA)
- Special Rate Disability Pension (SRDP) (paid under Part 6 of Chapter 4 the Military Rehabilitation and Compensation Act 2004 (MRCA))
- compensation for permanent impairment (paid under section 68 of the MRCA)
- additional compensation for impairment from another service injury or disease (paid under section 71 of the MRCA)
- interim compensation (paid under section 75 of the MRCA) while waiting for compensation payment for permanent impairment or additional compensation payment for impairment from another service injury or disease, and
- compensation for eligible wholly dependent partners (paid under sections 234 and 236 of the MRCA).
Note: The payments made under the MRCA can be paid as fortnightly instalments or as a lump sum. A lump sum can consist of a prospective payment in respect of a fortnightly amount calculated over the expected lifetime of the recipient, or an arrears payment in respect of a past period, or a combination of both. Lump sums (including arrears) are deemed to be income only in the tax year they are received. For the SBP income test, a lump sum is only deemed to be income if received in the relevant 6-month income test period. For further details on how the income test period is defined for SBP see 4.15.1.
Payments not included in this topic are not tax free pensions or benefits for the purposes of calculating ATI.
Act reference: FAAct Schedule 3 clause 7 Tax free pension or benefit
Income Tax Assessment Act 1997 section 52-10 How much of a social security payment is exempt?, section 52-65 How much of a veterans' affairs payment is exempt?, section 52-114 How much of a payment under the Military Rehabilitation and Compensation Act is exempt?
SS Guide 22.214.171.124 Taxation of payments & PAYG payment summary - individual non-business