4.2.8.10 Dependent YA - parental income test

Summary

This topic covers the following matters:

  • exemptions from the parental income test (1.1.P.40)
  • determining whose income to include in the parental income test
  • income assessed under the parental income test
  • treatment of employer provided benefits under the parental income test
  • treatment of amounts released from the First Home Super Savers (FHSS) scheme
  • parental income free area (1.1.P.30), and
  • calculating the 'parental income test result' using the family pool.

In order to calculate the 'reduction for parental income' (4.2.8.05) dependent YA recipients must have a parental income test result determined.

Exemptions from the parental income test

The parental income test does NOT apply to claimants/recipients whose parent/s:

  • receive an income support payment, OR
  • receive payment under the Farm Household Support Act 2014, OR
  • receive ABSTUDY living allowance.

If the YA claimant/recipient is exempt from the parental income test then the parental income test result for the YA claimant/recipient is nil.

Act reference: SSAct section 5(1)-'parent', section 1067G-F3 Parent receiving Commonwealth benefit, section 1067G Module L Table of pensions, benefits, allowances and compensation

Determining whose income to include in the parental income test

The parental income test is applied to the combined income of the parent/s or other relevant person/s on whom the claimant/recipient is wholly or substantially dependent.

If the dependent YA claimant/recipient normally lives with a parent, and that parent has re-partnered, the partner's (1.1.P.85) income is included in the combined parental income.

In shared care situations, and when parents are separated under the same roof, the parental income test is applied to the parent with primary care responsibility.

If the YA claimant/recipient does NOT normally live with either parent and the parents are separated, the income of the parent with whom the YA claimant/recipient LAST lived is assessed. If that parent has re-partnered since the YA claimant/recipient LAST lived with the parent, the new partner's income is NOT included in the combined parental income, as the YA claimant/recipient does not normally live with the parent's new partner.

Act reference: SSAct section 5(1)-'parent'

Income assessed under the parental income test

Income assessed under the parental income test is combined parental income in the appropriate tax year (1.1.A.170), usually the base tax year (1.1.B.10). The base year is the tax year ending in the previous calendar year (i.e. for the 2018 assessment period the base year is 2016-17). However in particular circumstances the tax year immediately following the base tax year may be used for assessing parental income.

The tax year immediately following the base tax year can be used when:

  • the family's income is substantially less in the tax year immediately following the base tax year, than in the base tax year, and
  • the decrease is likely to apply for AT LEAST 2 years from the date on which the event which led to the decrease occurred or first became apparent.

For the 2018 assessment period the tax year immediately following the base tax year is 2017-18.

The concept of what constitutes 'substantially less income' is flexible. If an applicant's parental income has, or will, decrease enough for them to attract YA, or a higher rate of YA, the decrease may be accepted as substantial.

The tax year immediately following the base tax year is also used for the period 1 October to 31 December of an assessment year where parental income in the tax year immediately following the base tax year is at least 25% higher than income in the base year and at least 25% higher than the parental income free area.

The components of parental income are:

  • taxable income, disregarding a parent's assessable FHSS scheme released amount (within the meaning of the Income Tax Assessment Act 1997) for that year, plus
  • adjusted employer provided benefits (1.1.E.90) for the relevant tax year (see below Treatment of employer provided benefits under the parental income test), plus
  • target foreign income (see Note) based on the relevant Australian tax year, plus
  • total net investment losses (1.1.T.105), plus
  • tax free pensions and benefits (1.1.T.26), plus
  • reportable superannuation contributions for the appropriate tax year (within the meaning of the Income Tax Assessment Act 1997), less
  • maintenance amounts paid out.

For the purposes of YA, a parent's taxable income for a tax year is the parent's most recent assessed taxable income for that year, which can be verified with an original or copy of the parent's taxation assessment made by the Commissioner of Taxation or amended by a Tribunal or Court.

If the parent does not have an assessed taxable income for that year, an estimate of taxable income may be accepted where it is considered reasonable, e.g. a copy of estimated income included in a tax return as lodged with the ATO.

For the purposes of YA, a parent's taxable income must be a positive figure or $0. It cannot be a negative figure even where a person's taxable income is a taxable loss.

Note: See SSAct sections 10A(2)-'target foreign income', 1067G-F10 and 1067G-F11(3)-'target foreign income'.

Act reference: SSAct section 23(1)-'taxable income', section 1067G-F4 to section 1067G-F9 Appropriate tax year, section 1067G-F10 Combined parental income, section 1067G-F11(1) Income components for tax year, section 1067G-F12 Assessed taxable income, section 1067G-F13 Accepted estimate

Policy reference: SS Guide 1.1.P.40 Parental income test (YA), 1.1.T.26 Tax free pensions or benefits

Treatment of employer provided benefits under the parental income test

An employer provided benefit, also known as a 'reportable fringe benefit', is a benefit an employer provides to, or on behalf of, an employee for the employee's, or in some cases their family's, private use (1.1.E.90).

The value of a person's adjusted employer provided benefits is included as a component of parental income and assessed under the parental income test.

From 1 January 2017 a person's adjusted employer provided benefits are calculated as follows:

  • (Exempt employer reportable fringe benefits total × (1 − applicable fringe benefits tax rate)) + Non-exempt employer reportable fringe benefits total

Exempt employer reportable fringe benefits are those where the person's employer is considered an 'exempt employer' under the Fringe Benefits Tax Assessment Act 1986 section 57A. Exempt employers include:

  • registered public benevolent institutions
  • registered health promotion charities
  • some hospitals, and
  • some public ambulance services.

As at 1 April 2017, the applicable FBT rate is 47%. This means that reportable fringe benefits amounts derived from an exempt employer are not fully counted under the parental income test.

Note: The FBT year runs from 1 April to 31 March, with the FBT rate subject to change (refer to ATO FBT rates).

Non-exempt employer fringe benefits are those where an employer is not considered exempt under section 57A. The full amount of reportable fringe benefits from a non-exempt employer is assessed under the parental income test.

It is possible that a person may have both exempt and non-exempt employer fringe benefits where they are employed by both exempt and non-exempt employers.

Example: Employer provided benefits from exempt employer only

During the 2017-18 financial year Jane receives fringe benefits from an employer that meets the section 57A definition of an exempt employer. Her payment summary shows an employer provided benefit of $4,200.

Centrelink adjusts Jane's employer provided benefit as follows, showing an adjusted employer provided benefit of $2,226:

($4,200 × (1 − 0.47)) + $0 = $2,226

Example: Employer provided benefits from 2 employers

During the 2017-18 financial year, John has received employer provided benefits from 2 employers. His payment summaries show that his total reportable employer provided benefits amount is $8,700 consisting of $3,400 from an employer that meets the section 57A definition of an exempt employer, and $5,300 from a non-exempt employer.

Centrelink adjusts John's employer provided benefits as follows, showing an adjusted employer provided benefit of $7,102:

($3,400 × (1 − 0.47)) + $5,300

= $1,802 + $5,300

=$7,102

Act reference: SSAct section 1067G-F11(2) Income components for tax year

Fringe Benefits Tax Assessment Act 1986 section 57A Exempt benefits …, section 135P Employee's reportable fringe benefits amount-general rule, section 135Q Reportable fringe benefits amount for some employees of certain institutions

Policy reference: SS Guide 1.1.E.90 Employer provided benefit (YA)

Treatment of amounts released from the FHSS scheme

The FHSS scheme was announced in the 2017-18 Budget to allow first home buyers to save a deposit inside superannuation.

For taxation purposes, some amounts withdrawn from a saver's FHSS scheme superannuation account are considered to be taxable income. However, all amounts withdrawn are not assessed as part of a person's ATI for the parental income test.

Parental income free area

The parental income free area is the amount of income the parent can have without affecting the YA claimant/recipient's rate. If parental income is below or equal to the free area, parental income test result for the YA claimant/recipient is determined to be nil.

If parental income is ABOVE the parental income free area, the YA recipient's rate is reduced.

Act reference: SSAct section 5(1)-'parent', section 1067G-F22 Parental income free area.

Calculating the parental income test result (using the family pool)

If combined parental income exceeds the parental income free area and the parents are not exempt from the parental income test then the parental income test result must be calculated.

The taper rate used to calculate the YA parental income test result is $0.20 for every $1.00 over the parental income test free area. However, to work out a claimant/recipient's individual parental income test result there is also a need to determine whether the claimant/recipient has parental income in common with another dependent young person aged under 22. This is so that the parental income test result for a claimant/recipient also takes into account that parental income would be used in the income tests for assistance provided to other members of the family (the family pool).

A claimant/recipient has parental income in common with another person where a parent of the recipient is also a parent of the other person/s and the YA, ABSTUDY or AIC Scheme parental income test applies to the other person/s. A claimant/recipient can have parental income in common with a person who:

  • is a claimant/recipient of dependent YA, or
  • is being paid dependent ABSTUDY living allowance, or
  • is being paid dependent ABSTUDY Group 2 school fees allowance (means-tested component), or
  • is being paid additional boarding allowance under AIC.

A YA claimant/recipient also has parental income in common with a relevant sibling, i.e. an FTB child or regular care child as defined in the FAAct section 3, where a parent of the child is also a parent of the YA claimant/recipient.

Note: The definition of FTB child and regular care child relate to the qualifying circumstances of the child and do not require a parent to actually have received or be receiving FTB for the child to meet either definition.

Table 1: Calculating the parental income test result

The following table shows the steps involved in calculating the parental income test result for a YA claimant/recipient (using the family pool).

Note: The parental income test result is rounded to the nearest 10 cents.

Step Action
1 Determine the appropriate tax year.
2 Determine the combined parental income for that year.
3

Does the combined parental income exceed the annual parental income free area?

  • If NO, the parental income test result for the YA claimant/recipient is nil.
  • If YES, subtract the parental income free area from the combined parental income (from step 2) and go to step 4.
4

Divide the result from step 3 by 130 (20% of the step 3 amount, converted to a fortnightly amount).

This is the total fortnightly parental income test reduction amount.

5

Does the claimant/recipient have parental income in common with another dependent young person/child?

  • If NO, then the amount at step 4 is the parental income test result.
  • If YES, then go to step 6.
6

Identify dependent young people in the family with parental income in common with the claimant/recipient where they are:

  • a dependent YA claimant or recipient
  • being paid dependent ABSTUDY living allowance
  • being paid dependent ABSTUDY Group 2 school fees allowance (means-tested component), or
  • being paid additional boarding allowance under AIC.

Work out the maximum fortnightly payment rate of each claimant/recipient of dependent YA and each person being paid dependent ABSTUDY living allowance. The maximum fortnightly payment rate is the sum of the following components (where applicable to the person):

  • MBR
  • energy supplement
  • pharmaceutical allowance
  • youth disability supplement
  • rent assistance.

Work out the maximum payment rate of each person being paid dependent ABSTUDY Group 2 school fees allowance (means-tested component) or additional boarding allowance under AIC. The maximum payment rate is the rate payable prior to the operation of the income test expressed as a fortnightly amount.

Add together the maximum fortnightly payment rates for claimants/recipients of the specified payments identified as having parental income in common with the claimant.

7

Identify FTB children in the family with parental income in common with the claimant/recipient.

Work out the maximum rate of FTB Part A available to a parent in respect of relevant siblings of the claimant/recipient.

Note: This only needs to be calculated for one parent in a couple as the same total rate is produced for both parents.

For most families the maximum rate of FTB Part A is the sum of the following components of FTB Part A available to the family, taking into account the shared care rate provisions, and before the operation of the maximum rate family income test:

  • the standard rate of FTB Part A for each child
  • FTB Part A supplement for each child (if parental income is under $80,000)
  • the annual amount of ES for each child
  • the newborn supplement for each eligible child
  • multiple birth allowance
  • rent assistance.

Where the only relevant sibling is a regular care child the only component of FTB Part A included in the maximum rate of FTB Part A is the rate of RA available to the family prior to the operation of the income test.

Multiply the maximum rate of FTB Part A by 14/365. This is the maximum fortnightly payment rate of FTB Part A.

Note: It is calculated once, regardless of how many relevant siblings there are, and then applied when working out the parental income test result for each YA claimant/recipient with parental income in common with those siblings.

8

Add together the maximum fortnightly payment rates of the claimant/recipient and the amounts at step 6 and step 7.

This is the total maximum fortnightly payment rate for all people who have parental income in common (the family pool).

9 Divide the claimant/recipient's maximum fortnightly payment rate by the pooled total maximum fortnightly payment rate for all people who have parental income in common (from step 8).
10

Multiply the total fortnightly parental income test reduction amount (from step 4) by the amount calculated in step 9.

This is the parental income test result.

Example: Felix, 18, is a dependent YA recipient who earns no personal income. Felix lives at home with his mother and father whose combined income is $70,000 a year. Felix has parental income in common with his 19 year old brother (Joe) who is living away from home to study and who receives dependent YA (student), and his 12 year old sister (Anna) who is an FTB child who lives at home.

Felix's maximum fortnightly YA rate is $293.60.

The parental income free area is $52,706.

As Felix's combined parental income ($70,000) exceeds the parental income free area ($52,706) the parental income test result is not nil and must be calculated (step 3).

To calculate Felix's parental income test result first the total fortnightly parental income test reduction amount must be as determined (at step 4 of Table 1):

  • Parental income ($70,000) minus the current parental income free area ($52,706)
    = the parental income excess ($17,294)
  • The parental income excess ($17,294) divided by 130
    = $133.03. This is the total fortnightly parental income test reduction amount

As Felix has parental income in common with his brother and sister, the family pool applies.

The family pool adds together the maximum fortnightly payment rates of each dependent child/young person in the family (Steps 6 to 8 in Table 1). For Felix's family this is:

The family pool Maximum rate totals
Felix - 18 Maximum basic fortnightly YA rate: $293.60 Plus energy supplement: $4.60 - $298.20
Joe - 19 Maximum basic fortnightly YA away from home rate $445.80 Plus energy supplement: $7.00 Plus rent assistance : $133.00 $585.80
Anna - 12 Maximum standard fortnightly FTB rate: $182.84 Plus energy supplement: $3.50 Plus FTB Part A supplement (expressed as a fortnightly amount): $28.28 $214.62
Family pool total
(the pooled total maximum fortnightly payment rate for all people who have parental income in common)
$1,098.62

Felix's share of the family pool has to now be calculated (step 9 of Table 1). To do this divide Felix's maximum fortnightly YA rate ($298.20) by the family pool total ($1,098.62) = 0.27

To calculate the parental income test result:

Multiply the total fortnightly parental income test reduction amount ($133.03) by Felix's share of the family pool (0.27)
= $35.90 (rounded to the nearest 10 cents). This is the parental income test result.

Act reference: SSAct section 1067G Module F submodule 6 If person's combined parental income exceeds parental income free area, section 1067G Module L Table of pensions, benefits, allowances and compensation

FAAct Schedule 1 clause 3 Method of calculating Part A rate (method 1), Schedule 1 clause 28A Method of calculating Part A rate (method 3)

Policy reference: SS Guide 4.3.3.60 Deferred Income, Salary Sacrifice, Valuable Consideration & Fringe Benefits

FA Guide 3.1 FTB Rate Calculation, 2.1.1.10 FTB child, 2.1.1.13 Regular care child

Last reviewed: 1 July 2019