4.3.1.10 Determining the Rate of Income for Benefits

Introduction

The rate of ordinary income (1.1.O.30) is a required input to the rate calculation process for social security benefit payments. The rate of ordinary income is the sum of the rates of all components of ordinary income. Employment income (1.1.E.102) is a component of ordinary income, as are financial investment income, deemed income and various other types of income.

Determining the rate of ordinary income (including deemed income from financial assets) for benefits is dependent upon which of the following 4 categories it falls into:

  • seasonal work (1.1.S.60) and intermittent work (1.1.I.195),
  • income taken into account when it is earned, derived, or received,
  • income received at intervals greater than a fortnight, and
  • apportioning lump sums over 12 months.

These categories are discussed in this topic.

Act reference: SSAct section section 9(1)-'financial asset', section 1068 Module B Maximum Basic Rate

Policy reference: SS Guide 4.1 Deprivation of Income & Assets, 4.3 Ordinary Income, 4.4 Deeming Provisions, 4.7 Business Structures, Primary Production & pre-01/01/2002 Assessment of Trusts & Private Companies, 4.8 Superannuation Funds, 4.9 Income streams, 4.12 Means Test Treatment of Private Trusts & Private Companies from 01/01/2002, 4.13 Compensation

Seasonal & intermittent work

Special rules apply to the assessment of seasonal/intermittent work earnings (1.1.S.61).

Policy reference: SS Guide 3.1.7 Seasonal Work Preclusion Period

Income taken into account when it is earned, derived or received

Ordinary income is assessed in the fortnight that it is first earned, derived or received.

Example: Employment income.

Employment income that has been earned in an entitlement period is spread evenly across all days in that entitlement period, regardless of which days or the number of days worked.

If there is a working credit depletion the rate of ordinary income will be adjusted downwards.

Act reference: SSAct section 1068-G7A Ordinary income generally taken into account when first earned, derived or received, section 1067L-D19 Ordinary income generally taken into account when first earned, derived or received, section 1067G-H23 Ordinary income generally taken into account when first earned, derived or received, section 1073B Daily attribution of employment income, section 8 Income test definitions

Policy reference: SS Guide 4.3.3 Income from employment, 3.1.11.30 Working credit depletion

Income received at intervals greater than a fortnight

Income is apportioned over a specific period relating to the source of the income, if:

  • it is a payment relating to a period that is greater than a fortnight,
  • there are a number of ordinary income payments,
  • the amounts of the payments are predictable, and
  • there is reasonable regularity in the timing of the payments.

Example:

  • employment income from contract employment covering a specific period,
  • superannuation pensions,
  • overseas pensions, and
  • periodical lottery winnings that are a series of payments under one contract - each instalment is assessed as income over the period it represents. For example, each instalment of $50,000 paid once a year would be held as income over 12 months.

Act reference: SSAct section 1067G-H24 Ordinary income received at intervals longer than one fortnight, section 1067L-D23 Ordinary income received at intervals longer than one fortnight, section 1068-G7AL Leave payments in respect of periods longer than a fortnight, section 1068-G8 Ordinary income received at intervals longer than one fortnight

Income from independent contracting

A contract OF service or labour indicates an employer/employee relationship. A contract FOR services to produce a result indicates self-employment.

Income from independent contracting may attract a seasonal work preclusion period (3.1.7).

Policy reference: SS Guide 4.3.3.20 Income from employment or independent contracting

Apportioning lump sums over 12 months

One-off, irregular or non-periodical LUMP SUM amounts, are apportioned as income over a 12 month period in 52 weekly amounts, if they are:

  • NOT remuneration, periodic payments, or an exempt lump sum,

Examples:

  • family trust distributions,
  • certain 'loan' arrangements i.e. NOT a bona fide loan to recipients, and
  • dividend distributions from a private company.
  • remuneration and received AFTER the date of claim.

Examples:

  • commissions,
  • royalties,
  • signing on fees or endorsements for professional sports people,
  • an industry related payment such as a dairy cash bonus, or payments to leave the industry, and
  • profit sharing.

The date earned, derived or received is the date the recipient becomes entitled to receive the amount.

Some lump sum payments are exempt from the income test.

Example: Lottery winnings and commutations from a superannuation fund.

Exception: Lottery winnings that are received as periodical payments. Refer to 'Income received at intervals greater than a fortnight'.

Specific exemptions under SSAct section 8(11) can be found in the referenced topic.

Note: The initial exemption of the lump sum amount from the income test does NOT mean that any on-going income generated by the lump sum is exempt, nor does it mean that the asset the lump sum turns into is exempt. The continuing assets and income tests treatment will be determined by how a person makes use of the funds. The funds may be used to obtain additional assets such as a car. For a purchase such as this the assets test would apply. Or, the funds may be invested with a financial institution. The funds have then become a financial asset (refer to SSAct section 9(1) for all the types of financial assets), assessable as an asset and subject to the income test deeming rules.

When a lump sum amount is apportioned under the SSAct for a 12 month period and a person is cancelled and reclaims, including a claim for a different type of social security benefit, the previously apportioned amount continues to be maintained until the end of the 12 month period, even when the source of the income ceases.

Exception: For attributable stakeholders or controllers, IF the source of income ceases (e.g. trust is wound up or private company being de registered), the previously apportioned amount ceases to be assessed.

What this means is that, for CONTROLLERS, where a trust or company has been wound up or suffers a decline in its source of income, a Disallowable Instrument under SSAct section 1207Z will override SSAct section 1073. Where the trust or company has been wound up, the distributions will be ignored. Where the entity suffers a decline in its source of income, the controller can request reassessment of income for social security purposes, based on the estimated income of the entity currently. In this situation, any distribution received by a CONTROLLER can also be adjusted (please find below link to the Disallowable Instrument).

For NON-CONTROLLERS, SSAct section 1073 applies to all DISTRIBUTION INCOME OR DIVIDEND INCOME for 12 months from the date the person becomes entitled to receive the amount, even if the company or trust has been wound up, or the source of income no longer exist.

Act reference: SSAct section 8(8) Excluded amounts - general, section 8(11) An amount received by a person is an exempt lump sum…, section 9(1) Financial assets and income streams definitions, section 23(1)-'social security benefit', section 1067G-H23A Claimant or recipient receives lump sum amount for remunerative work (YA), section 1067L-D20 Claimant or recipient receives lump sum amount for remunerative work (Austudy), section 1068-G7B Claimant or recipient receives lump sum amount for remunerative work (WA, NSA (18 or over), SA (18 or over), PA and MAA under Part 2.12B), section 1073 Certain amounts taken to be received over 12 months

Policy reference: SS Guide 4.4.1.30 Scope of Deeming, 4.3.1.20 Determining the rate of income for pensioners of age pension age from 20/09/2009, 4.3.2.31 Income Exempt from Assessment - Specifically Approved

Borrowings or loans

Bona fide recipient borrowings (loans) are NOT income. A bona fide borrowing is one where money moves from the lender to the borrower, and there is an intention that the money be repaid.

Examples:

  • credit card borrowings, or
  • personal loans from a bank, building society, credit union or finance company.
Last reviewed: 15 August 2016