22.214.171.124 Determining the rate of income for pensioners of age pension age from 20/09/2009
This topic provides information about:
- rate of ordinary income
- assessment of income from employment and self-employment income from gainful work for pensioners of age pension age
- apportioning remunerative lump sums
- apportioning non-remunerative non-periodic lump sums over 12 months
- apportioning non-remunerative periodic lump sums over relevant period (up to 52 weeks)
Rate of ordinary income
The rate of ordinary income (1.1.O.30) is a required input to the rate calculation process for social security pension payments. This rate of ordinary income is the sum of the rates of the 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.
Assessment of income from employment & self-employment income from gainful work for pensioners of age pension age
Pensioners over age pension age (apart from PPS) may be eligible for the work bonus. Employment income, and self-employment income from gainful work, is eligible for the work bonus from 1 July 2019. Prior to 1 July 2019, only employment income was eligible for the work bonus.
Pensioners over age pension age receiving a social security pension have their employment income assessed from the beginning of the instalment period in which it is paid and apportioned forward. The fortnightly amount of employment income is assessed from the first day of the entitlement period (1.1.E.125) in which the amount is paid, regardless of which day in the entitlement period the amount was paid. Because a pension rate is calculated as an annual rate the fortnightly rate of employment income is converted to an annual rate for input to the rate calculation process.
Self-employed persons over age pension age receiving a social security pension have their income from gainful work assessed using business rules. This gainful work income is worked out on an annual basis before being converted to income for an instalment period. This income is then spread evenly across all days in the instalment period, regardless of which days, or the number of days, worked.
Persons over age pension age receiving a social security pension have their assessed annual income from gainful work income converted to income for an instalment period. The income from self-employment from gainful work for an instalment period is spread evenly across all days in the instalment period, regardless of which days, or the number of days, worked.
If there is access to the work bonus the rate of ordinary income will be adjusted.
Act reference: SSAct section 8(1) Income test definitions, section 8(1A) A reference in this Act to employment income, in relation to a person …, section 8(1B) For the avoidance of doubt, if …, section 8(1C) For the purposes of subsection (1A), a leave payment …, section 1073A Attribution of employment income paid in respect of a particular period or periods, section 1073C Fortnightly or yearly expression of attributed employment income, section 1073AA(4BB) to section 1073AA(5A) Work bonus
Policy reference: SS Guide 1.1.E.102 Employment income, 3.1.15 Work bonus, 126.96.36.199 Work bonus - overview, 188.8.131.52 Income from employment or independent contracting, 184.108.40.206 Employment income for pensioners of age pension age from 20/09/2009
Apportioning remunerative lump sums
Employment income lump sums that represent a period greater than a fortnight are apportioned forward up to 52 weeks from the beginning of the entitlement period in which the lump sum is paid.
Example: A contract-related employment income lump sum is spread over the period of the contract.
In limited circumstances where employment income is paid to a person but is not paid in respect of a particular period a delegate of the Secretary will attribute this employment income over a period not exceeding 52 weeks, as appropriate in the circumstances. In most situations, the basis of determining the length of apportionment will depend on the nature of the employment income. The lump sum will be apportioned forward from the beginning of the entitlement period in which it was paid for the relevant number of days.
When determining the period, the delegate may take into consideration the following:
- the nature of the person's remunerative work
- the nature of the person's employment income
- the person's financial interests
- any financial hardship which may be caused to the person
- whether the employment income relates to remunerative work that was undertaken at a time when the person was not receiving a social security pension or a social security benefit.
Example: A commission employment income lump sum.
Act reference: SSAct section 1073A Attribution of employment income paid in respect of a particular period or periods, section 1073BA Attribution of employment income paid not in respect of a particular period
Apportioning non-remunerative non-periodic 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.
- family trust distributions
- certain 'loan' arrangements, i.e. not a bona fide loan to persons
- dividend distributions from a private company
- 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 person becomes entitled to receive the amount.
Some lump sum payments are exempt from the income test. For example, lottery winnings and commutations from a superannuation fund.
Exception: Periodical lottery winnings that are a series of payments under 1 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.
Specific exemptions under SSAct section 8(11) can be found in 220.127.116.11.
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 placed in a financial investment. 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.
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 1073 Certain amounts taken to be received over 12 months
Policy reference: SS Guide 18.104.22.168 Scope of deeming
Apportioning non-remunerative periodic lump sums over relevant period (up to 52 weeks)
Lump sum payments that are made up of past periodic payments, where the income support recipient did not have notification obligations during the relevant past period, are apportioned, going forward, over a period the Secretary determines, not exceeding 52 weeks, in equal daily amounts. The Secretary will usually determine the period over which the lump sum is apportioned with reference to the past period to which the lump sum relates. The lump sum is apportioned from the day the person receives the lump sum until the end of the relevant period going forward, not exceeding 52 weeks.
Example: Back pay of income protection claims (that does not include an offset clause).
Please note that this does not apply to lump sums that are remunerative, one-off, non-periodical, or an exempt lump sum.
Example 1: Caitlin is injured at work, and submits a claim for her income protection payment on 1 January 2021. Her claim is initially rejected on 1 March 2021. Caitlin appeals the original decision, and after 6 months of appeal process, her claim for income protection is granted on 1 September 2021. On 1 October 2021, she is paid a lump sum payment for the 8-month period from the date of claim (1 January 2021) and the date her claim was granted (1 September 2021). The Secretary determined that the lump sum is to be apportioned over 8 months from 1 October 2021. This means that Caitlin's assessable income will increase for the next 8 months.
Note: Application of this rule under section 1072A of the SSAct differs from section 1073 of the SSAct in that, this rule applies to lump sums that comprise of past periodic non-remunerative payments. Whereas, section 1073 applies to lump sum payments that are non-remunerative payment, that do not reflect periodic payments.
Example 2: Dom was receiving income from his defined benefit pension until it was suspended on 1 January 2021. While his defined benefit is suspended, Dom applies for the age pension, and begins receiving the maximum rate of pension because he has no other income and his assets are below the assets test threshold.
On 1 July 2021, his defined benefit pension is reinstated. On 1 August 2021, Dom also receives a lump sum arears payment of the income he was entitled to while his defined benefit income stream was suspended. The Secretary determined that the lump sum payment is apportioned over 6 months from 1 August 2021, which means that one-thirteenth of the lump sum is added to Dom's other assessable income for the next 6 months.
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 1072A Treatment of certain lump sum payments
Policy reference: SS Guide 22.214.171.124 Income exempt from assessment - s 8(11) exempt lump sums
Bona fide 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.
- credit card borrowings
- personal loans from a bank, building society, credit union or finance company.