18.104.22.168 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 lump sums over 12 months
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.
Persons over age pension age receiving a social security pension have their employment income assessed in the instalment period in which it is earned, derived, or received. The fortnightly amount of employment income is spread evenly across all days in the instalment period, regardless of which days, or the number of days, worked. 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.
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 Employment income attribution over a period …, section 1073B Daily attribution of employment income, 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, 22.214.171.124 Work bonus - overview, 126.96.36.199 Income from employment or independent contracting, 188.8.131.52 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 spread over the period to which the work relates (up to 52 weeks).
Example: A contract-related employment income lump sum is spread over the period of the contract.
Employment income lump sums that are not in respect of any particular period but are paid for remunerative work are spread over a period of up to 52 weeks from the date the pensioner became entitled to receive the lump sum.
Example: A commission employment income lump sum.
Act reference: SSAct section 1073A(1) Employment income attribution over a period for social security pensioners, section 1073A(2) The person's employment income …
Apportioning (non remunerative) 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.
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 184.108.40.206.
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
Policy reference: SS Guide 220.127.116.11 Scope of Deeming
Bona fide person 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.