22.214.171.124 Determining the Assessable Income for Pensioners Below Age Pension Age
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.
This topic explains how to determine rate of:
- employment income, earned during an instalment period, and
- employment income, earned over more than one instalment period (a lump sum).
The assessment of components of ordinary income, except employment income, for pensioners below age pension age is the same as for pensioners of age pension age. Other topics explain the assessment of other components of ordinary income.
Policy reference: SS Guide 4.1 Deprivation of Income & Assets, 4.3 Ordinary Income, 126.96.36.199 Determining the rate of income for pensioners of age pension age from 20/09/2009, 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
Assessment of employment income
Persons under 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.
If there is a working credit depletion the rate of ordinary income will be adjusted downwards.
Act reference: SSAct section 1073B Daily attribution of employment income, section 1073C Fortnightly or yearly expression of attributed employment income
Employment income lump sums (including leave payments)
Employment income lump sums that represent a period greater than a fortnight are spread over the period to which the work relates.
Example: A contract-related employment income lump sum is spread over the period of the contract (up to 12 months).
Employment income lump sums that do not represent a period at all but are paid for remunerative work are spread over 12 months from the date the pensioner became entitled to receive the lump sum. The date earned, derived or received is the date the pensioner becomes entitled to receive the amount.
Example 1: A commission employment income lump sum that does not relate to any particular period is spread over 12 months.
Example 2: A person takes 3 months long service leave and is paid a lump sum amount at the start of that leave period. Income from the lump sum leave payment is spread evenly over the 3 month period of leave.
Note: For disability support pensioners with a leave payment an IMP MAY apply.
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(1) Employment income…
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,
- family trust distributions,
- certain 'loan' arrangements, i.e. NOT a bona fide loan, and
- dividend distributions from a private company.
- remuneration and received AFTER the date of claim.
- 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 pensioner 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 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.
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 legislative 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 legislative 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 1073 Certain amounts taken to be received over 12 months, section 1073A(1) Employment income…
Bona fide pensioner 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, or
- personal loans from a bank, building society, credit union or finance company.