4.3.1.40 Determining the rate of income for PP

Income test

PP rates may be affected by the ordinary income (1.1.O.30) of the recipient, or, in some cases, their partner. The rate of ordinary income is a required input to the rate calculation process for social security PPs. 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.

PP uses income assessment methods that are generally the same as those applying to other social security income support payments. Taxable income concepts, as used for FTB, do not apply to PP.

Policy reference: SS Guide 4.2.4 PP means tests & limits, 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

Assessment of income from employment for PP recipients

PP recipients have their employment income assessed in the instalment period in which it is paid, i.e. on a fortnight-by-fortnight basis. The fortnightly amount of employment income is apportioned forward from the first day of the instalment period, regardless of which days, or the number of days, worked. Because a PPS 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.

Note: PP recipients of age pension age receive a higher pension supplement component for the rate calculation.

If a recipient is below age pension age and has a positive working credit balance, the rate of ordinary income will be reduced by the available working credits.

Employment income lump sums that represent a period greater than a fortnight are apportioned forward for the period to which the work relates, up to a maximum of 52 weeks.

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.

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, section 1073C Fortnightly or yearly expression of attributed employment income

Policy reference: SS Guide 3.1.11.30 Working credit depletion

JSP partner - zero rate provision

During a period when the recipient's partner on JSP is receiving nil payment, the partner's income will be passed to the PP system, and will affect PP. If the PP is also reduced to nil as a result of the couple's combined income, then the PP remains current while the JSP remains current.

Explanation: A JSP recipient is allowed 6 fortnights of nil payment before the payment is cancelled.

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.

Examples:

  • family trust distributions
  • certain 'loan' arrangements i.e. NOT a bona fide loan to recipients, and
  • dividend distributions from a private company
  • 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. For 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 section 8(11) can be found in 4.3.2.35.

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 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 for a 12-month period (under section 1073 (PPS) or section 1068B-D19 (PPP)), and a person is cancelled and reclaims, the previously apportioned amount continues to be maintained until the end of the 12-month period.

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 1068B-D19 Period over which ordinary income taken into account, section 1073 Certain amounts taken to be received over 12 months

Policy reference: SS Guide 4.4.1.30 Scope of deeming, 4.3.2.30 Income exempt from assessment - legislated

Apportioning non-remunerative periodic lump sums over relevant period (up to 12 months)

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 (where an offset clause has not been applied).

Please note that this does not apply to lump sums that are remunerative, one-off, non-periodical, or exempt lump sums.

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, 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, section 1073 Certain amounts taken to be received over 12 months

Policy reference: SS Guide 4.3.2.35 Income exempt from assessment - s 8(11) exempt lump sums

Borrowings/loans

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.

Examples:

  • credit card borrowings, or
  • personal loans from a bank, building society, credit union or finance company.
Last reviewed: 7 December 2020