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 parenting 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.

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

How is employment income assessed?

Generally PP recipients have employment income assessed fortnightly.

Note: For PPP recipients of age pension age only, the assessment of employment income may be different.

Employment income assessment for PP recipients

PP recipients have their employment income assessed in the instalment period in which it is earned, derived, or received, i.e. on a fortnight-by-fortnight basis. 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 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 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 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.

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

Example: A commission employment income lump sum is spread over 12 months

Act reference: SSAct section 1073B Daily attribution of employment income, section 1073C Fortnightly or yearly expression of attributed employment income

Policy reference: SS Guide 3.1.11.30 Working credit depletion

Employment income assessment for PPP recipients of age pension age

The assessment of employment income (1.1.E.102) for PPP recipients of age pension age is explained in the following table:

If the PPP recipient… Then employment income is assessed…
has a partner who receives an allowance, on a fortnight-by-fortnight basis.
- has a partner NOT in receipt of an allowance, using a continuing rate of income at any point in time - expressed fortnightly.

Determining a rate of income - regular income

To determine a rate of income, a delegate must:

  • take into account all sources of the recipient's income at the time of claim, AND
  • find out what each of those sources would pay over the period of a year or fortnight, as appropriate, if the current income were to continue.

The following table explains when income is included in the PP assessment:

If the recipient… Then that…
has income before the lodgement of a claim, OR income is irrelevant.
is likely to have a change in circumstances in the future, is not relevant until that change occurs.

Explanation: The relevant rate of income is the CURRENT rate of income even though it may be expressed as an annual rate.

lodges the claim up to 4 weeks after becoming qualified, income earned during the period between becoming qualified and lodging the claim, IS assessed to determine the rate payable during that period.

Example 1: A recipient who stops work immediately before claiming. Their income from that employment is NOT part of their current rate of income and should NOT be used to calculate the rate of PP.

Example 2: Meg claims PP 3 weeks after the birth of her first child. The income from her casual employment between having the child and claiming PP is assessed for her rate during that period.

Example 3: Robyn is returning to work in 4 weeks time. The income from her intended employment is NOT taken into account until her income actually changes.

Self-employed or business recipients

Income from self-employment or a business is calculated based on the most recent taxation return available, providing this gives a good indication of the current income. If there has been a significant change affecting the business since the last available taxation return, or if relevant taxation returns are not yet available, recent profit and loss statements can be used.

Income estimates

If a recipient does not know how much they will be earning, they should be asked to estimate the amount they are likely to receive for the first week or fortnight. The following table explains the treatment of an income estimate:

If the estimate… Then…
appears to be a reasonable estimate of the maximum a recipient could reasonably earn,

it should be used and the case reviewed when actual details are available.

See the example following this table.

is near or over the cut off point for PP, it may be more appropriate to suspend the PP entitlement. Once earnings details are provided, a more accurate rate of income can be used from the original date of effect and any arrears paid.
is unrealistic or not provided by the recipient,

- PP should be suspended, and

- the recipient should be asked to provide information on actual income as soon as possible.

Example: Liz advises that she is commencing work next week. As the work is 'on call' Liz does not know what hours will be worked and so cannot give an indication of earnings. Further discussion establishes that the most work Liz is likely to get is 3 afternoons per week, for 6 hours each afternoon, at $10.00 per hour. This gives a maximum of $360.00 per fortnight. The PP rate is set using that amount.

After 2 weeks, the actual time worked was:

  • 2 days in week one for 6 hours each day, and
  • 2 days in week 2 for 4 hours each day.

The rate of income is then reassessed as $200.00 that fortnight, and PP arrears are paid.

Explanation: The objective underlying the use of maximum earnings as an interim assessment is to set a rate of income which is not unrealistically high, in order to continue providing income support, while at the same time minimising the chance of excess payment occurring.

Use of income in the previous fortnight

If a PP recipient is a notification reporter (1.1.N.126) and if income in the previous fortnight is maintained as the continuing level of current income, the recipient should be strongly advised of the need to inform Centrelink immediately of any changes to this income level.

If a recipient advises a change to the level of income from this source, the earnings over the preceding 2 weeks should be recalculated and this new amount maintained as the fortnightly current income level.

PPP recipients of age pension age - determining a rate of income - irregular or intermittent income

Note: From 20 September 2009, the following information applies only to PPP recipients who are over age pension age.

If a recipient's income is intermittent, it may be possible to treat the employment as constant and take an average of earnings over a period of time. This method will establish a constant rate.

Example: Steven's earnings from casual employment could be averaged over a period of 13 weeks.

While a period of 13 weeks is suggested, an average should be made over a period of time most suited to the pattern of employment.

Example: It may be deemed that 4 or 8 weeks may be more appropriate.

Generally, an average should be used where there is an evident pattern to the employment. If the recipient cannot establish that a continuing pattern of employment exists for a particular income source, the income over the preceding 2 weeks should be calculated and this amount maintained as the fortnightly current income level.

PPP recipients of age pension age - determining a rate of income - multiple short periods of employment

Depending on the circumstances, it may be more appropriate to treat each employment period and the consequent earnings separately.

Explanation: This is in line with the concept of administering the income test provisions in a flexible way, as allowed in relation to other social security payments.

Example: Karen works for 8 weeks continuously, and then does not work for the next 8 weeks. This means that the annual rate of income would have to change as Karen goes into and out of employment.

PPP recipients of age pension age - determining a rate of income - 'one-off' income amounts

Generally, one-off earnings are not limited to income from employment for one day. The employment may last several days, but must have the characteristics of 'one-off' or never likely to be repeated. Sometimes this evaluation can only be made in hindsight.

Amounts of one-off income received are not taken into account UNLESS they are part of a pattern of income. This income should be recorded so that any pattern of one-off payments can be established.

If it is established that a pattern of employment exists, income from that employment should be assessed on either an averaged or continuing fortnightly basis, as appropriate.

Note: The Rolley Decision (4.3.1.20), where the total amount MAY equal the annual rate, does NOT apply to partnered PP recipients.

Policy reference: SS Guide 4.3.1.20 Determining the rate of income for pensioners of age pension age from 20/09/2009, 4.3.1.21 Determining the rate of income for pensioners of age pension age pre-20/09/2009

Notification of income for NSA/benefit PPP couples

If the benefit PPP recipient has a partner in receipt of NSA, Centrelink is notified of the PP recipient's income, usually fortnightly, on the partner's NSA continuation form. This information is used rather than requiring the recipient to independently advise the same information. A notice issued to the recipient in this situation requires the recipient to advise separately IF their partner's form will be lodged late or not at all.

NSA partner - zero rate provision

During a period when the recipient's NSA partner 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 NSA remains current.

Explanation: An NSA recipient is allowed 6 fortnights of nil payment before the payment is cancelled.

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 (see example 1),
  • remuneration and received AFTER the date of claim (see example 2).

Example 1:

  • family trust distributions,
  • certain 'loan' arrangements i.e. NOT a bona fide loan to recipients, and
  • dividend distributions from a private company.

Example 2:

  • 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: 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 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 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

Borrowings/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: 20 March 2015