4.3.3.05 Employment income - assessed when paid

Introduction

This topic covers:

  • summary
  • employment income is assessable when it is paid
  • early payment of employment income, and
  • deferment of payment of employment income to obtain a social security advantage.

Summary

Employment income (1.1.E.102) is assessed once it is paid by an employer to their employee.

Employment income is typically considered paid at the point employers are required to collect taxation withholding (i.e. at the point the employment income is disbursed by the employer for the benefit of the employee).

Note: Only employment income for remunerative work undertaken by the person as an employee in an employer/employee relationship is assessed once paid. All other income, including income from self-employment, is generally assessed within the social security system when first earned, derived or received.

Act reference: SSAct section 1073A(5) Attribution of employment income paid in respect of a particular period or periods, section 1073B(7) Attribution of employment income paid monthly, section 1073BA(6) Attribution of employment income paid not in respect of a particular period

Policy reference: SS Guide 4.3.3 Income from employment

Employment income is assessable when it is paid

There can be a delay between when an employer pays their employee and the employee receives their employment income, for example, due to the time it takes to transfer funds between banks. In these situations employment income is still considered paid at the point the income is disbursed by the employer.

Assessing employment income when paid by an employer, rather than when received by the employee, prevents creating an incentive for employees to defer receipt (such as delaying providing bank details) or collection of their employment income.

Note: Where an employer delays the actual payment of their employee/s for reasons beyond the employee's control (e.g. does not disburse the funds because of a power outage) the income is not assessable until actually paid.

Example 1: Ray is paid by his employer each Wednesday, but his employment income does not arrive in his bank account until Thursday. Ray's employer disburses his employment income on the Wednesday so Ray's employment income is taken as paid on Wednesday.

Example 2: Angela's employer pays her every second Tuesday. On this occasion Angela's employer does not run their payroll until Thursday due to a blackout. For this week Angela's employer disburses her employment income on the Thursday, so Angela's employment income is taken as paid on Thursday. Angela's entitlement period finished before her employer was able to pay her. This means Angela reports no income for the entitlement period in which the payroll was interrupted by a blackout. In the next entitlement period Angela will report the pay she was paid on the Thursday (following the blackout) as well as the pay, paid on her regular fortnightly Tuesday pay cycle. These 2 periods will be added together and applied over 4 weeks. The second of those 2 fortnights will be attributed in the following entitlement period when Angela is paid her regular fortnightly Tuesday pay. In this entitlement period her income support payment will reflect the attribution from the entitlement period in which Angela was paid twice as well as the attribution of her regular fortnightly pay.

Example 3: Steve collects his wages from his employer in cash. His employer calculates the wages and makes the income available on Thursday, but Steve does not collect his income until his next shift on Saturday. Steve's employment income is taken as paid on Thursday.

Act reference: SSAct section 1073A(5) Attribution of employment income paid in respect of a particular period or periods, section 1073B(7) Attribution of employment income paid monthly, section 1073BA(6) Attribution of employment income paid not in respect of a particular period

Early payment of employment income

In some situations employers may disburse funds to their employees before the conclusion of the current pay period. In these cases the employment income is still generally considered paid when disbursed by the employer.

Note: The employment period (4.3.3.06) associated with employment income that was paid early is not necessarily affected by the early payment of the income.

Example: Olivia's employer pays her Wednesday every week for work undertaken from Friday - Thursday. Olivia's employment income is disbursed by her employer on the Wednesday, so her income is considered paid on the Wednesday.

Deferment of payment of employment income to obtain a social security advantage

If the payment of employment income is deferred to obtain a social security advantage the Secretary may determine that the income was assessable at the time the recipient made the decision to defer payment, and raise debts as necessary for any overpayments that have been made. Assessing employment income at the point it is intentionally deferred prevents individuals from obtaining additional income support by arranging to delay payment of employment income. This approach will not apply if the payment of employment income was deferred for a reason other than to obtain a social security advantage.

Act reference: SSAct section 1073BB Anti-avoidance

Last reviewed: 7 December 2020