4.3.3.10 General provisions for income from employment

Summary

This topic provides information about the following:

  • gifts in lieu of money
  • exempt income
  • assignment of earnings
  • disputed wages
  • deductions for agency fees
  • earnings of members of religious organisations under a vow of poverty
  • earnings of professional sports people
  • earnings paid to a prisoner's dependants
  • industry based lump sum payments, and
  • profit sharing arrangements.

Gifts in lieu of money

If a person receives a gift IN LIEU of money for work performed, the value of the gift IS treated as income for social security purposes. Such gifts must be capable of being given a monetary value under the principle of valuable consideration (1.1.V.25).

Exempt income

Some income from employment is exempt from assessment.

Policy reference: SS Guide 4.3.2 Income Exempt from Assessment

Assignment of earnings

If a person assigns either all or part of their earnings to another person, the amount assigned is income of the person who assigns the income for social security purposes.

Example: The earnings may be assigned to the landlord or landlord's agent.

Disputed wages

Where a person has performed work but there is a dispute about who is to pay the wages, the person may not be paid for the work performed. This means the person has no present legal entitlement to be paid for the work and it cannot be said that the person has 'earned' the amount. The amount not paid is therefore NOT counted as ordinary income for that period.

Explanation: Income is taken into account when it is first earned, derived or received, at the point in time when a person first has legal entitlement to the money. 'Present legal entitlement' means the future person of the monies has a legal right to insist upon payment, and if required, to initiate legal proceedings to recover those monies.

Example: Bob is a sub-contractor who employs Harry in the belief that Harry will be paid by Big Builders Pty Ltd. (as this has been the usual practice to date). When Harry has completed the work, Big Builders and Bob both deny they are liable to pay Harry. Harry receives no payment and must take legal or administrative action to prove any entitlement to wages. In the meantime, the unpaid disputed wages are not assessed as income for Harry. If Harry is ultimately successful in being paid after taking action to recover his disputed wage, income would be assessed at that time.

Deductions for agency fees

In some situations a person may have employment agency fees deducted from their after tax earnings or be required to pay an agency a percentage of their gross income.

Example: A person employed by an agency as a nurse and placed in a number of hospitals for casual employment may be charged a fee for every placement.

Agency fees should be treated like any other employment expense and included in the person's gross income used for social security purposes.

Act reference: SSAct section 1072 General meaning of ordinary income

Earnings of members of religious organisations under a vow of poverty

The following table shows how the earnings of members of religious organisations under a vow of poverty are treated.

If … and … then …
a SPECIFIC person of a religious organisation is employed
  • the employing organisation sets the rate of pay, AND
  • pays the person

the amount earned IS treated as income for social security purposes.

Explanation: The income amount earned, derived or received is paid for the member's own use or benefit regardless of their subsequent divesting themselves of the money after payment.

an organisation employs a religious organisation to supply ANY member of their organisation
  • religious organisation sets the rate of pay, AND
  • the employing organisation pays the religious organisation
the amount earned is income of the religious organisation and NOT of the individual member.

Earnings of professional sportspeople

Remuneration for professional sports games is attributed to the period in which it is earned and assessed as income when it is earned, even if payment to the player is deferred, paid at the end of the season, or at another set time.

A signing on fee, or payment for endorsement or sponsorship or seasonal/conditional incentive/bonus, or a professional prize or award however, is treated as income for a period of 52 weeks from the date the person is entitled to receive it.

Exception: If a sporting prize or award is won by someone whose main source of income is NOT sport, the prize or award is a windfall gain and is NOT assessed as income.

Earnings paid to a prisoner's dependants

Earnings paid to a prisoner's dependants ARE regarded as income for assessment purposes and may affect the rate of payment that is otherwise payable to the partner (1.1.P.85).

Explanation:

  • Work release helps the person, although still a prisoner, to contribute towards the cost of their upkeep and the maintenance of their family. Prison authorities generally decide how much of the prisoner's earnings is handed over to the person's family.
  • Although they go out to work each day, married people in this situation are still legally in prison. Their partners are still qualified for their payments, such as PPP, subject to eligibility in all other respects.
  • Long term prisoners granted approved study leave attend an educational institution for lectures, reading and research, and in some cases, live at work release hostels. During vacations they are encouraged to seek part-time or casual work. Those who obtain work are required to contribute to their expenses and fees and may also contribute to the maintenance of their family.

Industry based lump sum payments

An industry based lump sum payment MAY be conditional upon the person discontinuing any involvement in that industry. These lump sum amounts ARE treated as income for 52 weeks from the date they are entitled to be received.

Explanation: A lump sum amount may be received by a person because of their association with a particular industry.

Example: Payments under the Pork Producers Exit Payment.

Exception: Some industry based lump sum payments ARE NOT treated as income as they have an SSAct section 8(11) exemption, usually granted on the basis that a recipient is required to exit an entire industry (for example, a dairy farmer must exit farming, not just dairying).

Note: Both the Australian and State governments may provide payments from schemes with similar names. To avoid incorrect assessments, details of the scheme's full name and the government involved should be obtained.

Act reference: SSAct section 8 Income test definitions, section 1073 Certain amounts taken to be received over 12 months, section 8(11) An amount received by a person is an exempt lump sum …, section 1073AA Work bonus

Policy reference: SS Guide 4.3.2.31 Income Exempt from Assessment - Specifically Approved, 3.1.15 Work bonus

Profit sharing arrangements

The following table shows how profit sharing arrangements are treated depending on when the claim is lodged.

If a person receives a lump sum amount from a profit sharing arrangement … then it …
after claiming a pension or benefit IS treated as income for 52 weeks from the date the person is entitled to receive that amount.
before claiming a pension or benefit IS treated as income, but may be used to calculate a preclusion period for those engaged in seasonal work and claiming a benefit.

Explanation: These amounts usually represent the division of profits often related to a period of previous employment. Generally, the person is neither self-employed nor involved in a partnership or business. This type of arrangement is commonly associated with certain seasonal industries, such as crayfishing and pearling.

Note: The initial exemption of a 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 investment. The funds have then become a financial asset, assessable as an asset and subject to the income test deeming rules.

Last reviewed: 6 May 2019