4.3.1.10 Determining the rate of income for benefits

Introduction

The rate of ordinary income (1.1.O.30) is a required input to the rate calculation process for social security benefit payments. The rate of ordinary income is the sum of the rates of all 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.

Determining the rate of ordinary income (including deemed income from financial assets) for benefits is dependent upon which of the following categories it falls into:

• seasonal work (1.1.S.60) and intermittent work (1.1.I.195)
• income taken into account when it is earned, derived, or received
• employment income taken into account when it is paid
• non-remunerative income received at intervals greater than a fortnight
• income from independent contracting
• apportioning remunerative lump sums
• apportioning non-remunerative non-periodic lump sums over 12 months
• apportioning non-remunerative periodic lump sums over relevant period (up to 12 months), and
• borrowings/loans.

These categories are discussed in this topic.

Seasonal & intermittent work

Special rules apply to the assessment of seasonal/intermittent work earnings (1.1.S.61).

Income taken into account when it is earned, derived or received

Ordinary income is assessed in the fortnight that it is first earned, derived or received.

Employment income taken into account when it is paid

Employment income that has been paid to a recipient in an entitlement period is assessed for the same length of time as the employment period (4.3.3.06) associated with the amount. The minimum period that income is attributed is a single entitlement period, which is a fortnight. For example, an employment period of a week is attributed over the fortnightly entitlement period in which it is paid. Any income paid in an entitlement period will be assessed from the entitlement period start date forward for the number of days to which it relates.

If there is a working credit depletion, the rate of employment income will be adjusted downwards.

Non-remunerative income received at intervals greater than a fortnight

Income is attributed over a specific period relating to the source of the income, if:

• it is a payment relating to a period that is greater than a fortnight
• there are a number of ordinary income payments
• the amounts of the payments are predictable, and
• there is reasonable regularity in the timing of the payments.

Income from independent contracting

A contract of service or labour indicates an employer/employee relationship. A contract for services to produce a result indicates self-employment.

Income from independent contracting may attract a seasonal work preclusion period (3.1.7).

Apportioning remunerative lump sums

Employment income lump sums that represent a period greater than a fortnight are apportioned forward for the period to which they relate from the beginning of the entitlement period in which the lump sum is paid.

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.

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.

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: Lottery winnings that are received as periodical payments. Refer to 'Non-remunerative income received at intervals greater than a fortnight'.

Specific exemptions under SSAct 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 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 (for example, 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 disallowable 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 (Social Security (Attribution of Income) Principles 2017).

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.

Apportioning non-remunerative periodic lump sums over relevant period (up to 52 weeks)

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.

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

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.

Note: As illustrated in the above example, the portion of the lump sum that covers the gap between the notifiable event and the date of receipt is not assessed as part of the lump sum.

Borrowings or 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.