188.8.131.52 Determining the assessable income for pensioners below age pension age
The rate of ordinary income (1.1.O.30) is a required input to the rate calculation process for social security pension 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.
This topic explains how to determine the rate of:
- employment income, received during an instalment period
- employment income, paid as a lump sum over more than one instalment period
- apportioning non-remunerative non-periodic lump sums over 12 months
- apportioning non-remunerative periodic lumps sums over relevant period (up to 12 months), and
The assessment of components of ordinary income, except employment income, for pensioners below age pension age is the same as for pensioners of age pension age. Other topics explain the assessment of other components of ordinary income.
Policy reference: SS Guide 4.1 Deprivation of income & assets, 4.3 Ordinary income, 184.108.40.206 Determining the rate of income for pensioners of age pension age from 20/09/2009, 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 employment income
Persons under age pension age receiving a social security pension have their employment income assessed in the instalment period in which it is paid. 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 pension 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.
If there is a working credit depletion the rate of ordinary income will be adjusted downwards.
Act reference: SSAct section 1073A Attribution of employment income paid in respect of a particular period or periods, section 1073B Attribution of employment income paid monthly, section 1073BA Attribution of employment income paid not in respect of a particular period
Employment income lump sums (including leave payments)
Employment income lump sums that represent a period greater than a fortnight are applied from the beginning of the instalment period in which the lump sum is paid and apportioned forward over the period to which the work relates (up to 12 months).
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 of the DSS 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 in to 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.
Example 1: A commission employment income lump sum that does not relate to any particular period is apportioned forward for up to 12 months from the beginning of the instalment period in which the lump sum is paid.
Example 2: A person takes 3 months long service leave and is paid a lump sum amount at the start of that leave period. Income from the lump sum leave payment is apportioned forward over the 3 month period of leave from the beginning of the instalment period in which the lump sum is paid.
Note: For disability support pensioners with a leave payment an IMP may apply.
Act reference: SSAct section 8(1) Income test definitions, section 8(1A) A reference in this Act to employment income, in relation to a person …, section 8(1B) For the avoidance of doubt, if …, section 8(1C) For the purposes of subsection (1A), a leave payment …, 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
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.
- family trust distributions
- certain 'loan' arrangements, i.e. NOT a bona fide loan
- dividend distributions from a private company
- 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 pensioner 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 SSAct section 8(11) can be found in 220.127.116.11.
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 (e.g. 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 legislative 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.
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 23(1)-'social security benefit', section 1073 Certain amounts taken to be received over 12 months, section 1073A Attribution of employment income paid in respect of a particular period or periods
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
Policy reference: SS Guide 18.104.22.168 Income exempt from assessment - s 8(11) exempt lump sums
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.
- credit card borrowings, or
- personal loans from a bank, building society, credit union or finance company.