4.3.2.30 Income exempt from assessment - legislated

Summary

This topic provides information about the following income with legislated exemption from the income test:

• free or discounted accommodation
• value of board or lodging
• value of emergency relief or like assistance, including natural disaster funds treatment of compensation and insurance payments for buildings, plant or personal effects
• payments from medically acquired HIV trusts
• private health insurance rebate
• blocked income
• payments exempted under international agreements
• self-employment program payments
• NDIS amounts and returns on NDIS amounts
• exempt funeral investments (funeral bonds)
• rental income from former principal home for aged care residents
• treatment of Australian Defence Force Reserve payments
• exempt lump sums
• other exempt income
• exempt income for PP
• Western Australian Government Cost of Living Rebate Scheme and Country Age Pension Fuel Card
• paid parental leave
• payments under the National Redress Scheme for Institutional Child Sexual Abuse Act 2018
• exemption of certain DVA payments, and
• exempt payments made to participants of certain employment programs.

Information about other income exempt from assessment, which has been specifically approved, can be found in 4.3.2.31.

Information about changes to the pension income test in the Budget 2009-2010 can be found in 4.2.1.10.

Note: Generally, DSP recipients who are permanently blind are not subject to the income test. However, their DSP may be affected by the special arrangements for compensation payments.

Free or discounted accommodation

When a person receives free or discounted accommodation, the value of the free or discounted accommodation is NOT income for social security purposes. See below under 'Value of board or lodging'.

Value of board or lodging

The value of board and lodging is not income for social security purposes under SSAct section 8(8)(za).

Where a person receives a reduction in the rent or charge for accommodation or a reduction in the rent or charge for board or lodging, the value of this reduction is NOT income for social security purposes.

Note: Where a person receives a direct payment in cash, for the purpose of meeting the costs of their accommodation, board or lodging expenses, this IS income.

For the treatment of income from board and lodgings (for example, in the hands of the provider), see 4.3.8.40.

Value of emergency relief or like assistance, including natural disaster funds

The value of emergency relief or like assistance is exempt as income under SSAct section 8(8)(c). However, depending on how the money is used, it may be treated as an asset under the assets test and, if invested, may be deemed to earn income under the income test.

Payments from trust funds that pay out assistance to people suffering losses from natural disasters are one-time relief payments, and are NOT regarded as income for social security purposes.

Treatment of compensation & insurance payments for buildings, plant or personal effects

If a person receives compensation or an insurance payment to repay debt (e.g. consumer credit insurance) or for damage to their buildings, plant or personal effects, that payment is NOT treated as income for social security purposes.

If the payment is for damage to buildings, plant or personal effects, and is held as a financial investment, the financial investment and any interest earned are NOT deemed under the income test for up to 12 months after the person receives the payment.

The exemption from the income test deeming rules MAY be extended past 12 months if the person can show that they meant to spend the compensation or insurance payment on repairs within 12 months, but that they were not able to do so for reasons beyond their control.

Exception: If the payment is not invested, but spent for another purpose, it may become immediately assessable under the income and assets tests.

Payments from medically acquired HIV trusts

Payments from the Mark Fitzpatrick Trust and the NSW Trust are a combination of lump sums and periodic payments and are NOT treated as income for social security purposes under the compensation and income test provisions.

Exception: 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 placed in a financial investment. 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.

Private health insurance rebate

The Australian Government's private health insurance rebate is NOT income for social security purposes, as it is merely refunding money already assessed as part of gross income.

Blocked income

The term 'blocked' is used if a person has severely limited or no access to income. The treatment of blocked foreign income is dealt with by the Federal Court in Rose v Secretary, Department of Social Security (1990) 21 FCR 241. The Rose decision held that no territorial limitation could be implied into the definition of income. When access to a foreign pension is severely limited, for example, the paying country restricts payment of pensions overseas, or access is restricted to residents of or to people physically present in the paying country, does NOT mean the pension is considered 'blocked'.

Depending on the circumstances of the individual case, however, it MAY be accepted that a pension is NOT income for social security purposes, where the prospect of receiving the money is so remote that the monies are not 'earned, derived or received' for the person's own use or benefit.

Payments exempted under international agreements

International agreements contain income-testing concessions on certain types of payments made by the agreement partners.

Self-employment program payments

If an instalment of both a self-employment program payment (under Workforce Australia – Self-Employment Assistance (1.1.W.70) or NEIS (1.1.N.50)) and an instalment of a social security payment listed under SSAct section 1187(1) or section 1187(1A), are payable to a person during an instalment period, the social security payment will be reduced by the amount of the self-employment program payment.

Refer to 4.3.3.80 Payments from self-employment programs for further information.

NDIS amounts & returns on NDIS amounts

NDIS amounts (1.1.N.03), received by an NDIS participant (1.1.N.05) as part of the participant's NDIS plan (1.1.N.06), are exempt income for the NDIS participant.

The exemption of NDIS amounts under the income test only applies in the hands of the NDIS participant.

Any actual returns that are earned, derived or received on NDIS amounts are also exempt income.

A means test exemption applies to NDIS amounts in the hands of the NDIS participant:

• deeming exemption (4.4.1.40)
• assets test exemption (4.6.2.10)
• liquid assets tests exemptions (1.1.L.50, 4.2.5, 4.9.2.60).

NDIS participants are not required to notify the receipt of NDIS amounts, how NDIS amounts are spent, or about accounts holding only NDIS amounts (3.1.3).

Exempt funeral investments (funeral bonds)

An 'exempt funeral investment' is usually called a funeral bond (4.6.2.10). Interest paid on an exempt funeral investment is NOT income. IF an investment in a funeral bond is NOT an exempt funeral investment then it is assessed as an asset and deemed.

Rental income from former principal home for aged care residents

Rental income that a person receives while living in an aged care residence may be exempt from the income test in certain circumstances.

If the person is residing in the care situation (1.1.C.25) and entered the care situation before 1 January 2017, AND

• an accommodation charge (1.1.A.18) is payable, OR
• a daily accommodation payment/daily accommodation contribution (1.1.D.05) is payable, OR
• they are paying some or all of an accommodation bond (1.1.A.15) by periodic instalments

then any rent received from the former home is exempted from the income test.

Note: For the purposes of the rental income exemption, a person is still considered to have entered aged care before 1 January 2017 following absences from aged care of up to 28 days. There is no time limit if the person is on leave from aged care.

If, after 1 January 2017, a person re-enters aged care after having been absent for more than 28 days (other than being on leave) they will not be able to access the rental income exemption.

Treatment of Australian Defence Force Reserve payments

Defence Force reservists can perform Reserve training, Reserve service or, on some occasions, continuous full-time service Reserve service (1.1.C.335).

Under the provisions of SSAct section 8(8)(w), income from Reserve service (including Reserve training) is exempt from the income test. However, income earned during continuous full-time service is not exempt and assessable under the income test.

Exempt lump sums

Some lump sums are NOT treated as income for social security purposes.

They include items like:

• one-off gifts, irrespective of the source of the gifts, if they are not of a periodical nature or representing a form of continuous support
• windfall gains such as lottery winnings, or the distribution of capital from a legacy or inheritance.

Note: For the treatment of a lump sum withdrawal from a superannuation fund (4.8.2.30). For the treatment of a lump sum commutation from an income stream (4.9.8.10).

The transfer of an income stream to a reversionary beneficiary is located in 4.9.8.10.

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.

Further references to exempt lump sums can be located in 4.3.2.31 Income exempt from assessment - specifically approved, and 4.3.2.35 Income exempt from assessment - s 8(11) exempt lump sums.

Note: The initial exemption of a lump sum amount from the income test does NOT alter the fact that any on-going income generated by the lump sum is counted under the income test, and any assessable asset produced from the lump sum is counted under the social security assets test. Once the lump sum amount is invested or used to purchase goods or services, the usual income and assets rules will apply. For example, if the lump sum amount is used to buy a car, the car would be counted as an asset under the assets test. If the lump sum amount is spent on a holiday or on bills there would generally be no ongoing income or asset to be assessed. If the lump sum amount is placed in a financial investment (such as a bank account) the funds have then become a financial asset that would be assessable as an asset and subject to the income test deeming rules (refer to SSAct section 9(1) for all the types of financial assets).

Other exempt income

The following are NOT treated as income for social security purposes:

• payments to victims of National Socialist persecution (restitution) and German pensions with deemed periods of contribution
• payments made to a person for, or in respect of, their dependent child/ren (1.1.D.70)
• a payment made under the law of the Commonwealth or by a state or territory to assist a person to build or purchase their own home, such as the first home buyers grant
• money passing between partners in a couple in the form of housekeeping or personal allowance
• payments of an APPROVED scholarship awarded on or after 1 September 1990
• legacies or inheritance
• any return on a person's investment in a First Home Saver Account, and
• certain payments from DVA.

Exception: Spousal maintenance is not ordinary income (1.1.O.30) but is included as income for some purposes.

Exempt items for PP

The usual rules about exempt income also apply to PP, although some issues are particularly common for PP recipients. The following types of income are EXEMPT for PP purposes:

• money passing between partners in a couple in the form of housekeeping or personal allowances, and
• spousal maintenance and maintenance payments for children.

Western Australian Government Cost of Living Rebate Scheme & Country Age Pension Fuel Card

The following are not counted as income for social security purposes:

• the Western Australian Government Cost of Living Rebate Scheme payments, and
• benefits obtained by using the Western Australian Country Age Pension Fuel Card.

PPL

PLP and DAPP are counted as income for social security purposes where the payment is in respect of a child who was born on or after 1 October 2016 or a child who became entrusted to the care of the person on or after 1 October 2016.

Payments from the National Redress Scheme for Institutional Child Sexual Abuse

Payments under the National Redress Scheme for Institutional Child Sexual Abuse Act are not counted as income for social security purposes under the SSAct section 8(8)(jc).

Note: The initial exemption of these payments from the income test on receipt does not alter the fact that any ongoing income generated by the lump sum is counted under the income test, and any assessable asset produced from the lump sum is counted under the social security assets test.

Exemption of certain DVA payments

Social security income test exemptions have been put in place for four veterans' compensation payments that were formerly known collectively as Adjusted Disability Pension:

• VEA Disability Compensation Payment (formerly known as disability pension) which is a pension under Part II or IV of the VEA (other than a pension that is payable under section 30 to a dependant of a deceased veteran)
• saved pensions from the precursor to the VEA which are payable because of subsection 4(6) or (8B) of the Veterans' Entitlements (Transitional Provisions and Consequential Amendments) Act 1986 (other than a pension payable in respect of a child)
• MRCA Permanent Impairment payment, either weekly or lump sum - which is a payment under sections 68, 71, 75 or 80 of the MRCA (permanent impairment), and
• MRCA Special Rate Disability Pension under Part 6 of Chapter 4 of the MRCA.

From 1 January 2022 these amounts no longer count as income under the social security income test.

As a consequence of these social security income test exemptions, DFISA is no longer required and has been abolished.

For further information, please see 4.3.5.70.

Exempt payments made to participants of certain employment programs

Payments made to participants of employment programs specified under the Social Security (Payments from Employment Programs Not Counted as Income) Determination (No. 2) 2024, are not counted for social security purposes under the SSAct section 8(8AC).