184.108.40.206 Income from overseas payments - general rules
This topic provides information about the following:
- comparable foreign payments (CFPs)
- treatment of CFP payable to surviving spouses in the bereavement payment period
- CFP arrears and lump sums
- other (non-CFP) overseas payments, and
- overseas payments - blocked.
CFPs - general
The gross current rate of payments from overseas is generally treated as income for social security purposes whether the payments are made:
- from overseas, or
- through an Australian agent.
No amount is deducted for any tax deductions, bank charges or for foreign country debts deducted from the overseas payments.
Exception: The treatment of some CFPs may be modified by Australia's social security agreements with other countries. Payments may be treated as:
- a direct deduction, rather than as ordinary income
- exempt from the income test, or
- partly assessable, with only some components of the payment, or a proportion of the payment being assessable.
Example: Under the New Zealand Agreement, the amount of New Zealand superannuation and New Zealand invalid benefit payable is always directly deducted from the rate of an Australian social security payment otherwise payable to a person in Australia.
Example: Under the Agreement with Italy the Italian supplement is generally exempt as income for all payments except SpB.
CFPs are characterised by compulsory contributions by the individual and their employer. Entitlement to periodic payments or lump sums are based on age and minimum qualifying periods. Where the CFP is in the 'accumulation phase' i.e. the person cannot access funds because they do not meet the qualifying criteria, the asset value of the CFP is not assessed, and the amount is not deemed.
Policy reference: SS Guide 220.127.116.11 Income from overseas payments - specific payments, 10.1 General Principles of Agreements, 10.2 Agreement with New Zealand, 10.1.9.80 Payments Exempt under Agreements
Treatment of CFP payable to surviving spouses in the bereavement payment period
On the death of a partner some recipients may also be granted either a survivor's (or widow's) pension, which is a type of CFP payable to surviving spouses, or an increase in their own payment. Where this occurs the survivor's pension income, or additional surviving spouse payment, is NOT assessed in the 14-week bereavement payment period.
CFP arrears & lump sums
The gross amount of lump sum payments representing arrears of overseas payment entitlements (such as CFPs) is assessed as income for social security purposes, unless modified by Australia's social security agreements. The gross amount includes payments such as voluntary insurance contributions made from the arrears payment.
Lump sum payments representing arrears of a CFP are treated as periodical payments for the period covered by the arrears payment. They are NOT assessed as income for 52 weeks under the non-remunerative lump sum rules or assessed only in the fortnight of receipt for either pension or allowance purposes.
Any amount by which the Australian social security payment (for the recipient or their partner) would have been reduced under this assessment is a recoverable debt. This debt is normally recovered from the arrears payment direct from the overseas country and no debt is raised for the recipient. The person's partner, however, may still have a recoverable debt raised under SSAct section 1228A.
Example: On 30 July 2004 an age pensioner receives a lump sum CFP amount in arrears. The amount is for the period 30 March 2003 to 20 July 2004. The lump sum is apportioned over the period 30 March 2003 to 20 July 2004 and any amount by which any social security payment to the pensioner or their partner would have been reduced becomes a recoverable debt. The lump sum is NOT counted as income at the time of receipt.
Lump sum payments from overseas that do not represent arrears of a CFP are not considered to be remunerative in nature and are assessed as income for 12 months from the date received, unless specifically exempted or modified by Australia's social security agreements.
This includes a lump sum refund of contributions where the person is not entitled to a CFP, a lump sum payment in lieu of a CFP payment, or a lump sum commutation of a CFP payment. The exchange rate that applied on the date the lump sum is received is used to convert the foreign currency amount to Australian dollars and this exchange rate continues to apply for the 12 month assessment period.
Example: Lump sums paid in lieu of small overseas payments are assessable for 12 months from the date received.
Act reference: SSAct section 1228A Comparable foreign payment debt recovery, section 8(11) An amount received by a person is an exempt lump sum, section 1073 Certain amounts taken to be received over 12 months
Policy reference: SS Guide 18.104.22.168 Determining the rate of income for pensioners of age pension age from 20/09/2009, 22.214.171.124 Income exempt from assessment - s 8(11) exempt lump sums, 6.3.1 Non-payment-specific overpayments, 7.3.3 CFP notices & reasonable action requirements, 10.1.8 Arrears, Embargoes & Overpayments, 10.1 General Principles of Agreements
Other (non-CFP) overseas payments
Other, non-CFP, overseas payments are also paid to people in Australia and to Australian pensioners overseas. The gross amount of all overseas payments, whether government or privately funded, is assessed as ordinary income (1.1.O.30) and need to be reviewed annually to update their rates.
Example: The most common non-CFP payments are war pensions, public service pensions, private annuities and other private overseas income streams.
Note: Some payments paid as compensation for National Socialist persecution are exempt from the social security income test. See 126.96.36.199 Holocaust restitution payments - all countries and 188.8.131.52 Restitution payments - Netherlands.
Act reference: SSAct section 8(8)(n) an amount paid, under a law of, or applying in, a country or part of a country, by way of compensation for a victim of National Socialist persecution
Policy reference: SS Guide 184.108.40.206 Income from Private Annuities & Overseas Income Streams
Overseas payments - blocked income
The treatment of blocked foreign income, including CFPs and other overseas payments, 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. 'The construction and application of the definition of income does not depend on the circumstances that an applicant for a pension may choose to live in Australia or another country or both countries'.
Therefore, where access to a foreign payment is severely limited, it does not mean the payment is considered 'blocked'. For example, the paying country restricts payment of pensions outside that country, or access is restricted to residents of or to people physically present in the paying country.
Depending on the circumstances of the individual case, however, it MAY be accepted that a payment 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.
Explanation: Shepard J in Inguanti v Department of Social Security (1988) 15 ALD 348 stated that where the prospect of ever receiving money is remote, or if receipt of money, although certain, is likely to be so far in the future as to make the money of no relevant benefit in the present, it may be correct to say the money is not 'derived'.
Example 1: Country A
Due to political or financial crisis Country A is withholding remittance of pensions to 'residents' and 'non-residents'. Information is not available as to when this restriction is likely to be lifted. The available evidence however suggests that the prospect of the recipient ever receiving the money is so remote, or so far into the future, as to make the money of no relevant benefit at the time the matter is considered.
Example 2: Country B
Country B has suspended remittance of pensions to 'non-residents'. Information from Country B suggests that it has no intention of removing this restriction. Also, an official travel warning has been issued by DFAT, advising against all travel to that country now and for the foreseeable future.
Example 3: Recipient cannot travel to another country to access their overseas pensions.
A recipient can only access their overseas pension by being physically present in the other country. However, they cannot travel overseas due to a medical condition, and there is no reasonable prospect of them being able to travel overseas to access their pension in the foreseeable future.
In cases such as these, the recipient still has a legal obligation to notify Services Australia as soon as their overseas pension payments are restored.
Where possible, information provided by recipients should be verified before a decision is made that income is blocked. Evidence may take the form of a letter from an independent source (e.g. fund manager or embassy).