Income test for social security

The second test applied to customers of Centrelink is an income test. Your total income is assessed and may reduce your entitlement to a benefit.

Some forms of income are assessed on the actual income you receive, though an income is "deemed" from certain financial assets, as explained in the previous article on deeming.

Income tests take into account expenses on non deemed assets, so for example if you own a property you can claim the interest on the mortgage as an expense, and up to one third of gross rental receipts as expenses.

The amount of income assessed in the income test is equal to the actual income from non-deemed assets, minus any reasonable expenses incurred in earning that income, plus deemed income, minus any deductible amounts from income streams.

Examples of assessable income:

• deemed income from financial investments e.g. term deposits, shares, bank accounts including overseas investments;
• deemed income on money in superannuation or rollover funds if you have reached Age Pension age;
• income from profits on superannuation or rollovers where early withdrawal has been made and the person is under 55 years of age;
• payments from income streams;
• before tax income from earnings;
• income from self-employment and businesses, including family businesses and farms;
• income from real estate, including rental of holiday homes;
• income from deceased estates;
• bonuses paid on traditional insurance policies (in fact, if you sell one of these policies or it matures all bonuses paid during the life of the policy are assessed that year in the income test, so these things can really make a mess of your income test);
• compensation payments (compensation may affect your payment in different ways.);
• income from boarders or lodgers;
• distributions from family trusts; and
• overseas pensions (Note: If you are being paid under an Agreement Australia has with another country, overseas pensions may be treated differently).

Exempt income:

• social security payments;
• capital gains on shares, real estate and most other investment assets;
• the deductible amount of income streams;
• returns on investments in superannuation until the person reaches Age Pension age;
• home equity conversion;
• emergency relief;
• payments in respect of a dependent child;
• insurance payments;
• exempt funeral investments;
• rent subsidy;
• medical benefits;
• payments to members of the Reserve Forces;
• payments from family members; and
• certain other exclusions.

Income test thresholds for allowances

You get an "income free area", where you can earn a bit of income before it affects the income test, at the time of writing (january 2007) this is $62 per fortnight. Every dollar of assessed income between $62 and $142 will reduce your entitlement by 50c, and every dollar of assessed income above $142 will reduce your entitlement by 70c, until your payment is extinguished.

Income test thresholds for pensions

Pension reduces by 40c for every dollar over the full payment threshold, until the payment is extinguished. For pensioner couples 20c in each dollar of income in excess of these amounts (each) is deducted until the payment is extinguished.

If only one partner is receiving a benefit, or if one gets an allowance and the other a pension

If one partner is receiving a pension, but the other is working, the couple's combined income is taken into account and the income of the working partner may eliminate the non-working partner's entitlement to a pension at 20c in the dollar exceeding the lower threshold.

If one partner is receiving an allowance, but the other is working, the couple's combined income is taken into account and the income of the working partner may eliminate the non-working partner's entitlement to an allowance at 70c in the dollar exceeding the allowance extinction threshold.

If one partner gets an allowance and the other gets a pension, half the combined income counts against the allowance income test and all of the income counts against the pension income test.

To download the latest Centrelink's "Guide to Australian Government Payments" booklet, in which benefit amounts and means test thresholds are shown, click here.