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Overview of Income from Employment
Last amended: 20 September 2009
Definition of earnings
Income from employment, also known as earnings, falls within the definition of income at section 5H VEA. Any income or income amount (which includes valuable consideration, as well as money) which is earned, derived or received from employment for a person's own use or benefit is to be assessed under the income test. This broad definition of income means that it is not necessary that earnings be derived or earned at the same time that they are received, in order to be assessed.
Under the Work Bonus provisions, half of a person's earnings each fortnight from remunerative employment (up to maximum earnings of $500) are excluded from the income test.
Test of “own use or benefit”
The defining characteristic that allows assessment under the income test is whether the amount that is earned, derived or received is available for a person's own use or benefit, as they see fit. This characteristic has been reinforced by recent High Court and AAT judgements where earnings that were required to be repaid to an employer to make up for shortfalls in a till were accepted as falling outside the definition of income. This is because these earnings were not available for the person to use as they wished and they therefore did not benefit from the earnings in an absolute sense.
The phrase “own use or benefit” is included in the VEA for means-test purposes, and so must be applied within the spirit and intent of income support legislation. Earnings that are only notional should not be included in the pension assessment unless it can be clearly shown that they are available for the person's own use or benefit.
Examples of earnings that are not available for a person's own use or benefit
Allowances paid to cover out of pocket expenses are not assessable. This is because they reimburse employees for expenses that they have already incurred, and are therefore not available for a person to dispose of as they see fit.
Example of earnings available for a person's own use or benefit
Amounts paid in tax are assessable as they benefit a person by meeting their taxation obligations. Salary sacrifice amounts also fit the definition of being available and being used for a person's own use or benefit (for example, a higher retirement benefit) and are therefore assessable.
Gross income is assessed as earnings
Income from employment is generally assessed as the gross amount of income earned. Employment income includes salary, wages, commissions, fees, honoraria, contractual payments, salary sacrifice amounts and any valuable consideration received, before tax.
For work bonus purposes, the income must be from remunerative work undertaken by the person as an employee in an employer/employee relationship.
Reduction in earnings is not deprivation
A reduction in a pensioner's earnings as a result of ceasing employment, reducing the hours of employment or changing to a lower paid job is not regarded as a deprivation of income, for the purposes of the disposal provisions.
The specific type of employment held by a pensioner, such as being full-time, part-time, casual, irregular, contract or self-employment, is not regarded as an important factor when determining the annual rate of income. Instead, the degree of consistency (variability) of earnings is regarded as the most relevant and important consideration. For this reason, these policy guidelines categorise earnings into three broad types on the basis of their variability, being:
- regular earnings,
- variable earnings, and
- single period or one-off earnings.
Centrelink age pension
The earnings of pensioners who are receiving an age pension under the Social Security Act 1991 (under an agency agreement) must be assessed under the relevant Centrelink guidelines. These are contained in the Guide to Social Security Law, at section 4.3.3 Income from Employment.
According to section 5H of the VEA income is:
- an amount earned, derived or received by a person for the person's own use or benefit;
- a periodical payment by way of gift or allowance; or
- a periodical benefit by way of gift or allowance.
Valuable consideration is defined as receipts not in money form but capable of being valued in money terms.
An age pension is a means tested income support payment paid by Centrelink or DVA on behalf of the Department of Families, Housing, Community Services and Indigenous Affairs. The majority of age pensions are paid through Centrelink. However, eligible veterans who have an accepted disability or receive a disability pension from DVA, but do not have qualifying service, may be paid their age pension by DVA. Their partner may also receive their age pension from DVA, if eligible.
Centrelink is a Government service delivery agency responsible for delivering a range of Commonwealth Government services (including social security pensions and allowances) to the Australian community through a network of more than 400 Centrelink offices.