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Notional annual rate of ordinary income - unrealisable assets

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Last amended: 10 October 2007

    

 

Unrealisable assets are deemed to produce a notional income. The notional annual rate of ordinary income is assessed separately for each unrealisable asset.

Notional annual rate of ordinary income calculation

A person's notional annual rate of ordinary income from an unrealisable asset is the lower of:

  • 2.5% of the value of the person's and the person's partner's unrealisable asset, or
  • the amount per year that could reasonably be expected to be obtained from a purely commercial application of the person's and the person's partner's unrealisable assets.  Where the unrealisable asset is a property, this amount will be the commercial lease value.
Exceptions:

(i) If a person receives income from an unrealisable asset, special provisions apply.

(ii) Notional ordinary income is not calculated using this method if the unrealisable asset is a property and is occupied by:

  • a person's near relative or a long term tenant with a low income, or
  • one partner of a separated couple.

If the occupier is a near relative or a long term tenant with a low income, the commercial lease value is calculated as 20% of the total income of the occupant (and partner) of the property. Total income includes all social security income support payments.

If the occupier is one partner of a separated couple, the notional ordinary income calculation depends on rental arrangements between the non-occupier and the occupier.

Notional income for separated couples

 

If the occupying partner:

Then notional income is:

is paying rent to the non-occupier

the lesser of:

  • 2.5% of the non-occupier's interest in the property, or
  • the amount of the rent minus all reasonable expenses.

Example: bank charges are reasonable expenses

does not have a rental agreement with the non-occupier

the lesser of:

  • 2.5% of the non-occupier's interest in the property, or
  • the non-occupier's share of the commercial lease value

Example: a pensioner that has a 50% interest in the home is taken to receive 50% of the commercial lease value

refuses to pay rent to the non-occupying partner, pending property settlement

not calculated

 

Note: the non-occupier must produce clear evidence that an occupying partner refuses to pay rent – eg. a letter from a partner's solicitor

Pensioner receives income from an unrealisable asset

If a pensioner receives income from an unrealisable asset, then notional ordinary income is:

  • the lower of 2.5% of the asset's value, or
  • the commercial lease value, minus
  • actual income received.

 

Exception: The actual income received is used to calculate the rate under the hardship provisions if the actual income received is greater than calculated notional ordinary income.


 

 

For non-farming properties, the commercial lease value of an asset is the value that can reasonably be obtained by using the asset. Generally this is the asset's market rental value.

For farming properties, the commercial lease value is assessed by the AVO. Reassessment may be requested if the valuation does not sufficiently take into account any of the following:

  • inherent characteristics of the land, eg soil conditions, erosion, salinity, condition of fencing,
  • demand for the land,
  • general farm incomes,
  • legal impediments to commercial use, eg an existing lease,
  • expenses incurred if the farm is leased, eg rates, insurance, interest,
  • value of water licences (if relevant), or
  • value of tobacco quotas (if relevant).

Note: If the asset does not have commercial lease value then notional income for the asset cannot be assessed.