B30/1994 MAINTENANCE INCOME | Compensation and Support Reference Library, Departmental Instructions, 1994

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B30/1994 MAINTENANCE INCOME

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DATE OF ISSUE:  21 JULY 1994

MAINTENANCE INCOME

Purpose

This paper provides information on maintenance income.

Background

2.Maintenance income is assessed under the maintenance income test, which is distinct from the ordinary income test.

3.Prior to 1 January 1993, the basic rate of service pension, rent assistance, dependent child add-on (DCAO), guardian allowance and pharmaceutical allowance could be reduced under the maintenance income test.  This policy has now changed.  From 1 January 1993, maintenance income only affects service pensioners getting child related payments.  The reduction for maintenance income cannot exceed an amount equivalent to child related payments.  That is, dependent child add-on, guardian allowance and rent assistance.

4.Departmental Instruction # B04/94 contains information on the new policy relating to maintenance income.  Please note that this DI incorrectly stated that maintenance income would only affect child related payments from 1 January 1994.  The actual date of implementation is 1 January 1993.  This ensures that no service pensioners are disadvantaged by the fact that the DVA implemented child payment policy changes one year after the Department of Social Security integrated Family Payments.


5.The following material:

.details issues relating to maintenance income (paragraphs 6-20 refer);

.demonstrates how to calculate pension reductions under the maintenance income test (paragraphs 8-16 and Attachment A refer);  and

.explains how to process maintenance income on PIPS (paragraphs 21-22 refer).

Calculating The Payment Rate Of Service Pension

6.The payment rate of service pension must be manually calculated in cases where a service pensioner receives maintenance income.  The following steps should be followed:

(i)Determine the reduction for maintenance income under the maintenance income test.

(ii)Determine the reduction for ordinary income under the ordinary income test.

(iii)Add the reduction calculated under each test to determine the total income reduction.

(iv)Take the total income reduction away from the maximum payment rate; the rate is called the income reduced rate.

(v)Compare the income reduced rate to the assets reduced rate.

(vi)The rate of service pension payable is the lesser of the income reduced rate and the assets reduced rate.

7.Attachment A provides examples of calculating the rate of service pension in cases where maintenance income is received.

The Maintenance Income Test

8.The maintenance income test operates in the following way:

(i)Determine the amount of maintenance income on a fortnightly basis.

(ii)Work out the maintenance income free area that applies to the pensioner.

(iii)Reduce service pension by 50 cents for every dollar of maintenance income in excess of the free area.  The result is known as the reduction for maintenance income.

9.The basic maintenance income free area of $33.30 per fortnight applies to:

.standard (single) rate service pensioners;  and

.couples - where only one of the partners receives maintenance income.

10.The basic free area is $66.60 per fortnight if both the veteran and partner receive maintenance income.

11.An additional free area of $11.10 per fortnight applies to each maintained child after the first.

12.These rates apply from 1 July 1994.  The free areas are indexed in July of each year.

13.Maintenance is not assessed under the ordinary income test or the DVA treatment income test.  In addition, maintenance income is not considered when calculating an earnings credit.

14.Maintenance is only assessable when a service pensioner has a dependent child or children.  Spousal maintenance received by a service pensioner without children does not have any bearing on his or her rate of pension.

15.Any reduction for maintenance income is initially applied to the basic rate of service pension in accordance with the provisions contained in section 40C VEA. (The basic rate of service pension for a single veteran is currently $318.10 per fortnight.)

16.The reduction for maintenance income cannot exceed an amount equivalent to the rate of DCAO, Guardian Allowance and Rent Assistance payable.

17.This principle is demonstrated in the examples at Attachment A.

Maintenance Income Verses Payment of Maintenance

18.A service pensioner may pay maintenance to another person in respect of a child or children.  These maintenance payments reduce the assessable value of ordinary income for that service pensioner.

19.Dependent Child Add-On (DCAO) can be paid to the veteran if the maintenance payment equals or exceeds the relevant rate of DCAO.  The child is considered substantially dependent on the veteran even though another person has custody of the child.

20.The assessment of maintenance payment is illustrated by the following example.

A veteran separates from his wife.  She has custody of their 9 year old daughter.  The veteran pays $200 cash maintenance per fortnight.  He also receives $400 superannuation per fortnight.  In this situation, every dollar of maintenance paid reduces the assessable value of ordinary income by $1.

Therefore, the assessable value of ordinary income is $200 per fortnight.  The maintenance payment is recorded on the maintenance screen (PP.MA).  This entry will automatically reduce the assessable value of ordinary income.

DCAO is paid to the veteran as the maintenance payment is greater than the relevant amount of DCAO.

Systems Issues

21.The reduction for maintenance income cannot be calculated on PIPS.  However, the payment rate of service pension is recorded on the manual rates screen (PP.MR) after the rate has been manually calculated.

22.Maintenance income does not reduce the additional free area under the ordinary income test (point 42-E10 VEA refers).  For this reason, maintenance income should not be recorded in the 'Deductible Payment' field on the personal assessment screen for children (PP.PA).

Contact Officer

23.Any queries relating to this instruction should be directed to Graham Keaney on

(02) 213 7770

MAURIE GALT

ACTING ASSISTANT SECRETARY

INCOME SUPPORT


ATTACHMENT A

The following examples demonstrate how to calculate the rate of service pension in cases where maintenance income is received.

Rates are current as at 7 July 1994.

Example 1

A single veteran with 3 children under 13 receives cash maintenance of $181.50 per fortnight.  She has investment income of $202.00 per fortnight.  She owns her own home and has assessable assets worth $125,000.

The reduction for maintenance income is calculated in the following manner:

Maintenance$181.50

Less maintenance income free area$  55.50

($33.30 + $11.10 + $11.10)

Excess$126.00

Divided by 2$  63.00

The reduction for maintenance income is $63.00 as this amount is less than the rate of child payments ($192.60 DCAO plus $29.60 Guardian Allowance).

The reduction for ordinary income is determined as follows:

Ordinary Income$202.00

Less Ordinary Income Free Area  ($90 + 3 x $24)$162.00

Excess$  40.00

Divided by 2 = (Reduction for Ordinary Income)$  20.00

The overall income reduction is $83.00 per fortnight.  This is the total of the reduction for maintenance income ($63.00) and the reduction for ordinary income ($20.00).

The reduction for assets is calculated in the following way:

Assesable Assets$125,000

Less Assets Free Area$115,000

Assets Excess$  10,000

Service pension is reduced by $0.75 for every $250 of assets in excess of the assets free area.  Therefore, the reduction for assets is:

$10,000  x  0.75=$30

250


The maximum payment rate of service pension is:

Service Pension$318.10

Dependent Child Add On($64.20  x  3)$192.60

Guardian Allowance$  29.60

Pharmaceutical Allowance$    5.20

Total$545.50

The income reduced rate is:

Maximum payment rate of service pension-Reduction for income

$545.50-$83.00=$462.50

The assets reduced rate is:

Maximum payment rate of service pension-Reduction for assets

$545.50-$30.00=$515.50

The income reduced rate of service pension is payable as it is less than the assets reduced rate.  The payment rate of service pension is:

Service Pension($318.10  -  $83.00)$235.10

Dependent Child Add On($64.20  x  3)              $192.60

Guardian Allowance$  29.60

Pharmaceutical Allowance$    5.20

Total$462.50

Note:The reduction for maintenance income cannot exceed an amount equivalent to child payments.  However, the reduction is initially applied to the basic rate of service pension in accordance with section 40C VEA.


Example 2

A couple have 1 child who is 14 years old.  The child came from the wife's former marriage.  She receives cash maintenance of $333.30 per fortnight.  The couple have investment income of $300.00 per fortnight.  They own their principle residence and have assessable assets worth $168,500.

The reduction for maintenance income is calculated in the following manner:

Maintenance$333.30

Less maintenance income free area$  33.30

Excess$300.00

Divided by 2$150.00

The maximum rate of Dependent Child Add-On in respect of a 14 year old child is $90.60.  The reduction for maintenance income cannot exceed this amount.

The reduction for ordinary income is determined as follows:

Ordinary Income$300.00

Less Ordinary Income Free Area  ($156 + $24)$180.00

Excess$120.00

Divided by 2 = (Reduction for Ordinary Income)$  60.00

The overall income reduction is $150.60 per fortnight.  This is the total of the reduction for maintenance income ($90.60) and the reduction for ordinary income ($60.00).

The reduction for assets is calculated in the following way:

Assesable Assets$168,500

Less Assets Free Area$163,500

Assets Excess$    5,000

Service pension is reduced by $0.75 for every $250 of assets in excess of the assets free area.  Therefore, the reduction for assets is:

$5,000X0.75=$15

250


The maximum payment rate of service pension for the veteran is:

Service Pension$265.30

Dependent Child Add On$  90.60

Pharmaceutical Allowance$    2.60

Total$358.50

The maximum payment rate of service pension for the wife is:

Service Pension$265.30

Pharmaceutical Allowance$    2.60

Total$267.90

The combined maximum payment rate of service pension is:$626.40

The income reduced rate is:

Maximum payment rate of service pension              -              Reduction for income

$626.40-$150.60=$475.80

The assets reduced rate is:

Maximum payment rate of service pension-Reduction for assets

$626.40-$15.00=$611.40

The income reduced rate of service pension is payable as it is less than the assets reduced rate.

The payment rate of service pension for the veteran is:

Service Pension  $144.70

Dependent Child Add On$  90.60

Pharmaceutical Allowance$    2.60

Total$237.90

The payment rate of service pension for the wife is:

Service Pension  $235.30

Pharmaceutical Allowance$    2.60

Total$237.90

Note 1:The equalising effect means that the additional amount of pension paid to the veteran is initially reduced until the veteran and wife are paid the same rate.

Note 2:Service pension is reduced before Dependent Child Add On in accordance with the order of reduction provisions contained in section 40C VEA.

Note 3:The combination of the equalising effect and the order of reduction provisions results in the veteran having a taxable payment that is lower than the partner's taxable payment.