Income Assessment of Military Pension Income Streams

Income test assessment

The income test assessment for income support recipients receiving a military invalidity pension income stream is calculated as follows: 

• Annual payment – special reduction amount. 

Annual payment is the amount payable to the income support recipient for the year under the income stream. This is the gross amount payable, before any deductions. 

The definition of special reduction amount under section 46VAA clarifies that the special reduction amount is the sum of the amounts that would be the tax-free components, worked out under Subdivision 307–C of the Income Tax Assessment Act, of the payments received from the military invalidity pension income stream during the year, if it were assumed that the military invalidity pension income stream is a superannuation income stream within the meaning of that Act.

The affected payments are superannuation lump sums, rather than superannuation income streams. The definition of the special reduction amount is intended to produce the same assessment of income as was obtained when the affected payments were taken to be asset test exempt defined benefit income streams under the Veterans’ Entitlements Act, and to be superannuation income streams for tax purposes. 

Section 46VAA does not include an equivalent provision to subsection 1099AAA(2) of the Social Security Act 1991 that introduces a 10% cap on the special reduction amount. This is because that formula is not a feature of the income support framework in the VEA.