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9.1.1 Overview of Income and Assets Test Principles
The assessment process
A person's rate of service pension or ISS is based on a number of factors, including:
(Note: service pension assesses ordinary income, whilst ISS assesses adjusted income)
- the number of dependent children (for transitional rate clients only),
- whether the person has reached qualifying age and still working,
- the person's family situation,
and whether the pensioner:
- is renting their home,
- lives in a remote area, or
- is blind.
The rate of service pension may also be affected by whether the pensioner is a war widow/widower-pensioner.
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The income and assets tests
Unless a person is permanently blind, the amount of service pension or ISS payable to a person depends on their income and assets. If the person is a member of a couple, their pension is calculated using 50% of the combined income and assets of the couple, regardless of which member of the couple actually receives the income or owns the assets.
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Changes to pension payments under the Secure and Sustainable Pension Reforms
From 20 September 2009, the income test taper rate increased from 40 cents to 50 cents per fortnight (from 20 cents to 25 cents each for couples). The additional income free area for dependent children was also removed and no longer forms part of the calculation of a person's income free area.
Transitional Provisions
The entitlements of existing pensioners whose pension would be reduced because of the income test changes, will be paid under the transitional rules. The transitional rules will ensure that these pensioners stay on the 40 cents taper and have access to the additional child income free area (if applicable) until such time as the standard rules provide a higher rate of pension.
Moving from transitional provisions
When pensioners move from the transitional rules to the standard assessment rules, they cannot return to the transitional rules even when their circumstances change and they would again be better off under the transitional rules. The only exception is temporary assessment as a respite care couple.
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Application of the assessed rate of pension
The rate of service pension and ISS is calculated on an annual basis, converted to a daily amount, and then paid in fortnightly instalments. The amount payable on a pension payday is the total amount payable for the days in the pension period during which the pension was payable.
Once the pension rate has been assessed, a number of minor adjustments may be made to the rate. The amount payable may also be reduced because of advance payments or overpayments.
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Order of reduction of payments
There is a specific order of reduction set out in the VEA. This is so the taxable component of service pension or ISS is reduced by the income or assets test (or the maintenance income test in the case of saved children) prior to any of the non-taxable allowances. The order of reduction of payments depends on the:
- reason for the reduction, and
- type of payment. More ?
A service pension is an income support payment broadly equivalent to the social security age and disability support pensions. It may be paid once a veteran or partner has reached the nominated age or is incapacitated for work.
ISS is an income support payment that may be paid to eligible war widows and widowers under the VEA and persons receiving wholly dependent partners' compensation under the MRCA, and who satisfy the means tests. It is an indexed rate, increased twice-yearly in March and September in line with changes to the cost of living and/or average wages. Income Support Supplement (ISS) legislation commenced on 20 March 1995. It is a payment created to replace the ceiling rate income support age, carer, wife and disability support pensions, paid to war widows/widowers by Centrelink.
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.
An asset means any property, including property outside Australia.
A person's 'partner' is someone who is a member of a couple with that person.
Section 5F(1) of the VEA defines dependent child as having the same meaning as in the Social Security Act 1991. For income support purposes, dependent child is defined as:
Child under 16 years
- the pensioner has legal responsibility either alone or jointly with another person for the day to day care, welfare and development of the young person AND the young person is in the pensioner's care, or
- the young person is not a dependent child of someone else AND the young person is wholly or substantially in the pensioner's care.
A child under 16 years cannot be considered a dependent child if:
- they are not a full-time student, and
- their weekly income from any source is more than the amount specified in section 5(3)(c) of the Social Security Act.
Child 16 years or older
A young person who has turned 16 years but is under 22 years can still be a dependent child of the pensioner if:
- they are wholly or substantially dependent on the pensioner, and
- their income in the financial year will not exceed the personal income limit, and
- they are receiving full-time education at a school, college or university.
A child over 16 years cannot be considered a dependent child if:
- they receive a social security pension or benefit such as youth allowance, or
- their personal income is more than the amount specified in section 5(4)(b) of the Social Security Act.
Income includes earning from casual, part-time or full-time earnings.
Note: the meaning of a dependent child for DVA income support pension purposes is not the same as the meaning for Family Tax Benefit purposes.
A remote area is defined as one of the following:
- Tax Zone A, including the following islands:
-Macquarie Island,
-Norfolk Island,
-The Territory of Heard Island and McDonald Islands,
-The Australian Antarctic Territory,
-The Territory of Cocos (Keeling) Islands,
-The Territory of Christmas Island, and
-Lord Howe Island,
- Locations within Tax Zone B that are 250 kilometres distant from the nearest urban centre with 2,500 people (known as Special Tax Zone B); and
- Those places in Australia that the Income Tax Assessment Act 1936 treats as being either in Tax Zone A or Special Tax Zone B.
A person may be regarded as permanently blind in both eyes where:
- there is a total loss of sight; or
- visual acuity after correction with suitable lenses is less than 6/60 in both eyes on the Snellen Scale; or
- where, in the written opinion of an ophthalmologist, the visual field deficits and/or combination of deficits results in a visual impairment which is the equivalent of a corrected visual acuity measure of less than 6/60 in both eyes.
The Commission Guideline CM5829: Determining 'permanently blind', 'no useful sight' and 'blinded in both eyes' may be instructive in making a blinded/blindness determination.
War widow/widower — pensioner means a person who is receiving a war widow's/widower's pension from the Australian Government.
According to Section 5E(2) of the VEA a person is a member of a couple, if they are:
- legally married to another person and is not living separately and apart from the other person on a permanent basis; or
- living in a prescribed registered relationship with the other person (whether of the same sex or a different sex) and is not living separately and apart from that other person on a permanent basis; or
- all of the following conditions are met:
- living with another person, whether of the same sex or a different sex;
- not legally married to that person;
- in a de facto relationship with that person; and
- not in a prohibited relationship
The term “partnered” is also commonly used.
Commencing from the Thursday falling on 11 July 1991, DVA pension payday falls on each succeeding alternate Thursday. Refer to the fact sheet IS144 Pension Paydays, Allowance Payment Dates & Pension Periods for a listing of these days.
According to subsection 5Q(1) (b), of the VEA a pension period is a period of two weeks that starts two days before a payday (i.e. Tuesday) and ends two days before the next payday (i.e. close of business Monday).
Veterans' Entitlements Act 1986.
According to subsection 5K(1) of the VEA, maintenance income in relation to a person, means:
- child maintenance — that is, the amount of a payment or the value of a benefit that is received by the person for the maintenance of a maintained child of the person and is received from:
- a parent of the child, or
- the partner or former partner of a parent of the child, or
- partner maintenance — that is, the amount of a payment or the value of a benefit that is received by the person for the person's own maintenance and is received from the person's partner or former partner, or
- direct child maintenance — that is, the amount of a payment or the value of a benefit that is received by a maintained child of the person for the child's own maintenance and is received from:
- a parent of the child, or
- the partner or former partner of a parent of the child,
but does not include disability expenses maintenance.
From 1 January 1998 responsibility for administration of most income support child related payments was transferred to Centrelink. However, saving provisions allow any person in receipt of service pension or income support supplement on 31 December 1997 who would be or is financially disadvantaged by the transfer to continue having their child related payments paid by DVA. Saved children are assessed under the rules contained in the VEA as at 31 December 1997.