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The Income Test
Income for the income test
In applying the income test, a person's gross ordinary/adjusted income whether from within or outside Australia, less any permissible reductions in respect of business income, is taken into account. If the person is a member of a couple, half of the combined income of the couple is taken into account, regardless of which member of the couple actually receives the income.
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Work bonus income and the income test
Where a person who receives service pension or income support supplement has reached qualifying age and they receive employment income arising from remunerative work undertaken as an employee in an employer/employee relationship, an income test concession (known as the Work Bonus applies.
The concession also applies to self-employment and business income generated from gainful work. Gainful work is work that involves personal exertion (active participation).
Work bonus
Under the work bonus income test concession, the first $300 per fortnight of the person's fortnightly work bonus income is excluded from the income test. Pensioners assessed under the transitional rules will not be eligible for the work bonus.
Note: The $300 per fortnight income concession amount is not subject to indexation.
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Work bonus bank
** The maximum work bonus bank amount will temporarily increase by $4,000 from $7,800 to $11,800 between 1 December 2022 and 31 December 2023 **
Where a person's fortnightly work bonus income is less than $300 per fortnight, the person will accrue the unused amount of the $300 per fortnight income concession to a work bonus bank to offset their employment income in the future. The bank continues to accrue until it reaches the maximum allowable balance of $7,800.
Income test and the rate of service pension for non-war widow/widower-pensioners
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If the pensioner has ordinary income up to the ordinary/adjusted income free area, the rate of their pension is the maximum payment rate. This assumes there are no other factors affecting overall payability, such as the assets test or compensation recovery. If the ordinary income is over the income free area, the pension rate is reduced. The income free area for a person who is not a member of a couple differ from that for a person who is a member of a couple. The income free area can also be increased for certain dependent children of the pensioner if the person is paid under the transitional rules.
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Income test and the rate of ISS or service pension for war widow/widower-pensioners
With only one exception, the maximum possible rate of ISS or service pension for a war widow/widower-pensioner is the ceiling rate (plus any rent assistance and remote area allowance payable). The exception applies to an ISS recipient with saved children. In such a case dependent child add-on, and guardian allowance may be added to the ceiling rate.
If the person's income reduced rate is lower than both the assets reduced rate and the ceiling rate, the rate of the person's ISS or service pension will be the income reduced rate plus any rent assistance and remote area allowance payable.
No pension is payable if income is above the limit at which service pension/ISS ceases.
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Service pension and the reduction for ordinary income
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Any ordinary income of the person or the person's partner, in excess of the ordinary/adjusted income free area, will reduce the maximum payment rate of service pension by 50 cents in the dollar. The result is the income reduced rate.
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ISS and the reduction for adjusted income
Any adjusted income of the person or the person's partner, in excess of the ordinary/adjusted income free area will reduce the maximum payment rate by 50 cents in the dollar. The result is the income reduced rate.
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Transitional rules
Pensioners and ISS recipients who were in receipt of pension on or before 19 September 2009 are eligible to be assessed under transitional rules, if:
- transitional rules will result in a higher rate of pension;
- they have never been assessed under the standard rules; and
- they have been in continuous receipt of service pension, ISS or a social security pension since 20 September 2009.
The requirement that the pensioner has never been assessed under the new rules, does not arise where the pensioner's entitlement is re-determined from a date prior to 20 September 2009. Where new pension information is received and is effective prior to this date, the pensioner's right to receive the transitional rate is considered anew.
Once a pensioner or ISS recipient has been assessed under the standard rules they cannot revert to transitional rules. There is an exception to this to cover changes to pension as a result of entering respite care.
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Recipients assessed under transitional rules:
- have their payment calculated using the transitional maximum basic rate (MBR),
- have a taper rate of 40 cents in the dollar for the income test,
- can still receive the additional income free area for children, and
- do not receive the Work Bonus.
Qualifying age is defined in section 5Q(1) of the VEA and is equivalent to the pension age for a veteran which is described in section 5QA VEA as:
- 60 years for a male,
- for females subject to age equalisation (refer to the table in section 5QA VEA).
For work bonus purposes, employment income is ordinary income that is earned, derived or received from remunerative work undertaken by a person in an employer/employee relationship or income generated from gainful work such as business earnings from self-employment that meet the personal exertion test. It includes salary, wages, commissions and employment related fringe benefits.
The following payments are excluded from the definition of employment income:
- superannuation payments,
- payments of compensation or payments under an insurance scheme relating to a person's inability to earn, derive or receive employment from remunerative work,
- termination payments,
- comparable foreign pension payments, and
- leave payments to persons no longer involved in remunerative work.
The work bonus exempts the first $300 per fortnight of work bonus income for eligible people over pension age or qualifying age.
Pensioners and ISS recipients who were in receipt of pension on or before 19 September 2009 are eligible to be assessed under transitional rules, if:
- transitional rules will result in a higher rate of pension, and
- they have never been assessed under the new rules.
The requirement that the pensioner has never been assessed under the new rules, does not arise where the pensioner's entitlement is re-determined from a date prior to 20 September 2009. Where new pension information is received and is effective prior to this date, the pensioner's right to receive the transitional rate is considered anew.
Once a pensioner or ISS recipient has been assessed under the new rules they cannot revert to transitional rules. There is one exception to this, to cover respite care changes to pensioners who return to live as a couple again.
Recipients assessed under transitional rules:
- have their payment calculated using the transitional maximum basic rate,
- have a taper rate of 40 cents in the dollar for the income test, and
- can still receive the additional income free area for children.
Pensioners and ISS recipients who were in receipt of pension on or before 19 September 2009 are eligible to be assessed under transitional rules, if:
- transitional rules will result in a higher rate of pension, and
- they have never been assessed under the new rules.
The requirement that the pensioner has never been assessed under the new rules, does not arise where the pensioner's entitlement is re-determined from a date prior to 20 September 2009. Where new pension information is received and is effective prior to this date, the pensioner's right to receive the transitional rate is considered anew.
Once a pensioner or ISS recipient has been assessed under the new rules they cannot revert to transitional rules. There is one exception to this, to cover respite care changes to pensioners who return to live as a couple again.
Recipients assessed under transitional rules:
- have their payment calculated using the transitional maximum basic rate,
- have a taper rate of 40 cents in the dollar for the income test, and
- can still receive the additional income free area for children.
Dependent child add-on is an amount which is included in a person's service pension or ISS where that person has saved children.
Guardian allowance is included in the calculation of a person's service pension or ISS where that person has a saved child and where that person is either not a member of a couple or is a illness separated couple or respite care couple.
The ordinary/adjusted income free area provides that the pensioner may receive income up to a certain amount without any reduction in their maximum rate of pension.
Any income in excess of the free area will reduce the pension at the rate of 50 cents on the dollar, or 40 cents for those receiving a transitional rate of pension. The amount of ordinary and adjusted income free areas is specified in item 1 in Table E-1 in point SCH6-E6 VEA.
Note: War widow's pension is included as income under the adjusted income test. Neither Disability Compensation Payment nor war widow(er)'s pension are included as income under the ordinary income test.
Adjusted income defined in section 5H VEA, for the purposes of income support supplement, is the sum of the person's:
- ordinary income
- disability pensions paid by other governments
- war widow's/widower's pension (VEA) or equivalent wholly dependent partner payments (MRCA)
- a foreign pension, similar in character to a war widow's/widower's pension.
The ordinary/adjusted income free area provides that the pensioner may receive income up to a certain amount without any reduction in their maximum rate of pension.
Any income in excess of the free area will reduce the pension at the rate of 50 cents on the dollar, or 40 cents for those receiving a transitional rate of pension. The amount of ordinary and adjusted income free areas is specified in item 1 in Table E-1 in point SCH6-E6 VEA.
Note: War widow's pension is included as income under the adjusted income test. Neither Disability Compensation Payment nor war widow(er)'s pension are included as income under the ordinary income test.
Pensioners and ISS recipients who were in receipt of pension on or before 19 September 2009 are eligible to be assessed under transitional rules, if:
- transitional rules will result in a higher rate of pension, and
- they have never been assessed under the new rules.
The requirement that the pensioner has never been assessed under the new rules, does not arise where the pensioner's entitlement is re-determined from a date prior to 20 September 2009. Where new pension information is received and is effective prior to this date, the pensioner's right to receive the transitional rate is considered anew.
Once a pensioner or ISS recipient has been assessed under the new rules they cannot revert to transitional rules. There is one exception to this, to cover respite care changes to pensioners who return to live as a couple again.
Recipients assessed under transitional rules:
- have their payment calculated using the transitional maximum basic rate,
- have a taper rate of 40 cents in the dollar for the income test, and
- can still receive the additional income free area for children.
Rules introduced as part of the Secure and Sustainable Pension Reforms that came into effect on 20 September 2009. For income and assets test purposes the changes include:
- an increase to the income test taper rate from 40 cents to 50 cents on the dollar,
- the abolition of the additional child income free area,
- the introduction of a fortnightly pension supplement to replace telephone allowance, utilities allowance, pharmaceutical allowance and the GST supplement, and
- the introduction of a work bonus, whereby only 50% of the first $500 per fortnight of employment earnings is assessable for eligible pensioners.
The work bonus exempts the first $300 per fortnight of work bonus income for eligible people over pension age or qualifying age.