C40/2004 Disability Income Rent Test - Application to Service Pension, Income Support Supplement and DFISA

Purpose of instruction

The purpose of this Departmental Instruction is to explain the disability income rent test (DI rent test).  It affects the following income support payments:

• service pension (SP);
• income support supplement (ISS); and
• Defence Force Income Support Allowance (DFISA).

Rent assistance

Rent assistance (RA) is a fortnightly allowance paid under the Veterans' Entitlements Act 1986 (VEA) to a service pensioner or ISS recipient to assist in meeting the cost of private rental accommodation.  It is also payable under the Social Security Act 1991 (SSA) to those receiving certain social security payments.

In most respects the RA calculations are the same under the VEA and the SSA.  However, the rules differ if the recipient or their partner is in receipt of disability income (DI) (defined below).

Assessment of DI under VEA and SSA

DI is assessed differently under the VEA and the SSA.

Under the SSA, DI is included in the assessment of pensions and benefits.

Under the VEA, DI is exempt income and is therefore not included in the assessment of the basic rate of SP or ISS.  It is, however, included in the calculation of any rent assistance entitlements, using the DI rent test.

Calculation of RA

Under the VEA and the SSA, the rate of RA payable to a person is affected by the amount of rent paid and the person's family situation.

A person's family situation determines their rent threshold.  Generally, RA is 75 cents for every dollar of rent paid in excess of that threshold, up to a maximum amount.  That is:

RA = (Rent paid – Rent threshold) X 0.75

If the formula gives a result of more than the maximum amount of RA the RA payable is the maximum amount.

Impact of DI on rate of RA

Where the person is a service pensioner or ISS recipient and they or their partner are receiving DI, the amount of RA included in the calculation of their rate of SP or ISS may be reduced by the DI rent test (as explained below).

DI rent test

The DI rent test is the method of calculating the amount by which a pensioner's RA is reduced because of the DI paid to them or their partner. This is the RA reduction amount.

The DI rent test is also used to calculate the rent reduction amount which is used for the purpose of calculating the notional rate of social security pension or benefit payable to a person who is renting.  The notional rate is used in calculating the amount of DFISA payable (see DI C39/2004 “Defence Force Income Support Allowance”).

Calculation of RA reduction amount/rent reduction amount

RA reduction amount and rent reduction amount are calculated using the same formula:

RA reduction amount/rent reduction amount = (DI – IFA) x taper rate

Note: Taper rates and income free areas (IFA) vary from payment to payment.  Age, service, disability support pensions and income support supplement all have the same taper rate and free areas.  However, some social security payments have different assessment rules.  For example, newstart has a lower free area, higher taper rates and two thresholds.

What is disability income - service pension?

The term disability income was first introduced to the VEA by the Military Rehabilitation and Compensation (Consequential and Transitional Provisions) Act 2004.  It provided one term which encompasses all of the following payments made to a person or their partner :

• disability pension (as defined by section 5Q(1) of the VEA) (including foreign DP);
• weekly permanent impairment compensation payments made under the Military Rehabilitation and Compensation Act 2004 (MRCA); and

• where the person or their partner has been paid a lump sum permanent impairment payment under MRCA, the weekly amount that they would have been paid if they had not chosen a lump sum.

What is disability income – ISS?

DI has a slightly different meaning when used in the context of calculating RA for an ISS recipient.  The only difference is that for ISS RA, DI does not include similar payments made by other governments e.g. foreign governments.  This is because such payments are already taken into account in assessing the rate of ISS.

Where the term DI applies to ISS recipients, it equates to adjusted disability pension. This term is explained further in DI C39/2004, and is a composite term used to refer to the following payments:

• disability pensions paid under Parts II or IV of the Veterans' Entitlements Act 1986 (VEA);
• dependant pension, which is a small frozen amount paid to dependants of disability pensioners, not granted since 1986;
• temporary incapacity allowance; and
• permanent impairment payments and special rate disability pension paid under the Military Rehabilitation and Compensation Act 2004.

What is disability income – DFISA?

DFISA is an income support payment made by DVA under the Veterans' Entitlements Act 1986 (VEA).  It may be payable to a person whose social security income support payment is reduced or not payable because of adjusted disability pension (adjusted DP). The amount of DFISA payable is the difference between the actual rate payable and a notional rate calculated by excluding DI from the assessment, but including it for the purpose of calculating RA.  This is done through a notional DI rent test calculation.

For the notional DI rent test calculation the DI definition applied is the same as that used in the calculation of RA payable to an ISS recipient.

Disability income reduced by compensation payments

Payments such as disability pension and permanent impairment payments may be offset by other compensation payments.  Where this occurs, the payments included in the definition of disability income are the actual payments made by DVA, not the gross amount to which the person is entitled.

Attachments

The use of the DI rent test in calculating SP, ISS and DFISA is explained in further detail in the following attachments:

1. Application of DI rent test in assessment of SP;
2. Application of DI rent test in assessment of ISS; and
3. Application of DI rent test in assessment of DFISA.

Contact Officer

Brenda Franklin, Income Support Policy:(02) 6289 6426

Introduction

DI is excluded income in the basic service pension assessment.  However, when calculating the amount of RA payable to a service pension recipient, any DI received by that person or their partner is counted as income. The DI rent test is used to calculate the amount by which RA is reduced.

Disability Income – member of a couple

Where a service pensioner is a member of a couple, the amount of DI used in the calculation of RA for each member of the couple is half of the total amount of DI received by the couple.

Effect of DI on rate of RA

The DI rent test applies only where the amount of DI exceeds the person's income free area (IFA).  In such circumstances, the RA included in the calculation of service pension is reduced by the RA reduction amount. The steps in calculating the amount of RA which is to be included in the calculation of a service pension are:

Step

Action

1.

Excess rent = rent paid – rent threshold

2.

Excess rent * 0.75

3.

If result of step 2 > maximum RA, the provisional rate of RA = maximum RA rate

4.

If 2 < maximum RA, the provisional rate of RA = result of step 2

5.

If person's DI < IFA, RA = provisional rate from step 3 or 4.

6.

If person's DI > IFA, go to step 7.

7.

Work out the disability income excess.  Disability income excess equals the difference between the DI and the IFA.
(Disability Income Excess = Disability Income – Income Free Area)

10.

Work out the RA Reduction Amount, that is the disability income excess multiplied by 0.4 (the taper rate).
(RA Reduction Amount = Disability Income Excess x 0.4)

11.

Work out the rate of RA, that is the provisional rate of RA (from step 3 or 4) minus the RA reduction amount.
(RA = Provisional Rate of RA – RA Reduction Amount)

Example

Ted and Pam are members of a pensioner couple without children.

They rent a house for $400 per fortnight.  Ted receives 100% disability pension ($296.40 per fortnight).

Pam receives the spouse's rate of disability pension ($8.42 per fortnight).

The RA payable to Ted per fortnight is calculated as follows:

Step

Action

1.

Excess rent = $200 – $70.10 = $129.90

2.

Excess rent * 0.75 = $97.43

3.

Maximum RA = $45.70

4.

Because Excess rent > maximum RA, Provisional RA = $45.70

5.

Disability Income Excess = $152.41 – $108 = $44.41

6.

RA Reduction Amount = $44.41 x 0.4 = $17.76

7.

RA = $45.70 – $17.76 = $27.94

As a result of the DI rent test, the rate of RA which will be included in the calculation of Ted's service pension is reduced to $27.94 per fortnight.  Pam's rate of RA will be the same.

Note: the rates used in this example are current as at 20 September 2004.

Introduction

Since 20 September 2004, DI has been exempt from the assessment of ISS (see DI C39/2004 for details).  However, when calculating the amount of RA payable to an ISS recipient, any DI received by that person or their partner is now counted in the assessment of RA. The RA reduction amount is the amount by which the RA is reduced because of the DI. This is calculated using the DI rent test.

Note that in the case of ISS recipients, DI equates to adjusted DP.

DI rent test

The DI rent test only applies where the amount of DI exceeds the war widow(er)'s IFA. Where this is the case, the RA included in the calculation of the rate of ISS is reduced by the RA reduction amount.

The steps involved in the DI rent test for ISS are the same as outlined in Attachment 1 for SP.  The only difference between the two tests is that the definition of DI is slightly different for the two payments.

Example

Julia is a re-married war widow who, with her husband, pays $200 per fortnight rent.  Her husband receives disability pension (EDA of $446.90 per fortnight) from DVA and the couple have other joint income (excluding war widow's pension) of $975.80.

Her rate of ISS is $139.90 (ceiling rate), but, because of the DI rent test, the amount of RA is nil.  The calculation of the amount of RA is shown below:

Step

Action

1.

Excess rent = $100 – $70.10 = $29.90

2.

Excess rent * 0.75 = $22.43

3.

Maximum RA = $45.70

4.

Because Excess rent < maximum RA, Provisional RA = $22.43

5.

Disability Income Excess = $223.45 – $108 = $115.45

6.

RA Reduction Amount = $115.45 x 0.4 = $46.18

7.

RA = $22.43 – $46.18 = $NIL

Introduction

DFISA may be payable where a person's social security income support payment is reduced or not payable because of DI.  For the purpose of calculating DFISA, DI is the equivalent of adjusted DP.

DFISA is the difference between the notional rate of social security payment and the actual rate of social security payment.  That is:

DFISA = Notional rate of social security payment – Actual rate of ss payment

The actual rate is the rate of a person's social security income support payment under the Social Security Act 1991.

The notional rate is what the person's rate of social security income support payment would be if the following applied:

• adjusted DP was exempt income; but

• adjusted DP was included in the calculation of any RA entitlement.

Clients qualified for RA

Where a DFISA recipient is qualified for RA, the assessment of their notional rate of social security income support involves the application of the DI rent test.  This test is similar to the DI rent test applied under the VEA to calculate the rates of service pension and ISS for those who rent (see Attachments 1 and 2).

Like the DI rent test applicable to ISS, the DI rent test uses the adjusted DP of the client using the income free area(s) and taper rate(s) applicable to the person's social security income support payment.  As a result, the amount of RA included in the calculation of a person's notional rate may be reduced.

The steps involved in the DI rent test for DFISA are similar to those outlined in Attachment 2 for ISS.

Example of DI rent test reducing amount of DFISA payable

The following is an example of a client whose rate of DFISA is nil because of the DI rent test.  Rates are as at 20/09/2004.

Bob is a single age pensioner paid by Centrelink.  He receives 100% of General Rate Disability Pension ($296.40 per fortnight) and has no other income. He pays $400 rent per fortnight.

His actual rate of age pension is $400.94 AP + $96.80 RA = $497.74.

His notional rate of age pension is $470.70 AP + $27.04 RA = $497.74

DFISA is the difference between the actual and the notional rates.  Therefore, his DFISA is nil. The following steps explain how his RA goes from $96.80 to $27.04 because of the DI rent test in the notional calculation.

Step

Action

1.

Excess rent = $400 - $86.00 = $314

2.

Excess rent * 0.75 = $235.50

3.

Maximum RA = $96.80

4.

Because Excess rent > maximum RA, Provisional RA = $96.80

5.

Disability Income Excess = $296.40 - $122.00 = $174.40

6.

Rent Reduction Amount = $174.40 x 0.4 = $69.76

7.

RA = $96.80 - $69.76 = $27.04