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8.4 AE when a person is actually in employment
Any income that a person actually earns by his or her labour is considered to be an amount earned in suitable employment and is to be included as AE. This includes earnings from self-employment and commissions, see section 8.6 and 8.7.
AE for a serving member includes any amount earned in employment with the ADF as well as earnings or what the person is able to earn from civilian employment for part-time reservists.
To establish a person’s AE on the basis of actual earnings, the following information is required:
Pay slips or similar documents to establish hours worked and amount received.
Medical certificates (to establish capacity).
The gross value of earnings are held in calculations.
In cases where the delegate is satisfied that a person is working below their full capacity (either level of employment or hours in employment), the person may be deemed with an ability to earn at a higher amount (see section 8.18).
8.4.1 Allowances included in AE
The following types of allowances should be included in the calculation of AE:
allowances which are taxable;
allowances which are paid in respect of specific skills or qualifications attained by the person i.e. allowances paid for licences, tickets, certificates.
The following types of payments should not be included in the calculation of AE:
allowances for money spent, or likely to be spent, by the person on expenses i.e. travel allowance, meal allowance;
retention bonuses (these can be paid either as a lump sum payment or periodically - e.g. fortnightly, and are not considered allowances).
Allowances which should be included and excluded from AE calculations are listed in the following table. Note however that the list is not exhaustive.
Included in AE
excluded from AE
First Aid Allowance
Higher Duties Allowance
Leading Hand/Supervisor Allowance
Travelling and/or meal Allowance
Proficiency/Trade Certificate Allowances (tickets)
Uniform Maintenance Allowance
Disability Allowances i.e. Dirt, arduous conditions
If the basis for receiving an allowance is unclear from the information provided (usually a payslip), further details should be obtained from the person or the employer. For example, the employer can clarify whether a person is receiving an allowance for a particular skill or trade proficiency, or if an allowance is intended to compensate the employee for costs associated with undertaking their employment such as laundering/maintaining a workplace uniform, or requiring high-speed internet connection at home.
Where a person may receive a penalty rate of pay i.e. a higher rate of pay for working certain hours or in certain conditions the higher rate of pay is included in AE. Overtime hours and rates are also included as AE.
Example 1 – Actual earnings and allowances for a serving member on deployment (MRCA)
Actual earnings are calculated in accordance with section 92:
actual ADF pay + actual pay-related allowances
actual ADF pay means the amount of pay the member earns for the week; and
actual pay related allowances means the total compensable pay related allowances (as defined above) that were paid to the member for the week.
A member was posted to Operation Astute (non-warlike service) for the period 27 May 2006 to 24 September 2006. The member returned to Australia on 9 June 2006 due to a service related disease. As a result, the member lost 15 weeks of pay-related allowances as follows:
Field Allowance - $300.09 per week;
Separation Allowance - $45.64 per week; and
Deployment Allowance - $550.20 per week.
It should be noted that all deployment related allowances while on non-warlike service are exempt from income tax.
The member's normal ADF pay as a Corporal is $960.12 per week.
The member's NE for the period 27 May 2006 to 24 September 2006 is:
$960.12 + $300.09 + $45.64 + $550.20 = $1,856.05
The member's actual earnings (AE) for this period was her/his normal ADF pay as a Corporal, $960.12 per week.
NE - AE = $1,856.05 - $960.12 = $895.93 per week
The member receives incapacity payments at the rate of $895.93 per week for the 15-week period from 9 June 2006 to 24 September 2006. In accordance with subsection 51-32(3) of the Income Tax Assessment Act 1997 (ITAA) deployment related allowances during a period of non-warlike service are tax exempt.
In practice each allowance could have a different end date. For example, field allowance ceases on the day the member leaves the field, separation allowance will cease when the member arrives home and deployment allowance may cease a few weeks later after the expiration of leave accrued during the deployment. The correct end dates for each allowance must be obtained via SAM.