Last amended: 22 June 2006
VEA ? [2]
The legislative basis for the income test [3] is contained in the Pension Rate Calculator, at Module E (Ordinary/adjusted income test) in Schedule 6 [4] of the VEA. This Module provides that the initial step in the income test is to work out the annual rate of the person's ordinary/adjusted income.
The reference to the 'annual rate' of income means that it is necessary, in all earnings cases, to firstly determine both the actual amount and the circumstances of a pensioner's current earnings, and to then use that income amount, and the circumstances in which it was earned, to calculate a rate that best reflects the pensioner's annual rate of income. The current earnings and pattern of earnings is extrapolated over the following 12 months, to arrive at the annual rate of income. This means that known or expected changes in the pensioner's earnings pattern are an important consideration, when determining the annual rate of income.
The High Court of Australia (in Harris v Director-General of Social Security 1985) defined the annual rate of income as being, at whatever time it is ascertained:
“...the total income that would be received during the ensuing year assuming current sources of income continue at the current level.”
From this High Court judgment it can be seen that the annual rate of income held in a pension assessment is, in practically all cases, an assumed amount. This is because an estimation of the income likely to be received in future is needed. As a person's actual earnings change, the assumed rate of income to be received over the ensuing year will also change. For this reason it is generally necessary to periodically review a person's earnings, so that the best possible assessment of the person's annual rate of earnings is always held.
In the AAT [3] case of 'Rolley v FaCS 1999', the AAT relied on the outcomes in 'Harris' to find that there is no single correct way of ascertaining the annual rate of income. The annual rate is ascertained by an administrative process, having regard to the particular circumstances of each earnings case. These circumstances include known (current) income, together with expected changes to employment as advised by the pensioner. The current earnings rate (for example, derived over a three month review period) is then extended over the ensuing review period. Both the averaging of income over a certain period, or alternatively the annualising of a source of income over a year, were found to be acceptable approaches to calculating the annual rate, provided that these approaches were reasonably based on the known circumstances of the earnings.
The key difference between an income amount and an income rate is variability. While an income amount (e.g. the figure included in a yearly income tax return) is a static figure that arises in respect of employment over the entire year, the income rate over the course of the year will vary as the pattern of employment changes. The annual income amount reflects the total of each respective annual rate, multiplied by the period during the year in which that annual rate held.
Unlike an annual income amount, an annual income rate is determined at a particular point in time, is only held for a certain length of time (the review period), and is likely to change over the course of the year.
To determine the annual income rate:
The determined annual rate of earnings is converted to a fortnightly rate by dividing the annual rate by 26.
One element of the means test [3] for income support pensions whereby the rate of pension payable to a pensioner reduces progressively as their income increases above a certain threshold known as the income free area (IFA) [3].
Administrative Appeals Tribunal.
Links
[1] https://clik.dva.gov.au/user/login?destination=node/16354%23comment-form
[2] https://clik.dva.gov.au/book/export/html/16354#tgt-cspol_part10_ftn104
[3] https://clik.dva.gov.au/%23
[4] https://clik.dva.gov.au/service-eligibility-assistant-updates/all-determinations-order-date-signed-oldest-most-recent/determinations-under-vea
[5] https://clik.dva.gov.au/book/export/html/16354#ref-cspol_part10_ftn104