3.1.3 Apportioning Income Test Reductions between FTB Part A Components

Apportioning FTB components

The components making up the maximum rate of FTB are reduced proportionately by the income test.

Explanation: The maximum FTB rate, whether calculated using Method 1 or Method 2, is made up of components. The maximum rate is reduced by an applicant/recipient's ATI above the income free area (1.1.I.40) or the higher income free area (1.1.H.10).

Note: Past period claims made for a period in the current financial year and payments made by instalment are based on:

• an estimate provided by the individual and assessed as reasonable by the FAO, or
• the indexed current estimate (most recent estimate of income available to the FAO adjusted by movements in average weekly earnings over the relevant 12 month period), or
• the indexed actual income (the previous year's taxable income as determined by the ATO and adjusted by movements in average weekly earnings over the relevant 12 month period.

The rate is apportioned by working out the percentage of the difference between the FTB Part A maximum rate and the FTB Part A base rate that is made up of the components of FTB Part A. Each component is reduced proportionately by the income test.

Example: John receives FTB Part A for 2 children under 13 years. John also receives RA as a component of his FTB Part A because he pays private rent. As John's income is above the lower income threshold, his FTB Part A payment rate (including RA) is reduced under the income test. To determine how the income test reduction affects his RA, work out the difference between the recipient's FTB Part A maximum rate and the FTB Part A base rate. This difference will be made up of RA and other applicable components of FTB Part A. Then work out the difference between the recipient's FTB Part A income-tested rate and the FTB Part A base rate. RA, and the other applicable components, will constitute the same percentage of the difference between the recipient FTB Part A income-tested rate and the FTB Part A base rate as they do the difference between the recipient's FTB Part A maximum rate and the FTB Part A base rate.

Explanation: This means, if the RA component makes up 18% of the difference between the FTB Part A maximum rate and the FTB Part A base rate, it will also make up 18% of the difference between the applicable FTB Part A base rate and the new FTB Part A rate after income test reductions have been applied.

A more detailed way of calculating the apportioned rate is as follows, where:

• A is the difference between the maximum rate of FTB Part A and the base rate of FTB Part A,
• B is the maximum rate of RA payable,
• C is the sum of A and B, which is the portion of the total FTB Part A payment that is affected by excess income. Excess income reduces each component proportionally,
• D is the difference between the applicant/recipient's income and the income free area, and
• E is D multiplied by 0.2 (the taper rate).

Example:

FTB Part A maximum rate = $4,423.80 per annum

FTB Part A base rate = $1,416.20 per annum

The individual's income = $49,000 per annum

Calculate the apportioned rate as follows, where:

• A is the difference between the maximum rate of FTB Part A and the base rate of FTB Part A = ($4,423.80 - $1,416.20) = $3,007.60,
• B is the maximum rate of RA for a single person with one or 2 children = $3,675.55,
• C is the sum of A and B = ($3,007.60 + $3,675.55) = $6,683.15,
• D is the difference between the individual's income and the income free area = ($49,000.00 - $47,815.00) = $1,185.00, and
• E is the taper rate applied to the difference between the individual's income and the income free area = $1,185.00 x 0.2 = $237.00.

The total amount of RA payable is $3,545.20 per annum and the total FTB Part A payable is $2,900.95.

Note: If the excess income reduces FTB to base rate then only base rate is paid.

Act reference: FA(Admin)Act section 20 Determination of rate may be based on estimate, indexed estimate or indexed actual income, section 20A Indexed estimates, section 20B Indexed actual incomes

Policy reference: FA Guide 3.1.4.10 Method 1 - Calculating the Maximum Rate of FTB Part A, 3.1.8.10 Method 2 - Calculating the Maximum Rate of FTB Part A, 1.1.I.85 Indexed income - actual or estimate (FTB)

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Last reviewed: 2 July 2012