4.2.9.30 Family Actual Means Test - Amounts not included in Family Actual Means Test

Summary

This topic explains the financial resources that are not included in the FAMT. While spending and savings funded from these resources need to be shown in a family's assessment, they will be deducted from the family's actual means. They are:

• a financial institution's or 'arm's length loan',
• prior year savings,
• sale of assets (1.1.A.290),
• non-taxable compensation payments (1.1.C.240),
• windfall gains,
• Defence Force Reserve payment,
• government benefits,
• isolated secondary boarders concession,
• dependent children's employment income,
• business spending,
• spending on a disabled family member, and
• spending on maintenance payments.

Act reference: SSAct section 1067G-G9 Amounts not included in actual means of a relevant person, section 1067G-G10 Amounts not included in actual means of a family member of claimant/recipient

The following provides more detailed information on amounts not included in the FAMT.

A financial institution or arms length loan

To be deducted, a loan MUST be an arm's length loan (section 10A(2)-'arm's length loan'). No formal contract is needed for the terms of a loan, nor does interest have to be paid. An arm's length loan specifically includes:

• any transaction that gives effect to an advance of money,
• the provision of credit, and
• any payment which is obliged to be repaid.

A financial institution loan made by a person or body to an assessable family member can be deducted when it is part of the lender's usual business to make loans to members of the public.

Example: A commercial lender such as a bank, building society, or credit union.

Act reference: SSAct section 10A(2)-'arm's length loan'

Prior year savings

Spending that has been funded by the use of prior year savings is not included in family actual means. A net reduction in savings account balances between 1 July and 30 June of the appropriate tax year would substantiate the use of prior year savings.

Example: Anne and Nick have saved to support their daughter through university. During the base tax year the balance of the account established for their daughter's education costs falls by $25,000. Accordingly, $25,000 can be deducted from the family's actual means. Anne and Nick have, however, only declared $20,000 of education expenses. On being contacted, Anne explains that the remaining $5,000 was used to buy a car for their daughter, the purchase price for which is shown under transport expenditure. Now Anne and Nick will show the $25,000 spending in transport and education spending AND will have a deduction of $25,000 in previous savings on the form. Therefore $25,000 will be deducted from the FAMT for this family.

Sale of assets

For spending or savings sourced from sale of assets to be deducted from the FAMT, the assets must have been held before the commencement of the base tax year.

Example: Dennis and Marg own the property before the base tax year and sell the property for $240,000 on 1 August 2006. They use:

• $140,000 to pay off the remaining debt on the house, declared as principal family home expenditure,
• $40,000 to fund a long awaited overseas holiday, declared under general living expenses,
• $10,000 to support their son through TAFE, declared as education expenses, and
• saved the remaining $50,000, declared as bank savings.
• Dennis and Marg can claim a $240,000 deduction for sale of assets as the use of the funds is fully accounted for as spending or savings.

Non-taxable compensation payments

A non-taxable compensation payment is the amount of compensation payment that is not required to be included in taxable income under the ITAA 1997. This is usually because the payment does not represent lost income. The deduction may relate to some or all of a compensation payment.

Example: A worker's compensation payment may comprise a component for lost salary or wages and a component to compensate for injury. Usually the salary or wages component is taxable and the injury compensation is not taxable.

Windfall gains

Windfall gains are inheritances and lottery wins, but NOT gifts.

Defence force reserve payments

Up to a maximum of $6,000 for each family member receiving non-taxable Defence Force Reserve payments and allowances.

Government benefits

Certain government income assistance received by family members such as YA for students only and NOT unemployed YA recipients, Austudy, ABSTUDY, AIC and certain non-taxable Centrelink payments including FTB, RA, multiple birth and GA, PP (non-taxable component), YDS, baby bonus, DSP, CA, CP, WP for wives of disability support pensioners, DOP, MOB, PhA, TAL, RAA, EEP, a non-taxable DVA payment including VCES, a state or territory education allowances (e.g. for isolation) and PES.

Isolated or secondary boarders

Spending on AIC or secondary boarders are able to be deducted if it was for boarding students, (including the YA recipient if they are a dependent secondary student) who qualified for:

• a boarding allowance under the AIC scheme (this includes AIC second home allowance), or
• a dependent secondary student who was required to live away from home for study.

The exempt amount is $5,274 for each eligible family member.

Act reference: SSAct section 1067G-G9(3) Also, the actual means of the person do not include the following amounts…

Dependent children's employment income (maximum of $6,000)

Families are able to exclude for each dependent child up to a maximum of $6,000 of spending and savings derived from income earned by any dependent children aged 16 to 20 years and not in full-time study or any dependent children in full-time study and aged 16 to 24 years prior to 1 April 2010, 16 to 23 years from 1 April 2010, 16 to 22 years from 1 January 2011 and 16 to 21 years from 1 January 2012.

Employment income includes income derived from bona fide employment in the family business, farm etc (maximum of $6,000).

The following table shows the treatment of a young person's income in the base tax year.

Here are some examples of income for the purposes of the FAMT:

Example: Two parents run a florist shop. Student A is an 18 year old full-time dependent secondary student applying for YA. Student A worked in a local shop and earned $3,100 in base tax year. Student B is a 21 year old full-time dependent tertiary student applying for YA. Student B works at their parent's florist shop and earned $2,600 in the base tax year. Child C is a 17 year old apprentice.

This family can deduct spending or savings from the income earned by Students A and B.

Child C is not a family member for purposes of the FAMT and their spending or savings should not be included in this family's FAMT assessment.

Business spending

Spending on the business that was necessary for carrying on a business and claimed as such under the ITAA (or the Income Tax Assessment Act 1997).

Note: All tax deductible business expenditure necessarily incurred in carrying on the business is exempt from the FAMT, EXCEPT:

• superannuation contributions that are above the minimum required under the Superannuation Guarantee (Administration) Act 1992, if a person is employed by the business, OR
• the lesser of $3,000 and the total voluntary contributions made by each family member (section 23(15)) who were sole traders or partners in a partnership (1.1.P.85), AND
• donations to charity.

Act reference: SSAct section 23(15) Definition of family member

Spending on a disabled family member

Spending to acquire or modify property necessary to assist a family member with a disability.

Spending on maintenance payments

Spending on maintenance payments for a former partner or child not in the day-to-day care of the assessable family member.

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Last reviewed: 1 July 2010