The rate of ordinary income (1.1.O.30) is a required input to the rate calculation process for social security benefit payments. The rate of ordinary income is the sum of the rates of all components of ordinary income. Employment income (1.1.E.102) is a component of ordinary income, as are financial investment income, deemed income and various other types of income.
Determining the rate of ordinary income (including deemed income from financial assets (section 9(1)-'financial asset') for benefits is dependent upon which of the following 4 categories it falls into:
These categories are discussed in this topic.
Act reference: SSAct section section 9(1)-'financial asset', section 1068 Module B Maximum Basic Rate
Policy reference: SS Guide 4.1 Deprivation of Income & Assets, 4.3 Ordinary Income, 4.4 Deeming Provisions, 4.7 Business Structures, Primary Production & pre-01/01/2002 Assessment of Trusts & Private Companies, 4.8 Superannuation Funds, 4.9 Income Streams, 4.12 Means Test Treatment of Private Trusts & Private Companies from 01/01/2002, 4.13 Compensation
Special rules apply to the assessment of seasonal/intermittent work earnings (1.1.S.61).
Policy reference: SS Guide 3.1.7 Seasonal Work Preclusion Period
Ordinary income (1.1.O.30) is assessed in the fortnight that it is first earned, derived or received.
Example: Employment income.
Employment income (1.1.E.102) that has been earned in an entitlement period is spread evenly across all days in that entitlement period, regardless of which days or the number of days worked.
If there is a working credit depletion the rate of ordinary income will be adjusted downwards.
Act reference: SSAct section 1068-G7A Ordinary income generally taken into account when first earned, derived or received, section 1067L-D19 Ordinary income generally taken into account when first earned, derived or received, section 1067G-H23 Ordinary income generally taken into account when first earned, derived or received, section 1073B Daily attribution of employment income, section 8 Income test definitions
Income is apportioned over a specific period relating to the source of the income, if:
Act reference: SSAct section 1067G-H24 Ordinary income received at intervals longer than one fortnight, section 1067L-D23 Ordinary income received at intervals longer than one fortnight, section 1068-G7AL Leave payments in respect of periods longer than a fortnight, section 1068-G8 Ordinary income received at intervals longer than one fortnight
A contract OF service or labour indicates an employer/employee relationship. A contract FOR services to produce a result indicates self-employment.
Income from independent contracting may attract a seasonal work preclusion period (3.1.7).
Policy reference: SS Guide 184.108.40.206 Income from Employment or Independent Contracting
One-off, irregular or non-periodical LUMP SUM amounts, are apportioned as income over a 12 month period in 52 weekly amounts, if they are:
- family trust distributions,
- certain 'loan' arrangements i.e. NOT a bona fide loan to recipients, and
- dividend distributions from a private company.
- signing on fees or endorsements for professional sports people,
- an industry related payment such as a dairy cash bonus, or payments to leave the industry, and
- profit sharing.
The date earned, derived or received is the date the recipient becomes entitled to receive the amount.
Some lump sum payments are exempt from the income test.
Example: Lottery winnings and commutations from a superannuation fund.
Exception: Lottery winnings that are received as periodical payments. Refer to 'Income received at intervals greater than a fortnight'.
Specific exemptions under section 8(11) can be found in the referenced topic.
Note: The initial exemption of the lump sum amount from the income test does NOT mean that any on-going income generated by the lump sum is exempt, nor does it mean that the asset the lump sum turns into is exempt. The continuing assets and income tests treatment will be determined by how a person makes use of the funds. The funds may be used to obtain additional assets such as a car. For a purchase such as this the assets test would apply. Or, the funds may be invested with a financial institution. The funds have then become a financial asset (refer to SSAct s9(1) for all the types of financial assets), assessable as an asset and subject to the income test deeming rules.
Act reference: SSAct section 8(8) Excluded amounts - general, section 8(11) An amount received by a person is an exempt lump sum…, section 9(1) Financial assets and income streams definitions
Policy reference: SS Guide 220.127.116.11 Scope of Deeming
When a lump sum amount is apportioned under the SSAct for a 12 month period and a person is cancelled and reclaims, including a claim for a different type of social security benefit, (section 23(1)-'social security benefit') the previously apportioned amount continues to be maintained until the end of the 12 month period, even when the source of the income ceases.
Exception: For attributable stakeholders or controllers, IF the source of income ceases (e.g. trust is wound up or private company being de registered), the previously apportioned amount ceases to be assessed.
What this means is that, for CONTROLLERS, where a trust or company has been wound up or suffers a decline in its source of income, a Disallowable Instrument under section 1207Z will override section 1073. Where the trust or company has been wound up, the distributions will be ignored. Where the entity suffers a decline in its source of income, the controller can request reassessment of income for social security purposes, based on the estimated income of the entity currently. In this situation, any distribution received by a CONTROLLER can also be adjusted (please find below link to the Disallowable Instrument).
For NON-CONTROLLERS, section 1073 applies to all DISTRIBUTION INCOME OR DIVIDEND INCOME for 12 months from the date the person becomes entitled to receive the amount, even if the company or trust has been wound up, or the source of income no longer exist.
Act reference: SSAct section 23(1)-'social security benefit', section 1067G-H23A Claimant or recipient receives lump sum amount for remunerative work (YA), section 1067L-D20 Claimant or recipient receives lump sum amount for remunerative work (Austudy), section 1068-G7B Claimant or recipient receives lump sum amount for remunerative work (WA, NSA (18 or over), SA (18 or over), PA and MAA under Part 2.12B), section 1073 Certain amounts taken to be received over 12 months
Bona fide recipient borrowings (loans) are NOT income. A bona fide borrowing is one where money moves from the lender to the borrower, and there is an intention that the money be repaid.
Last reviewed: 20 September 2006