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This topic provides information about the following income with legislated exemption from the income test:
Information about other income exempt from assessment, which has been specifically approved, can be found in 4.3.2.31.
Information about changes to the pension income test in the Budget 2009-2010 can be found in 4.2.1.10.
Note: Generally, DSP recipients who are permanently blind are not subject to the income test. However, their DSP may be affected by the special arrangements for compensation payments.
Policy reference: SS Guide 4.3.1.30 Rate of Income - Couples, Blind Pensioners & Children
When a person receives free or discounted accommodation, the value of the free or discounted accommodation is NOT income for social security purposes. See below under 'Value of board & lodging'.
The value of board and lodging is not income for social security purposes under SSAct section 8(8)(za).
Example: Where a person receives free accommodation, board or lodging.
Where a person receives a reduction in the rent or charge for accommodation or a reduction in the rent or charge for board or lodging, the value of this reduction is NOT income for social security purposes.
Note: Where a person receives a direct payment in cash, for the purpose of meeting the costs of their accommodation, board or lodging expenses, this IS income.
Examples of the value of board or lodging are:
For the treatment of income from board and lodgings (i.e. in the hands of the provider), see 4.3.8.40.
Act reference: SSAct section 8(8) Excluded amounts-general, see (za)
Policy reference: SS Guide 4.3.3.60 Deferred Income, Salary Sacrifice, Valuable Consideration & Fringe Benefits
The value of emergency relief or like assistance is exempt as income under SSAct section 8(8)(c). However, depending on how the money is used, it may be treated as an asset under the assets test and, if invested, may be deemed to earn income under the income test.
Examples of emergency relief or like assistance are:
Note: This list is not exhaustive.
Act reference: SSAct section 8(8) Excluded amounts-general, see (c)
Policy reference: SS Guide 4.4.1.30 Scope of Deeming, 1.1.T.145 Transition to Independent Living Allowance (TILA)
If a person receives compensation or an insurance payment to repay debt (e.g. consumer credit insurance) or for damage to their buildings, plant or personal effects, that payment is NOT treated as income for social security purposes.
If the payment is for damage to buildings, plant or personal effects, and is held as a financial investment, the financial investment and any interest earned are NOT deemed under the income test for up to 12 months after the person receives the payment.
The exemption from the income test deeming rules MAY be extended past 12 months if the person can show that they meant to spend the compensation or insurance payment on repairs within 12 months, but that they were not able to do so for reasons beyond their control.
Exception: If the payment is not invested, but spent for another purpose, it may become immediately assessable under the income and assets tests.
Example: If the money is used to purchase motor vehicles, the value of the motor vehicles is assessed under the assets test.
Act reference: SSAct section 8(8) Excluded amounts-general, see (k), (ka), (m), section 1084(1) Certain money and financial investments not taken into account
The Private Health Insurance Incentives Act 1998 provides for a 30% private health insurance rebate/benefit from 1 January 1999. This rebate/benefit is NOT income for social security purposes, as it is merely refunding money already assessed as part of gross income.
The term 'blocked' is used if a person has severely limited or no access to income. The treatment of blocked foreign income is dealt with by the Federal Court in Rose v Secretary, Department of Social Security (1990) 21 FCR 241. The Rose decision held that no territorial limitation could be implied into the definition of income. When access to a foreign pension is severely limited, for example, the paying country restricts payment of pensions overseas, or access is restricted to residents of or to people physically present in the paying country, does NOT mean the pension is considered 'blocked'.
Depending on the circumstances of the individual case, however, it MAY be accepted that a pension is NOT income for social security purposes, where the prospect of receiving the money is so remote that the monies are not 'earned, derived or received' for the person's own use or benefit.
Policy reference: SS Guide 4.3.6.10 Income from Overseas Payments - General Rules, 4.3.9.70 Income from Private Annuities & Overseas Income Streams
International agreements contain income-testing concessions on certain types of payments made by the agreement partners.
Policy reference: SS Guide 4.3.6.11 Income from Overseas Payments - Specific Payments
NEIS payments are not treated as ordinary income. However, they are direct deductions for MOST payments. Refer to the Act reference for further information.
Explanation: NEIS is funded by the Commonwealth.
Act reference: SSAct section 1186 General effect of Part, section 1187 Reduction in rate of payments…, section 1188 Rate reduction under this Part
Policy reference: SS Guide 1.1.N.50 New Enterprise Incentive Scheme (NEIS), 4.3.3.80 Income from New Enterprise Incentive Scheme (NEIS)
An 'exempt funeral investment' is usually called a funeral bond (4.6.2.10). Interest paid on an exempt funeral investment is NOT income. IF an investment in a funeral bond is NOT an exempt funeral investment then it is assessed as an asset and deemed.
Example: A person invests $14,000 in a funeral bond. The asset value is $14,000 and it is deemed.
Act reference: SSAct section 8(8) Excluded amounts-general, see (ma), section 19E Exempt funeral investments
Policy reference: SS Guide 4.6.2.10 General Provisions for Exempt Assets
Rental income that a pensioner receives while living in an aged care residence may be exempt from the income test in certain circumstances.
Policy reference: SS Guide 4.6.3.70 Exempting the Principal Home - Care Situations
Defence Force reservists can perform Reserve Training, Reserve Service or, on some occasions, Continuous Full-time Service Reserve Service, where a reservist receives tax-free salary paid on a daily rate.
Under the provisions of SSAct section 8(8), income from Reserve Service (including Reserve Training) is exempt from the income test. However, income earned during Continuous Full-time Service is taxable and is subject to the income test.
Act reference: SSAct section 8(8)(w) Excluded amounts-general
Policy reference: SS Guide 3.2.9.140 Suitable Activity - Defence Force Reserves, 4.13.1.25 Treatment of Specific Compensatory Type Payments
Some lump sums are NOT treated as income for social security purposes. These lump sums are defined by their characteristics rather than by nominated lump sum types. These characteristics are:
They include items like:
The characteristics of these payments still have to be considered as the amount will not be an exempt lump sum in all circumstances.
Irregular superannuation amounts consisting of the payment of arrears at the time of commencing a superannuation pension are not exempt under paragraph 8(11)(d). The transfer of an income stream to a reversionary beneficiary is located in 4.9.1.20.
Exception: Periodical lottery winnings that are a series of payments under one contract - each instalment is assessed as income over the period it represents. For example, each instalment of $50,000 paid once a year would be held as income over 12 months.
Example: For lottery winnings received in annual instalments of $50,000 per year for 20 years, each instalment is assessed as income over 12 months.
Further references to exempt lump sums can be located in 4.3.2.31 Income Exempt from Assessment - Specifically Approved, and 4.3.2.35 Income Exempt from Assessment - s8(11) Exempt Lump Sums.
Note: The initial exemption of a 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 in a financial investment. The funds have then become a financial asset (refer to SSAct 9(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 4.4.1.30 Scope of Deeming, 4.9.1.20 General Provisions for Assessing Income Streams
The following are NOT treated as income for social security purposes:
Exception: The initial exemption of the amount from the income test does NOT mean that any on-going income generated 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 in a financial investment. The funds have then become a financial asset (refer to SSAct section 9(1) for all the types of financial assets), assessable as an asset and subject to the income test deeming rules.
Exception: Spousal maintenance is not ordinary income (1.1.O.30) but is included as income for some purposes.
Example: For family payment purposes.
Act reference: SSAct section 8(8) Excluded amounts-general, section 9(1) Financial assets and income streams definitions
Policy reference: SS Guide 4.3.9.50 Income from Gifts, Legacies, Royalties & Native Title Claims, 4.3.9.40 Income from Scholarships, 4.3.6.30 Holocaust Restitution Payments - Germany & Austria, 4.3.4.30 Description: Employment Termination Payments & Roll-overs for the IMP, 4.2.1.20 Additional Free Area for Dependent Children
The usual rules about exempt income also apply to PP, although some issues are particularly common for PP recipients. The following types of income are EXEMPT for PP purposes:
Explanation: PP is a payment for the carer not the child, and no maintenance action is necessary to qualify for PP. For information on the maintenance action test for FTB recipients, refer to FA Guide 3.1.5.
The following are not counted as income for social security purposes:
Act reference: SSAct section 8(8)(zaa) An amount received under the scheme known as the Western Australian Cost of Living Rebate Scheme, section 8(8)(zab) The value of a benefit obtained by using a card known as the Western Australian Country Age Pension Fuel Card
Parental leave pay is not counted as income for social security purposes.
Act reference: SSAct section 8(8)(d) an instalment of parental leave pay
Policy reference: PPL Guide 1.2.5 Impact of Parental Leave Pay on Other Entitlements
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Last reviewed: 10 August 2012
