Most types of Income Count towards the Income Test including;
Employment Income, Sole trader or partnership income, allowances, real estate income, lump sums while on income support, income specific to aboriginal and torres straight islander Australians, PLP counted as income, Directors fees, income from scholarships, income from commonwealth prac payment.
This test measures your income (how much money you earn).
If your income is above a certain limit, your pension payment will be reduced, or you may not be eligible at all. The limit will depend on whether you’re single or whether you have a partner.
Within Canwi we calculate Income Test for Aged Pension based on these elements
NOTE:
There are more types of income (as per the above list) which feed into the "Income Test for Aged Pension" but these not available to be modelled in Canwi.
For Deemed Income not all Asset Types are assessed for example Vehicles are considered a Personal or Lifestyle Asset not a "Financial Asset" as are collectibles.
Net Rental Losses (i.e. where for that property Rental Income - Maintenance Costs - Interest Repayments is a negative value is assessed as Real Estate Income of zero). Only the interest (not principle repayments are deductible to determine Real Estate Income).
Example of "Assessed Income"
Employment Income | $19,135 |
Uber Driving | $12,757 |
+ Helping at the local pub | $6,378 |
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Financial Assets Deemed Income | $69,239 |
Total Asset Value for Deeming | $2,796,691 |
Cash | $1,031,574 |
+ Superannuation | $1,486,974 |
+ Stocks | $278,142 |
+ Cryptocurrency | $0 |
+ Fixed Income | $0 |
+ Precious Metals | $0 |
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|
First $383,500 deemed at 0.75% | $2,876 |
+ Over $383,500 deemed at 2.75% | $66,363 |
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Real Estate Income | $0 |
TOTAL INCOME: $3,390 / fortnightly
Application of Income Test
To determine the Aged Pension amount under the Income Test, the Maximum Aged Pension amount is reduced based the amount over the "Income Free Area" (listed as 'Income Test Cap (fortnightly)' below which is then multiplied by $0.25 (this is variable!) per $1 over.
Max Aged Pension Total | $165,856 |
Maximum Basic Rate | $153,252 |
+ Aged Pension Supplement | $12,051 |
+ Energy Supplement | $553 |
Income Assessed (fortnightly) | $3,390 |
Income Test Cap (fortnightly) | $1,372 |
Income Above Free Area | $2,017 |
Over cap x $0.25 per $1 reduction (fortnightly) | $504 |
Annual Reduction | $13,150 |
Important - Deeming
There is a concept called “Deeming” under the Aged Pension. You can learn more about it here - https://www.servicesaustralia.gov.au/deeming?context=51411 in a nutshell - deeming is a set of rules used to determine the income your financial assets create.
It assumes these assets earn a set rate of income no matter what they really earn (i.e. if you have cash in a bank account earning nothing it will be “deemed” to earn say 0.75% pa and if you’re earning less… that’s on you. If you’ve got shares paying 4% in dividends and growing at 5% pa that’s still only going to be assessed as providing 0.75%). Essentially it’s the ATO / Government’s way of encouraging productive allocation of capital.
You can see in this example below, that for a Single person with 450k of assets, their 'deemed income' is determined by applying a lower rate (0.75%) to the first $64,200 of cash and then the higher rate (2.75%) to the value greater than $64,200.
Note that the lower rate deeming threshold is indexed at CPI in July of each year - we apply indexation as with all rate changes at start of year. The below gives an indication of how the Singles and Couples rates would change over time assuming 2.5% inflation.
NOTE:
Canwi does not calculate the Work Bonus which allows for additional