Income tests

The income test is different for pensions and allowances.

Pensions

This is based on annual income. Annual income can be difficult to define for a person with fluctuating income. Centrelink has the discretion to average the earnings over an 'appropriate period', which may be a fortnight, three months, six months or twelve months (or any other period that your circumstances warrant). You can ask Centrelink to assess income over a more favourable period if this would give a fairer indication of your income, for example, if you only work for a short period in a year.

Allowances

This is based on fortnightly income. Income earned over longer periods should be divided into fortnights. If your income fluctuates, it may be incorrect to average your income, even though this is a common Centrelink practice.

There is also a partner income test for allowances, based on fortnightly income. Centrelink may reduce your payment for income that your partner earns.

Family Tax Benefit A and B

The income test for Family Tax Benefit A and B is based on adjusted taxable income. The benefit rates are based on an estimate of annual taxable income (adjusted), and are 'reconciled' when a tax return is lodged and the actual taxable income is known. This means that Centrelink will pay arrears if the estimate was too high, and will claim a debt if the estimate was too low.

There is legislation currently before Parliament, which if passed, will mean that Family Tax Benefit B will not be paid if the primary earner has an adjusted taxable income of greater than $150,000 per annum. This change is intended to take place from 1 July 2008.

Youth Allowance

There is also a parental income test (based on adjusted taxable income) and a family actual means test (based on annual expenditure) for Youth Allowance. Both tests only affect dependent young people, as defined in social security law. The parental income test does not affect young people whose parent or parents receive social security payments or low incomes. The family actual means test considers annual expenditure (with some exempt expenditure). This test only applies to families who obtain income from any of the following sources:

self-employment (except 'a sole trader who was mainly or wholly engaged in a primary production');
interest in a trust, private company or unlisted public company;
a partnership;
overseas, totalling more than $A2500 (except for overseas pensions, etc.);
some business losses; and
assets of $A2500 or more in any assets located outside Australia and its external territories, or families who entered Australia under a permanent visa or entry permit visa business skills category in the last ten years before 1 January in the calendar year in which youth allowance finishes.

Seek advice from your financial advisor, rural financial counsellor, Welfare Rights Centre or local community legal centre (see Find a service section) if you are unsure about how your income should be assessed.

How do income tests work?

For each payment, except Special Benefit, there is a 'free area'. This is an amount you can earn before your payment is reduced. If you earn more income than the free area, Centrelink will reduce your payment by a set amount for every dollar over the free area, until you get nothing. This income limit is called the 'cut-out point'.

In this way, you may be eligible for a part-payment even if you are working part time or in a low paid job, or are running a low profit small business.

Income-test free areas, reductions and cut-out points vary depending on the payment you are claiming, whether you are single or a couple, your age, and whether you have children. These figures are reviewed regularly, so you should check with Centrelink regularly. This is particularly important if your income is close to the income limits, because you may 'suddenly' have an entitlement that you didn't have before, due to changes in income limits.

For the latest information on income and assests tests for pensions and allowances, view this link to the Income and Assets Test Chart on the Centerlink website.

What are the Working Credit and Income Bank Schemes?

Under these schemes, you can sometimes have additional earnings before your payment is reduced. The Working Credit Scheme applies to all major Centrelink payments except for Special Benefit, Austudy Payment, Youth Allowance for full-time students, and Age Pension. In any fortnight where you have no earnings, $45 of 'working credits' is added to your working credit 'account'. There is a reduction for any earnings up to $45 in the same fortnight. The working credits accumulate up to a total of $1000. In any fortnight where you earn over the relevant free area, and you have some working credits, these are 'deducted' from your working credit account before your payment is reduced.

The Income Bank Scheme applies to Austudy Payment and Youth Allowance for full-time students. In any fortnight where you have no earnings, $236 is added to your 'income bank'. There is a reduction for any earnings up to $236 in the same fortnight. The income bank accumulates up to a total of $6000. In any fortnight where you earn over the relevant free area, and you have an income bank, these are 'deducted' before your payment is reduced.

Income test examples

Note: These are examples only, designed to illustrate how to apply the income test. The actual figures change regularly.

A couple with no dependent children applying for the Age Pension would receive:

maximum payment if their combined fortnightly income is below $232(their gross annual income divided by 26); this is their free area;
part-pension if their income is between $233 and $2530.502435; their reduction is 20 cents each for every dollar over the free area; and
no payment if their combined fortnightly income is more than $2530.502435; this is their cut-out point.

The limits increase by $24.60 for each dependent child.

A single unemployed person over 21 years applying for Newstart Allowance would receive, subject to the Working Credit Scheme above:

maximum payment if their fortnightly income is below $62; this is their free area;
part-allowance if their income is between $62 and $800.50; the reduction is 50 cents for every dollar between $62 and $250, and 60 cents for every dollar above $250; and
no payment if fortnightly income is more than $800.50; this is the cut-out point.

A person with a partner (who is not a pensioner) applying for Parenting Payment (Partnered) would receive:

maximum payment if his or her fortnightly income is below $62; this is his or her free area;
part-allowance if his or her income is between $63 and $821.84; the reduction is 50 cents for every dollar between $62 and $250, and 60 cents for every dollar above $250; there is also a reduction of 60 cents in the dollar if his or her partner's income exceeds $822.32.

Income from a farming partnership

Centrelink will take the net profit shown in the previous year's financial statements and adjust this for items such as depreciation and partners' salaries.

The final amount is usually divided equally among the partners to give the amount of partnership income for each partner. For pensioners, this annual income is divided by 26 to give the estimated fortnightly income. For people receiving allowances and Parenting Payment (Partnered), actual fortnightly income is assessed.