Topic 6: Social security and aged care

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Topic 6: Social security and aged care
Superannuation and Retirement Advice | FPC003_T6_v8 © Kaplan Higher Education

Superannuation and Retirement Advice

Contents
Overview…………………………………………………………………………………………………………………….. 6.1
Topic learning outcomes …………………………………………………………………………………………………………. 6.1
1 Introduction to social security ………………………………………………………………………………. 6.2
1.1 Types of social security payments …………………………………………………………………………………. 6.2
1.2 Rule updates in response to needs………………………………………………………………………………… 6.3
1.3 Service delivery of social security ………………………………………………………………………………….. 6.3
1.4 Policy bases of social security ……………………………………………………………………………………….. 6.4
2 Social security payments and concessions……………………………………………………………….. 6.5
2.1 Pensions …………………………………………………………………………………………………………………….. 6.5
2.2 Allowances …………………………………………………………………………………………………………………. 6.7
2.3 Parental leave pay……………………………………………………………………………………………………….. 6.7
2.4 Dad and partner pay ……………………………………………………………………………………………………. 6.8
2.5 Child care benefit and rebate ……………………………………………………………………………………….. 6.8
2.6 Parenting payment………………………………………………………………………………………………………. 6.8
2.7 Carer supplement ……………………………………………………………………………………………………….. 6.9
2.8 Concession cards…………………………………………………………………………………………………………. 6.9
2.9 Indexation of payment rates……………………………………………………………………………………….. 6.10
3 Calculating income support ………………………………………………………………………………….6.12
4 Understanding income and assets for social security…………………………………………………6.13
4.1 Definition of ‘income’ ………………………………………………………………………………………………… 6.13
4.2 Definition of ‘assets’ ………………………………………………………………………………………………….. 6.15
4.3 Income and assets assessment for couples …………………………………………………………………… 6.16
4.4 Deemed investments …………………………………………………………………………………………………. 6.17
4.5 Superannuation and rollovers …………………………………………………………………………………….. 6.22
4.6 Income streams…………………………………………………………………………………………………………. 6.23
4.7 Other common forms of income and assets …………………………………………………………………. 6.26
4.8 Gifting and deprivation rules ………………………………………………………………………………………. 6.34
Topic 6: Social security and aged care
Superannuation and Retirement Advice | FPC003_T6_v8 © Kaplan Higher Education
5 Applying the income and assets tests……………………………………………………………………..6.37
5.1 Pension and allowance rates ………………………………………………………………………………………. 6.37
5.2 Effects of the assets test …………………………………………………………………………………………….. 6.38
5.3 Strategies for reducing assessable assets……………………………………………………………………… 6.41
5.4 Effects of the income test …………………………………………………………………………………………… 6.42
5.5 Using deeming strategies to reduce assessable income …………………………………………………. 6.48
5.6 Comparing the income test and assets test rates ………………………………………………………….. 6.50
6 Miscellaneous income support provisions……………………………………………………………….6.51
6.1 Waiting periods and payment reduction periods for allowances …………………………………….. 6.51
6.2 Compensation payments ……………………………………………………………………………………………. 6.54
6.3 Hardship provisions……………………………………………………………………………………………………. 6.55
6.4 Overpayments…………………………………………………………………………………………………………… 6.55
6.5 Anti-avoidance rules ………………………………………………………………………………………………….. 6.56
6.6 Rights and appeals …………………………………………………………………………………………………….. 6.56
7 Taxation considerations ………………………………………………………………………………………6.56
7.1 Seniors and pensioners tax offset………………………………………………………………………………… 6.57
7.2 Transfer of unused tax offsets between partners ………………………………………………………….. 6.58
7.3 Low income tax offset………………………………………………………………………………………………… 6.58
7.4 Low and middle income tax offset……………………………………………………………………………….. 6.59
7.5 Beneficiary tax offset …………………………………………………………………………………………………. 6.59
7.6 Medicare levy income threshold …………………………………………………………………………………. 6.60
7.7 PAYG tax instalments …………………………………………………………………………………………………. 6.61
8 Miscellaneous strategies ……………………………………………………………………………………..6.61
8.1 Superannuation exemption ………………………………………………………………………………………… 6.61
8.2 Couples and asset ownership ……………………………………………………………………………………… 6.62
8.3 Reassessing investment value……………………………………………………………………………………… 6.62
8.4 Repaying debts………………………………………………………………………………………………………….. 6.63
8.5 Salary sacrifice…………………………………………………………………………………………………………… 6.63
9 Aged care provision…………………………………………………………………………………………….6.63
9.1 Recent changes to aged care ………………………………………………………………………………………. 6.64
9.2 Residential aged care as of 1 July 2014 ………………………………………………………………………… 6.66
9.3 Differences between Centrelink and aged care assets tests ……………………………………………. 6.69
9.4 Age pension for those in an aged care facility……………………………………………………………….. 6.70
References ………………………………………………………………………………………………………………….6.71
Suggested answers ……………………………………………………………………………………………………….6.72
6.1
Superannuation and Retirement Advice | FPC003_T6_v8 © Kaplan Higher Education
Overview
Social security entitlements can have a major influence on a client’s financial situation and should be
carefully considered when preparing a financial plan.
Financial advisers need to have a good understanding of the mechanics and payment criteria of
Commonwealth Government payments and allowances, as many clients of different ages will need
guidance as part of their financial affairs. This is particularly so for clients approaching or already in
retirement.
In addition to using taxes to influence the level of activity in the Australian economy,
the Commonwealth Government also uses the social security system to achieve social and fiscal
policy outcomes.
Most social security payments are means tested, with eligibility determined by an income test
and an assets test. The test that produces the lower rate of payment is the one applied.
Therefore, the effects of both tests must be understood — they should not be considered
in isolation.
Total income can be increased and the client’s overall financial situation improved by implementing
social security-friendly strategies. The financial adviser can add value through strategies based on a
detailed knowledge of what is assessed and how it is assessed.
Specific tax rules also apply that can increase a social security recipient’s after-tax income.
In formulating a long-term retirement and social security strategy, the tests, lump sum payments and
ongoing charges for potential entry into aged care should also be considered. Moving into aged care
requires careful consideration, especially in the movement of assets that will support this move.
This topic will provide students with a basic understanding of the different types of social security
benefits available and the issues that need to be considered in the move to aged care.

This topic specifically addresses the following subject learning outcome:

4. Formulate strategies to maximise superannuation benefits and clients’ entitlements to social security benefits and aged care.

Topic learning outcomes
On completing this topic, students should be able to:
• explain the income and assets tests that apply to pensions and allowances
• assess simple client situations for pension and allowance eligibility
• describe, and illustrate with examples, the application of the social security assessment
of investments
• assess how a client might be affected by waiting periods
• explain and interpret the assessment of deemed income
• outline the social security appeals process
• outline the tax offsets available to clients
• calculate accommodation payments and ongoing charges for a person entering an aged care facility
• discuss the similarities and differences of income and assets test assessment for Centrelink’s age
pension entitlement and aged care fees.
6.2
Superannuation and Retirement Advice | FPC003_T6_v8 © Kaplan Higher Education
1 Introduction to social security
Social security benefits provide a safety net for people who have retired or cannot work and are
unable to support themselves. Many clients who have not been able to accumulate substantial assets
for retirement, or who are unemployed or unemployable for some reason, rely on government
assistance. Self-funded retirees may also be looking to the government for some form of assistance
by way of benefits or to help them supplement their income in retirement. When a person applies
for these benefits, they have to navigate a complex set of rules and regulations.
The system of social security benefits in Australia is complex and generally poorly understood.
The rules and regulations cover a wide variety of benefits and payments and are constantly
changing based on government legislation and administrative decision making. There are two
main government departments that administer the law in relation to social security benefits:
• the Department of Human Services (DHS)
• the Department of Veterans’ Affairs (DVA), which derives its authority from the
Veterans’ Entitlements Act 1986 (Cth) and is responsible for payments to recipients who have
served in an eligible conflict.
The administration of social security payments is conducted primarily through the agency known as
Centrelink, which is part of the DHS. Financial advisers should be familiar with the DHS website,
which provides details and eligibility criteria for the pensions, allowances and benefits available to
people at different stages of life, including retirement. The publication, A guide to Australian
Government payments, available from the DHS website, is particularly useful. The guide is reissued
when rates and thresholds change on 1 January, 20 March, 1 July and 20 September each year.
In the planning process, there are many strategies that can be employed to maximise benefits or to
ensure clients qualify for benefits that they do not realise are available to them. For an adviser to
successfully employ these strategies, they must understand how the social security system operates.
There may also be cases where social security benefits are not claimed through ignorance of the
system by the client or adviser. Advisers need to keep abreast of developments in social security
legislation to avoid financial disadvantage to their clients and possible legal ramifications.
‘Further resource 1’ in KapLearn.
1.1 Types of social security payments
Some examples of social security payments are pensions, allowances and benefits, as follows:
• retirement (e.g. age pension, age service pension)
• disability/illness (e.g. disability support pension, disability service pension, sickness allowance)
• unemployment (e.g. Newstart allowance, youth allowance)
• family support (e.g. family tax benefits, paid parental leave, parenting payment)
• student support (e.g. Austudy, youth allowance)
• special support (e.g. drought relief payment).
Social security also assists people receiving income support or on low incomes to meet everyday
living expenses through a pension supplement. The pension supplement includes:
• pharmaceutical allowance
• utilities allowance
• goods and services tax (GST) supplement
• telephone allowance, equal to the higher rate for internet subscribers.
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1.2 Rule updates in response to needs
Social security rules are updated regularly for a range of reasons, including to:
• respond to social change (e.g. new family structures and workforce patterns)
• keep the system affordable
• ensure assistance is targeted to those genuinely in need
• simplify complex rules
• respond to current needs (e.g. drought assistance).
Example: Provision of drought relief
Centrelink has updated social security rules to help farmers respond to the pressures
facing rural and regional Australia. Initiatives include:
• increasing the off-farm income exemption from $10,000 to $20,000 for clients
claiming an exceptional circumstances relief payment or interim income support
• offering an exit grant of up to $150,000 for farmers who decided to leave the land,
and an increase in the assets limit for accessing this grant to $575,000.
1.3 Service delivery of social security
A number of government departments and agencies are involved in social security and income
support, including Centrelink, the DHS, the DVA and the Department of Health.
Centrelink
Centrelink is a statutory Commonwealth Government agency with responsibility for the general
implementation of the social security system. It also provides a ‘one-stop shop’ for many payments
and services spanning government departments. Centrelink is responsible for delivering services on
behalf of the following Commonwealth Government departments:
• Department of Human Services
• Department of Social Services
• Department of Education
• Department of Employment
• Department of Health.
The Financial Information Service (FIS) is a Centrelink service that assists clients who wish to know
how their assets and income will affect their social security entitlements. The FIS does not provide
financial advice, but aims to complement private sector services by offering comprehensive
information on how the means test applies to investment decisions. Information is available by
telephone, online or in person at Centrelink offices. Clients with limited mobility can receive
information in person at their homes.
‘Further resource 2’ in KapLearn.
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Department of Veterans’ Affairs (DVA)
The DVA pays disability and age service pensions to people who have rendered eligible war service or
eligible defence service. They also pay pensions to war widows and dependants. The DVA delivers its
services through a nationwide network. This subject does not deal with DVA payments in any detail.
1.4 Policy bases of social security
Social security policy is underpinned by the Social Security Act 1991 (Cth), which stipulates provisions
on pensions, benefits and allowances. It also includes general provisions relating to payment
eligibility and rates, international agreements and portability, and overpayments and debt recovery.
Three government departments play a significant role in policy development and administration
relevant to the Social Security Act — the Department of Human Services, the Department of Health
and the Department of Social Services.
Department of Human Services (DHS)
The DHS plays a major role in the development of policy related to social security. It is the Australian
Government’s biggest source of advice on social policy and is responsible for administering social
security legislation. In addition to those requirements set out in the Social Security Act, the DHS sets
some of the eligibility rules for pensions and allowances that are administered by Centrelink.
Department of Health
The Department of Health is involved in many areas, including the provision of quality aged care and
home care services via their myagedcare services <www.myagedcare.gov.au>.
Department of Social Services
The Department of Social Services works in many areas supporting individuals, families, people with
disabilities, migrants and others. Refer to their website <www.dss.gov.au>.
‘Further resource 3’ in KapLearn.
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2 Social security payments and concessions
Many different types of payments and concessions are available to individuals, depending on
their needs and eligibility. Some of the more commonly used payments and concessions, as well as
the indexation of payment rates, are outlined below.
2.1 Pensions
Pensions are generally paid for long-term needs. Ordinarily, only Australian residents who are
living in Australia are eligible. Some payments may continue during absences from Australia.
Details should be checked with Centrelink before clients leave the country.
Common payments include:
• age pension
• age service pension
• pension work bonus
• disability support pension.
Others include:
• Newstart allowance
• widow allowance
• youth allowance
• carer payment and allowance
• family tax benefit.
Age pension
The age pension is payable to those who are aged 65.5 years or older.
The eligibility age has increased. The qualifying age for men and women will gradually increase to
age 67. The Turnbull Coalition government proposed to lift the age pension eligibility age to 70 but
this policy was abandoned.
Table 1 sets out the eligibility ages for both men and women born on or after 1 July 1952:
Table 1 Age-pension age for men and women

Date of birth	Age pension eligibility age
1 July 1952—31 December 1953	65.5
1 January 1954—30 June 1955	66
1 July 1955—31 December 1956	66.5
1 January 1957 and later	67

The qualifying age for the veterans’ service pension will not be affected and remains at age 60.
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Age service pension
A service pension is a DVA pension payable to eligible veterans and their partners.
For service-pension purposes, a veteran is a person who has qualifying service, or who has served in
operations against an enemy while in danger from hostile forces of the enemy.
DVA clients reach service-pension age earlier than social security age-pension age. Veterans and their
partners can apply at age 60; however, partners can apply for the service pension earlier in certain
conditions, such as where they have dependent children or the veteran suffers from an eligible
disability.
Pension bonus
The pension bonus is a one-off tax-free lump sum paid to people who defer claiming an age pension
for up to five years. The scheme is now closed to new entrants. Registrations were required to be
made to the scheme before 1 July 2014.
To be eligible, clients must have:
• registered before 1 July 2014 and when they met the requirements for the age pension
• undertaken paid work for at least 960 hours each year for a minimum of 12 months
after registration
• received no income support (except the carer payment).
Clients claim the bonus within 13 weeks of failing the work test, when they claim the age pension.
The bonus is based on the pension rate at the time and the bonus period accrued, up to a maximum
accrual period of five years.
‘Further resource 4’ in KapLearn.
Work bonus scheme
From 1 July 2019, the first $300 (previously $250) of employment and self-employment income
(from active participation, i.e. work that involves effort) earned each fortnight is disregarded and not
counted as income. Only employees who have reached age-pension age are eligible.
In addition, any unused amount of the $300 fortnightly exemption accrues in an income concession
bank, up to a maximum of $7,800. Credit in the ‘income bank’ can then be carried forward to future
years and be used to offset income that would otherwise be taken into account under the pension
income test.
This is designed to encourage age and service pensioners to continue participating in the workforce
and to enable them to keep more of the money they earn through part-time work. It is in addition to
the normal allowable income-free area.
‘Further resource 5’ in KapLearn.
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Disability support pension
The disability support pension is a payment designed to assist people aged between 16 and
age-pension age who are unable to work for at least 15 hours per week because of physical,
intellectual or psychiatric impairment. It also covers people who are permanently blind.
Recent changes have made eligibility more restrictive. Some clients may find it easier to apply for
the Newstart allowance as they will not need to have their disability assessed.
Although Newstart participation agreements require recipients to undertake activities such as
training or looking for work, these agreements can be modified in recognition of the person’s
reduced capacity to work.
‘Further resource 6’ in KapLearn.
2.2 Allowances
Allowances provide lower payment rates and generally have harsher income and assets test rules
than pensions. Common payments include:
• Newstart allowance, for the unemployed
• parenting payment.
Newstart allowance assists people who are unemployed. To receive the allowance, the recipient
must satisfy an activity test to show that they are actively looking for work or participating in other
activities designed to increase their chances of finding a job. The recipient must not be on strike.
‘Further resources 7 and 8’ in KapLearn.
2.3 Parental leave pay
Parental leave pay (PLP) is designed to help people with children by providing an independent
income for the primary caregiver.
The PLP scheme allows 18 weeks postnatal leave paid at the national minimum wage of $719.35 per
week before tax, as at May 2019. It is a taxable payment.
A parent lodging a claim for PLP must:
• have an adjusted taxable income of $150,000 or less in the financial year preceding the birth or
adoption of the child, whichever is earlier
• be the primary carer of a newborn or recently adopted child
• have had a genuine attachment to the workforce by having worked at least:
– 10 out of the preceding 13 months before the birth or adoption of the child, and
– 330 hours in that 10-month period, which is just over one day a week, and had no more than
an eight-week gap between two consecutive working days
• be on leave or not working from the time the parent becomes the child’s primary carer until the
end of the paid parental leave period.
Since 1 July 2016, PLP entitlements paid under the Commonwealth Paid Parental Leave Scheme will
be reduced where a claimant is also entitled to employer-provided Primary Carer Pay (paid maternity
leave). The government will pay the difference between Primary Carer Pay and PLP where the
Primary Carer Pay is less than the individual’s PLP entitlement.
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Employees on PLP can be paid by their employer, who will receive funding for this purpose from the
Commonwealth Government.
Employees may also qualify for other benefits, such as paid maternity leave, under an industrial
award or employment conditions.
2.4 Dad and partner pay
The dad and partner payment, which is two weeks pay at $719.35, as at May 2019, allows working
fathers or partners to take time off work to support the mother and bond with their new child.
The payment is income tested but not assets tested, and is taxable.
2.5 Child care benefit and rebate
The child care benefit is paid to approved child care providers to subsidise the cost of care.
The current maximum rate is $4.30 per hour for non-school children ($215 for a 50-hour week).
The benefit is income tested but not assets tested.
The rebate is 50% of the out-of-pocket expenses incurred for child care up to an annual maximum of
$7,613 per child p.a.
In the 2015 federal budget, the government announced extensive changes to commence from
1 July 2017. In the 2016 federal budget, the government announced deferring the start date for
these changes to 1 July 2018. From July 2018, the child care benefit and rebate was replaced by a
new scheme, referred to as the Child Care Subsidy.
The Child Care Subsidy (CCS) commenced from 2 July 2018. A person or their partner will be eligible if
either of them:
• care for the child for at least two nights per fortnight or provide 14% care
• pay fees for care provided at an approved child care service
• is an Australian citizen or permanent resident, a holder of a special category certain temporary
visa type, and the child is:
– 13 years or younger
– not attending secondary school and meets immunisation requirements.
The CCS will be paid directly to the child care provider. The rate varies from 0% to 85% depending on
the person’s family income, the hourly rate cap of the type of approved child care, and the hours of
activity the person and their partner (if any) does. No CCS is paid where family income is $351,248 or
more or where activity hours per fortnight are less than eight hours. An annual cap of $10,190
applies to those with family income of more than $186,958.
2.6 Parenting payment
The parenting payment is up to $776.10 per fortnight, including a supplement for single parents,
and up to $501.70 per fortnight each for members of a couple as at 20 March 2019. It is payable
when the parent is raising a child under age 6 (or under age 8 if a single parent). The payment is
income and assets tested.
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2.7 Carer supplement
A carer supplement is paid annually each July to assist people with caring responsibilities.
The carer supplement is paid to recipients of:
• carer allowance
• carer payment
• wife pension (age) with carer allowance
• wife pension (disability support pension) with carer allowance
• DVA carer service pension
• DVA partner service pension with carer allowance.
The carer supplement is an ongoing, non-indexed annual lump sum payment. A $600 carer
supplement is paid to recipients of carer allowance for each person being cared for. It is not
means tested.
2.8 Concession cards
Concession cards reduce health care costs and are available to recipients of an allowance or a
pension, low income earners and some people of age-pension age who work or fund their
own retirement.
Concession cards are highly valued by many people. Obtaining one can be a prime motive for
investment decisions. The value of a concession card varies according to usage and circumstances,
but is generally estimated to be worth $1,500–$2,000 p.a. Table 2 outlines eligibility for the most
common concession cards.
Table 2 Eligible recipients of concession cards

Card	Eligibility
Pensioner concession card (PCC)	Recipients of payments such as age pension, disability support pension, parenting payment (single), widow B pension and carer payment
Health care card (HCC)	Recipients of allowances such as Newstart allowance, sickness allowance, partner allowance, special benefit, widow allowance, youth allowance (job seeker), and low income earners
Commonwealth seniors health card (CSHC)	Some self-funded retirees and some employed people of age-pension age

Benefits for cardholders include:
• concessions on prescription medicines
• increased access to the Medicare safety net.
Significant changes were made to the assets test for many government payments since
1 January 2017. These changes included an increase in the reduction rate for payments,
from $1.50 to $3 per fortnight for each $1,000 of assets in excess of the asset-free area. As a result,
many recipients who were receiving a part-pension/benefit lost their entitlement. Recipients under
pension age whose payment was cancelled due to the 1 January 2017 changes received an HCC.
Recipients whose payments were cancelled due to the 1 January 2017 changes received a
non-income tested low-income HCC, and if they were age-pension age, a non-income tested CSHC.
These cards were automatically issued to affected recipients. On 9 October 2017, those impacted by
the 1 January 2017 assets test changes had their PCC reinstated (which replaced the HCC).
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The CSHC is available to some people of age-pension age who are not eligible for the pension.
This can include self-funded retirees and people in employment. To qualify for the card, people must
meet an income test (adjusted taxable income plus deemed income from account-based income
streams) of less than:
• $54,929 for singles
• $87,884 for couples combined
• $109,858 for couples combined, couples separated by illness or respite care, or where one
partner is in prison.
The income limit is increased by $639.60 for each dependent child cared for.
However, Centrelink advises that entitlements may vary between states and territories:
Concession cards may also entitle cardholders, their partner and dependent children to other
concessions from state and local government authorities and private businesses. Not all card types
will attract the same type of concessions and the concessions on offer to cardholders may also vary
between states and territories. Eligibility for any state, local government or private concession is at
the discretion of the individual concession provider.
Concessions may be available to certain cardholders in the following areas of state, territory, local
government authorities and private business, including:
• Health (dental, hearing services, home care, optical and ambulance).
• Household (council rates, electricity, gas, water, land rates, telephone line rental and housing).
• Education (school fee relief, TAFE, state government education allowances and training
programs).
• Transport (taxi fares, road transport registration fees, driver’s licence, public transport fares and
regional rail travel)
• General (entertainment, shopping and services).
Go to the Australian Government website at <www.gov.au> and follow the links to the relevant state
or territory website.
2.9 Indexation of payment rates
Payment rates and thresholds are generally indexed to consumer price index (CPI) increases.
Additionally, legislation ensures that the single rate of pension is benchmarked to at least 27.7%
of male total average weekly earnings (MTAWE). The partnered rate of pension is similarly
benchmarked to at least 41.76% of MTAWE. This means that pensions might sometimes increase by
more than CPI in line with wage movement.
Key dates for regular increases to payment rates are shown in Table 3.
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Table 3 Time of adjustment for payments and thresholds

Payment or threshold	Time of adjustment
ABSTUDY	1 January
Age pension	20 March and 20 September
Asset test threshold	1 July
Austudy payment	1 January
Bereavement allowance	20 March and 20 September
Carer allowance	1 January
Carer payment	20 March and 20 September
Child care benefit	1 July
Deeming rates	As determined by a government announcement. Usually linked to interest rates
Deeming thresholds	1 July
Disability support pension	1 January (if under 21 and not a single parent) 20 March and 20 September (otherwise)
Double orphan pension	1 January
Family tax benefit Part A/threshold	1 July
Family tax benefit Part B/threshold	1 July
Funeral bonds	1 July
Income test thresholds	1 July
Maternity payment	20 March and 20 September
Mature age allowance	20 March and 20 September
Mature age partner allowance	20 March and 20 September
Mobility allowance	1 January
Newstart allowance	20 March and 20 September
Parenting payment	20 March and 20 September
Partner allowance	20 March and 20 September
Pharmaceutical allowance	1 January
Remote area allowance	Adjusted by a change in the legislation
Rent assistance	20 March and 20 September
Sickness allowance	20 March and 20 September
Telephone allowance	20 September
Widow allowance	20 March and 20 September
Widow B pension	20 March and 20 September
Wife pension	20 March and 20 September
Youth allowance	1 January (if there are dependent children) 20 March and 20 September (if there are no dependent children)

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3 Calculating income support
To receive a pension or allowance, a person must first satisfy the basic personal and residency
eligibility criteria for that payment. Once basic eligibility has been established, the size of the
payment can differ according to age, marital status, home ownership and the number and age of
dependent children. Most pensions and allowances are also subject to an income test and an assets
test. Allowances may be subject to a waiting period before payments can commence.
The following steps apply in assessing a client’s potential entitlement to income support once they
have been deemed to be eligible. The actions in each step can differ, depending on the payment and
the client’s circumstances.
Step 1: Determine the appropriate benefit — decide what payment the person might be eligible
to apply for and determine if it is a:
• pension
• allowance
• DVA payment.
Step 2: Determine the commencement date — pensions are generally payable from the date of
claim, provided the client is eligible. Allowances, on the other hand, may have a one-week
ordinary waiting period before the client is entitled to any payment. Other waiting periods
can be lengthy, and financial plans need to ensure clients can support themselves through
such periods.
A period of time when the claimant is expected to support themselves, called an
‘income maintenance period’, applies to some allowances and the disability support
pension. The ‘liquid assets waiting period’ may also apply concurrently.
Step 3: Assess the rate payable — the basic steps in calculating the rate of pension or allowance
payable are as follows:
• Determine the person’s total maximum payment rate by referring to the published
rates. Include pharmaceutical allowance and rent assistance, if available to the client.
• Determine the assessable assets and apply the assets test.
• Determine the assessable income and apply the income test.
• Compare the payment rates produced under the income test and the assets test.
The lower of the two rates is the rate that applies.
Step 4: Consider strategies to increase social security payments — if Step 3 shows that the client
has little or no entitlement, consider financial strategies that may increase entitlement,
such as:
• reducing assessable assets
• reducing assessable income.
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4 Understanding income and assets for social
security
In section 3, step 3 summarised the process for assessing a person’s pension or allowance rate using
the income and assets tests. This section describes the rules for determining the client’s income and
assets to be assessed by these tests. It is not within the scope of this subject to provide an exhaustive
description of all rules and their exceptions. Specific cases should always be researched thoroughly,
with reference to all material available from the government body concerned.
The income and assets tests for DVA payments are generally similar to rules under the Social Security
Act, but there are some differences. DVA rules are administered under the Veterans’ Entitlements
Act, and separate legislation must be passed to make changes to DVA programs.
Once the client’s income and assets have been determined, the tests proceed by applying these
values to certain equations. That process is described in detail in section 5.
4.1 Definition of ‘income’
When estimating client entitlements, advisers need to understand what is included as ‘income’ in
social security assessments and how that income is calculated. The definition of ‘income’ in the
Social Security Act differs from its definition in taxation or use in financial planning cash flows.
There are separate income limits for singles and couples. Couples are treated as ‘one economic unit’.
Their combined income is assessed, even if only one person is applying for a pension.
There are five principal types of income and all are assessed differently:
• personal earnings
• private pensions and income streams
• income from financial investments (deemed income)
• exempt income
• income directly deducted from a pension.
Personal earnings
Personal earnings includes pre-tax salary and wages, long-service leave payments while on leave,
net taxable income from self-employment and net business profits, net income from property
rentals, non-cash benefits received for work (e.g. living rent free in exchange for maintaining a
property) and regular gifts or allowances.
To encourage age pensioners to take on or retain employment, the work bonus exempts the first
$300 per fortnight of employment income from the income test. To cater for pensioners who work
intermittently, if employment income is less than $300 in a fortnight, the difference is added to a
work bonus balance. This can be used to offset periods where employment income in a fortnight is
over $300. The maximum work bonus balance is $7,800.
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Income streams
Under the social security income test, account-based pensions fall into one of two categories:
• Grandfathered: pension payments in excess of the non-assessable portion are assessed as
income. Commutations are not assessed as income, although they reduce the non-assessable
portion going forward.
• Non-grandfathered: pension payments are subject to deeming. As a result, both pension
payments and lump sum commutation do not count as income.
An account-based pension will be grandfathered if it was commenced before 1 January 2015 and the
account holder has been in continuous receipt of an income support payment, such as an age
pension, since this date. Otherwise, the account-based pension is not grandfathered.
Income from financial investments
‘Financial investments’, as defined, are assumed to earn a standard rate of return (called the
‘deeming system’). Rather than consider the income derived from many different investments,
all financial investments are added together. An assumed rate of return is then calculated, and this is
treated as income under the income test. See the details that follow.
Exempt income
Some income is exempt income for income test purposes. The most common forms of exempt
income are housing assistance and rent subsidies; reimbursement of expenses such as
medical benefits, work expenses or jury service; gifts from family members, windfall gains and
lottery winnings; earnings on superannuation funds before age-pension age; and ad hoc,
irregular lump sum withdrawals from superannuation.
Income directly deducted from a pension
Some income is deducted from the amount of age pension. The most common deductions are
compensation payments such as workers compensation and payments made in accordance with a
reciprocal social security agreement. Australia has such agreements with many countries,
including New Zealand, Italy, Spain, the UK, Germany and Malta. For example, if an individual
receives a state pension from Germany, it would be deducted from the amount of the Australian age
pension for the income test if the person is receiving the age pension as a result of the social security
agreement with Germany.
Assessable income for Centrelink purposes includes reportable employer superannuation
contributions, that is, concessional contributions where the employee has influenced or had
capacity to influence superannuation contributions made above the required rate under the law
(i.e. salary sacrifice). Once non-grossed up fringe benefits exceed $2,000, the grossed-up reportable
fringe benefits are income for the means test.
Income from financial investments is calculated under a system known as ‘deeming’. Deeming is
described in section 4.4. Specific rules apply to other types of income, outlined below.
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4.2 Definition of ‘assets’
An ‘asset’ is defined as any property or possession held in Australia or overseas that is owned partly
or wholly by the assessable person. All assets are considered to be assessable unless they are
specifically exempted under the Social Security Act or the Veterans’ Entitlements Act.
If the person is a member of a couple, combined assets are assessed, even if only one partner
is applying for social security benefits.
The value of an asset is generally defined as the amount it would sell for on the open market less any
encumbrances or debts. Some investments are assessed under special rules, which might result in an
asset value different from the market value.
People can fall into the trap of using insured values, which can be higher than market values,
especially for personal effects, cars and contents.
In most cases, Centrelink and DVA use the same rules for assessing asset values.
Exempt assets
Some assets are specifically exempt from assessment under the Social Security Act and the
Veterans’ Entitlements Act.
The most important exempt asset is the ‘principal home’. The principal home includes the house or
unit that is the person’s main residence and up to two hectares of surrounding land.
From 1 January 2007, where a person has had at least a 20-year connection with the property,
the entire dwelling and land is on one title and the person is making ‘effective use’ of the land,
the entire land regardless of size is exempt.
The principal home also includes permanent fixtures such as carpets, dishwashers, garages and
swimming pools. The principal residence could be, for example, a house, flat, caravan or boat. If the
person owns two homes and spends time in each, the principal home will be the home in which the
person spends the most time.
Other exempt assets include:
• a life interest not created by the person or person’s partner
• refundable accommodation deposit/accommodation bonds — lump sums paid to aged care
facilities
• contingent, remainder or reversionary interest
• interest in an estate until it is received or able to be received
• medal or decoration for valour
• funeral bond up to the current limit or prepaid funeral expenses, including the cost of a cemetery plot
• aids for disabled persons
• certain insurance and compensation payments
• native title rights and interests
• assets-test exempt income streams purchased before 20 September 2007.
Rules relating to exempt assets can be complex. Details should be sought directly from Centrelink or
the DVA. Their websites have further information.
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4.3 Income and assets assessment for couples
For couples, income can be assessed jointly or separately, depending on whether the couple is
considered to be a ‘pensioner couple’ or a ‘non-pensioner couple’.
Pensioner couples
A ‘pensioner couple’ is defined as a couple in which at least one partner receives a social security
pension, service pension or rehabilitation allowance.
A pensioner couple is assessed as a joint economic unit under both the income test and the assets
test. This means that their total combined assets are assessed against the couple assets test
thresholds. For the income test, total combined income is assessed and each person is assumed to
earn 50% of the total. This amount is applied against each partner’s respective income test
assessment. Within a pensioner couple, this method of determining income is also used for a
partner’s allowance income test.
This method of assessing pensioner couples ensures that if both partners are receiving a pension,
they will each receive the same payment rate. If one partner is receiving an allowance, they could
receive different payment rates because of the differences in the maximum rates, income thresholds
and reduction rates between pensions and allowances.
Non-pensioner couples
A person is defined as a member of a non-pensioner couple if neither partner receives a pension.
Thus, both partners may receive allowances or one may receive an allowance while the other
receives no payments. The two members of a non-pensioner couple are regarded as:
• a joint economic unit under the assets test, with combined assets assessed against the couple
assets test thresholds
• separate economic units under the income test, with income assessed against the person who
actually earned it or who owns the asset that the income relates to.
Each person in a non-pensioner couple can be assessed as earning different amounts of income.
Thus, if both partners apply for an allowance, they could receive different payment rates.
However, income earned by one partner that exceeds the point where that partner’s payment would
cut out can reduce the other partner’s entitlement.
Same-sex reforms
Following the Human Rights and Equal Opportunity Commission report on same-sex entitlements
(HREOC 2007) and an audit of the Commonwealth legislation, the Australian Government introduced
reforms to remove discrimination to enable same-sex couples and their children to be recognised
under Commonwealth law.
The reforms, which commenced on 1 July 2009, aim to ensure that same-sex couples are recognised
as a couple. Consequently, a same-sex couple and their children receive the same rate of social
security and family assistance payments as an opposite-sex couple. A person who has a same-sex
de facto partner was previously treated as a single person for social security.
The Marriage Amendment (Definition and Religious Freedoms) Act 2017 has since legalised same-sex
marriage in Australia by amending the Marriage Act 1961 to allow marriage between two persons of
marriageable age, regardless of their gender, ensuring equality for all married couples under the law.
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4.4 Deemed investments
Deeming is a system whereby a specified percentage of income is ascribed to certain investments,
irrespective of the actual return received.
Income that exceeds the deeming rates does not affect social security entitlements.
Conversely, the deeming rate still applies even if the actual returns fail to reach it.
The deeming rates are adjusted in line with the general movement in interest rates, at the discretion
of the Minister for Social Services. The deeming rate threshold amounts are adjusted on 1 July each
year to reflect inflation.
Deeming is only relevant for the income test. The value of financial investments is still counted under
the assets test.
Deeming applies to the income test assessment of people on or applying for:
• any means-tested Centrelink pension or allowance
• any means-tested DVA payment
• low-income HCC or CSHC.
Deeming does not apply to family tax benefits or the CSHC (for holders with account-based income
streams commenced before 1 January 2015), as assessments for these are based on adjusted taxable
income. For account-based income streams commenced before 1 January 2015 to be excluded from
the CSHC income test, the person must have been continuously eligible for the CSHC since before
1 January 2015.
Assets subject to deeming — financial investments
Most investments are included under the deeming rules. Centrelink refers to deemed investments as
‘financial investments’.
Financial investments subject to deeming include:
• available money — money held by or on behalf of the person that is not deposit money or loan
money owed to the person, including cash
• deposit money — money deposited in an account with a financial institution, such as a bank,
building society or credit union, including cheque accounts and home loan offset accounts
• managed investment — money in public unit trusts, friendly society bonds and insurance bonds
• listed security — securities listed on a stock exchange, including publicly listed shares,
preference shares and convertible notes, but not private company shares
• loan that has not been repaid in full — any money owing to the person as well as debentures,
bonds and unsecured notes
• unlisted public security — shares in a public company, or other security, that is not listed on a
stock exchange
• gold, silver or platinum bullion — all bar, ingot and nugget holdings
• superannuation and rollover funds — included only if the owner is over
age-pension/service-pension age
• account-based pensions — which are non-grandfathered.
As of 1 January 2015, the normal deeming rules were extended to the superannuation
account-based income streams. This brought superannuation income streams into line with all other
financial investments.
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Grandfathering provisions allow for account-based pensions to maintain their previous Centrelink
deductible amounts on the provision the holders of these account-based pensions were receiving an
eligible social security payment as at 31 December 2014, continue to be in receipt of an eligible
social security payment, and the account-based pension was in place by 31 December 2014.
See section 4.6.
Some gifts, known as ‘deprived assets’, may also be deemed.
‘Further resource 9’ in KapLearn.
Asset values of financial investments
The value of a financial investment is taken to be the gross market value. The value of encumbrances
(e.g. mortgages) over financial assets is not deductible from the asset value for deeming purposes.
The method of assessing value varies depending on the type of financial investment.
• Cash and bank deposits: Account balances are assessed at face value.
• Fixed interest securities (including term deposits and government bonds): The asset value is the
amount paid; however, the customer can request that the market value be used if they can
provide supporting documentation.
• Bank bills and commercial bills: The asset value is taken to be the amount paid. This is because
the investments are short term.
• Debentures: The asset value of a debenture or unsecured note listed on the stock exchange is the
market value. If the investment cannot be sold until maturity, the face value of the investment is
assessed. Because of the global financial crisis, some debentures are now worth less than their
original value. This reduced value can be accepted by Centrelink.
• Managed investments and shares in public companies: The asset value is the latest buyback unit
price or listed selling price.
• Bullion: The asset value is the market value as determined by the client or independent dealer
commissioned by Centrelink.
• Loans and debts: The asset value is the total of any money owed to the client. This includes
interest-free loans.
Investment costs
Deeming rules do not allow investment costs to be deducted from deemed income. However,
some investment costs, such as entry fees, are deducted from the asset value. For example, if a
pensioner invested $10,000 in a managed fund, $300 of which was an entry fee payment, the value
of the financial investment would be $9,700. This is the amount to which the deeming rules apply.
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Apply your knowledge 1: Identifying financial investments
For each asset, identify whether or not it is considered a financial investment.
1. $12,000 held in a friendly society bond
2. 5,000 BHP shares
3. holdings in gold bullion
4. a car valued at $40,000
5. superannuation for a male age 50
6. investment in a listed company
7. $5,000 held in a standard bank account
8. $12,000 in a fixed interest deposit
9. 10-year income stream from a lottery win
10. $10,000 interest-free loan to a child
11. household contents valued at $15,000
12. family home.
Assessing deemed income
The values of all financial assets are added together to determine the level of income to be counted
under the income test. Deemed income is then added to the person’s assessable income from all
other sources. The total is used to determine the rate of pension or allowance payable under the
appropriate income test.
Refer to Table 4 below for the thresholds and rates as at 1 July 2018, summarised as follows:
• For a single pensioner, the first $51,200 of financial investments is deemed to earn income at
1.75% p.a. and any amount over that is deemed to earn income at 3.25% p.a.
• For a couple where at least one person receives a pension, the first $85,000 (combined) of the
couple’s financial investments is deemed to earn income at 1.75% p.a. and any amount over that
is deemed to earn income at 3.25% p.a.
• For a couple where neither partner receives a pension, the first $42,500 of the couple’s combined
financial investments is deemed to earn income at 1.75% p.a. and any amount over that is
deemed to earn income at 3.25% p.a.
Table 4 Deeming thresholds and rates at 1 July 2018

Deeming thresholds	Rate
Single (receiving either a pension or an allowance)
First $51,200	1.75%
Balance thereafter	3.25%
Couple (at least one person receiving a pension)
First $85,000	1.75%
Balance thereafter	3.25%
Couple (non-pensioner)
First $42,500 (each)	1.75%
Balance thereafter	3.25%

Note: The deeming thresholds are rounded to the nearest multiple of $200. The deeming rates are reviewed twice a year, although they do
not always change.
Source: DHS 2018a, Guide to social security law, section 4.4.1.10 (13 August 2018).
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Calculating deemed income for single persons or pensioner couples
To calculate the income test assessment of financial assets for a single person or a pensioner couple,
the following steps are applied:
Step 1: Calculate the total value of financial investments.
Step 2: Work out the deeming threshold (see Table 4). If the total value of financial assets exceeds
the relevant deeming threshold, subtract the deeming threshold from the total value of
those assets. (If the total does not exceed the threshold, go to Step 4.)
Step 3: Apply the higher deeming rate to the excess over the deeming threshold. Do this by
multiplying the remainder from Step 2 by the higher deeming rate (see Table 4).
Step 4: Apply the lower deeming rate to the amount up to the threshold. Do this by multiplying the
amount of financial assets up to the deeming threshold (i.e. the total financial assets less
the remainder from Step 2) by the lower deeming rate (see Table 4).
Step 5: Calculate deemed income by adding together the amounts arrived at in steps 3 and 4.
For couples, half of the total is ascribed to each member of the couple.
Example: Calculating deemed income for an age pensioner couple
Freda and Ralph are an age pensioner couple and have the following assets:

Home Contents Car Cash Bank account Debenture Insurance bond Allocated pension Equity trust

$500,000 $10,000 $30,000 $2,500 $5,000 $20,000 $15,000 $245,000 $45,000

(joint) (joint) (Ralph) (Freda) (joint) (Ralph) (Freda) (Ralph) (grandfathered account-based pension) (Ralph)

To calculate their deemed income:
Step 1: Calculate the total value of financial assets.
Financial assets total $87,500 (total of cash, bank account, debenture,
insurance bond and equity trust).
Note: Home, contents, car and allocated pension are not financial investments.
Step 2: Subtract the deeming threshold from the total value of financial investments.
$87,500 – $85,000 = $2,500 ($85,000 from Table 4 for a couple)
Step 3: Calculate the deemed income on amounts in excess of the threshold.
$2,500 × 3.25% = $81.25
Step 4: Calculate deemed income on amounts up to the threshold using the lower
deeming rate.
$85,000 × 1.75% = $1,487.50
Step 5: Total deemed income for the year:
$81.25 (from Step 3)
$1,487.50 (from Step 4)
$1,568.75 p.a.
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Apply your knowledge 2: Deemed income for an age pensioner couple
Calculate the deemed income for Mark and Mandy, who are an age pensioner couple
and have the following assets:

Home Contents Car Cash Bank account Term deposit Debenture Bank bills Allocated pension Managed share fund

$410,000 $12,000 $15,000 $1,500 $4,000 $6,000 $10,000 $12,000 $300,000 $50,000

(joint) (joint) (Mark) (Mandy) (Mark) (Mandy) (Mark) (Mandy) (Mark) (grandfathered account-based pension) (Mandy)

Calculating deemed income for non-pensioner couples
The steps to calculate deemed income for non-pensioner couples are the same as for pensioner
couples, but a separate deemed income amount is calculated for each person.
Example: Calculating deemed income for a non-pensioner couple
James and Eleanor are a non-pensioner couple with the following assets:

Cash Bank account Debenture Insurance bond Equity trust
Calculate James’s deemed income:
Step 1: Total of James’s financial assets (share of joint bank account, debenture and equity trust):
($2,500 + $20,000 + $45,000)	= $67,500
Step 2: Financial assets- deeming threshold (Table 4):
($67,500 – $42,500)	= $25,000
Step 3: Result from Step 2 × Higher deeming rate (Table 4):
($25,000 × 3.25%)	= $812.50
Step 4: Financial investments up to threshold × Lower deeming rate:
($42,500 × 1.75%)	= $743.75
Step 5: James’s deemed income (Step 3 + Step 4):
($812.50 + $743.75)	= $1,556.25 p.a.

$500 (Eleanor)
$5,000 (joint)
$20,000 (James)
$15,000 (Eleanor)
$45,000 (James)

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Calculate Eleanor’s deemed income:
Step 1: Total of Eleanor’s financial assets
(cash, share of joint bank account, insurance bond):
($500 + $2,500 + $15,000) = $18,000
Step 2: Financial assets minus deeming threshold (Table 4)
(Asset total is below threshold, therefore there is no excess.)
Step 3: Result from Step 2 × Higher deeming rate (not applicable)
Step 4: Financial assets up to lower threshold × Lower deeming rate (Table 4):

($18,000 × 1.75%)	= $315
Step 5: Eleanor’s deemed income (Step 3 + Step 4):
($0 + $315)	= $315 p.a.

The deemed income for each partner is then assessed against their individual income test
after converting it to a per-fortnight amount.
4.5 Superannuation and rollovers
The social security assessment of superannuation and rollovers has undergone several major changes
over recent years.
Summary of historical changes
Before 20 September 1997, superannuation and rollovers were exempt for social security until
age-pension age.
Between 20 September 1997 and 30 June 2001, superannuation and rollover investments were
exempt under the income and assets tests only if certain conditions were met. Otherwise, they were
treated as financial investments.
Between 1 July 2001 and 27 December 2002, funds were fully exempt only for clients between
age 55 and age-pension age.
The rules were often complex, with various exceptions applying. Contact Centrelink or refer to the
Guide to social security law (DHS 2019a) if details of these historical assessments are required.
Current rules for superannuation and rollovers
The current rules for superannuation and rollovers took effect from 28 December 2002.
Superannuation held by people under age-pension or service-pension age is usually exempt from
both the income and assets tests. This exemption applies only to money held in the accumulation
phase of superannuation, a deferred annuity or an approved deposit fund. No income assessment
applies to lump sum withdrawals from superannuation funds. Amounts withdrawn are assessed
according to how they have been used (e.g. a reinvested amount will become a financial investment).
Superannuation funds held after reaching age-pension age are financial investments, meaning they
are subject to deeming and fully assessable under the assets test.
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4.6 Income streams
The types of income streams available and their method of assessment have undergone changes in
recent years. Table 5 shows how Centrelink categorises income streams according to when they were
purchased.
Table 5 Centrelink categories of income streams

Type of income stream	Characteristics
Asset-test exempt — 100% exempt (if purchased before 20 September 2004)	Lifetime guaranteed, or life-expectancy term certain that meet the specified criteria
Asset-test exempt — 50% exempt (if purchased between 20 September 2004 and 19 September 2007)	Lifetime guaranteed, or life-expectancy term certain that meet the specified criteria. Also includes market-linked income streams (term allocated pensions)
Asset tested (long term)	Not asset-test exempt. Term is > 5 years, or life expectancy ≤ 5 years and term equals life expectancy, e.g. allocated pensions
Asset tested (short term)	Not asset-test exempt. Term is 5 years or less

Assessing asset-test exempt and partially asset-test exempt
income streams
The rules for assessing asset-test exempt income streams are explained below.
Assets test assessment
Pensions and annuities purchased on or after 20 September 2004 and before 20 September 2007
that meet the criteria of an asset-test exempt income stream receive a 50% exemption under the
assets test. The remaining 50% is assessed as an asset using the same rules as for an asset-tested
long-term income stream (see below).
If the pension or annuity was purchased before 20 September 2004, it receives a 100% assets
test exemption.
Income test assessment
The income test on asset-test exempt income streams assesses the gross income paid each year less
the social security deductible amount (see below).
If the income stream is paid from an accumulation scheme or purchased with superannuation or
ordinary money, the deductible amount is calculated as:

Deductible amount = Full purchase price Relevant number

where:
Deductible amount = the amount calculated at commencement (which does not change unless a
commutation is subsequently made)
Relevant number = the number of years in a fixed term income stream or, if there is no fixed
term (i.e. lifetime guaranteed), the life expectancy of the person. If a
reversionary option is chosen for a lifetime guaranteed income stream,
the life expectancy that will be used will be the longer of the original
beneficiary’s or reversionary beneficiary’s.
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However, if the income stream is paid from a defined benefit scheme, the deductible amount is the
proportion of the total superannuation benefit that is a tax-free component.
Since 1 January 2016, the deductible amount of a defined benefit income stream is capped at 10% of
the annual pension payment except for income streams paid from the following:
• Defence Force Retirement and Death Benefits Scheme (DFRDB)
• Military Superannuation and Benefits Scheme (MilitarySuper)
• Defence Force Retirement Benefits Scheme (DFRB).
Assessing asset-tested income stream (long term)
The rules for assessing both long-term and short-term asset-tested income streams are discussed in
this section.
Assets test assessment
The asset value of asset-tested income streams is reassessed every six months if income is paid at
least twice a year, or every 12 months if only one income payment is made in that year. There are
three methods for calculating the asset value:
1. If the income stream has an account balance, as is the case for account-based pensions and annuities,
the asset value is taken to be the account balance at the beginning of each six-month or 12-month
period.
2. If the income stream does not have an account balance, as is the case for immediate annuities
and/or superannuation pensions, the asset value is calculated at the beginning of each relevant
period as:

Asset value =     ( – )    ×         Purchase price RCV Relevant numbe Term elapsed r

where:
Term elapsed = the number of years the income stream has been running for, rounded down
to the nearest half-year. (If only annual payments are made, it is rounded
down to the nearest whole year.)

RCV	= residual capital value
3. If the pension is not purchased but is instead paid as a benefit from the fund, as is the case with a pension from a defined benefit fund, the asset value is calculated based on the following formula:

Asset value = Annual payment × Pension valuation factor (PVF)

Many defined benefit schemes, especially paid by a government body, are assets-test exempt.
You should check with either the provider or Centrelink for the assets-test exempt status.
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Income test assessment
The income test assesses the gross income paid each year less a deductible amount. The formula to
calculate the deductible amount differs from that applied in taxation legislation and varies according
to whether the income stream is paid from an accumulation scheme or a defined benefit scheme.
1. Since 1 January 2015, if the income stream is paid from an accumulation scheme or purchased
with superannuation or ordinary money, deeming is applied to the balance at the time of
assessment. Income streams commenced before that date where the pensioner has been eligible
continuously for social security/DVA income support assessed under ‘grandfathered’ rules where
a portion of income stream payments, the deductible amount, is disregarded. The deductible
amount is calculated as:

Deductible amount = Purchase price RCV – Relevant number

If a commutation is made after a grandfathered income stream commences, the deductible
amount is recalculated. The original relevant number continues to be used but the purchase price
is reduced by the amount commuted. This will reduce the deductible amount.
2. The deductible amount for defined benefit income streams is expressed as the proportion of the
total superannuation benefit that is a tax-free component.
From 1 January 2016, the deductible amount of a defined benefit income stream is capped at 10%
of the annual pension payment except for income streams paid from the following:
• Defence Force Retirement and Death Benefits Scheme (DFRDB)
• Military Superannuation and Benefits Scheme (MilitarySuper)
• Defence Force Retirement Benefits Scheme (DFRB).
Example 1: Deductible amount assessment for an account-based pension —
commencing before 1 January 2015
Karl, aged 66, purchased an account-based pension for $220,000 in 2014. He was in
receipt of an eligible social security payment as at 31 December 2014 and has been in
continuous receipt of the payment since. His life expectancy at the time of purchase was
18.54 years. He elected to receive $15,000 income in the first year. His income is
assessed under the income test as follows:

Deductible amount =	($220,000 – 0) ÷ 18.54 = $11,866
Assessable income	= $15,000 – $11,866 = $3,134

Therefore only $3,134 is assessed as income for social security purposes.
Six months later, Karl elects to withdraw a $20,000 lump sum from the pension.
His income test assessment is recalculated:

Deductible amount =	($220,000 – $20,000) ÷ 18.54 = $10,787
Assessable income	= $15,000 – $10,787 = $4,213

The lump sum withdrawal is not assessable, but it reduces his deductible amount.
Therefore, his income assessment increases to $4,213.
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Example 2: Income test assessment for account-based pension —
commencing after 1 January 2015
Using the same example as above, but assuming Karl commenced his account-based
pension after 1 January 2018, for income test purposes the purchase price of $220,000
would be added to Karl’s other financial investments and be subject to deeming.
Assessing asset-tested income stream (short term)
If the term of the term annuity is five years or less, income is assessed under deeming rules, as the
asset is included in the definition of ‘financial investments’. The exception is where the life
expectancy of the annuitant is less than five years.
New rules relating to superannuation income streams
As indicated earlier, the income test assessment for superannuation account-based pensions
changed as of 1 January 2015.
Account-based pensions in place before 1 January 2015 are also deemed as a financial asset for
members who were not in receipt of a payment from a qualifying entitlement as at
31 December 2014.
This change means all financial assets are assessed under the same rules.
Income streams in place on 31 December 2014 are grandfathered for recipients of an existing qualifying
payment from Centrelink or the DVA, and are assessed using the deductible amount method.
Term allocated pensions and annuities are not affected by these changes. Instead, the income from
these income streams continues to be assessed under the deductible amount method.
Splitting income streams after divorce
Income streams purchased by superannuation moneys are split between the divorced spouses in the
proportions dictated by the superannuation agreement or court order.
Currently, DHS carries out all assessments of split income streams. Advice should be sought from
Centrelink for clients in this position.
For superannuation purposes, the split amount of a superannuation interest will be paid in
proportion to the tax and preservation components of the interest just before the split.
4.7 Other common forms of income and assets
There are many different assessment rules for the many different types of income and assets.
This topic does not cover every type. Rather, it details the more common forms of assets and
income. Some significant items that have not yet been covered are addressed below.
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Personal effects and home contents
Personal effects and household contents are assessed at market value (sometimes referred to as
‘garage sale’ value), not at insured value. A notional value of $10,000 is generally accepted by
Centrelink. However, a customer can nominate a lower or higher amount as appropriate.
No income is assessed under the income test for personal effects and home contents.
Motor vehicles, caravans and boats
Motor vehicles, caravans and boats (including motor cycles and trailers) are assessable at market
value. A caravan or boat is not assessable if it is used as the principal home.
‘Further resource 10’ in KapLearn.
This resource provides more information on assessable and non-assessable assets.
Employment income
Employment income is any income from work as an employee in an employer–employee
relationship. It includes but is not limited to:
• salary
• wages
• commissions
• employment-related reportable fringe benefits
• salary sacrifice
• bonus payments.
Real estate
The asset value of real estate other than the principal home (on less than 2 hectares of land) is
assessed at net market value. Encumbrances (usually borrowings) on the property may be deductible
from the asset value to determine net market value, as long as the loan is secured against the
assessable real estate. Centrelink normally accepts the customer’s valuation of the real estate market
value, but it might choose to obtain a valuation.
Income received from investment property is also assessed. Centrelink assesses current net income
based on the person’s latest tax return. It follows most of the taxation rules for income assessment.
However, some items that are deductible for tax are not deductible for social security. These include:
• capital depreciation and development costs
• offsetting of losses between rental properties
• borrowing costs such as loan establishment costs (although interest is deductible).
If a property is negatively geared, a ‘negative’ income cannot be used to offset other income.
Instead, a net income of zero results for this asset.
If a tax return is not available, the rental income can be reduced by a maximum of one-third to cover
assumed expenses, and a deduction is also allowed for interest costs.
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Business interests
The total net market value of business assets (including a farm) is assessed under the assets test.
If a person is a joint or partial owner of the business, only their share is assessable.
Private trusts and companies
Assets in private trusts and companies are assessed as the deemed owner’s assets. The legislation
aims to identify the owner of the underlying trust or company assets. This is achieved by applying a
control test and a source test.
Control test
Under the control test, a social security recipient is deemed to have control of a private trust or
company if they are a trustee, appointer or director. They may also be deemed to have control if a
relative or associated person or entity has control, or if control is held by someone who they influence.
The ‘controller’ is assessed as owning all of the assets held by the trust or company under the assets
test, unless circumstances justify a smaller proportion being assessed as owned by that person.
The legislation is very broad and allows Centrelink wide discretion to assess the particular
circumstances of each case. Loans owed by the trust or company are only deductible from the asset
values if the loans are documented and on commercial terms, however different rules apply in
certain situations.
Under the income test, all of the actual income of the trust or company is assessed to the controller.
Distributions made to other beneficiaries or shareholders come under gifting and deprivation rules
(see section 4.8). If the beneficiary is also an income support recipient, their trust income will be
assessed.
Source test
The source test takes into consideration a person’s injected capital into the trust or company and any
control they exercise in the entity as a result of being the source of the funds. The source test
recognises that a person who transfers assets to a structure generally retains some means of control.
Gifts made to a trust or company that the person controls are disregarded on the basis that one
cannot gift assets to themselves. They are not assessed under the normal ‘gifting’ or deprivation
rules. Instead, the value of the entity’s assets will be attributed to the person. However, if the entity
is not attributed to the person, then any gift is captured under the deprivation provisions, as they
have reduced their assets without getting any benefit.
Private trust or company considerations
When considering interests in private trusts or companies, options include:
• retaining the company or trust with no changes to the structure and rearranging investments
within the trust or distribution patterns to generate sufficient income
• winding up the company or trust if the structure is no longer required, and investing funds
elsewhere to replace income
• relinquishing control of gift assets.
If a person winds up a company or trust, they might receive capital distributions that can be used to
generate income. Distributions of capital made to the attributable stakeholder, that is, the person
deemed to own the assets, are not assessable under the income test.
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If the capital distribution is retained and invested elsewhere, it will be means tested.
Trust or company assets that a person gifts or otherwise relinquishes control of are subject to gifting
rules. An assessment of deprivation may apply.
Example: Controllers of a trust
Phil and Jocelyn are age pensioners. They have a family trust with total assets of
$250,000. It generates income of $10,000 p.a. Their two children are beneficiaries of the
trust. Phil and Jocelyn are joint trustees and beneficiaries.
Phil and Jocelyn are deemed to be controllers of the trust. The $250,000 assets are
included in their assets test assessment, and the $10,000 income is included in their
income test assessment. This will reduce their age pension entitlement and,
depending on other income and assets, might make them ineligible for payments.
Any distributions made to their children will be assessed under gifting rules.
If Phil and Jocelyn remained beneficiaries but were replaced as trustees by their
children, they could still be assessed as controlling the trust because they have not
genuinely relinquished control but merely passed it to ‘associates’. Their children are
classified as ‘associates’ and control is not relinquished under the ‘associate rule’.
Loans to private companies or trusts
Loans made by a person to a company or trust are assessable assets and attract deeming.
This could lead to double counting if the loan is not properly documented, as the amount lent could
also be captured in the assets of the company or trust.
The value of assets held in the company or trust will be assessed at the net market value. Loans can
only be deducted from the value if the existence of the loan is fully documented and there is an
intention for it to be repaid. The loan may then be offset against the assets that the funds were used
to purchase. It is important for clients to properly document loans made to a private company or
trust and the intent to repay them. Different rules apply to 100% attributable stakeholders and the
requirement to document the loan.
Testamentary trusts
A testamentary trust (a trust formed from a will) is generally a private discretionary trust and is
assessed under the private trust rules.
The trust is assessed to the surviving spouse if:
• the surviving spouse directly controls the trust (even if they are not a beneficiary)
• an associate controls the trust and the surviving spouse is a potential beneficiary.
Example: Effect of testamentary trust on assets and income assessment
Brad died and his will established a testamentary trust. The beneficiaries of the trust are
his three children from his first marriage. He appointed his second wife as trustee —
his first wife was deceased. The second wife is not a beneficiary and has no entitlement
to the income or assets of the trust. However, the assets and income of the trust will be
assessed to her as she is the surviving spouse and directly controls the trust.
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The example above illustrates that clients should assess their estate planning needs carefully.
This could require changes to existing wills so they do not produce negative outcomes for the
surviving spouse. Clients should consider bequeathing assets directly to beneficiaries rather than
establishing a testamentary trust, although such trusts provide tax advantages if there are children
under age 18. If a testamentary trust is appropriate, the trustee should not be the surviving spouse if
social security entitlement is a consideration.
Assets held solely in the deceased’s name can be left directly to beneficiaries without triggering
deprivation for the surviving spouse. This also applies to assets held as tenants in common. It does
not apply to assets held as joint tenants, as these pass automatically to the surviving owner.
Example: Advantages of bequeathing assets directly
John is married to Jill. He has a $200,000 portfolio of shares he wishes to bequeath to his
grandchildren.
If he leaves the shares in his will to Jill, she will be assessed with the assets. If she then
gifts the shares to the grandchildren, she will be assessed with a ‘deprived asset’ of
$190,000, as only $10,000 can be gifted each year.
If, however, the shares are bequeathed in the will directly to the grandchildren, then Jill
will not be assessed with these assets.
Special disability trusts
Special disability trusts (SDTs) were introduced in 2006 to assist families wishing to make private
financial provision for the future care and accommodation needs of a family member with severe
disability. Parents and immediate family members can establish a special disability trust for the
current and future accommodation and care of a severely disabled person.
Due to the very small take-up of SDTs, the government made significant changes to how they
operate. From 1 July 2009, a parent who had already purchased a property can place it in the SDT as
the beneficiary’s principal place of residence without it being subject to capital gains tax (CGT) and
stamp duty. Further, an SDT established by a will allows the principal residence of the beneficiary to
be included without any CGT or stamp duty implications. If after a period of time it becomes
apparent that the property is inappropriate for the beneficiary, it can be sold to purchase more
appropriate accommodation without any CGT or stamp duty implications.
From September 2006, all trust income and trust assets up to an initial value of $500,000 do not
affect the disabled person’s social security payments or DVA payments. This amount has been
indexed annually, and at 1 July 2018 was $669,750. Additionally, a gifting concession of up to
$500,000 combined is available to eligible family members of the principal beneficiary.
Conventional life insurance policies
The surrender value of a conventional life insurance policy is assessed as an asset to the policy
owner. Conventional life insurance policies include whole-of-life insurance policies and endowment
insurance policies.
Conventional life insurance policies are currently exempt under the income test only while they are
held. When the policy matures or is surrendered, the entire growth on the policy since
commencement is held as income for the following 12 months. The growth is taken to be the balance
of the policy (before any loans are repaid) less any premiums or contributions made to the policy.
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Friendly society bonds — exceptions
Most friendly society bonds are classified as financial investments. However, some exceptions are
assessed as conventional life insurance assets to the policy owner. The exceptions are those with a
substantial insurance risk component, that is, those that provide life insurance cover. Details can be
obtained from Centrelink. On withdrawal or maturity, the growth from such policies is assessed as
income for the following 12 months.
Funeral bonds
Funerals can be costly. Many elderly people like to set aside funds to cover the cost of their funeral.
Funeral bonds invest the money to counter the effects of inflation.
Funeral bonds are exempt under the income and assets tests, provided:
• the amount deposited does not exceed $13,250 (as at 1 July 2019) indexed in line with
CPI pension increases every 1 July)
• the bond does not relate to a funeral for which funeral expenses have been prepaid or to which
another exempt funeral bond applies.
In addition to reducing a person’s assessable assets and income, investing in funeral bonds can also
be tax-effective, depending on the person’s situation. Exempt funeral bonds cannot be realised
and the return is not payable until the death of the owner.
If the amount deposited exceeds the limit, the funeral bond will not be exempt and the entire bond
will be assessable as an asset. The entire bond will also be assessable as a financial investment and
subject to deeming rules under the income test. Where a funeral bond is jointly owned, the couple
can only exempt $13,250 rather than twice the amount. Exempt funeral bonds that rise over the limit
because of growth will continue to remain exempt from the income and assets test.
Funeral bond considerations
In recommending a funeral bond or fund, an adviser should consider the following:
• The bonds may be capital guaranteed but they only generate low investment returns.
• Some of the bonds assign ownership to a funeral director, who receives the unused funds after
the funeral.
• Payment can sometimes be made in instalments over time rather than as a lump sum.
• Many of the bonds have a 30-day cooling-off period in which the person can reconsider.
• If a person has not already contributed the maximum, they may be able to add funds at a later date.
• Commissions associated with funeral bonds must be disclosed.
Prepaid funeral and cemetery expenses
A person can claim an exemption for funeral expenses paid in advance if paid with a contracted
payment to a funeral director. A person can also claim an exemption for the cost of a cemetery plot
bought prior to death. There is no limit on the amount that can be exempt under this provision.
However, a person cannot claim an exemption for prepaid funeral expenses if an exemption has
already been claimed for a funeral bond that relates to the same funeral.
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Interest in an estate
A person’s share in a deceased estate is disregarded until it is received or able to be received. If the
estate is not distributed within 12 months, Centrelink may review the circumstances to determine
whether private trust rules apply.
Investments specifically exempted from deeming
The minister responsible for social security has the power under the Social Security Act to grant
exemptions from deeming to specific financial investments or specific classes of financial
investments. If an exemption is granted, the investment is assessed at the actual rate of
return received.
Church development funds
Churches and charitable organisations (e.g. some nursing homes) can apply for an exemption from
deeming for deposits and loans made by social security and DVA recipients. The funds must be used
for capital expenditure on churches, schools, hospitals, nursing homes and welfare services.
Income on these amounts is assessed at the actual rate earned.
These exemptions ended from 1 January 2010. For new income support recipients, this means that
even though a particular fund may have been granted an exemption in the past, normal deeming
provisions now apply.
For existing recipients, this means that any previously granted exemption prior to that date will
continue if they keep receiving an income support payment. If a recipient stops receiving a payment,
the exemption will end and will not be reinstated if another payment is claimed again.
Any funds added to an existing investment in a church and charitable institution’s development fund
on or after 1 January 2010 will not be granted an exemption from the deeming provisions.
Proceeds from the sale of a home
Proceeds from the sale of the principal home residence are exempt under the assets test for
12 months if the person intends to use the funds to purchase another home within the 12 months.
This exemption can be extended for up to an additional 12 months if the individual is experiencing
delays beyond their control in acquiring a new home. During this period, the proceeds are considered
to be financial investments under the income test and are subject to deeming.
Granny flat rights
Granny flat rights are usually informal family arrangements that provide accommodation for an
elderly family member. A granny flat right occurs when a person secures a right to accommodation
for life in another person’s private home by:
• transferring the title of a principal home to a near relative
• providing the purchase price for the property that will be registered in a near relative’s name
• providing funds for the construction of a granny flat on a near relative’s property.
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A right to live in the accommodation for life is generally considered to be adequate consideration for
the disposal of assets, so deprivation usually does not apply. However, in some cases,
a reasonableness test can apply to determine if gifting rules are used. Whether the person is
considered to be a homeowner or a non-homeowner for assets test assessments depends on the
value of the amount effectively paid for the granny flat right. If the payment or property transferred
is greater than the difference between the homeowner and non-homeowner thresholds
(extra allowable amount), the person is a homeowner and the amount is an exempt asset. If the
amount paid is equal to or less than the threshold difference, the person is a non-homeowner and
the amount paid is an assessable asset. A non-homeowner can apply for rent assistance.
Aged care lump sum payments — refundable accommodation deposit
A refundable accommodation deposit (lump sum payment to secure a place) in an aged care facility
is an exempt asset and is also not assessed under the income test.
Life interest
A life interest arises when the customer acquires a right to the use of an asset and/or income
produced by the asset for life or until surrendered.
The value of a life interest is exempt if it is created by someone other than the person or their
partner (or deceased partner). Life interests created on the death of a partner before 19 May 1994
are also exempt assets.
Life interests created by the person or their spouse are assessable on an actuarial valuation unless
exempt as the principal residence.
Reversionary, remainder and contingent interest
Reversionary, remainder and contingent interests refer to the titleholder not gaining the benefit
of their interest until the rights of another person expire. These assets are exempt unless the interest
was created by the person or their partner. For example, an 83-year-old man dies and leaves a life
interest in the house to his 82-year-old wife, with a remainder interest to his 62-year-old son,
who will inherit the house when his mother dies. The house is not counted as an asset for the son.
Medal or decoration for valour
Medals and decorations are exempt unless they are held as an investment or hobby.
Loans
If a person obtains a secured loan, the value of the outstanding loan can only be deducted from the
value of the asset used as security. Therefore, if the person’s own home is used as security for the
loan, no deduction is allowable against assessable assets as the home is an exempt asset.
If an assessable asset is used as collateral security or for the benefit of a third party, the debt cannot
be deducted from the value of an asset.
If the mortgage is unregistered to reduce the asset value, sufficient evidence will need to be provided
to satisfy Centrelink that a court would accept that a legal mortgage exists.
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Unsecured loans are only deductible from the value of an asset if the person can provide evidence
that the loan was obtained specifically for the purchase of that asset.
For a lender, if a loan has not been repaid and is not legally recoverable either because the relevant
state statute of limitations period has expired or because the debtor is unable to repay the debt,
the debt is deemed to have no value and is disregarded under the assets test.
However, if the lender failed to take legal action to recover the debt within the statute of limitations,
deprivation provisions may be applied to assess the outstanding amount as an asset for the following
five years.
4.8 Gifting and deprivation rules
‘Deprivation’ occurs when a person makes one or more gifts of income or assets over a threshold
level without receiving adequate financial consideration in return. Financial consideration is regarded
as adequate when the amount received is equivalent to the market value of the asset, that is,
the point at which a willing purchaser and a willing, but not anxious, vendor would reach agreement.
Deprivation and gifting rules apply to all means-tested pensions, allowances and benefits paid under
both the Social Security Act and the Veterans’ Entitlements Act.
Gifting an asset
A person or a couple combined may give away income or assets up to limits specified in the
legislation without adverse effects on their social security entitlements. Above the specified levels,
gifts will be regarded as deprived assets, assessable in the assets and income tests for a period of five
years from the date of gift.
Two gifting limits apply concurrently — the $10,000 rule and the $30,000 rule:
• $10,000 rule: If a single person or a couple gifts over $10,000 in a financial year, the excess is a
deprived asset.
• $30,000 rule: If a single person or a couple gifts over $30,000 across a five-year rolling period,
the excess is a deprived asset. The rolling period is defined as the financial year in which the gift is
made plus the four previous financial years.
The legislation avoids double counting deprived amounts. This means that amounts already
considered to be deprived assets are not included in the five-year rolling total.
Assessment of deprived assets
Deprived assets are assessable under both the assets and income tests for five actual years from the
date of the excess gift. This rule also applies to assets gifted in the five years before becoming a
recipient of relevant social security or DVA payments.
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Example: Assessment of deprived assets
A married couple gifted $530,000 to their children on 10 January 2015. They have never
gifted any other money. They then applied for the pension on 10 January 2015.

Amount gifted: Less allowable limit: Deprived asset:

$530,000 $10,000 $520,000

Therefore, $520,000 of the gift is counted as a deprived asset under the assets test until
the fifth anniversary of the gift (i.e. until 10 January 2020). After this time, none of the
gift will count as an asset.
Gifts given special consideration
In certain circumstances, gifts may be given special consideration and deprivation might not be
applied. These circumstances include:
• transfer of a farm in payment for past contributions from a close relative
• transfer of assets for services rendered by a close relative (e.g. unpaid care)
• transfer of the title of a home in exchange for a life interest (e.g. granny flat rights).
A person in these situations should discuss their circumstances with Centrelink.
Potential for double counting on repayment of gift
Once a gift has been assessed by Centrelink, there is no provision to disregard the deprivation
amount if the assets are returned. Therefore, the return of a gift could lead to double counting.
If a person wishes to give away $20,000 in a short period of time, they can gift $10,000 either side of
1 July so that each gift falls into a separate financial year. This assumes that no other gifts have been
made in the first financial year and that none will be made in the second. The person must be within
the $30,000 five-year limit.
Similarly, it is possible to gift $30,000 in just over two financial years without an adverse effect
on entitlements by ensuring that gifts in any financial year do not total more than $10,000.
Care should be taken not to exceed the total of $30,000 over five years.
Example: Double counting of a deprived asset
Julie is receiving the age pension. She gifts $50,000 to her daughter and notifies Centrelink.
Julie is advised that she has a deprived asset of $40,000 (i.e. $50,000 – $10,000) because
she gifted over the $10,000 limit.
After Julie explains the situation, her daughter repays the $40,000, thinking this will
reverse the deprived asset. However, as no such legal provision exists, the social security
value of Julie’s assets will now include the $40,000 cash returned from her daughter and
the $40,000 deprived asset. Unfortunately for Julie, this double counting will artificially
increase the value placed on her assets by the assets test.
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Gifting strategy
If a client wishes to gift more than $10,000 in a financial year, they might benefit from a loan–gift
strategy. This will reduce the amount assessed under both the assets and income tests over three years.
The best results are achieved from this strategy by:
• gifting the first $10,000 in any financial year
• providing the balance as a loan (with or without interest) that is reduced by further gifts of up
to $10,000 each financial year subject to the $30,000 limit.
Example: Interest-free loan strategy
Harriett has not previously made any gifts but wants to gift $30,000 to her daughter.
If Harriett gifts the entire amount at once, she will be assessed to have a deprived asset
of $20,000 for five years.
A better strategy may be for Harriett to gift $10,000 and provide the remaining $20,000
as an interest-free loan to her daughter. This allows Harriett’s daughter to receive the
full amount of $30,000 immediately. The $20,000 is still assessed in the current financial
year, so no advantage is gained to begin with. In the next financial year, Harriett can
choose to gift $10,000 of the outstanding loan and advise Centrelink of this action.
There is no deprived asset and the assessable loan (and amount included in income and
assets tests) reduces to $10,000. In the third financial year, Harriett advises Centrelink
that the remaining $10,000 has been gifted. There is still no deprived asset and the
amount included in income and assets tests has been reduced to nil.
‘Further resource 11’ in KapLearn.
Apply your knowledge 3: Determining assessable assets
Jalpa and Nidal have the following assets:

Home	$700,000
Car	$20,000
Contents Allocated pension (Jalpa, not grandfathered) Rental property Loan (secured against rental property) Cash at bank	$10,000 $250,000 $400,000 $250,000 $20,000
Funeral bond	$5,000

In addition, three years ago they gave their son $50,000 to assist with a home deposit.
What are their assessable assets?
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5 Applying the income and assets tests
Most social security payments are subject to means testing through an income test and an assets
test. The payment type governs the different rules that apply in each case. This topic deals only with
the income and assets tests that apply for the age pension and Newstart allowance.
The previous sections have shown how to work out the value of the client’s assets and income for
social security means testing. This section moves on to calculating the social security rates payable.
Only a few payments are not means tested, including:
• age pension and disability support (blind) pensions
• war widow pensions
• carer allowance
• DVA total and permanent incapacity (TPI) pensions.
5.1 Pension and allowance rates
The maximum rates for the age pension and Newstart allowance as at 20 March 2019 are outlined
in Tables 6 and 7 below. These rates apply to recipients of the age pension, service pension,
disability support pension, carer payment, bereavement allowance, widow B pension and
wife pension.
The maximum pension payments are different for single pensioners and members of a couple.
The single pension rate is currently benchmarked as 27.7% of MTAWE. It is indexed by the higher of
CPI and a special index applying for pensioners called the Pensioner and Beneficiary Living Cost Index
(PBLCI). The couple rate is benchmarked to at least 41.76% of MTAWE.
Pensioners receive a pension supplement and an energy supplement to provide additional support
for daily household and living expenses. These payments incorporate allowances for pharmaceuticals
and utilities as well as compensation for the GST. A pensioner may also qualify for rent assistance.
The maximum pension is indexed at 20 March and 20 September and the various thresholds for the
income and assets tests are indexed at 1 July.
Table 6 Social security age pension rates from 20 March 2019

Status	Maximum pension rate per fortnight*	Maximum annual pension
Single or partnered separated by illness	$926.20	$24,081.20
Couple (each eligible member)	$698.10 (each)	$36,301.20 (combined)

* Rates include the pension supplement of $68.50 per fortnight (p.f.) singles and $51.60 p.f. couple (each) as well as energy supplement of
$14.10 p.f. singles and $10.60 p.f. couple.
Table 7 Maximum Newstart allowance rates from 20 March 2019

Family situation	Maximum rate per fortnight
Single, no children	$555.70
Single with dependent children	$601.10
Single, age 60 or over, after nine continuous months on payment	$601.10
Partnered without children (each)	$501.70
Single, principal carer of a dependent child (granted an exemption for foster caring/home schooling/distance education/large family)	$776.10

Note: Pharmaceutical allowance may be paid.
Source: DHS 2019b, A guide to Australian Government payments.
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Pensioners who were adversely affected by changes to means testing in 2009 will keep receiving a
transitional pension while it is higher than the current rate. As soon as the current rate is the same or
more than their transitional rate, they will be paid under the current means tests.
If a couple is separated because of illness, they may both receive the single pension rate.
However, the combined income and assets of the couple will still be used to assess the actual
amount received.
Age pension payments are made fortnightly into the recipient’s bank or other nominated account.
The age pension is taxable, but a tax offset applies. If the age pension is the only source of income,
no tax will be payable.
5.2 Effects of the assets test
Under the assets test, people can lose access to income support if they have assets worth more than
a certain amount. The assets test differs between pensions and allowances, with the allowance
assets test being significantly stricter. If a person’s assessable assets are over the specified level
(the ‘lower threshold’), their payment is reduced (for pensions) or cancelled (for allowances).
If a person is a member of a couple, the total assets of both partners are assessed, even if only one
partner is applying for social security income support. Each person is assessed under either the
pension assets test or the allowance assets test, as appropriate.
The assets test thresholds differ depending on marital status and whether the person is
a homeowner. The value of a person’s home is an exempt asset, so non-homeowner thresholds are
higher to provide some equity.
The total assessed value of assets is rounded down to the nearest $250 for a single person or $500
for a couple. This rounded amount is applied against the assets test thresholds. The lower thresholds
(minimum payment) are indexed each year on 1 July and the upper thresholds (no payment) also
increase in line with any pension rate increases. Table 8 shows the social security assets test
thresholds for pensioners.
Table 8 Pension assets test thresholds at 20 March 2019

Family situation	For homeowners	For non-homeowners
Regular pensioner*	Full pension (maximum payment threshold)	Part-pension up to:	Full pension (maximum payment threshold)	Part-pension up to:
Single	$258,500	$567,250	$465,500	$774,250
Couple (combined)	$387,500	$853,000	$594,500	$1,060,000
Illness-separated (couple combined)	$387,500	$1,005,000	$594,500	$1,212,000
One partner eligible (combined assets)	$387,500	$853,000	$594,500	$1,060,000

Note: If a pensioner is renting privately and entitled to receive rent assistance, a higher upper threshold will apply. Transitional pensioners
have different limits. See <https://www.humanservices.gov.au/individuals/enablers/income-test-pensions/30406#a3> for applicable
amounts.
Source: DHS 2019c.
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Allowance assets test
The allowance assets test has a single cut-off point. If assessable assets exceed the lower threshold
limit, no allowance is payable. If assessable assets are equal to or less than the lower threshold,
the rate of payment is calculated under the income test (refer to Table 9). The assets test thresholds
are slightly lower for allowances.
Table 9 Allowance assets test thresholds at 20 March 2019

Family situation	For homeowners	For non-homeowners
Single	$258,500	$465,500
Couple (combined)	$387,500	$594,500
One partner eligible (combined assets)	$387,500	$594,500

Source: DHS 2019c.
Example: Applying for Newstart allowance
Single homeowner
Elroy is a single homeowner applying for a Newstart allowance. He has assessable assets
of $149,000. This is below the applicable lower threshold. His allowance payable is
determined under the income test.
Single non-homeowner
Judy is a single non-homeowner applying for a Newstart allowance. She has assessable
assets of $520,000. This is above the applicable lower threshold. As her assessable
assets exceed the lower threshold limit, no allowance is payable.
Pension assets test
The pension assets test is more generous than the allowance assets test.
Under the pension assets test, assessable assets up to the lower threshold are disregarded; that is,
they do not reduce the maximum age pension payable under the assets test.
The pension reduction rate is $3 per fortnight (single person or couple combined) for every $1,000 of
assessable assets over the lower threshold limit.
The steps in applying the pension assets test are as follows.
Step 1: Determine the maximum pension payable, including the pension supplement plus energy
supplement unless specifically exempted (see Table 6).
Step 2: Determine the rounded assessable asset amount.
Step 3: Determine the value of excess assets by finding the applicable assets test lower threshold
(see Table 8) and applying the following formula:
Assessable assets – Lower threshold = Excess assets
If the result is zero or negative, there is no reduction in the pension under the assets test.
Step 4: Determine the assets test reduction amount — multiply excess assets by the reduction factor.

$3 1 ,000 ×     = Reduction amount	Excess assets
	

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Step 5: Determine the pension rate under the assets test.
Maximum rate from Step 1 – Reduction amount from Step 4 = Payment amount
Alternatively, the age pension payable under the assets test can be formulated as:
Age pension p.f. (single person)
= (Max rate + PS) – 0.003 (Assets – Lower threshold)
Age pension p.f. (each member of a couple)

= ( ) .5 + × Max rate PS	(	)
0	0.003  –   	 – Assets Lower thresh old
2
  

where:

p.f.	= per fortnight
Max rate = maximum rate of age pension payable
PS	= pension supplement
Assets	= assessable assets of a single person or the combined assets of a couple

Example: Age pension assets test
Paul and Kate are homeowners applying for an age pension. They have assessable assets of
$400,100 on 20 March 2019. Their pension entitlement under the assets test is as follows:
Step 1: Determine the maximum pension payable (see Table 6).
$1,396.20 p.f. combined
Step 2: Determine the rounded assessable asset amount.
$400,000
Step 3: Determine excess assets (see Table 8).
$400,000 – $387,500 = $12,500
Step 4: Determine the assets test reduction.
3
$12 ,500
1 ,000
 
× 
 
= $37.50 p.f.
Step 5: Determine the pension rate under the assets test.
$1,396.20 – $37.50 = $1,358.70 p.f. (combined)
Alternatively, the assets test formula can be applied:

Age pension p.f. = $698.10 0.003 $400 ,000 $387 ,500
2	–  	   	 
	 		–
Each	= $698.10 – $18.75
= $654.85 p.f.
Combined	= $679.35 × 2 = $1,358.70 p.f. (rounded).

The pension supplement and the energy supplement are included in the amounts shown
in the pension rates in Table 6.
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1 January 2017 assets test changes
To address whether the assets test was too generous and to target social security support to those
who need it the most, changes proposed in the 2015 federal budget, and subsequently passed by
parliament, have resulted in an increase in the assets test thresholds to receive the full pension and
an increase in the assets test taper to $3 per $1,000 over the maximum payment threshold.
These changes took effect from 1 January 2017.
Recipients over pension age who lost their entitlements completely because of the 1 January 2017
assets test changes were automatically granted a CSHC and an HCC or HCC only (if under pension
age). On 9 October 2017, those impacted by the 1 January 2017 assets test changes had their PCC
reinstated (which replaced the HCC).
5.3 Strategies for reducing assessable assets
Financial advisers have a role in helping clients maximise their benefits through financial strategies
tailored to be effective within the rules. For this reason, advisers should pay close attention to
applicable income or asset thresholds, as exceeding these may reduce clients’ social security or stop
their payments altogether.
Pensioner couples receive an extra $780 p.a. (combined) for every $10,000 by which they reduce
their assessable assets. This equates to a return of 7.8% p.a. However, capital must be given up in
exchange for this income return.
Reducing assessable assets might provide a much greater return for a person applying for an
allowance, especially if they move from just over the lower threshold to just under it. This is because
of the sudden elimination of benefits caused by tipping over the lower assets threshold when applying.
The impact of the assets test on social security entitlements can be reduced by:
• investing in asset-test exempt assets such as exempt funeral bond (up to $13,000 for 2018/19)
and superannuation (if under age-pension/service-pension age)
• valuing investments correctly (i.e. using market value, not insured value)
• spending on home renovations
• personal expenditure, such as holidays
• gifting assets within specified limits.
Strategies that reduce assessable assets may also reduce assessable income.
Apply your knowledge 4: Reducing assessable assets
Peter is age 58 and has $400,000 in superannuation. His wife, Michelle, age 66,
could possibly receive some age pension but needs to reduce her assessable assets.
She also has $600,000 in superannuation. As she is of age-pension age, her
superannuation counts towards the assets test.
What simple strategy could you suggest to improve Michelle’s chances of receiving
some age pension?
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5.4 Effects of the income test
The income test ensures that only people below certain income thresholds can access pensions and
allowances. The pension income test is more generous than the allowance income test as it has
higher thresholds and slower tapering rates.
Pension income test
The pension income test gradually reduces the pension rate payable once a person’s assessed
income exceeds an income threshold. Entitlement to the pension ceases when the rate payable
reaches zero. Income test thresholds are shown in Table 10.
Table 10 Social security age pension income test thresholds at 20 March 2019

Regular pensioner (income allowed per fortnight)	Full pension (maximum payment threshold)	Part-pension up to:
Single	$172	$2,024.40
Couple (combined)	$304	$3,096.40
Illness-separated (couple combined)	$304	$4,008.80

Note: The income test thresholds increase by $24.60 for each dependent child.
Source: DHS 2019a.
If the assessed income exceeds the lower income threshold, the maximum rate of pension for a
single person is reduced by 50 cents for every dollar of income in excess. The pension entitlement for
each member of a couple is reduced by 25 cents for each dollar of combined excess income.
The income test ‘taper rate’ is the rate at which income in excess of the income test free area
reduces the pension. The income test taper rate is $0.50. This means payment rates are reduced by
$0.50 for each $1 of extra income above the income test ‘free area’. For each member of a couple,
it is $0.25 cents in the dollar. The higher income test free area for pensioners with dependent
children has been removed.
The pensioner income test assesses both singles and couples using the same process. The steps are
as follows:
Step 1: Calculate the maximum rate payable — include the pension supplement plus energy
supplement unless specifically precluded.
Step 2: Calculate the total assessable income per fortnight from all sources.
Step 3: Calculate the excess income over the lower income threshold by finding the applicable
income threshold (see Table 10).
Assessable income – Income threshold = Excess income
If the result is zero or negative, there is no reduction in the pension under the assets test.
Step 4: Calculate the reduction in the pension rate by multiplying excess income from step 3 by the
reduction factor.
Excess income × 0.5 (singles) or 0.25 (couples) = Pension reduction amount
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Step 5: Calculate the pension rate payable by subtracting the reduction amount of Step 4 from the
maximum rate payable in step 1.
Maximum pension from step 1 – Reduction amount from step 4
= Rate payable
For couples, each partner receives half the pension amount calculated in step 5.
The effects of the pension income test can be calculated by the following formula:
Age pension p.f. (single person)
= (Max rate + PS) – 0.5 (Income – Lower threshold)
Age pension p.f. (each member of a couple)
= (Max rate + 0.5 × PS) –

0.5   

2

  

( )
  Income Lower threshold –
where:
Max rate = maximum rate of age pension payable
PS = pension supplement
Income = assessed income of a single person or the combined income of a couple
Example: Income test for single age pensioner
Frank is a single age pensioner. He has assessable income of $500 p.f.
His age pension entitlement is calculated as follows:
Step 1: Calculate the maximum rate payable.
Maximum rate (see Table 6): $926.20 p.f.
Step 2: Calculate the total assessable income from all sources.
Total assessable income = $500 p.f.
Step 3: Calculate the excess income over the income threshold
(see Table 10).
$500 – $172 = $328
Step 4: Calculate the reduction in the pension rate.
$328 × 0.5 = $164
Step 5: Calculate the pension rate payable.
$926.20 – $164 = $762.20 p.f.
Alternatively, the income test formula can be applied:
Age pension p.f. = $926.20 – 0.5 ($500 – $172)
= $926.20 – 0.5 ($328)
= $926.20 – $164
= $762.20
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Allowance income test
Rules differ depending on the type of allowance. This section describes the most common allowance
payable to clients: Newstart allowance.
The allowance income test is a stepped test that reduces the person’s allowance at increasing rates
as higher income levels are reached.
Everyone who receives an allowance can earn up to $104 per fortnight without their payment being
affected. This applies both to singles and to each member of a couple.
If the assessed income exceeds the $104 per fortnight threshold, the allowance is reduced by
50 cents for each extra dollar of income up to $254 per fortnight. If the assessed income exceeds
$254 per fortnight, the payment is further reduced by 60 cents for each extra dollar over $254 per
fortnight. Newstart allowance income test thresholds are shown in Table 11.
Table 11 Newstart allowance income test thresholds at 20 March 2019

Family situation	For full allowance (per fortnight)	For part allowance (per fortnight)
Single, no children	up to $104.00	less than $1,069.84
Single, principal carer, with a dependent child	up to $104.00	less than $1,630.50
Single, over age 60 after nine months on payment	up to $104.00	less than $1,157.00
Partnered (each)	up to $104.00	less than $978.34
Single principal carer of a dependent child (granted an exemption for foster caring/home schooling/distance education/large family)	up to $104.00	less than $2,074.25

Source: DHS 2019d.
If the person is a member of a non-pensioner couple and the other partner has income exceeding the
cut-off point at which no allowance is payable, the amount over this cut-off point reduces the
person’s allowance by 60 cents for every excess dollar. This is often referred to as the ‘spillover’
effect. Spillover reductions are applied before the person’s allowance is reduced by their own
income. If the person’s partner is a pensioner, the person is not subject to a spillover effect. In such a
situation, the partner’s income would already have been factored into the test, as pensioner couples
are assessed as a joint economic unit.
Reduction rates under the allowance income test are shown in Table 12.
Table 12 Reduction rates under allowance income test at 20 March 2019

Income	Reduction rate
First $104 p.f.	Payment not reduced
$104–$254 p.f.	Payment reduced by 50c per $1 in this range
Over $254 p.f.	Payment further reduced by 60c per $1 over $254
Partner income over $978.34p.f.	Payment reduced by 60c per $1 of partner’s income over $978.34

Source: DHS 2019a.
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A separate calculation is made for each partner of a couple. The steps are as follows.
Step 1: Calculate the maximum rate payable (not including the pharmaceutical allowance)
(see Table 7 for Newstart allowance).
Step 2: Calculate the total assessable income from all sources.
If the person has a partner, calculate the partner’s total assessable income from all sources.
Step 3: Calculate the partner reduction amount.
If the person has a partner who is not a pensioner, does the partner’s income exceed the
partner income threshold?
If yes:
(Partner’s total assessable income – Partner income threshold) × 0.6
= Partner reduction amount
If the person does not have a partner or the income is under the partner income threshold,
go to step 4.
Step 4: Calculate the first personal reduction amount.
This reduction applies to income between $104 and $254 p.f.
If total assessable income does not exceed $254 p.f.
(Total assessable income – $104) × 0.5 = First reduction amount
Then go to step 6.
If total assessable income exceeds $254 p.f.
($254 – $104) × 0.5 = First personal income reduction amount = $75
Step 5: Calculate the second personal reduction amount.
This applies to income over $254 p.f.
(Total assessable income – $254) × 0.6 = Second personal reduction amount
Step 6: Calculate the total reduction in the allowance rate.
Partner reduction (Step 3) + First personal reduction (Step 4) + Second personal reduction
(Step 5) = Total reduction
Step 7: Calculate the allowance rate payable.
Maximum rate from Step 1 – Total reduction from Step 6 = Allowance rate payable.
Example: Single Newstart recipient
Mark is age 40. He is a single Newstart recipient with $500 per fortnight assessable
income. His Newstart allowance is calculated as follows:
Step 1: Maximum rate payable (see Table 7).
$555.70 p.f.
Step 2: Calculate the total assessable income from all sources.
$500 p.f.
Step 3: Calculate the partner reduction amount.
Not applicable in this case.
Step 4: Calculate the first personal reduction amount (see Table 12).

($254 – $104) × 0.5	= First personal income reduction amount = $75.00
Step 5: Calculate the second personal reduction amount (see Table 12).
($500 – $254) × 0.6	= $147.60
Step 6: Calculate the total reduction in the allowance rate.
$75 + $147.60	= $222.60
Step 7: Calculate the allowance rate payable.
$555.70 – $222.60	= $333.10 p.f.

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Applying income tests for couples
Care must be taken when applying the income test to couples. The test varies depending on whether
the couple is a pensioner or non-pensioner couple. Additionally, different income tests may apply,
depending on the type of payment claimed by each partner.
For example, a person receiving an allowance will be considered part of a pensioner couple if their
partner receives a pension. This means that the allowance income test will assess the person’s
income as a part of a joint economic unit with their partner, that is, as 50% of the couple’s combined
income (see section 4.3).
The following examples illustrate the various combinations of rate assessments. They show the effect
that different combinations of income ownership and payment types have on a couple’s combined
social security income.
Example: Various combinations of rate assessments
Both partners are age pensioners
Tom and Judy are age pensioners with a joint assessable income of $800 per fortnight.
As a pensioner couple, their assessment is based on combined income. As they are both
pensioners, they are both assessed under the same pension income test.
Their pension entitlement is calculated under the income test as follows:
Step 1: Maximum rate payable (including pension supplement) = $1,396.20 p.f.
combined (see Table 6).
Step 2: Total assessable income from all sources = $800 p.f. combined.
Step 3: Excess income over the income threshold (see Table 10)
= $800 – $304 = $496
Step 4: Reduction in pension rate = $496 × 0.5 = $248
Step 5: Pension rate payable = $1,396.20 – $248 = $1,148.20
Tom and Judy would each receive $1,148.20 ÷ 2 = $574.10 per fortnight.
One partner is a pensioner, the other an allowance recipient
Steve receives an age pension and Janet receives Newstart allowance. They have $800
per fortnight combined assessable income.
They are a pensioner couple because Steve receives a pension. Their rate of payment is
therefore based on combined income. Half of the combined income is assessed for
Janet’s Newstart allowance (see section 4.3).
Steve’s Table 6 calculation is based on the pension income test and Janet’s income test
calculation is based on the allowance income test. A separate calculation is made for
each payment.
Steve’s age pension is calculated as follows:
Step 1: Maximum rate payable = $1,396.20 couple combined pension
($698.10 p.f. each — see Table 6).
Step 2: Total assessable income from all sources = $800 p.f.
Step 3: Excess income over the income threshold
= $800 – $304 = $496 (see Table 10).
Step 4: $496 × 0.5 = $248
Step 5: Pension rate payable = $1,396.20 – $248 = $1,148.20.
Steve’s pension = $574.10, i.e. $1,148.20 ÷ 2)
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Janet’s Newstart allowance is calculated as follows:
Step 1: Maximum rate payable (see Table 7, partnered) = $501.70 555.70 p.f.
Step 2: Total assessable income from all sources = $800 ÷ 2 = $400 p.f.
Step 3: Partner reduction amount is not applicable as Steve is a pensioner.
Step 4: First reduction amount = ($254 – $104) × 0.5 = $75
(see Table 12).
Step 5: Second reduction amount = (Assessable income – $254) × 0.6
= ($400 – $254) × 0.6 = $87.60 (see Table 12).
Step 6: Total reduction in allowance rate = $75 + $87.60 = $162.60
Step 7: Allowance rate payable = $501.70 – $162.60 = $339.10 p.f.
Only one partner receiving an allowance
Harry is receiving a Newstart allowance. His wife, Sarah, earns $1,000 per fortnight from
part-time work. All their investments are in Harry’s name and his income is assessed at
$160 per fortnight.
They are a non-pensioner couple because neither Harry nor Sarah receives a pension.
The rate of payment is therefore based on individually assessed income.
Harry’s Newstart allowance income test is calculated as follows:
Step 1: Maximum rate payable (see Table 7) = $501.70 p.f.
Step 2: Total assessable income from all sources
Harry’s income = $160 p.f.
Sarah’s income = $1,000 p.f.
Step 3: Partner reduction amount = ($1,000 – $978.34) × 0.6
= $13 p.f. (see Table 12).
Step 4: First personal reduction amount = ($160 – $104) × 0.5
= $28 p.f. (see Table 12).
Step 5: Second personal reduction amount is not applicable as Harry earns less than $254.
Step 6: Total reduction in allowance rate = $13 + $28 = $41
Step 7: Allowance rate payable = $501.70 – $41.00 = $460.70 p.f.
Both partners receiving an allowance
Colin and Mary are each receiving Newstart allowance. Colin has assessable income of
$500 per fortnight and Mary has assessable income of $300 per fortnight.
They are a non-pensioner couple because neither Colin nor Mary receives a pension.
The rate of payment is therefore based on individually assessed income.
Both income test calculations are based on the allowance income test and a separate
calculation is done for each partner.
Colin’s Newstart allowance income test is calculated as follows:
Step 1: Maximum rate payable (see Table 7) = $501.70 p.f.
Step 2: Total assessable income from all sources:
Colin’s assessable income = $500 p.f.
Mary’s assessable income = $300 p.f.
Step 3: Partner reduction amount is not applicable as Mary’s income is under the
partner income threshold.
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Step 4: First personal reduction amount = ($254 – $104) × 0.5
= $75 p.f. (see Table 12).
Step 5: Second personal reduction amount = ($500 – $254) × 0.6
= $147.60 p.f. (see Table 12).
Step 6: Total reduction in allowance rate = $75 + $147.60 = $222.60 p.f.
Step 7: Allowance rate payable = $501.70 – $222.60 = $279.10 p.f.
Mary’s Newstart allowance income test is calculated as follows:
Step 1: Maximum rate payable (see Table 7) = $501.70 p.f.
Step 2: Total assessable income from all sources:
Mary’s assessable income = $300 p.f.
Colin’s assessable income = $500 p.f.
Step 3: Partner reduction is not applicable as Colin’s income is under the partner
income threshold.
Step 4: First personal reduction amount = ($254 – $104) × 0.5
= $75 p.f. (see Table 12).
Step 5: Second personal reduction amount = ($300 – $254) × 0.6
= $27.60 p.f. (see Table 12).
Step 6: Total reduction in allowance rate = $75 + $27.60 = $102.60 p.f.
Step 7: Allowance rate payable = $501.70 – $102.60 = $399.10 p.f.
5.5 Using deeming strategies to reduce assessable income
The impact of the income test on social security entitlements can be reduced by investing in assets
that are not income test assessed (e.g. antiques, collectibles, exempt funeral bonds,
superannuation and rollovers — if under age-pension/service-pension age), as well as assets that
have a favourable income test assessment (e.g. rental properties and financial investments that
produce returns above the deeming rates).
Deeming rules mean that all financial investments will have the same impact on the income test,
regardless of the actual income earned. Earning income above the deeming rates will increase
overall wealth without reducing social security benefits.
The following guidelines generally help maximise social security entitlements:
• Use financial investments that provide income greater than the applicable deeming threshold.
• Consider investments that are not affected by deeming and that produce assessable income less
than the deeming rates, such as long-term annuities.
• Make capital drawdowns (if needed) from assets assessed under deeming that yield less than the
upper deeming threshold.
• Tax-paid investments (e.g. friendly society and insurance bonds), given that they are generally
subject to deeming, may not assist with maximising social security payments.
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Example: Deemed versus actual income — investments
A single pensioner has the following investments and investment income at the end of
June 2019:

Investments	$	Return	Actual income ($)
Cash	3,000	(no earnings)	0
Term deposit	50,000	@ 4% p.a.	2,000
Term deposit	20,000	@ 3.5% p.a.	700
Unit trust	30,000	@ 6% p.a.	1,800
Total	103,000	4,500

The deemed income would be calculated as follows (using rates from 1 July 2018,
see Table 4):

$	Deeming rate	Deemed income ($)
First $51,200	51,200	1.75% p.a.	896.00
Above $51,200	51,800	3.25% p.a.	1,683.50
Total	103,000	2,579.50

Therefore, these investments have a deemed income that is $1,920.50 less than the
actual income (i.e. $4,500 – $2,579.50).
In relation to the example above, the deemed income will be counted for income test purposes and
the actual income will be disregarded. Therefore, the actual income earned in excess of deemed
income is particularly attractive, as it does not count for the income test assessment and does not
have any effect on pension entitlement. However, the actual income is still relevant for tax purposes.
Pensioners and allowance recipients will be better off to the extent to which they can achieve better
than the deemed rate without exposing themselves to unacceptable investment volatility,
insufficient access to invested funds or a high risk of losing investment capital.
Shares that pay franked dividends can be advantageous for social security recipients for two reasons:
• Shares should outperform the deeming rates over the longer term.
• Unused franking credits that are refunded do not count as assessable social security income.
While there may be social security advantages, as with any investment-related advice,
recommendations made should be suitable to the client’s risk profile.
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Example: Deemed versus actual income — shares
A single pensioner has $50,000 in shares. The shares pay a 3% dividend. The capital
value is growing at 4% p.a.
Centrelink will deem the shares to earn:

Deeming rate	Deemed income ($)
First $51,200	@ 1.75% p.a.	$896
Nil	@ 3.25% p.a.	$0
Total	$896

The actual returns from the shares, excluding any effect of franking credits received, are:

Earnings rate	Actual return ($)
Dividend	@ 3.0% p.a.	$1,500
Capital gain	@ 4.0% p.a.	$2,000
Total return	$3,500

The shares have effectively returned a total of $3,500 p.a. through dividends and capital
growth, although Centrelink deems them to have earned only $896 p.a. for the income
test. (Note: The increased value of the shares through their growth will be caught under
the assets test.)
5.6 Comparing the income test and assets test rates
The final step in applying the income and assets tests is to compare the rate calculated under each
test. The lower amount determines the person’s entitlement.
Apply your knowledge 5: Eligibility for the pension
Jeff and Gayle are both age 66. They own their house valued at $500,000, a car worth
$20,000 and home contents worth $10,000.
Jeff has an account-based pension with a value of $400,000. He originally invested
$350,000 when he was age 63. He currently draws a pension of $30,000 p.a.
Gayle has a superannuation fund worth $50,000. She is not drawing any pension.
They have a joint bank account with a balance of $35,000.
Calculate how much age pension they are entitled to. They applied for a social security
payment for the first time after 1 January 2015. Consider the implications for their
account-based pension.
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6 Miscellaneous income support provisions
There are a range of miscellaneous provisions for income support. The claimant may be required to
support themselves for a period of time under what is known as a ‘liquid asset waiting period’ or an
‘income maintenance period’. Similarly, a claimant who receives a compensation payment may have
to wait to receive income support and may then receive reduced income support.
Conversely, a claimant may be able to receive more benefits by having assets disregarded under
hardship provisions. Income support may also be adjusted because of overpaid benefits.
While there are no specific anti-avoidance provisions, Centrelink and DHS have discretion in
assessing client circumstances.
6.1 Waiting periods and payment reduction periods for allowances
Allowances are paid to people when they are unable to provide for themselves because of an
unforeseen event such as unemployment, illness or the death of a partner. However, a person
applying for an allowance is expected to use some of their own liquid resources to support
themselves before receiving income support.
As a claimant may be subject to a waiting period before receiving any allowance payment, it is
important for them to apply as soon as they know they will be needing support. Claimants may also
be subject to a period of reduced payment. Some waiting periods and payment reduction periods
must take place one after another, while others can occur simultaneously.
Generally, waiting periods and reduction periods do not apply to pensions, but if a waiting period
applies, no allowance is payable for the appropriate number of weeks.
Different waiting periods may apply, depending on whether a claimant:
• holds liquid assets (see below)
• has a compensation preclusion period (which might affect pensions)
• is a newly arrived resident.
Unlike waiting periods, payment reduction periods do not necessarily result in nil payment.
The amount of reduction will vary depending on circumstances. Payment reduction periods may be
applied to allowances because of:
• activity test breaches
• income maintenance periods (see below).
If a payment reduction period is applied, the maximum payment rate will be reduced for the
appropriate number of weeks.
Ordinary waiting period — one week
The ordinary waiting period of one week applies to all claimants. It may be waived only in
limited circumstances (e.g. severe financial hardship).
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Liquid assets waiting period — up to 13 weeks
Newstart allowance, youth allowance, sickness allowance and Austudy applicants may face a liquid
assets waiting period (LAWP) of between one and 13 weeks. The LAWP commences after the normal
one-week waiting period.
Centrelink defines ‘liquid assets’ as cash and readily realisable assets that can be accessed within
28 days, even if accessing the funds induces a penalty. The category includes employer payments
that are payable on termination of employment, but does not include:
• superannuation and rollover funds (if the person is under age-pension age)
• drawdown loan facilities, including mortgage redraw account balances or credit card limits.
The applicant’s liquid assets are assessed according to their value on the day the applicant became
unemployed or unable to work because of sickness or accident. However, the waiting period
generally commences from the date employment terminates.
A person will face an LAWP if they have above a certain amount of available assets on the day after
they have left work or study, or on the day they claim an income support payment.
A single person without dependent children will have to serve an LAWP if they have liquid assets that
equal or exceed $5,500.
People with dependent children will have to serve an LAWP if they have liquid assets that equal or
exceed $11,000.
The LAWP is calculated as:

LAWP = Liquid assets a n –

where:
a = $11,000 for a member of a couple or a person with one or more dependent children, or $5,500
for a single person
n = $1,000 for a member of a couple or a person with one or more dependent children,
or $500 for a single person
If the period under the above calculation is less than one week, then there is no LAWP.
Example: Liquid assets test
A couple has liquid assets of $20,000. Their LAWP is worked out as follows:
LAWP = (20,000 – 11,000) ÷ 1,000 = 9 weeks
This couple is not eligible to receive allowance payments for nine weeks.
Strategies for reducing the LAWP
The LAWP can be reduced by converting liquid assets to non-liquid assets; for example,
by contributing to superannuation before employment terminates (though preservation issues
should be considered) or by paying off debts not related to property. However, a successful
conversion must occur in time for the relevant liquid assets test (see above).
If the waiting period has already been calculated, it will be recalculated based on the new level of
liquid assets.
A conversion strategy will confer no advantage if the allowance is reduced to nil by an income
maintenance period (see below) lasting as long as or longer than the LAWP.
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Income maintenance period (IMP)
The IMP is a time during which a person receives reduced social security payments because of leave
or redundancy entitlements from an employer. Depending on how much they receive, payments may
be reduced to nil.
Under the IMP provisions, the claimant may have reduced payments or cannot receive a payment
from the date they received any leave or redundancy entitlements up to the end of the period
covered by those entitlements.
During this time, IMP leave income is added to other income assessable under the income test.
This means that if the person’s previous position saw them earning above the income test cut-off,
their allowance payment will be reduced to nil throughout the IMP.
The IMP and LAWP are served concurrently.
Payments subject to the IMP
The IMP applies to people applying for or receiving Newstart allowance, youth allowance,
partner allowance, mature age allowance, widow allowance, Austudy, parenting payment,
sickness allowance and the disability support pension, except if a person is permanently blind.
Pensioner’s income test not affected by partner’s IMP leave income
If a person subject to the IMP has a partner who is a pensioner, the person’s leave income will not
affect the income test of their pensioner partner (unless they are on a disability support pension).
Normally, the income of a pensioner couple is combined and Centrelink assesses each partner as
receiving half. IMP leave income is an exception. Half of the leave payment is assessed to the person
receiving the leave and included in their income test assessment. The other half is allocated to their
partner, but ignored in their partner’s pensioner income test assessment.
Example: Calculating the waiting period
Rod is single and earns $1,200 per week. He is made redundant and receives $40,000,
representing a payment equivalent to 33.33 weeks of his salary. His other liquid assets
total $50,000. He applies for a Newstart allowance, and his waiting and reduction period
is calculated as follows.
Ordinary waiting period = 1 week

LAWP	= (90,000 – 5,500) ÷ 500 = 169 (limited to 13 weeks) = 14 weeks (i.e. 13 + 1).
Total waiting period

The IMP, however, will run for 33.33 weeks (i.e. the period that the redundancy
payment is paid for). For each week, Rod is assessed to earn $1,200 income (plus other
income from investments etc.). This exceeds the income test cut-off threshold of
$1,069.84 per fortnight for a single person. Therefore, Newstart payments are reduced
to nil for 33.33 weeks.
The combined waiting period and the IMP can take place concurrently. This means that
the waiting period will be completed within the 33.33-week IMP plus the ordinary
waiting period.
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If Rod was married, the situation would be as follows:
Ordinary waiting period = 1 week

LAWP	= (90,000 – 11,000) ÷ 1,000 = 79 (limited to 13 weeks) = 14 weeks (i.e. 13 + 1)
Total waiting period

Income during the 33-week IMP is assessed as $1,200 per week each. This is over the
Newstart income test cut-off threshold for a married person, so Rod will be ineligible to
receive payments for 33.33 weeks. If his wife applies for an allowance, she will also be
ineligible for 33.33 weeks plus the ordinary waiting period. This is due to the ‘spillover’
effect, whereby she faces a 60% reduction for each dollar above $978.34. The amount of
spillover income attributed to her is $1,421.66 per fortnight ($2,400 – $978.34).
However, if she applies for a pension (other than a disability support pension), her share
of the income from the IMP is not assessable. She will not have to serve a waiting period
and may be eligible immediately, depending on other income and assets.
6.2 Compensation payments
The income test rules for dealing with compensation payments are complex. Advisers should obtain
specific details from Centrelink before advising clients on such matters. Centrelink has a dedicated team
which provides guidance to compensation-affected clients, called the Compensation Recovery Team.
The Australian Government encourages Australians to access money from other sources before
relying on Centrelink payments. Thus, a person receiving a lump sum payment might not be able to
receive social security income support for many years. Careful financial advice is required to ensure
they are able to support themselves during this period.
Ongoing periodical compensation payments usually reduce social security payments dollar for dollar.
An exception to this applies for people already receiving social security income support when the accident
or injury occurred. Compensation payments are then assessed under standard income test rules.
If a person receives a lump sum compensation payment for economic loss (i.e. lost earnings or
lost potential to earn), they may not have access to social security income support for some time.
In addition, they may have to pay back income support they received while waiting for the claim to
be finalised. This may be deducted from their compensation payment.
If a person converts part or all of their compensation settlement into assets — for example,
by purchasing or paying off a house or car — they may be expected to sell the asset so they can
support themselves before having access to social security.
When a lump sum compensation payment is obtained by consent as settlement of a claim that is
related to lost earnings or lost capacity to earn, social security law deems 50% of the gross lump sum
payment to be the compensation part. This is used to calculate the preclusion period.
When compensation is awarded by a court or tribunal after a full and contested hearing,
Centrelink use the court’s categorisation of the lost earnings/lost capacity to earn to determine the
preclusion period.
The period for which the person is precluded from receiving social security benefits when the
compensation is received by consent as settlement of a claim is calculated by:

Number of weeks in preclusion period = (Lump sum 50%) Income cut-off limit ×

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Note: The income cut-off limit at 20 March 2019 is $1,021.20. It is based on the income a single
person can receive per week before the pension entitlement ceases under the income test. It applies
for both single and married people.
‘Further resource 12’ in KapLearn.
6.3 Hardship provisions
Pensioners, or people applying for a pension, who own substantial assets that produce little or no
income may apply to Centrelink to have the value of the assets disregarded under hardship
provisions. To be eligible, the person cannot be reasonably expected to sell the assets or use them as
security for a loan.
The hardship provisions may be applied to some allowance recipients, but unless there is a legal
restriction on the sale of the assets, they are expected to place the assets on the market at a realistic
price before they can apply for consideration under hardship provisions.
Special provisions apply for farmers and primary producers.
A pensioner or allowance recipient is considered to be in financial hardship if their liquid assets
income is less than the annual maximum rate of pension including rent assistance and
pharmaceutical allowance. The annual maximum rate of pension is indexed each March and
September.
‘Further resource 13’ in KapLearn.
6.4 Overpayments
As a general principle, Centrelink considers overpayments to clients as recoverable debts. A penalty
may also be added if a person either refused or failed to provide information to Centrelink about
their income from work or if the person provided false or misleading information.
A debt may be waived if it was caused solely by a Centrelink ‘administrative error’ and the affected
person received the payments in good faith; that is, the person believed that they were entitled to
the payments at the rate paid. Overpayments may also be waived in special circumstances such as
financial hardship.
Otherwise, Centrelink can collect debts by a number of means, for example by applying deductions
from future allowance or pension payments, applying for a garnishee order against a person’s wages
or bank account or by taking the person to court.
Recipients must generally advise Centrelink of any changes to their income or assets within 14 days.
If the client notifies Centrelink within this time, their pension or allowance will be adjusted from the
date of notification.
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6.5 Anti-avoidance rules
Social security legislation does not have general provisions for disallowing schemes designed
to increase social security entitlements. There is nothing that is analogous to the anti-avoidance
measures in the Income Tax Assessment Act 1997 (Cth), for example. However, many sections of
social security legislation give Centrelink and DHS significant discretion in assessing clients according
to their individual circumstances. This extensive discretion can make it difficult to predict how
Centrelink will respond to some scenarios.
The DHS’s A guide to social security law (DHS 2019a) is a valuable tool. Much of the social security
legislation is very general in its wordings and this guide shows the department’s current
interpretation. Care should be taken, however, as the guide is subject to regular changes that can
alter the way a situation is assessed. These changes do not have to be passed through parliament
and are not well publicised, creating problems for the unwary financial adviser.
6.6 Rights and appeals
If a person disagrees with an assessment made by Centrelink, they can request that the decision be
reconsidered. There are certain steps they have to follow to have a decision reconsidered. If they are
unhappy with the result of one step, they can lodge a further appeal at the next step. Steps cannot
be skipped.
Step 1: Discuss the matter with the original reviewing officer.
Step 2: If still unhappy, request a review within 13 weeks with the review officer at the Centrelink
area office.
Step 3: Apply to the Administrative Appeals Tribunal (AAT). This is a more formal body that
resolves disputes between people and government authorities. There is no charge to lodge
an appeal. Decisions are binding and can only be appealed to the Federal Court on a matter
of law.
‘Further resource 14’ in KapLearn.
7 Taxation considerations
Most pensions, allowances and benefits are taxable. The main exceptions are:
• disability support pension (DSP) (if the recipient is under age-pension age)
• wife pension (for wives of DSP recipients if both partners are under age-pension age)
• carer payment (if the carer and care recipient are both under age-pension age)
• family tax benefits
• carer allowance
• add-on benefits such as the pharmaceutical allowance and rent assistance.
Pay as you go (PAYG) tax can be deducted from pension and allowance payments if requested.
People who receive taxable payments will receive a PAYG payment summary at the end of the
financial year.
Tax offsets may apply to people who receive taxable social security payments. These offsets
generally ensure that people who receive the maximum rates of social security pensions and
allowances do not pay any tax on their benefits. The values of the different offsets vary each year
and details are usually released in April or May in the relevant financial year.
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Social security income assessment rules vary significantly from rules for taxable income, and a person
may receive a full-rate pension but have taxable income over the social security threshold for the
year. The ATO TaxPack provides details about when a pensioner is required to submit a tax return.
7.1 Seniors and pensioners tax offset
The seniors and pensioners tax offset (SAPTO) is a rebate for low income aged persons and
pensioners who either meet the required conditions for the senior Australians tax offset (SATO)
or the pensioner tax offset (PTO).
Before 1 July 2012, the SATO and PTO were separate tax offsets.
To be entitled to the SAPTO, an individual must meet the SAPTO or PTO tests.
Senior Australians tax offset
To qualify for the SATO, recipients must satisfy four tests:
• Age test: The person must be of age-pension/service-pension age.
• Residency test: The person would have been eligible to receive an Australian Government
pension or similar payment during the financial year except that the person did not apply for the
payment or failed the pension means test, or have qualifying Australian residency sufficient to
receive an age pension (generally 10 years residency).
• Prison test: The person cannot have been in prison for the whole of the financial year.
• Income test: If the person’s rebate income is below the income threshold, the maximum tax
offset is available. For every dollar of income above the income threshold, the rebate is reduced
by 12.5 cents. The rebate is nil at the cut-off income threshold. The income tax-free thresholds
and cut-off limits for the 2018/19 financial year are shown in Table 13 below.
SAPTO eligibility
Eligibility for the SAPTO is based on a pensioner’s ‘rebate income’ arrived at as follows:
• taxable income
• adjusted fringe benefits (reportable fringe benefits × 0.535)
• total net investment loss (from rental property or investment income)
• reportable employer superannuation contributions (salary sacrifice).
The tax offset allows a person to earn up to the maximum income threshold and effectively pay
no tax. This is because the maximum tax offset neutralises any tax at that level.
Table 13 SAPTO income thresholds and cut-off limits 2018/19

Category	Income threshold	Cut-off income threshold	Maximum tax offset available
Single persons	$32,279	$50,119	$2,230
Persons married or partnered for the whole of the financial year	$28,974	$41,790	$1,602

Note: Higher rates apply for couples living apart due to illness.
The offset reduction and the offset entitlement are calculated as follows:
• Offset reduction = (Rebate income – Income threshold) × Reduction rate
• Offset entitlement = Maximum offset – Offset reduction.
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Example: Calculating SAPTO entitlement
Frank is a single person of age-pension age. He meets the residency and prison tests.
His rebate income for the 2018/19 financial year will be $34,000.
Frank’s SAPTO for 2018/19 is calculated as follows:
Offset reduction = (Rebate income – Income threshold) × Reduction rate
= ($34,000 – $32,279) × 0.125
= $215.13
Offset entitlement = Maximum offset – Offset reduction
= $2,230 – $215.13
= $2,014.87
7.2 Transfer of unused tax offsets between partners
An unused SAPTO can be transferred to a partner, but only if both partners are eligible for either of
the offsets.
An unused tax offset occurs if the person’s tax liability for the year is less than their eligibility offset.
The portion of the tax offset that is not used is called the ‘excess’ or the ‘unused tax offset’.
‘Further resources 15 and 16’ in KapLearn.
7.3 Low income tax offset
The low income tax offset (LITO) is available to all taxpayers. The maximum offset is $445 for the
2018/19 financial year. The full offset is available to individuals on a taxable income of up to $37,000.
It phases out after this amount and is not available to individuals on incomes above $66,667.
Table 14 below shows the LITO to 30 June 2019.
Table 14 Low income tax offset for 2018/19

Taxable income (TI)	Reduction in offset (RI)	Maximum offset
$0–$37,000	Nil	$445
$37,001–$66,666	(TI – $37,000) × 0.015	$445 – RI
$66,667+	Nil	Nil

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7.4 Low and middle income tax offset
Introduced in the 2018 federal budget, the low and middle income tax offset (LMITO) applies for
four years between 1 July 2018 and 30 June 2022 (refer to Table 15).
Table 15 Low and middle income tax offset for 1 July 2018–30 June 2022

Taxable income	LMITO
Up to $37,000	$200
$37,001–$48,000	$200 plus 3% of taxable income over $37,000
$48,000–$90,000	$530
$90,000–$125,333	$530 less 1.5% of the portion of your taxable income that exceeds $90,000

The 2019 federal budget proposed to increase LMITO to up to $1,080 from 1 July 2019.
7.5 Beneficiary tax offset
The beneficiary tax offset is available to taxpayers who receive certain Centrelink benefits and
Commonwealth education allowances, including:
• Newstart allowance
• parenting payment (partnered)
• partner allowance
• sickness allowance
• special benefit
• widow allowance
• youth allowance.
The offset applies once a person has reached more than $18,200 of an assessable government
payment in a financial year. The $18,200 is based on the tax-free threshold which applies from
1 July 2012. It is likely the LITO will also apply.
If the person’s taxable benefits are over $18,200 but under $37,000, they are entitled to a 15% offset
for every dollar above $18,200 in eligible benefits.
The beneficiary tax offset is set as the amount required to offset the tax liability on the rebatable
allowance paid during the year, regardless of any other income received. This means that the eligible
allowance recipient will pay no tax for the year if they have no assessable income other than the
allowance. The following formula is used:

Offset = (Actual amount of rebatable allowance received – Tax-free threshold) × Lowest marginal tax rate

Note: These offsets can only reduce tax liability. It will not reduce the Medicare levy and it is not a
cash refund; however, it will help to reduce any tax otherwise paid.
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7.6 Medicare levy income threshold
Thresholds for the Medicare levy depend on age and income. Table 16 shows the income thresholds
for standard individuals and for people who are eligible for the SAPTO.
Table 16 Medicare levy income thresholds for different incomes and circumstances 2018/19

No levy	Reduced levy rate	Ordinary levy rate
Taxpayer	Lower threshold — income up to:	10% of the amount of income above the lower threshold:	Upper threshold — 2.0% of taxable income, if income is over:
Individual	$22,398	$22,398–$27,997	$27,997
Couple	$37,794	$37,794–$47,242	$6,361
Individual SAPTO	$35,418	$35,418–$44,272	$44,272
Couple eligible for SAPTO	$49,304	$49,304–$61,630	$61,630
Add $3,471 for each dependent child or student.

For taxable incomes between the lower and upper thresholds, the Medicare levy is 10 cents for
every dollar exceeding the lower threshold. Once taxable income reaches the upper threshold,
the Medicare levy is payable at the normal rate of 2% of total taxable income. Refer to
<www.ato.gov.au/individuals/medicare-levy/medicare-levy-reduction-for-low-incomeearners/medicare-levy-reduction—family-income> for more details.
Medicare surcharge
A Medicare surcharge of up to 1.5% applies to people without qualifying private health insurance.
The surcharge applies to singles with taxable income over $90,000 and to couples with a combined
taxable income over $180,000 (if they have no dependent children). See Table 17 below for the
applicable threshold.
The amount couples can earn before paying the surcharge rises with each dependent child.
Private health insurance rebate
The 30% private health insurance rebate is not means tested. However, the federal government has
introduced a three-tiered approach to determine the amount of private health insurance rebate
payable to individuals. Income above the upper threshold will result in a complete loss of the private
health insurance rebate. Age will also be a factor in determining the amount of rebate received,
as shown in Table 17.
Table 17 Private health insurance rebates and Medicare levy surcharge
1 April 2018–31 March 2019

Income (singles)	$0–$90,000	$90,001–$105,000	$105,001–$140,000	over $140,000
Income (family)	$0–$180,000	$180,001–$210,000	$210,001–$280,000	over $280,000
Medicare levy surcharge	Nil	1.00%	1.25%	1.50%
Private health insurance rebate under age 65	25.415%	16.943%	8.471%	Nil
Private health insurance rebate age 65–69	29.651%	21.180%	12.707%	Nil
Private health insurance rebate age 70 and over	33.887%	25.415%	16.943%	Nil

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7.7 PAYG tax instalments
PAYG tax instalments are not payable if the person:
• is eligible to claim all or part of SAPTO, or
• is receiving a pension and has taxable income below certain thresholds. Net capital gains
or bonuses from insurance or friendly society bonds are not included in taxable income for
this assessment if the investment has been held outside the 10-year eligible period.
The income thresholds are indexed each year and details are available from the ATO.
People who receive beneficiary tax offsets are not exempt from PAYG tax instalments.
8 Miscellaneous strategies
There are a number of strategies that can increase social security payments, which are discussed
below.
8.1 Superannuation exemption
As discussed in section 4.5, superannuation in the accumulation phase is exempt from the income
and assets tests if the client is below age-pension/service-pension age. Advisers can take advantage
of this exemption through the following strategies:
• retaining money in the accumulation phase in superannuation or a rollover fund until
age-pension/service-pension age
• contributing non-superannuation money into superannuation (preservation issues need to be
considered as well as the concessional and non-concessional limits on amounts that can be
contributed)
• transferring investments from a client over age-pension/service-pension age to the
superannuation of a partner still under age-pension age.
However, the strategies above should be considered carefully as the additional social security
benefits they bring about may be outweighed by other consequences. For example, transferring
assets into superannuation might involve losing access to funds for a limited period or for life —
preserved funds are inaccessible until a condition of release is satisfied, and lifetime guaranteed
superannuation pensions are inaccessible beyond normal pension rates for life.
Clients also need to consider the 15% tax on superannuation fund earnings in the accumulation
phase. The additional Centrelink benefits brought about by a transfer strategy need to be compared
to the potential tax savings of converting the superannuation to a pension, especially for clients over
age 60.
In deciding which partner should hold superannuation investments, advisers need to consider a
range of factors, including:
• the type of income support received and its specific rules (e.g. exceeding the lower assets test limit
is less disadvantageous for a couple receiving pensions than it is for a couple receiving allowances)
• the client’s desire or need to own and control their own investments.
In addition, cashing in superannuation benefits and transferring them to the other partner through a
spouse contribution or a non-concessional contribution may have tax implications (particularly for
untaxed schemes), which should be taken into account.
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8.2 Couples and asset ownership
Unlike pensioner couples, non-pensioner couples have their income and assets assessed as
individuals rather than as a combined entity. For non-pensioner couples, income is allocated to the
person who owns the asset or derives the income. This makes asset ownership an important
consideration in developing financial plans. Advisers should aim to divide assets between the
partners in a way that minimises income test reductions to social security payments.
The effective ownership split for investments is determined by two factors:
• use of the lower deeming threshold
• the reduction rate that would be applied to income earned by each person.
Both partners apply for allowances
If both partners in a non-pensioner couple apply for allowances, the ownership of financial assets
should generally be split so that each person can use the full lower deeming threshold (see Table 4
above).
However, this strategy may not always be effective. Advisers should consider whether the extra income
would reduce one partner’s payment at a higher rate than the other. For example, each dollar of extra
income may reduce one partner’s payment by 60 cents and the other by 50 cents.
One partner applies for an allowance and the other does not
An allowance recipient can only earn $104 per fortnight before their pay is reduced by 50 cents for each
dollar of excess income. However, their partner can earn $948.17 per fortnight before the allowance
recipient’s entitlement is affected. Therefore, investment income should not be allocated to the
allowance recipient until their non-social security partner reaches the $948.17 per fortnight limit.
At least one partner applies for a pension
Pensioner couples are assessed as joint economic units for both the income and assets tests, so for
social security purposes ownership of investments is not an issue.
8.3 Reassessing investment value
Each March and September, Centrelink automatically reassesses the asset values of investments that
have regularly fluctuating market values such as allocated pensions, shares and managed
investments. However, investment values might vary significantly between these review dates.
Social security recipients can request assessment reviews at any time if they feel their situation has
changed. If market values have fallen since the last automatic assessment date, a reassessment
might increase their social security entitlements. This is because a reduced asset value would flow on
to reduce deeming assessment, which could reduce the impact of the income and assets tests.
It is important to note that if a reassessment is requested, all investments will be reassessed.
Some investments might have increased in value, causing social security entitlements to decrease,
so care should be taken.
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8.4 Repaying debts
Personal debts and unsecured debts are generally not deductible from the value of assessable assets,
which can unnecessarily increase the value of assets the person is assessed to own. If a person
receives income support calculated under the assets test, their entitlement will be reduced by having
personal and unsecured debts.
If social security recipients have unsecured debts or personal debts, they should either repay them or
arrange for a registered mortgage over an assessable asset to cover the debt.
8.5 Salary sacrifice
If a person is under age-pension age, employment income is assessed as the salary received plus any
reportable fringe benefits. In the May 2009 federal budget, the Commonwealth Government
expanded the definition of ‘income’ to include salary sacrifice contributions. As a result,
from 1 July 2009, if a person is age-pension age or over, any superannuation contributions made by
the employer above the superannuation guarantee will be assessable as income, regardless of the
person’s age. Prior to this date, concessional contributions, either voluntary or compulsory, were not
counted as income for social security purposes for those under pension age.
Review your progress 1
1. If a person gives up control of $250,000 worth of assets in a private trust, have they
improved their access to social security in the short term?
2. What is the potential social security advantage of paying off a personal debt?
9 Aged care provision
Pensioners sometimes find that they are unable to continue living in a home by themselves and have
to decide whether they need to move to a facility that can give permanent, long-term care or they
just need to move closer to people who can support them.
There are three common choices for pensioners at this stage:
• a granny flat or live-in arrangement with their family
• a retirement village
• an aged care residential facility, such as a nursing home.
In Australia, there are a variety of aged care facilities, providing different levels of care. Services are
available in private homes, retirement villages and aged care facilities.
Determining which type of accommodation is most suitable and accessible is often a complex and
emotional process. An aged care assessment team (ACAT) of health professionals (Aged Care
Assessment Service or ACAS in Victoria) helps by assessing the level of care most appropriate for the
person. A referral from ACAT is necessary before a person can:
• be accepted into an aged care facility, or
• receive government-subsidised services in their own home.
Advisers should consider the financial consequences of a client moving into an aged care facility.
Of particular importance is the effect a person’s assessable assets have on the accommodation
payment and/or ongoing charges for aged care facilities.
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From 20 September 2007, the treatment of income streams under the assets test for aged care is
aligned with Centrelink’s pension assessment.
9.1 Recent changes to aged care
On 20 April 2012, the government released the Living Longer Living Better aged care reform package
in response to the review of aged care undertaken by the Productivity Commission in August 2011.
Its recommendations, together with 2013 federal budget changes, has profoundly changed the way
aged care is provided and funded.
Since 1 July 2013, consumers have access to a government website My Aged Care, which provides
client-friendly information to assist with moving into aged care, including fees and charges.
The key elements of Living Longer Living Better reforms were:
• Greater emphasis on and resourcing of supports for those who wish to stay in their home.
This includes:
Care in the person’s home.
– Increasing development of home care ‘packages’
From 1 July 2015, the government established a national Commonwealth Home Support
Program. This new and streamlined approach, including four (previously two) differently priced
home care packages, was brought together with all the services currently providing basic home
support under the one program — the existing Home and Community Care Program for older
people, the National Respite for Carers Program, the Day Therapy Centre Program and the
Assistance with Care and Housing for the Aged Program.
– Greater choice and control through consumer-directed care
In developing the Commonwealth Home Support Program, services being delivered in the
home were reviewed to gain a better understanding of what older Australians want and need.
Services including meals on wheels, transport, home modifications and maintenance are
looked at to ensure they are being delivered in the most efficient way.
– Different means testing arrangements for home care packages
Fees paid for home care packages under the previous system were not consistently applied,
unlike in residential care. A new means-tested care fee was introduced for some care
recipients on top of the existing basic fee. No full pensioner pays a care fee under the new
arrangements, which applied from 1 July 2014. Some part-pensioners and non-pensioners pay
higher total fees than were previously charged. People receiving a care package on
30 June 2014 continue under their previous fee arrangement.
The government requires some care recipients to contribute more to the cost of their care
through an income-tested care fee, with safeguards for those who cannot afford to contribute.
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No care recipient pays more than the cost of their care and no care recipient’s home or other assets
are included in assessing their ability to pay. In addition, an annual cap of $5,5,06.48 (indexed)
where income is below the ‘income threshold’ and $11,012.99 (indexed) where income is above
the ‘income threshold’ is in place for the income-tested care fee. The income thresholds
(20 March 2019) are:
• $52,634.40 (singles)
• $52,114.40 (couple, Illness-separated, single rate)
• $40,253.20 (couple, living together, single rate).
There is a lifetime cap of $66,078.27 (20 March 2019) (indexed) on care fees, so that no person
pays more than this amount for home care packages or residential care during their lifetime.
Since 27 February 2017, home care packages are assigned to the care recipient rather than the
care provider.
• Improved access to respite care to help carers.
• Improved residential aged care through:
– building more residential care facilities
– supporting the viability of services in regional, rural and remote areas
– trialling consumer-directed care in residential aged care
– different fee arrangements and the combining of the current income and assets tests:
> entry fees to aged care facilities is payable by lump sum, periodic payment or a mix
depending on the applicant’s choice
> any refundable accommodation deposit and family home is exempt by Centrelink under
certain conditions
> the asset and income test for new residents is combined into a new means test,
which effectively only assesses income above that received from the full age pension.
For people with income above this threshold, the maximum means-tested contribution
(20 March 2019) is:
° 50% of income above the threshold
° 17.5% of the value of assets between $49,500 and $168,351.20
° 1% of the value of assets between $168,351.20 and $406,053.60
° 2% of the value of assets above $406,053.60.
These contributions are subject to a cap of $27,532.59 p.a. and lifetime cap of
$66,078.27 (20 March 2019).
– establishment of the Aged Care Financing Authority.
The Aged Care Financing Authority (ACFA) was created in 1 July 2014. It oversees the charges
imposed by providers to ensure they reflect the value of services offered.
• Strengthening the aged care professional workforce.
• Support for consumers and research through:
– empowering consumers through advocacy
– connecting the lonely and socially isolated more successfully
– improving the knowledge of older people’s care and support needs.
• Ensuring better health connections through:
– complex health care
– multidisciplinary care
– service innovation.
‘Further resource 17’ in KapLearn.
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9.2 Residential aged care as of 1 July 2014
Since 1 July 2014, residential aged care is not categorised as low or high-level care (i.e. hostel or
nursing home). This has meant significant change to the aged care system.
Residents entering an arrangement from 1 July 2014 may be asked to pay the following fees:
• standard resident contribution
• means-tested care fee
• accommodation payment or accommodation contribution.
Extra services fee
In addition to these, a resident of a facility may be asked to pay a compensation amount or any other
agreed amount between themselves and the providers.
To obtain access to aged care from 1 July 2014, a resident needs to be approved by the ACAT to
access a home care package or to move into an aged care home.
Standard resident contribution
This contribution equates to 85% of the single basic age pension amount and is $50.16 per day
(from 20 March until 19 September 2018). This is the equivalent of the previous basic daily care fee.
Means-tested care fee
A daily means-tested care fee is payable by those who are assessed as having the means to
contribute towards the cost of their care.
This is the equivalent to the previous daily income-tested fee, with the key difference that it
incorporates a means-tested fee combining an income and assets test.
There is an income-tested component and an asset-tested component.
A resident cannot be asked to pay an income-tested component fee if their assessed income is below
the following thresholds:
• individual person — $26,660.40 p.a.
• member of a couple but now separated due to illness — $26,192.40 p.a.
Where the person is a member of a couple, half of the couple’s assessed income is included as the
resident’s income. Assessed income includes the social security payment less energy supplement and
the minimum pension supplement.
For those residents above their respective thresholds outlined above, the means-tested care fee
payable is dependent on both their level of income and assets.
The income-tested amount is calculated by the following formula:

    (Total assessable income less income-free threshold)× ÷ = 50% 364 Income-tested amount

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The assets thresholds for the residential care means test are as follows:
• asset-free threshold — $48,500
• first asset threshold — $165,271.20
• second asset threshold — $398,831.60.
The assets tested amount is determined by the following formulas:
• Recipients assets ≤ $48,500 = Nil assets tested amount
• Between $48,501 and $165,271.20 = (17.5% of amount > $48,500) ÷ 364
• Between $165,271.21 and $398,831.60 = ($20,434.96 + (1% of amount > $165,271.20)) ÷ 364
• Recipients assets > $398,831.61 = ($22,770.56 + (2% of amount > $398,831.60)) ÷ 364
If the calculated assets tested component amount is negative, the assets tested amount is nil.
Once the income and asset-tested components have been added together (the means-tested
amount), the daily means-tested care fee is only payable if the two components are in excess of the
maximum accommodation supplement (currently $56.14 per day), with the excess amount being the
means-tested care fee.
The daily means-tested care fee cannot exceed the cost of care, which is a figure advised by the
government and taken into account when the resident is advised of their means-tested care fee.
The daily means-tested care fee is subject to an annual or lifetime cap.
Example: Calculating means-tested care fee
Rhonda’s income and assets tested components are calculated to be $60 per day. As the
two components added together exceed the maximum accommodation supplement
$56.14 per day, she is liable for a means-tested care fee. Her means-tested care fee is
$3.86 per day ($60.00 – $56.14).
Payment of accommodation payment/contribution
Accommodation payments/contributions are similar to entry fee payments to enter the aged care
facility. A resident whose means-tested amount is more than $56.14 per day is liable for an
accommodation payment. Similarly, if the income and assets tested component is $56.14 per day or
less, they may be liable for an accommodation contribution. The distinction between
accommodation payment and accommodation contribution is significant. A person who is liable for
an accommodation payment pays a price based on the facility’s advertised price, while a person who
is liable for an accommodation contribution does not pay the advertised price; instead the amount
they pay is based on their means-tested amount and cannot be more than the maximum
accommodation supplement (funding from the government) for which the facility is eligible.
Accommodation payments/contributions can be paid as a lump sum (refundable accommodation
deposit/contribution), periodically (daily accommodation payment/contribution) or a combination of
these.
On average, refundable accommodation deposits are approximately $400,000, with the highest
amount reported to be over $2 million. Given the large amount of capital/income required to fund
entry into aged care, it reinforces the need to consider aged care as part of retirement planning.
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Extra services fees
These fees are any other amounts which must be agreed on between the resident entering
the facility and the facility provider. For these fees to apply, the provider must comply with the fees
and payments principles.
Family home/former family home
One key change since 1 July 2014 is in the treatment of the family home. The former family home is
not counted as an assessable asset for aged care if it is occupied by a protected person. A protected
person is defined as:
• a spouse or dependent child
• a carer who has been living in the home for two years and is receiving or is eligible to receive an
income support payment
• a close relative who has occupied the home for five years and is receiving or is eligible to receive
an income support payment.
When the former home is not occupied by an eligible person, the assessable value of the home will
be capped at $168,351.20 (as at 20 March 2019). The assessment of the family home and rental
income produced from it has been subject to various changes since 1 July 2014. Table 18 summarises
the assessment of the home from both aged care means and Centrelink means testing for residents
who entered residential aged care since 1 January 2017.
Table 18 Assessment of the home by aged care and Centrelink assessment

The family home is occupied by:	Aged care assessment	Centrelink assessment
Spouse	Exempt
A protected person — not spouse	Assets test — Exempt	Assets test — Exempt for two years after the person, or if the person is a member of a couple, after the last member of the couple, left the home permanently. The person is a homeowner during this period. After the two-year period, the person is assessed as a non-homeowner
Income test — not applicable
A protected person — not spouse	Assets test — Exempt	Assets test — Exempt for two years. The person is assessed as a homeowner during this period. After two years, the home is assessed as an asset and the person is assessed as a non-homeowner
Income test — net rental income assessable
A person other than a protected person	Assets test — Assessed as an asset but capped at $168,351.20	Assets test — Exempt for two years. The person is assessed as a homeowner during this period. After two years, the home is assessed as an asset and the person is assessed as a non-homeowner
Income test — net rental income assessable

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Table 19 Summary of pre/post-July 2014 aged care reform fees

Pre-1 July 2014	Post-1 July 2014
Basic daily care fee	Standard resident contribution
Daily income-tested fee	Daily means-tested care fee
Accommodation charge	n.a.
Accommodation bond	Refundable accommodation deposit/contribution
Accommodation bond via periodical payment	Daily accommodation payment/contribution
Retention amount	n.a.
Extra services fee	Extra services fee

Grandfathering of existing arrangements pre-30 June 2014
For people already in residential care on 30 June 2014, their previous means testing arrangements
remain in place. The grandfathering of the existing arrangements continues unless:
• the recipient ceases to be provided with care for more than 28 days (unless the person is on leave or in
hospital), or
• the recipient moves to another service providing the same type of care and formally requests
in writing to be assessed under the new rules.
‘Further resources 18 and 19’ in KapLearn.
9.3 Differences between Centrelink and aged care assets tests
The aged care assets test is similar to Centrelink’s pension assets test, but with two main differences.
These relate to the assessment of the family home and refundable accommodation
deposits/contributions.
Family home for new entrants on or after 1 January 2017
The family home is included in the aged care assets assessment if it is not resided in by an eligible
person but capped at $168,351.20 (20 March 2019). From a Centrelink perspective, if a person
moves to an aged care facility and the home is kept, clients will have a two-year grace period after
they depart the home before their home is assessed as an asset by Centrelink. During this time, the
resident is assessed as a homeowner. After two years, the net market value of the home is
assessable and the resident is assessed as a non-homeowner.
The rental income for anyone that enters aged care on or after 1 January 2017 for the first time is
assessed.
From a Centrelink perspective, the home is exempt while the spouse lives in it. It is not automatically
exempt, unlike aged care, if an eligible carer or a close relative is living in the home. However, as
discussed above, it may be exempt under the two-year rule.
Refundable accommodation deposits/contributions
Refundable accommodation deposits/contributions are assessed as an asset for aged care
means-testing purposes, but they are exempt from Centrelink means testing, both under assets and
income test.
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Income streams
From 20 September 2007, the aged care assets test is the same as the Centrelink pension entitlement
assets test in the assessment of pensions and annuities. This means that:
• complying income streams purchased before 20 September 2007 will be assessed in the same
way as Centrelink assesses them
• income streams purchased after 20 September 2007 are fully assessable.
Couples
When one member of a couple is entering an aged care facility, half the combined assets and income
are assessed.
Daily means-tested amount
When calculating income for the daily means-tested amount, income assessed includes the pension
(less the energy supplement and minimum pension supplement) and income according to Centrelink’s
pension income test.
9.4 Age pension for those in an aged care facility
When a person moves to an aged care facility, several factors can affect their age pension entitlement.
Refundable accommodation deposits/contributions are not counted under the pension assets or
income tests. For clients who are sensitive to assets tests, paying the refundable accommodation
deposit/contribution upfront may result in a higher age-pension payment. Moving to an aged care
facility can affect the person’s homeowner status where they decide to sell the home or if they keep
the home after the two-year grace period. Centrelink has precise rules for determining whether a
person is considered a homeowner. The person’s potential change in homeowner status and
requirement for cash flow may affect their decision to keep or sell the home.
If one member of a couple moves into an aged care facility, both members of the couple will receive
a higher rate (illness-separated couple rate), being the single pensioner payment rate. This is because
Centrelink make allowances that a couple separated due to ill health will likely incur more expenses.
When considering strategies to maximise a person’s age pension, it is also important to consider how
these issues might affect the cost of entering and residing in an aged care facility.
‘Further resource 20’ in KapLearn.
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References
Australian Government Treasury 2019, Review of the early release of superannuation benefits,
viewed 24 July 2019, <https://treasury.gov.au/consultation/c2018-t341625>.
Department of Health (DoH) 2017, Accommodation bond retention amounts, Australian Government,
viewed 24 July 2019, <https://agedcare.health.gov.au/aged-care-funding/accommodation-bondretention-amounts>.
Department of Health (DoH) 2018, Maximum bond and charge interest rate, Australian Government,
viewed 24 July 2019, <https://agedcare.health.gov.au/aged-care-funding/maximum-bond-andcharge-interest-rate>.
Department of Human Services (DHS) 2017, Deeming, Australian Government, viewed 24 July 2019,
<https://www.humanservices.gov.au/individuals/topics/deeming/29656>.
Department of Human Services (DHS) 2019a, Guide to social security law, version 1.256, July,
Australian Government, viewed 24 July 2019, <http://guides.dss.gov.au/guide-social-security-law>.
Department of Human Services (DHS) 2019b, A guide to Australian Government payments,
Australian Government, viewed 24 July 2019,
<https://www.humanservices.gov.au/organisations/about-us/publications-and-resources/guideaustralian-government-payments>.
Department of Human Services (DHS) 2019c, Assets, Australian Government, viewed 24 July 2019,
<https://www.humanservices.gov.au/individuals/topics/assets/30621>.
Department of Human Services (DHS) 2019d, Income test for Newstart Allowance, Partner Allowance,
Sickness Allowance and Widow Allowance, Australian Government, viewed 24 July 2019,
<https://www.humanservices.gov.au/individuals/topics/income-test-newstart-allowance-partnerallowance-sickness-allowance-and-widow-allowance/29411>.
Human Rights and Equal Opportunity Commission (HREOC) 2007, Same-sex: same entitlements,
viewed 24 July 2019, <https://www.humanrights.gov.au/our-work/lgbti/publications/same-sexsame-entitlements>.
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Suggested answers
Apply your knowledge 1: Identifying financial investments
1. $12,000 held in a friendly society bond Yes
2. 5,000 BHP shares Yes
3. holdings in gold bullion Yes
4. a car valued at $40,000 No
5. superannuation for a male age 50 No
6. investment in a listed company Yes
7. $5,000 held in a standard bank account Yes
8. $12,000 in a fixed interest deposit Yes
9. 10-year income stream from a lottery win No
10. $10,000 interest-free loan to a child Yes
11. household contents valued at $15,000 No
12. family home No
Apply your knowledge 2: Deemed income for an age pensioner couple
Financial assets total = $1,500 + $4,000 + $6,000 + $10,000 + $12,000 + $50,000 = $83,500
Note: Home, contents, car and allocated pension are not financial investments.

First $83,400 at 1.75% Balance of $100 at 3.25% $1,428 + $61.75	= $1,459.50
=	$3.25
= $1,462.75

Apply your knowledge 3: Determining assessable assets

Car	$20,000
Contents	$10,000
Allocated pension Rental property (net) Cash at bank	$250,000 $150,000 ($400,000 – $250,000 loan secured against this property) $20,000
Deprived asset	$40,000 ($50,000 – $10,000 allowed as a gift)
Total	$490,000

Apply your knowledge 4: Reducing assessable assets
Michelle could cash out some superannuation. They could then reinvest the money in Peter’s name
as it will be exempt from the assets test until he reaches age-pension age (age 67).
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Apply your knowledge 5: Eligibility for the pension
Assets test
Total assets = $20,000 (car) + $10,000 (contents) + $400,000 (Jeff’s pension) + $50,000
(Gayle’s super account) + $35,000 (bank) = $515,000
Assuming rates and thresholds as at 20 March 2018.
The minimum threshold for married homeowners is $380,500, so they are over the threshold by
$134,500.
The combined reduction in pension is $3 p.f. × $134.50 = $403.50, so the pension reduction for each
partner is $201.75.
Therefore, the pension for each partner is $684.10 – $210 = $482.35 p.f.
Income test
Deemed assets = Jeff’s account-based pension $400,000 (not grandfathered as they were not
receiving a Centrelink payment on 1 January 2015); Gayle’s $50,000
superannuation + $35,000 cash in bank = $485,000
$83,400 @ 1.75% p.a. = $1,459.50 p.a.
$401,600 @ 3.25% p.a. = $13,052 p.a.

Total assessable income	= $14,511.50 or $558.13 p.f.
Excess over minimum threshold	= $558.13 – $300 = $258.13
Combined reduction in pension So, pension reduction each So, calculated pension each	= $258.13 × 0.5 = $129.07 = $64.53 ($129.07 ÷ 2, rounded) = $684.10 – $64.53 = $619.57 p.f.

Result
Assets test = $482.35 p.f. each.
Income test = $619.57 p.f. each.
They will receive the lowest amount, that is, the assets test amount of $482.35 p.f. each.
Review your progress 1
1. Probably not, because the value of the trust assets will be subject to gifting rules and an
assessment of deprivation may apply.
2. Personal debts are not deductible from the value of assessable assets, so paying off a personal
debt will reduce assessable assets by the amount paid.