Income tests: an overview
Income tests: an overview
From 1 July 2009, the introduction of income tests changed the way we work out your income for some government benefits and obligations administered by us and other government organisations.
The income tests do not alter the income tax thresholds or the way your assessable income is calculated. However, they may affect the amount of tax you are liable to pay.
We use five income tests to calculate tax offsets, deductions, obligations, and concessions:
Other income tests are applied to:
|
If you do not complete all the required questions in your tax return correctly we may incorrectly:
- pay you a benefit
- assess you for other liabilities.
|
|
For more information about how to complete the income tests labels on your tax return, refer to Income tests.
|
Adjusted taxable income (ATI)
Generally, your adjusted taxable income includes your:
It is reduced by deductible child maintenance expenditure (child support you paid).
Some of the income tests have a slightly different formula and only include some of the ATI components set out above.
Both Centrelink and the Child Support Agency (CSA) use an adjusted taxable income test for their assessments, but the income components used to calculate your ATI for each agency's purposes may differ. For more information about your ATI visit humanservices.gov.au for:
- Centrelink payments
- child support .
Your ATI affects your entitlement to any dependant tax offset.
To work out your ATI for tax purposes, refer to How to calculate your adjusted taxable income.
Taxable income is assessable income less deductions.
An adjusted fringe benefit is a reportable fringe benefits amount 'grossed down'. If you have a reportable fringe benefits amount, it will appear on your payment summary. We automatically reduce any amounts that appear on your payment summary to the adjusted amount.
To calculate your adjusted fringe benefits amount use the following formula:
Adjusted fringe
benefits amount
|
=
|
total reportable fringe benefits amounts
|
X
|
53.5%
|
Target foreign income
Target foreign income is foreign income you receive from sources outside Australia. You need to calculate this in Australian dollars. It does not include any amounts you have already included in your taxable income or any foreign fringe benefit.
If you received amounts of target foreign income throughout the income year, use the foreign exchange rate applicable on 1 July of that income year to convert foreign amounts to Australian dollars.
Examples of target foreign income include:
- regularly receiving money or gifts from relatives living overseas (which is exempt from Australian tax)
- income from foreign business interests and investments (which is exempt from Australian tax), including income received by migrants with business interests in their country of origin
- foreign source income received while you were a temporary resident that is exempt from Australian tax.
Tax-free government pensions
The following payments are tax-free pensions or benefits to the extent to which the payment is exempt from income tax and is not a bereavement payment, pharmaceutical allowance, rent assistance, remote area allowance, or language, literacy and numeracy supplement:
- Disability support pension paid by Centrelink to a person who is under age-pension age.
- Wife pension where both the recipient and their partner are under age-pension age or the recipient is under the age-pension age and their partner has died.
- Carer payment under Part 2.5 of the Social Security Act 1991.
- Pension for defence, peacekeeping or war-caused death or incapacity or any other pension granted under Part II or Part IV of the Veterans' Entitlement Act 1986.
- Invalidity service pension where the veteran is under age-pension age.
- Partner service pension if either
- the partner and the veteran are under the age-pension age and the veteran is receiving an invalidity service pension
- the partner is under age-pension age, the veteran has died and was receiving an invalidity service pension at the time of death.
- Income support supplement paid under Part IIIA of the Veterans' Entitlements Act 1986.
- Defence Force income support allowance payable to you on a day when the whole of your social security pension or benefit, which is also payable to you on that day, is exempt from income tax under section 52-10 of the Income Tax Assessment Act 1997.
- A special rate disability pension under Part 6 of chapter 4 of the Military Rehabilitation and Compensation Act 2004.
- A payment of compensation under section 68, 71 or 75 of the Military Rehabilitation and Compensation Act 2004.
- A payment of compensation mentioned in paragraph 234(1)(b) of the Military Rehabilitation and Compensation Act 2004.
Deductible child maintenance expenditure (child support you paid)
Deductible child maintenance expenditure is the amount of child support you pay to another person other than your partner to maintain your natural or adopted child following separation. In working out your adjusted taxable income (ATI), you deduct this amount from the total of all the other ATI components.
Rebate income
Your rebate income includes your:
- taxable income
- adjusted fringe benefits amount (total reportable fringe benefits amounts x 0.535)
- total net investment loss (includes both net financial investment loss and net rental property loss)
- reportable super contributions (includes both reportable employer super contributions and deductible personal super contributions).
To work out your rebate income, see Calculate your rebate income.
Income for Medicare levy surcharge purposes
We use your income for surcharge purposes to work out if you have exceeded the Medicare levy surcharge threshold.
Your income for surcharge purposes includes your:
- taxable income (including the net amount on which family trust distribution tax has been paid)
- exempt foreign employment income if your taxable income is $1 or more
- reportable fringe benefits amount, as reported on the payment summary
- total net investment loss (includes both net financial investment loss and net rental property loss)
- reportable super contributions (includes both reportable employer super contributions and deductible personal super contributions).
However, if you are aged 55 to 59 years old, you deduct any taxed element of a super lump sum, other than a death benefit, which you received that does not exceed your Low rate cap on super lump sum benefits.
If you exceed the threshold, you are liable to pay the Medicare levy surcharge.
|
Income for surcharge purposes is only used to determine whether you are liable to pay the Medicare levy surcharge. It is not used to calculate how much surcharge you pay.
The Medicare levy surcharge is only levied on the total of your taxable income and total reportable fringe benefits amount (including the net amount on which family trust distribution tax has been paid). However this does not include - if you are aged 55 to 59 years old - any taxed element of a super lump sum, other than a death benefit, which you received that does not exceed your low rate cap.
|
A reportable fringe benefits amount is the fringe benefit amount that is shown on your payment summary.
Higher Education Loan Program and Student Financial Supplement Scheme repayments
Your repayment income includes your:
|
For more information about the Higher Education Loan Program (HELP) and Student Financial Supplement Scheme (SFSS) repayments, refer to Studying and student debt.
|
Super income tests
Reportable employer super contributions are included in the income tests for the following:
- spouse super contributions tax offset
- government super co-contribution
- deduction for personal super contributions.
Mature age worker tax offset
The mature age worker tax offset has an income test called 'net income from working'. Net income from working includes any reportable employer super contributions you may have.
Your total net investment loss is the sum of your net investment loss from each of the following two types of investments:
- rental property investments - such as negatively geared rental properties
- financial investments - such as negatively geared share portfolios.
Net financial investment loss is the amount of your deductions attributable to financial investment minus your total financial investment income.
Net rental property loss is the amount of your deductions attributable to rental property minus your rental property income.
Your financial investments include:
- your shares
- an interest in a managed investment scheme
- a right or options of your shares or interests in a managed investment scheme
- distributions from a partnership that included income or losses from an investment listed above
- interests in trusts that you provided consideration to acquire.
Your total net investment loss does not include your capital gains or losses.
Your total net investment loss will not affect the calculation of your taxable income. You will still be able to claim allowable tax deductions for expenditure you make in relation to your rental properties or other financial investments such as shares.
Reportable super contributions
Reportable super contributions include your:
- reportable employer super contributions
- deductible personal super contributions.
Reportable employer super contributions are salary sacrificed super contributions or other contributions your employer makes for you when all of the following apply:
- you influenced the amount of super your employer contributes
- the contributions are additional to the compulsory contributions your employer must make under any of the following
- super guarantee law
- an industrial agreement
- the trust deed or governing rules of a super fund
- a federal, state or territory law.
Deductible personal super contributions are any personal contributions you make to a super fund for which you claim an income tax deduction on your individual tax return.
We add your deductible personal super contributions to any reportable employer super contributions you report on your tax return. The total forms your reportable super contributions amount.
The following benefits and obligations we administer are affected by income tests:
- Medicare levy surcharge threshold calculation
- Medicare levy surcharge (lump sum payment in arrears) tax offset
- dependant tax offsets
- senior Australians tax offset
- pensioner tax offset
- mature age worker tax offset
- spouse super contributions tax offset
- government super co-contribution
- Higher Education Loan Program (HELP) and Student Financial Supplement Scheme (SFSS) repayments (refer to Studying and student debt)
- a deduction for your personal super contributions
- a deduction for your business losses (non-commercial losses)
- income tax concessions available to participants in certain employee share schemes (refer to Employee share schemes - guide for employees).
The tests also affect a range of Centrelink, Family Assistance Office and Child Support Agency payments.
Calculate your adjusted taxable income (ATI)
To calculate your ATI you can either:
Calculate your rebate income
To calculate your rebate income you can either:
To calculate your surcharge income you can use either:
Your employer reports all reportable employer super contributions they make on your behalf on your payment summary.
Labels are included on your individual tax return so you can declare any:
The application of the income tests may mean that you are not eligible for some tax offsets and government benefits. If you need help, you should seek advice from your tax agent or financial planner.
You may need to review your pay as you go withholding arrangements with your employer to make sure the tax they withhold from your salary, wages and other income during the income year is enough to cover the amount of tax you are liable to pay.
If you are an investor or you operate a business, you may need to review your pay as you go instalment arrangements to ensure they cover the amount of tax you are liable to pay.
For more information about income tests, you can visit the following government agency websites:
Last Modified: Wednesday, 13 March 2013
|