Changes to the definition of income could affect your payment

From 1 July 2009, your assessable income for Centrelink and the Family Assistance Office will also include:

• reportable superannuation contributions, and
• total net losses from rental property or investment income.

For customers who are in receipt of an income support payment and are over age pension age, superannuation contributions were included in assessable income prior to this change and will continue to be included in assessable income.

For customers who are over age pension age and are in receipt of an income support payment, total net losses from rental property or investment income will not be included as assessable income.

Note: Your income affects the amount of payment you receive from Centrelink and the Family Assistance Office. Depending on your circumstances, the changes to the definition of income may affect your payments and you may need to provide additional information about your income to Centrelink or the Family Assistance Office.

Choose from the headings below to learn more about the changes to the definition of income and how this may affect your payments:

• What the changes are
• Reportable superannuation contributions
• Total net investment losses from rental property and financial investment income
• How the changes may affect you
• What you need to do

What the changes are

From 1 July 2009, changes to how Centrelink and the Family Assistance Office define income may affect your payments.

The changes mean that for the assessment of Family Tax Benefit, Child Care Benefit, Baby Bonus and the Commonwealth Seniors Health Card, the following will be added to taxable income:

1. reportable superannuation contributions, and
2. total net investment losses from rental property and financial investment income.

For customers who are claiming an income support payment, Centrelink will assess your reportable superannuation contributions when working out your payment rate.

Who will be affected by these changes?

The changes to the definition of income may affect your payments if you report income to Centrelink or the Family Assistance Office.

If you receive any of the affected Centrelink or Family Assistance Office payments you must contact Centrelink or the Family Assistance Office and notify us of any changes to your income.

Note: It is important to remember that what Centrelink defines as assessable income is not always the same as what the Australian Taxation Office defines as taxable income.

If you are unsure if any of these changes apply to you, contact your accountant, financial advisor or the Australian Taxation Office. To contact Centrelink’s Financial Information Service for information about financial matters, call 13 2300.

Why have these changes come about?

These changes increase the fairness between individuals and families depending on how they choose to receive their salaries, or how they choose to invest.

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Reportable superannuation contributions

Reportable superannuation contributions include discretionary superannuation contributions. These are also referred to as concessional or before-tax contributions. For example:

• voluntary salary sacrificed superannuation contributions made by you or on your behalf by your employer. These contributions are above what is required by law, such as the industrial award or the superannuation guarantee levy (currently 9%)
• total superannuation contributions made by you as a self-employed person, for which you can claim a tax deduction.

Personal post-tax contributions are not included as a reportable superannuation contribution.

If you receive any of the affected payments, you must include reportable superannuation contributions when estimating your income to Centrelink or the Family Assistance Office for the 2009/2010 financial year and subsequent years.

Example of reportable superannuation contributions

If you have reportable superannuation contributions, you must tell Centrelink or the Family Assistance Office as it can affect your assessable income and your eligibility for payments.

This is an example of what reportable superannuation contributions are, and how they can be calculated.

Example: Olivia has chosen to salary sacrifice an additional 4% of her salary into her superannuation fund. This contribution is above what her employer is required to make. Olivia’s salary is $20,000. It is compulsory for her employer to contribute 9%, or $1,800. This amount is not a reportable contribution to superannuation and does not need to be reported to the Family Assistance Office and Centrelink. Olivia’s contribution of 4%, or $800, is a reportable contribution to superannuation. Olivia must declare this amount to the Family Assistance Office and Centrelink. Olivia’s taxable income is $19,200. However, the assessable income Olivia must declare to the Family Assistance Office and Centrelink is $20,000.

If Olivia was also receiving an income support payment, and needed to report her earnings each fortnight, she would need to report the gross amount to Centrelink. This would include the amount she has salary sacrificed into superannuation.

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Total net losses from rental property and financial investment income

From 1 July 2009, total net investment losses will be included as income and used to work out eligibility for some Centrelink and Family Assistance Office payments. Centrelink and the Family Assistance Office already include the amount lost from rental properties in assessable income for affected payments. Together, net losses from rental properties and net losses from financial investment are known as total net investment losses.

If you expect to make a loss from rental property income, financial investment income, or both, you need to give details of the total amount of losses. It is important that you record losses from investment earnings only, not capital losses. Investment earning includes taxable and tax-exempt interest, dividends and rental income.

Examples of total net investment losses from rental property and financial investment income

If you expect to make a loss from rental property income, financial investment income, or both, you need to give Centrelink details of the total amount of losses. It is important that you only record losses from investment earning, not capital losses.

Note: a capital loss is the difference between the purchase price and sale price, where an asset is sold for less than it was purchased for. Investment earnings include taxable and tax-exempt interest, dividends and rental income.

Example 1: Bruno purchases shares worth $10,000. He takes out a $10,000 bank loan to buy them. The shares return a dividend of 4.5%, or $450, but the interest on his loan is 8%, or $800. This means Bruno makes an investment loss of 3.5% or $350 ($800 from interest on loan - $450 from dividend returns = $350 in investment loss). Bruno’s gross income is $60,000. After this loss, his taxable income would be $59,650 ($60,000 - $350 = $59,650). However, the income he must declare to Centrelink is $60,000.

Example 2: Annette expects to make a loss from rental property income of $4,500 and a loss from investment income of $1,200 after participating in a share buy-back. The Tax Office assesses Annette’s taxable income as $24,300. Centrelink adds Annette’s total loss of $5,700 ($4,500 + $1,200 = $5,700) back to her taxable income to make an assessable income of $30,000. The loss Annette must record is $5,700.

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How the changes may affect you

Income support customers

Income support customers under age pension age who receive:

• ABSTUDY
• Austudy
• Bereavement Allowance
• Carer Payment
• Disability Support Pension
• Low Income Health Care Card
• Newstart Allowance
• Parenting Payment Partnered
• Parenting Payment Single
• Partner Allowance
• Sickness Allowance
• Special Benefit
• Widow Allowance
• Widow B Pension
• Wife Pension
• Youth Allowance

Income support customers over age pension age who receive:

• ABSTUDY
• Age Pension
• Austudy
• Bereavement Allowance
• Carer Payment
• Disability Support Pension
• Low Income Health Care Card
• Parenting Payment Partnered
• Parenting Payment Single
• Special Benefit
• Widow Allowance
• Widow B Pension
• Wife Pension

If you receive any of these affected payments you are required to include any reportable superannuation contributions when you next report your income to Centrelink. Your partner’s income (if applicable) will also need to include any reportable superannuation contributions.

Income support customers will not have to include total net investment losses from rental property and financial investment income.

Note: If you are on an income support payment, the income test is not based on taxable income but on the current rate of ordinary income. Ordinary income is income from all sources except those payments that qualify as either exempt lump sums or child support.

Exempt lump sums are defined by their characteristics. They are unlikely to be repeated, they are not expected or anticipated and there is no receipt of money for services rendered directly or indirectly.

Dependent youth, students and apprentices who receive:

• ABSTUDY Living Allowance
• Assistance for Isolated Children Scheme (Additional Boarding Allowance)
• Youth Allowance

If you receive any of these affected payments, your eligibility and rate of payment is partially determined by your parent or guardians’ income. This is known as the parental means test and is based on assessable income for a particular financial year. You will be required to include additional information on reportable superannuation contributions when declaring parental income to Centrelink for the 2009/2010 financial year.

Commonwealth Seniors Health Card (CSHC) holders

You will be required to provide additional information on total net investment losses to satisfy the CSHC income test requirements. Centrelink will write to all CSHC customers after 1 July 2009 to ask if they have income from reportable superannuation contributions or income from total net investment losses.

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What you need to do

From 1 July 2009, changes to the definition of income may affect some Centrelink and Family Assistance Office payments. You must immediately tell Centrelink or the Family Assistance Office if your income or circumstances change if you receive any of the affected payments.

When you next report your income to Centrelink or the Family Assistance Office, you must include reportable superannuation contributions, and total net losses from rental property and financial investments to avoid a debt.

More information

• view Taxable income.
• If you are unsure if these changes apply to you, contact your accountant, financial planner or the Australian Taxation Office.
• Contact Centrelink’s Financial Information Service for information about the changes on 13 2300.
• Call Centrelink or the Family Assistance Office on 13 6150.
• Refer to the Australian Taxation Office website or call the Personal Tax Info Line on 13 2861.
• Visit your nearest Centrelink Customer Service Centre.

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