The differing definitions of income

Many of us give very little thought to the intricacies of our income. We think of our income as the money that comes into our bank account that we then spend on groceries, petrol, paying the mortgage and enjoying life. However, when it comes to assessing eligibility for Centrelink benefits or assessment for tax or tax benefits, the federal government takes a much more convoluted view.

The federal government’s aim is admirable in theory. They want to ensure that benefits are paid to the people who need support and they want to prevent benefits going to higher income earners whom they believe should be self sufficient. In practice, however, it is much harder to implement.

The definition of income varies depending on what benefit, tax or tax concession applied. It could be based on:

  • assessable income (your total income before tax deductions) or taxable income
  • reportable fringe benefits (non-cash benefits over $2,000 provided by employers)
  • net rental investment property losses
  • reportable superannuation contributions (see definition below)
  • income paid from a tax-free superannuation pension
  • net losses incurred on non-property investments

The following examples show how complex the definition has become.

Commonwealth Seniors Health Card (CSHC)

Holders of the CSHC can receive prescription medicines at concessional rates. To qualify you must be of age pension age and have an income below $82,400 for couples or $51,500 for singles. Income is defined as taxable income (including account based pensions) plus reportable fringe benefits and net rental property losses.

Superannuation co-contributions

Employees can make a personal contribution and receive a co-contribution of up to $500 from the government per year. To receive the maximum benefit, your income must be below $34,488 and the co-contribution phases out when your income reaches $49,488. Income is defined as assessable income plus reportable fringe benefits and includes salary sacrificed superannuation contributions.

Family Tax Benefits (FTB)

These payments support sole parents and families with young children. Family Tax Benefit A is based on the total family income and Family Tax Benefit B is based on the income of the lower earner. Income is defined as taxable income plus reportable fringe benefits, net property investment losses and salary-sacrificed contributions.

Reportable Superannuation Contributions

Reportable superannuation contributions are discretionary or voluntary contributions. They can also be referred to as concessional or before tax contributions. They include:

  • reportable employer superannuation contributions, such as voluntary salary-sacrificed contributions. These contributions are in addition to those required by law, such as those included in industrial awards or by the superannuation guarantee levy, and
  • personal deductible superannuation contributions, if they can be claimed as a tax deduction on a personal tax return.

Note: Post-tax contributions to superannuation are not reportable superannuation contributions.

If you’re not sure how you’re affected by income means testing, give us a call and we’ll go through it with you.