Number 14: Taxation, social security and family assistance for 2001-02

Introduction

This FaCS Sheet provides a guide to the taxation treatment of social security and family assistance payments. It describes which social security payments are to be included in an individual's taxable income (see Table 1), the various types of tax offsets and other forms of tax relief available to individuals to offset their tax liability, and the circumstances in which the Medicare levy must be paid. Income tax rates are listed in Table 2.


Table 1: Taxable and non-taxable social security payments
These payments are taxable: These payments are not taxable:
  • Age Pension
  • Austudy
  • Bereavement Allowance
  • Carer Payment (only if either the carer or the person being cared for is of Age Pension age)
  • Disability Support Pension (only if the recipient is of Age Pension age)
  • Education Entry Payment
  • Exceptional Circumstances Relief Payment, Restart Income Support or Farm Household Support - by way of grant of financial assistance (formerly drought relief payments)
  • Mature Age Allowance
  • Newstart Allowance
  • Parenting Payment
  • Partner Allowance
  • Sickness Allowance
  • Special Benefit
  • Widow Allowance
  • Widow Pension (class B)
  • Wife Pension (if either the taxpayer or partner is of Age Pension age)
  • Youth Allowance
  • Aged Person Savings Bonus
  • Carer Payment (if both carer and the person being cared for are under Age Pension age)
  • Carer Allowance
  • Disability Support Pension (for those recipients below Age Pension age)
  • Disaster Relief Payments
  • Double Orphan Pension
  • Employment Entry Payment
  • Family Tax Benefit
  • Incentive Allowance
  • Large Family Supplement
  • Maternity Allowance
  • Maternity Immunisation Allowance
  • Mobility Allowance
  • Multiple Birth Allowance
  • One-off Payment to the Aged
  • Pension Bonus Scheme
  • Pensioner Education Supplement
  • Pharmaceutical Allowance
  • Self-funded Retirees Supplementary Bonus
  • Remote Area Allowance (however, any income tax zone tax offset will be reduced by the amount of the allowance paid)
  • Rent Assistance
  • Telephone Allowance
  • Wife Pension (if both the pensioner and partner are below Age Pension age)

Table 2: Income tax rates for 2001–02 (excluding Medicare levy)
Taxable income Tax on taxable income

$0–6 000
$6 001–20 000
$20 001–50 000
$50 001–60 000
$60 001 and over

Nil
Nil plus 17c for each $1 over $6 000
$2 380 plus 30c for each $1 over $20 000
$11 380 plus 42c for each $1 over $50 000
$15 580 plus 47c for each $1 over $60 000

Note:
Taxable income is assessable income less allowable deductions. Assessable income includes income from all sources, including taxable social security payments. Examples of assessable income include superannuation pensions, business income, income from employment, interest and dividends.

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Family Tax Benefit

Family Tax Benefit (FTB) was introduced in July 2000 as part of A New Tax System. FTB is made up of FTB Part A and FTB Part B.

FTB Part A helps families with the cost of raising children. FTB Part B provides extra help for families with one main income, including sole parents. It also gives extra assistance to families who have a child under the age of five years. Families have two choices in the way they claim their FTB:

  1. through the Family Assistance Office as either:
    • a fortnightly payment directly into their banking account or
    • a lump sum after the end of the financial year1
  2. as a lump sum through the tax system when they lodge a tax return:
    • in addition, a family can anticipate the end-of-year tax claim through reduced Pay As You Go (PAYG) taxation withholdings from their wages, by providing their employer with a withholding declaration. They would also need to lodge an FTB tax claim with their tax return.

For a full description of rates and income limits see A Guide to Commonwealth Government Payments for 20 March to 30 June 2002 and the Family Assistance Office booklet Your Family's Guide to our Services or visit the website at www.familyassist.gov.au.

Tax offsets (formerly called tax rebates)

Beneficiary tax offset

The beneficiary tax offset is generally available to recipients of taxable social security payments that are not pensions. The benefits included are Widow Allowance, Newstart Allowance, Mature Age Allowance (granted after 1 July 1996), Sickness Allowance, Special Benefit, Partner Allowance, Youth Allowance, Austudy and Parenting Payment (partnered). The tax offset is calculated using the following formula:

  • (i) if the person's benefit amount is not more than $20 000:
    Beneficiary tax offset = 0.17 x (amount of benefit or allowance received – tax free threshold)
     
  • (ii) if the person's benefit amount is more than $20 000:
    Beneficiary tax offset = (the same formula as above) PLUS 0.13 x (amount of benefit or allowance received – $20 000)

If the amount of benefit/allowance received in the financial year is less than the tax free threshold then no beneficiary tax offset is available.

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Senior Australians tax offset

The Senior Australians tax offset is available to eligible people who satisfy four conditions:

  1. On 30 June 2002 they must be:
    • aged 65 years or more for men and aged 62 years or more for women (Age Pension age for women is being progressively increased for women so that it will be 65 in 2014), or
    • for male veterans or war widowers, aged 60 years or more and for female veterans or war widows, aged 57 years or more.
  2. They must be eligible to receive a Commonwealth of Australia age pension or similar payment from Department of Veteran Affairs, regardless of whether they actually receive a payment.
  3. The must not be in prison for the whole of the income year.
  4. They must satisfy the threshold that applies to them:
    • for a single person their taxable income is less than $37 840
    • for a member of a couple their combined taxable income is less than $58 244 or less than $70 404 if the couple is separated due to illness.

Table 3: Senior Australians tax offset ($ per annum)
  Maximum tax offset amount Shade-out threshold (a) Taxable income above which tax becomes payable Cut-out threshold (b)
Single Couple (c) 2 230 20 000 20 000 37 840
General 1 602 16 306 16 306 29 122
Living apart due to illness or infirmity 2 040 18 883 18 883 35 203

Notes:

  • (a) The shade-out threshold is the maximum taxable income at which a person entitled to the Senior Australians tax offset receives the maximum tax offset amount. The tax offset reduces by 12.5 cents for each dollar of taxable income in excess of the shadeout threshold. The Senior Australians tax offset shade-out threshold also allows for the low-income tax offset.
  • (b) The cut-out threshold is the level of taxable income where the Senior Australians tax offset is reduced to nil.
  • (c) Any unused portion of the Senior Australians tax offset of a partnered person can be transferred to his or her partner if they are eligible for Senior Australians tax offset or pensioner tax offset.

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Pensioner tax offset

The pensioner tax offset is available to people who receive Commonwealth Government pensions or allowances and who are not eligible to receive the Senior Australians tax offset because they have not met all four of the eligibility conditions. For example, they have not reached Age Pension age within the meaning of the Social Security Act 1991. The pensioner tax offset does not apply to pensions that are not taxable.


Table 4: Pensioner tax offset (generally for pensioners under Age Pension age) ($ per annum)
  Maximum tax offset amount Shade-out threshold (a) Taxable income above which tax becomes payable(b) Cut-out threshold (c)
Single Couple (d) 1 710 16 059 16 567 29 739
General 1 245 13 324 13 832 23 284
Living apart due to illness or infirmity(e) 1 573 15 253 15 761 27 837

Notes:

  • (a) The shade-out threshold is the maximum taxable income at which pensioners eligible for the pensioner tax offset will receive the maximum tax offset amount. The tax offset reduces by 12.5 cents for each dollar of taxable income in excess of the shadeout threshold. The pensioner tax offset shade-out threshold does not allow for the low-income tax offset.
  • (b) These figures show the taxable income above which tax liability exceeds the sum of the pensioner and low-income tax offset.
  • (c) The cut-out threshold is the level of taxable income where the pensioner tax offset is reduced to nil.
  • (d) Any unused portion of the pensioner tax offset of a partnered pensioner can be transferred to his or her partner if they are eligible for the pensioner tax offset or Senior Australians tax offset.
  • (e) Pensioner couples separated because of illness receive the (higher) single rate of payment but the same income test free area as other pensioner couples. Therefore, the tax offset level for this category is higher than the level for pensioner couples not separated because of illness but lower than that for single pensioners.

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Personal tax offsets

Some recipients of social security payments are eligible for certain personal tax offsets in addition to the previously mentioned tax offsets (see Table 6). Eligibility for personal tax offsets and the amount of tax offset actually received depend on individual circumstances (for example, if you receive Family Tax Benefits you will not be eligible for some tax offsets) and the amount of separate net income received by your dependants during the income year.


Table 5: Personal tax offsets also available to eligible recipients of social security payments ($ per annum)
Tax offset type Maximum tax offset amount Taxable income above which tax becomes payable (a)
Dependent spouse (legal/de facto)
With no dependent child/student 1 437 (b) 14 453
Child-housekeeper
With no dependent child/student 1 437 (b) 14 453
With dependent child/student 1 724 (c) 16 141
Housekeeper caring for taxpayer's child, spouse receiving Disability Support Pension (legal/de facto) or relative
With no dependent child/student 1 437 (b) 14 453
With dependent child/student (c) 1 724 (b) 16 141
Invalid relative 647 (b) 9 806
Parent/parent-in-law (including parent of de facto spouse) 1 292 (b) 13 600
Low income 150 (d) 6 882

Notes:

  • (a) The taxable income at which tax becomes payable refers to individual tax offsets in a particular row only, not to the combination of tax offsets that may be available. For instance, a recipient of Parenting Payment (single) may be entitled to claim a pensioner tax offset and a low-income tax offset, which would result in a higher income tax threshold (see Table 5, especially note (b)
  • (b) Reduced by $1 for every $4 of the separate net income of the dependant that exceeds $282.
  • (c) Entitlement to the spouse or child-housekeeper tax offset is denied or reduced for periods when the taxpayer or the taxpayer's spouse is eligible for Family Tax Benefit Part B.
  • (d) Reduced by 4 cents for every dollar of taxable income in excess of $20 700.

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Medicare levy

The Medicare levy for 2001-02 is 1.5 per cent of your taxable income. In some circumstances the Medicare levy may be reduced or a person may be entitled to a full or partial exemption from the levy. The Medicare levy is not payable where taxable income is less than the Medicare levy thresholds (see Table 7).


Table 6: Medicare levy thresholds ($ per annum)
Individuals eligible for Senior Australians tax offset (a)      20 000
Individuals eligible for pensioner tax offset (b) 16 570
Other individuals 14 539
Couple or sole parent eligible for Senior Australians tax offset 31 729
     for each dependent child/student add 2 253
Other couples or sole parent 24 534
     for each dependent child/student add 2 253

Notes:

  • (a) refer to page 2 for explanation of persons eligible for Senior Australians tax offset.
  • (b) refer to page 3 for explanation of persons eligible for pensioner tax offset.

The levy is phased in at the rate of 20 per cent of taxable income above the relevant threshold until the amount of the levy reaches 1.5 per cent of all taxable income. Full or partial exemption from the levy may be given to blind pensioners and recipients of Sickness Allowance for periods in which they were in receipt of the pension or allowance. An additional surcharge of 1 per cent applies to high-income earners who have not taken out private health insurance (singles without dependants earning $50 000 or more a year and couples or singles with dependants earning $100 000 or more a year, plus an additional $1 500 for each dependent child after the first).


This FaCS Sheet is produced at the end of each financial year. The next Taxation social security and family assistance FaCS Sheet for 2002-03 will be available mid-2003.

This FaCS Sheet was prepared by the Modelling and Indexation Section.

Inquiries relating to income and deductions, taxation rates, tax offsets and the Medicare levy should be directed to the Australian Taxation Office by phoning the Personal Tax InfoLine on 13 28 61 or visiting our website, ATOassist at www.ato.gov.au.

Inquiries relating to social security payments should be directed to your nearest Centrelink office.

Inquiries relating to family assistance should be directed to your nearest Family Assistance Office.

Content inquiries should be directed to:

Hanna Andreas-Ozdowska by email at Hanna.Andreas.Ozdowska@facs.gov.au or by fax at (02) 6244 5912.

Editorial inquiries should be directed to:

The Publications Editor by email at publications.research@facs.gov.au or by fax at (02) 6244 7020.

Research Communication and Coordination Section
Strategic Policy and Analysis Branch
Department of Family and Community Services
Box 7788
Canberra Mail Centre ACT 2610

  1. Your Family’s Guide to Our Services has information on how to claim a lump sum through the Family Assistance Office.

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