4.2.8.10 Dependent YA - Parental Income Test & Limits

Summary

This topic covers the following matters:

• exemptions from the parental income test (1.1.P.40),
• general provisions for the parental income test,
• income assessed under the parental income test,
• parental income test, and
• parental income free area (1.1.P.30).

Exemptions from the parental income test

The parental income test does NOT apply to parents (section 5(1)-'parent') who:

• receive an income support payment, OR
• are taken to be receiving (1.1.R.55) their social security pension or benefit during an employment income nil rate period, OR
• receive payment under Part 5 or 6 of the Farm Household Support Act 1992, OR
• have a LIC, OR
• receive ABSTUDY (living allowance).

Act reference: SSAct section 5(1)-'parent', section 1067G-F3 Parent receiving Commonwealth benefit, section 1067G Module L Table of pensions, benefits, allowances and compensation, section 23(4A) Despite subsection (4)…, section 23(4AA) For the purposes of subsection (4A)…

Policy reference: SS Guide 3.1.12 Employment Income Nil Rate Period

General provisions for the parental income test

The parental income test is applied to the combined income of the parent/s with whom the dependent YA claimant/recipient normally lives.

If the dependent YA claimant/recipient normally lives with a parent, and that parent has re-partnered, the partner's (1.1.P.70) income is included in the combined parental income.

In shared care situations, and when parents are separated under the same roof, a dependent YA claimant/recipient (1.1.D.100) nominates the parent with primary care responsibility.

If the YA claimant/recipient does NOT normally live with either parent and the parents are separated, the income of the parent with whom the YA claimant/recipient LAST lived is assessed. If that parent has re-partnered, the partner's (1.1.P.70) income is NOT included in the combined parental income, as the YA claimant/recipient does not normally live with the parent and the parent's partner.

Act reference: SSAct section 5(1)-'parent'

Income assessed under the parental income test

Income assessed under the parental income test is combined parental income in the appropriate tax year (1.1.A.170), usually the base tax year (1.1.B.10). Current year assessments can be used when:

• the family's income is substantially less in the current tax year than in the base tax year, and
• the decrease is likely to apply for AT LEAST 2 years from the date on which the event which led to the decrease occurred or first became apparent.

The current tax year for YA purposes is only the base tax year plus one. The tax year immediately following the base tax year can only be used for current year assessments. The concept of what constitutes a 'substantially less income' is flexible. If an applicant's income has, or will, decrease enough for them to get YA, the decrease may be accepted as substantial.

The components of parental income are:

• taxable income (section 23(1)-'taxable income'), plus
• adjusted employer provided benefits (1.1.E.90) for the relevant tax year, plus
• target foreign income (1.1.F.160) based on the relevant Australian tax year, plus
• total net investment losses (1.1.T.105) or net passive business losses, plus
• reportable superannuation contributions for the appropriate tax year (within the meaning of the Income Tax Assessment Act 1997), plus
• maintenance received by either parent for the upkeep of a child in care, and spousal maintenance, less
• maintenance amounts paid out.

Note: In 2010, 'total net investment losses' and 'reportable superannuation contributions' will apply as components of parental income for all current tax year assessments. 'Net passive business losses' will continue to be included as a component of parental income for all base tax year assessments until 2011. From 2011, total net investment losses and reportable superannuation contributions will form part of the parental income test for both current and base tax year assessments.

For the purposes of YA, a parent's taxable income for a tax year is the parent's assessed taxable income for that year, which can be verified with an original or copy of the parent's taxation assessment made by the Commissioner of Taxation or amended by a Tribunal or Court.

If the parent does not have an assessed taxable income for that year, the accepted estimate of taxable income for that year may be used, e.g. a copy of income tax return as lodged with the ATO.

For the purposes of YA, a parent's taxable income must be a positive figure or $0. It cannot be a negative figure even where a person's taxable income is a taxable loss.

Act reference: SSAct section 23(1)-'taxable income', section 1067G-F4 to F9 Appropriate tax year,section 1067G-F10 Combined parental income, section 1067G-F12 Assessed taxable income, section 1067G-F13 Accepted estimate

Policy reference: SS Guide 1.1.P.50 Parental means test (YA)

Parental income test

The following table shows the steps involved in applying the parental income test.

Act reference: SSAct section 1067G-F1 Effect of parental income on maximum payment rate

Parental income test reduction amount

The following table shows the steps involved in calculating the parental income test reduction amount.

Parental income free area

The parental free income area is the amount of income the parent (section 5(1)-'parent') can have without affecting the YA recipient's rate (1.1.P.30). If the parent's income is ABOVE the parental income free area, the YA recipient's rate is reduced.

Every $1.00 of parental income above the parental income free area reduces the rate of YA by $0.20. Where there is more than one dependent young person receiving YA (or ABSTUDY living allowance, ABSTUDY Group 2 school fees allowance (means tested component), AIC - additional boarding allowance in the family, the reduction in rate (including a reduction in rate due to the operation of the FAMT) is apportioned between the dependent young people. The relevant parental income tested payments are YA, ABSTUDY living allowance, ABSTUDY Group 2 school fees allowance (means-tested component) and AIC - additional boarding allowance.

Act reference: SSAct section 5(1)-'parent', section 1067G-F22 Parental income free area,section 1067G-F25 Parents paying maintenance, section 1067G-F26 to F30 Reduction for parental income,section 1067G module L Table of pensions, benefits, allowances and compensation

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Last reviewed: 3 January 2012