Notional income on unrealisable assets 108-04120070

All property disregarded under the hardship provisions (except household contents, personal effects, motor vehicles) will be deemed to produce income which is the lesser of:

• 2.5% of the value of the property, or
• the amount that could reasonably be obtained by commercial application of the property (the commercial lease value, which will generally be the net market rental value)

Any income the customer receives from the property is deducted from this deemed amount. This is the net income after expenses.

In these situations, where required, an approved valuer will assess the commercial lease value.

For new claims, a valuation must be requested if the property has not been valued, including NVE, IDX, ONS or VAL, within the last 12 months.

A valuation of the Commercial Lease Value is also needed.

See Valuation of real estate and other assets.

Where more than one item of property is being disregarded, the comparison of 2.5% of the value of the property and the commercial lease value of that property must be done separately for each item of property being disregarded.

If the property is rented on the open market, it can be accepted that the commercial lease value is equal to the actual income received.

If the property does not have a commercial lease value, then notional income cannot be assessed.

If the disregarded asset is:

• a non-farm property jointly owned with a separated partner, or occupied by a separated partner, see Item 2
• a non-farm property jointly owned with a third party, see Item 3
• a non-farm property occupied by a close relative or a long-term tenant with a low income, see Item 4
• a farm property where the farm is being operated by:
  • a family member, see Item 5
  • the customer, see Item 6
• a property that is not occupied, or occupied by a third party, see Item 7
• not real estate, see Item 8
• is an asset disposed of after 1 June 1984, see Item 9

If the former partner does not occupy the property, notional income will be the lesser of:

• 2.5% of the value of the customer’s interest in the property, or
• the customer’s share of the commercial lease value (net market rental value)

Note: Where the unrealisable asset is a property occupied by a near relative or a long-term tenant with a low income, the commercial lease value is calculated as 20% of the total income of the occupant and other adults residing at the property. For further information see Item 4

If the former partner lives in the property, refuses to pay rent and there is no pending property settlement, notional income will be the lesser of:

• 2.5% of the value of the customer’s interest in the property, or
• the customer’s share of the commercial lease value (net market rental value)

Where there is a pending property settlement and the non-occupier can show they are unable to collect rent from the occupier, no notional income should be considered. Clear evidence will be required to support this.

The exception to this is properties with excess curtilage. Where the non-occupier is unable to collect rent from the occupier, notional income would still be assessed for the excess curtilage but not for the house and curtilage.

If a customer owns a property jointly with another person and that other person lives in the property, there is no notional income assessed where the other owner refuses to pay rent.

The exception to this is where the property has excess curtilage. While no notional income would be assessed on the home and curtilage, it would be assessed for the excess curtilage.

If the other owner does not live in the property, notional income is assessed as the lower of:

• 2.5% of the value of the customer's interest in the property
• the customer's share of the commercial lease value (net market rental value)

Note: Where the unrealisable asset is a property occupied by a near relative or a long-term tenant with a low income, the commercial lease value is calculated as 20% of the total income of the occupant and other adults residing at the property. For further information see Item 4.

If the property is occupied by a close relative, or a long-term tenant with a low income, then the notional income is the lesser of:

• 2.5% of the value of the customer's interest in the property, or
• The customer's share of 20% of the total income of the occupant and other adults residing at the property. Total income consists of all income of the occupants. This includes all Centrelink income support payments (including Supplements such as Rent Assistance), as well as all other non-income support payments such as Mobility Allowance, Carer Allowance, Pensioner Education Supplement and Family Tax Benefit Part A and B

Any income the customer receives from the property is deducted from this deemed amount.

The customer must provide proof of the income of all occupants of the property. If the occupants are in receipt of income support payments, the occupants can provide written authority to access their Centrelink record to obtain their income details.

If proof of income cannot be obtained, then the notional income is the lesser of:

• 2.5% of the value of the property, or
• the amount that could reasonably be obtained by commercial application of the property (the commercial lease value, which will generally be the net market rental value)

Notional income for a person’s farm that is an unrealisable asset and is being operated by a family member, is the lower of:

• 2.5% of the customer's share of the net value of the farm
• the customer's share of the farm’s commercial lease value
• the customer's share of half of the amount of income of the family member (and partner) in excess of the Family Tax Benefit (FTB) Part A income free area applicable

If the family member has no children, the applicable additional family payment income free area is taken to be the FTB Part A income free area. This is indexed on 1 July every year.

For FTB Part A income free area, see the Family Tax Benefit (FTB) Part A – income test (pa) link on the Rates and Threshold page.

If the customer received any income from the use of the farm, the income is deducted from the reasonable rent. If the income received exceeds the reasonable rent, the income is considered and no notional income is taken into account.

If the customer is living on the property, the net value of disregarded assets does not include the home, private land or any area exempt under the extended land use test.

See Resources page for examples of calculations of notional income where a family member operates the farm.

If the customer or partner are working the property to its full capacity, no notional income is assessed. Only the actual income derived from the property is considered. The customer or partner can still run the farm solely if they employ someone to help them run the farm.

If they employ someone to run the farm (for example, farm manager), then the farm is to be assessed as being run by other than a family member for notional income calculation purposes.

If the property is not being worked to its full capacity it may be reasonable to expect part of the property to be leased. The rationale is that a customer is expected to draw on his or her own resources before turning to the community for support.

If it is considered reasonable for part of the farm to be leased out, a valuation of the commercial lease value needs to be obtained from an approved valuer. Generally, it is accepted that a customer is working the farm to its full capacity where there has been no significant reduction in the number of livestock, volume of crops etc.

A property that is not occupied, such as a holiday home, or a property that is on the market, or is occupied by a third party will have notional income assessed as the lower of:

• 2.5% of the value of the customer's interest in the property, or
• the customer's share of the commercial lease value (net market rental value)

If the property is rented on the open market, it can be accepted that the commercial lease value is equal to the actual income received.

A property that is vacant and under contract, cannot be leased, so no notional income is to be assessed during the settlement period. A copy of the contract must be provided.

If a commercial lease value of disregarded property does not exist, no notional income can be assessed.

Such assets include most types of livestock, private company shares which are unable to be sold, loans owed to the customer unable to be repaid (not failed loans) and the surrender value of a life insurance policy.

No notional income can be assessed as the zero commercial lease value is less than 2.5% of the net market value of that property.

The notional income rule applies to assets disposed of on or after 1 June 1984 where a delegate has disregarded the application of the disposition provisions.

In these cases, notional income is assessed as if the asset were still in the customer's possession.

See References page for a link to legislation.