Carer Allowance (CA) income test – determining reference tax year and assessable income components 009-18082301

Carers are not subject to the income test while they are exempt from providing their income details for the CA income test.

Note: if a carer has been sent a CA income test review, they must be encouraged to complete the review to avoid the cancellation of CA, even when they may be considered exempt from providing their income details.

Is the carer currently exempt from providing income details for the CA income test?

• Yes, procedure ends here.
• No, go to Item 2

Taxable income is included irrespective of whether it is below the tax-free threshold.

For example, a person may have income below the tax-free threshold and not be required to lodge a tax return, but any taxable income they receive during the reference year must be included in their ATI for CA. This includes taxable income from investments such as bank accounts or shares, a small wage or salary, and any taxable payments received from the department etc.

If a person is not required to lodge an income tax return either because their taxable income is below the tax-free threshold or as a result of an Australian Taxation Office (ATO) tax offset and therefore does not have a Notice of Assessment (NOA), they will need to provide a reference year estimate of their income. This must be coded in Process Direct on the Carer Allowance Adjusted Taxable income (CAATI) screen within the Actual ATI table as income type 'not required to lodge' (NRL).

If the reason for not lodging was for another reason, it must be coded as 'not required to lodge'.

When a person has lodged a tax return, they should advise the amount assessed by the ATO. This is the amount we assess as the person's taxable income for CA income test purposes. If a person has accessed superannuation under the First Home Super Saver (FHSS) Scheme these withdrawals will contain some portion that the ATO will determine as taxable and this will be reflected on an individual's NOA. However, for Services Australia purposes, FHSS Scheme withdrawals are not counted towards taxable income. If referring to a person's NOA who has accessed superannuation under this scheme, any taxable income attributed to the FHSS Scheme must be excluded. Advice from the individual on the value to be excluded should be obtained as this detail will not be included on the NOA but is expected to be information the individual has access to from their FHSS Scheme submission and approval paperwork. The Resources page contains examples of taxable incomes.

If a person's taxable income is negative, it is taken to be zero before adding any investment losses and other ATI components.

Total net investment losses are the sum of net financial investment losses and net rental property losses.

The Australian Taxation Office (ATO) allows a person's net rental property and financial investment losses to reduce their taxable income. For CA purposes, these are added back to their taxable income as total net investment losses. By including net investment losses in the ATI for CA, such losses are effectively added back to the person's taxable income.

Note: in determining a person's total net investment losses, the deductions must be those allowed by the ATO. Total net investment losses do not include capital gains or capital losses from financial investments or rental property.

Net financial investment losses are only allowed from shares or investments in managed investment schemes.

See the Resources page for more information about financial investments and an example of how to calculate investment income and capitals gains/losses.

On tax returns: for Total Net Investment Losses, Items IT5 - Net Financial Investment Losses, and IT6 - Net Rental Property Losses.

Income from investments can be offset

For example, a person has two rental properties and one property makes a profit of $3000 and the other property a loss of $4000. The assessable net investment loss would be $1000.

The ATO allows a person to declare a loss as a deduction from their taxable income in certain circumstances, including certain partnership or trust losses. If allowed by the ATO, partnership and trust losses are also allowed as a deduction from taxable income. However, partnership and trust losses are not added back as total net investment losses for CA purposes, although they may appear as total net investment losses in the income tests section on the person's tax return. The carer is advised on the Carer Allowance adjusted taxable income details (SA489) form, in the online claim, and in the CA income review online service not to include these losses as total net investment losses for CA.

This is referred to in the Social Security Act 1991 (section 957B) as 'target foreign income' and is any income:

• earned, derived or received from a source outside Australia, that the person is not required to pay Australian income tax on, and
• that is not in the form of a fringe benefit

Carers should convert their target foreign income into Australian dollars. For CA purposes, the conversion rate is the 'on demand airmail buying rate' available at the Commonwealth Bank of Australia on 1 July for the tax year in which the income was received. The Australian Taxation Office (ATO) applies different rules for conversion into Australian dollars. The ATO conversion rate is generally acceptable for CA if the carer's or the carer's and their partner's combined income is well under the CA income limit.

On tax returns: see Item IT4 - Target Foreign Income.

If a foreign income amount as already been included in an Australian tax return as a result of a double taxation agreement, it is NOT to be counted again as foreign income.

'Blocked' foreign income

If foreign income cannot be accessed in Australia, it is not income for social security purposes.

The Resources page contains examples of situations where people may receive target foreign income.

A benefit an employer provides to, or on behalf of, an employee for the employee's, or in some cases their family's private use. Carers must include the value of employer provided fringe benefits in excess of $1,000 in their Adjusted Taxable Income (ATI).

Some employer provided fringe benefits are not included in this amount. The following are not included in employer provided fringe benefits in excess of $1000 for CA:

• 'exempt reportable fringe benefits' recorded on a person's Payment Summary - these are generally provided by non-profit organisations and receive concessional tax treatment from the Australian Taxation Office (ATO). These fringe benefits are included in adjusted taxable income for family assistance purposes
• fringe benefits that are exempt under Social Security law

On tax returns: see Item W at IT1 - total reportable fringe benefits amounts. However if the person's fringe benefits are under $2000, they are not reportable to the ATO and do not appear on their payment summary or at Item 1. Therefore, when carers or their partners have deducted $1,000 and still declare their fringe benefits to be between $0 and $1000, this cannot be verified from their tax return or payment summary.

The Resources page contains examples of assessable employer provided fringe benefits, and examples of benefits that are exempt.

Reportable superannuation contributions for CA are included in Adjusted Taxable Income (ATI) for CA purposes.

There are two types of reportable superannuation contributions.

Reportable employer superannuation contributions are super contributions that an employer makes on an employee's behalf under a voluntary salary sacrifice arrangement.

Employers must report the total of these contributions on the employee's Payment Summary.

These contributions reduce the person's taxable income and are in addition to the minimum contributions employers must make under one of the following:

• super guarantee law
• an industrial agreement
• the trust deed or governing rules of a super fund
• a federal, state, or territory law

On tax returns: see Item IT2 Reportable Employer Super Contributions

Personal deductible superannuation contributions are contributions a person makes to a superannuation fund, generally from their after tax income or assets, for which they can claim a deduction from their taxable income on their personal tax return. These will typically apply to the self-employed but from 1 July 2017 are not restricted to the self-employed.

On tax returns: see Item D12 Personal Deductible Super Contributions of the Supplementary section.

The following are not reportable superannuation contributions:

• contributions to a superannuation fund made under superannuation guarantee law, an industrial award or the trust deed of a superannuation fund
• contributions made to superannuation under the Australian Taxation Office (ATO) concession - retirement exemption - capital gain tax concession for small business (this would normally occur on the sale of the business)

The Resources page contains examples of reportable superannuation contributions.

For the purposes CA, tax-free government pensions and benefits included in the CA Adjusted Taxable Income (ATI) are defined under family assistance legislation (at Schedule 3 of the A New Tax System (Family Assistance) Act 1999).

The Resources page contains a list of tax-free pensions or benefits that are included in Adjustable Taxable Income (ATI) for the purposes of the CA income test, and non-taxable components that are not included.

This is also known under CA income test legislation as deductible child maintenance expenditure.

The definition used under family assistance legislation (at subclause 8(1) of Schedule 3 of the A New Tax System (Family Assistance) Act 1999) also applies to CA. See Deductible Child Maintenance Expenditure.

The amount of child support paid by the carer or their partner can reduce their Adjusted Taxable Income for CA.

Child support can be paid to another person through a formal or informal agreement and can include:

• cash payments
• non-cash child support (for example, school fees, rent, mortgage payments, clothes)
• capitalised maintenance (lump sum payment, transfer of property)

It is important only to include the expense if the child received some benefit from it.

The full value of the amount of child support paid by a person or their partner to another person can be taken off their income for the CA income test, subject to the following conditions.

For child support to be counted:

• the child needs to be the natural or adopted child of the person paying the child support
• the person receiving the child support cannot be the customer's partner
• the amount of child support to assess is the amount paid during the reference tax year for CA purposes
• any spousal maintenance paid for the other parent of the child is not included

In some cases, only a proportion of the amount paid can be treated as maintenance for the child. For example, if a customer is paying mortgage payments but still has 50% interest in the house, 50% of the total amount paid by the customer can be counted as Deductable Child Maintenance Expenditure (DCME) if it is not being paid as maintenance for the other parent (spousal maintenance).

On tax returns: see Item IT7 - Child support you paid.

Deemed income from account-based income streams is included in the CA income test.

Deemed income is calculated from the recorded current account balance of account-based income streams.

Deeming will only apply to account-based income streams owned by the carer or their partner if the account holder is 60 years of age or more.

The deemed income amount is added to the Adjusted Taxable Income (ATI) amount, and the new combined total is used in the CA income test. Deeming is only applied to account-based income stream(s) and not to any other financial assets the carer or their partner own.

The current account balance is updated automatically for account holders successfully matched as part of the data-matching program with income stream providers.

The deemed income amounts for CA will display in Process Direct, on the Carer Allowance Adjusted Taxable income (CAATI) page in the ATI Summary table.

The ATI Summary table, Deemed Income Amount field is a protected field that cannot be updated manually.

Carers are not subject to the income test while they are exempt from providing their income details for the CA income test.

If a carer has been sent a CA income test review, they must be encouraged to complete the review to avoid the cancellation of CA, even when they may be considered exempt from providing their income details.

Is the carer exempt from providing their income details for the Carer Allowance income test?

• Yes, procedure ends here
• No, go to Step 2

Australian Taxation Office (ATO) triggered reviews are always a review of Adjusted Taxable Income (ATI) using the previous tax year. The year prior to the previous tax year is not used.

Service Officers can view the type of review, that is, ATO triggered or change of circumstance by entering the customer's record in PD and selecting the Transactions icon. The review description will display the type of review.

Is this an ATO-triggered review?

• Yes, the person who lodged a tax return for the previous tax year must provide actual ATI for that year. If they have a partner who also lodged, the partner must also provide actual ATI for the same year. If the partner did not lodge, they should provide an estimate for the same tax year.
  If the ATI of a single carer, or the combined ATI of the carer and their current partner is over the limit, determine if a current year estimate is appropriate. See Table 3
• No, go to Step 3

Is the carer partnered?

• Yes, go to Step 5
• No, go to Step 4

Carers completing a claim or a CA income review (that is not an ATO-triggered review) can select the previous tax year or the year prior to the previous tax year to provide income details. If they have a Tax Notice of Assessment for the previous tax year they should select this year. If they were not required to lodge, they should also select the previous tax year. However it is not mandatory to select the previous tax year.

Did the carer lodge for the selected year?

• Yes, the carer must provide actual details for the selected year using their Tax Notice of Assessment and details from their income tax return. Go to Step 8
• No, the carer should give an estimate for the selected year. Go to Step 7

Carers completing a claim or a CA income review (that is not an ATO-triggered review) can select the previous tax year or the year prior to the previous tax year. Both members of a couple must give ATI details for the same year.

Did both members of the couple lodge an income tax return for the selected year?

• Yes, both the carer and their partner should give actual details for the selected year. Go to Step 8
• No, go to Step 6

Did at least one member of the couple lodge for the selected year?

• Yes, the person who lodged and income tax return should give actual details. If both members of the couple lodged an income tax return for the selected year, they should both give actual ATI details. If only one person lodged for the selected year, the one who did not lodge should estimate their ATO for the same year. Go to Step 8
• No, go to Step 7

If neither member of the couple were required to lodge an income tax return, they should select the previous tax year. However it is not mandatory to select the previous tax year

If neither the carer nor their current partner lodged for the selected year, they should both provide an estimate for the selected year.

Go to Step 8.

Deemed income from any account-based income stream will be added to the person's ATI if the account holder is aged 60 or older. For example:

• if the carer is 60 years of age or older and has an account-based income stream, the deemed income for this account holder will be included in their ATI
• if a person is under 60 years of age and has an account-based income stream, the deemed income for this account holder (if known) will not be included in their ATI

Go to Step 9.

Is the ATI of the carer, or the combined ATI of the carer and their current partner $250,000 or over?

• Yes, go to Step 10
• No, the carer is qualified under the CA income test. The year that the carer provided income details for is the reference tax year. An estimate for the current tax year is not required or used. Procedure ends here

Does the carer indicate their estimate of income for the current year will be higher or the same?

• Yes, go to Step 11
• No, the carer indicates their income for the current year will be lower. See Table 3

The year that the carer provided income details for is the reference tax year. The estimate for current tax year is not required or used.

As the income is too high, the carer is not qualified under the CA income test. The claim will be rejected or CA will be cancelled due to excess income.

If the carer's Adjusted Taxable Income (ATI) (or their and their current partner's combined ATI if they have a partner) was too high for the selected previous year and the carer expects their income for the current tax year to be less, they are asked for the reason.

Carers can select from the following options in the online claim or the online or paper review:

• Retirement or partial retirement from the workforce, closure of a business, or receipt of an inheritance
• Reduced working hours (ongoing) because the care receiver requires more care
• A substantial loss of income caused by a catastrophic event or natural disaster (for example, fire flood, cyclone or COVID-19)
• Substantial one-off costs because of the disability/medical condition of the care-receiver
• Other

Go to Step 2.

For a current year estimate to be accepted, the change of circumstances must meet the acceptable reasons for using a current year estimate for the CA income test.

The reason must be one of the acceptable reasons and the conditions for that reason must be met.

If the carer selects 'Other' as the reason that their income will be lower in the current financial year, it is important to review their explanation to determine if their circumstances fit one of the acceptable reasons and conditions.

The Resources page contains a list of acceptable reasons, conditions and suitable evidence.

Has the carer provided satisfactory proof that their change of circumstances meets the acceptable reasons and conditions?

• Yes, go to Step 3
• No, the current year estimate cannot be accepted. Go to Step 5

Has the event or change of circumstances already occurred?

• Yes, go to Step 4
• No, the current year estimate cannot be accepted; the event or change in circumstances must have occurred and cannot be a future date. Go to Step 5

The same reason for a current year estimate cannot be used twice for 2 consecutive financial years unless the events are shown to be unrelated.

For example, a substantial loss of income caused by a catastrophic event or natural disaster could occur 2 years running for 2 separate unrelated disasters.

If a current year estimate was accepted in the previous financial year for the same reason as the one given for the current year estimate now, the reason can only be accepted again for this financial year if there is no connection between the events.

Check if the last assessed Adjusted Taxable Income (ATI) details were based on an accepted current year estimate. If so, in Process Direct, check the Notes and Other Reason field on the Carer Allowance Adjusted Taxable income (CAATI) screen for the reason a current year estimate was accepted.

Is the reason for this current year estimate unrelated to the current year estimate provided for the previous tax year?

• Yes, the reason can be accepted. In Process Direct, record this income under the 'Current Financial Year Estimate ATI' table on the CAATI screen
• No, the current year estimate cannot be accepted. Go to Step 5

If it is determined the current year estimate cannot be accepted, the carer is currently not qualified for CA due to the CA income test. Call the customer and explain the decision and their review rights. The carer and their partner are not currently qualified for CA at payment level or a Carer Allowance Health Care Card (CA HCC only) for any person they are providing care for. The carer is still eligible for services and supports through the Carer Gateway. The Resources page contains a link to the Carer Gateway and Seniors and Carers Programme - Carer Resources.

Previous year Adjusted Taxable Income (ATI) details and current year estimated income detail must both be recorded on the customer (and partners) record.

If the CA income review was completed online the income type for a current year estimate will default to 'Estimate not accepted' when it is uploaded from an online claim or review. Do not change the income type. If the income review and details are returned via the Carer Allowance adjusted taxable income details (SA489) form, the estimate must be recorded in Process Direct on the Carer Allowance Adjusted Taxable income (CAATI) screen as 'Estimate not accepted'.

When the income type is 'Estimate not accepted' and the income for the past year was too high, the CA claim will be rejected or CA will be cancelled with the reason code Estimated Income Not Accepted (ENA).

Cancellation will apply to all CA entitlements for the carer and their partner.

Go to Step 6.

If a current year estimate is not accepted and a CA claim is rejected or CA is cancelled, the carer will generally need to reclaim after their income tax return(s) for the current financial year have been lodged and assessed.

If the carer or their partner reclaim CA in the same financial year that CA was previously rejected or cancelled because their estimate was not accepted, consider the additional evidence carefully to decide if the same estimate can now be accepted. For example, if the estimated amount for the current year was not reasonable, the amount would generally need to be changed.