Explanatory Memorandum
(Circulated by the authority of the Minister for Families, Housing, Community Services and Indigenous Affairs, the Hon Jenny Macklin MP)Schedule 1 - Work bonus
Summary
As one of its election commitments, the Government committed to expanding the existing seniors' work bonus, which was introduced in September 2009 as part of its Secure and Sustainable Pension Reform package, to increase incentives for age pension recipients, and veterans' affairs income support pensioners of qualifying age, who work. This Schedule extends the existing work bonus to enable older pensioners who take up paid work, including occasional or variable work, to keep more of their pension when they are working.
Background
The current work bonus was introduced as part of the Secure and Sustainable Pension Reform package. It provides an incentive for pensioners of age pension age, and veterans' affairs income support pensioners of qualifying age, who wish to continue in employment, including occasional employment. The new measure will further increase the incentives for older pensioners to undertake paid work.
Section 1073AA in Division 1AAA of Part 3.10 of the Social Security Act, and Division 1A of Part IIIB of the Veterans' Entitlements Act, set out the current work bonus provisions. These provisions allow for a certain amount of employment income that is earned, derived or received in an instalment period by a person, who is of age pension age or qualifying age, and is in receipt of a rate of social security pension determined under Pension Rate Calculator A or Pension Rate Calculator C or an income support pension under the Veterans' Entitlements Act, to be disregarded for the purposes of the ordinary income test.
Currently, for an instalment period of 14 days, if a person earns $500 or more, the disregarded amount is $250. Where a person earns less than $500 in a 14-day instalment period, the amount of disregarded income is half of the employment income earned. A proportional rule applies to instalment periods of less than 14 days.
The new, expanded, seniors' work bonus enables pensioners over age pension age or qualifying age to keep more of their pension when they are working. This mechanism supports those pensioners of age pension age or qualifying age who wish to undertake some paid work to supplement their pension.
The amendments contained in this Schedule have two main components:
- (i)
- the first $250 of employment income a fortnight (rather than 50 per cent of the first $500, as it is currently) is excluded from assessment under the income test for pensioners of age pension age or qualifying age; and
- (ii)
- an employment income concession bank is introduced, to enable pensioners to accrue any unused amounts of the $250 fortnightly exemption, to a maximum of $6,500; any credit in this 'bank' could then offset employment income that would otherwise be assessable in the future.
The proposed employment income concession bank would operate at an individual level. For couples, the amount of one partner's assessable income reduced by the work bonus will be combined with the other partner's income (if any) for pension assessment purposes in the same way that the work bonus currently operates, and thereby benefits both partners.
The amendments contained in this Schedule, other than items 3 and 8 , commence on 1 July 2011 and apply in relation to an instalment period that includes 1 July 2011 and later instalment periods. Items 3 and 8 of this Schedule commence on the later of 1 July 2011 or immediately after the commencement of Schedule 6 to the Families, Housing, Community Services and Indigenous Affairs and Other Legislation Amendment (Budget and Other Measures) Act 2011 .
Explanation of the changes
Amendments to the Social Security Act
Item 1 repeals subsections 1073AA(2) and (3) of the Social Security Act, which currently provide rules for working out how much employment income can be disregarded by the ordinary income tests in Pension Rate Calculators A and C. This item also inserts new subsections 1073AA(2) to (4C).
New subsection 1073AA(2) applies where a person's employment income for an instalment period is greater than or equal to the income concession amount, as defined in new subsection 1073AA(4C). In these circumstances, the person's employment income for that period is reduced by the income concession amount for the purposes of the ordinary income test in the relevant rate calculator.
The following two examples are provided at the end of subsection 1073AA(2):
Example 1:
David earns $2,250 of employment income in an instalment period of 14 days. David's rate of social security pension for that period is greater than nil.
David's employment income for that period is reduced by $250, leaving David $2,000 of employment income for that period.
Example 2:
Amy earns $1,000 of employment income in an instalment period of 14 days. Amy's rate of social security pension for that period is greater than nil.
Amy's employment income for that period is reduced by $250, leaving Amy $750 of employment income for that period.
New subsection 1073AA(3) applies where a person's unused concession balance, as defined in new section 1073AB (inserted by item 4 ), is greater than or equal to the amount of the person's employment income remaining after applying subsection (2) (the current amount ) for the instalment period. In these circumstances, the person's employment income for that period is reduced to nil and, provided that the person's social security pension is payable to them for that instalment period, the person's unused concession balance is reduced by an amount equal to the current amount.
The following two examples are provided at the end of subsection 1073AA(3):
Example 1:
To continue example 1 in subsection (2), assume David's unused concession balance is $2,000. The current amount is $2,000.
David's employment income for that period is further reduced to nil.
David's unused concession balance is now nil.
Example 2:
To continue example 2 in subsection (2), assume Amy's unused concession balance is $1,600. The current amount is $750.
Amy's employment income for that period is further reduced to nil.
Amy's unused concession balance is now $850.
New subsection 1073AA(4) applies where the person's unused concession balance is greater than nil but less than the current amount of the person's employment income after applying subsection (2). In these circumstances, the person's employment income is further reduced by an amount equal to the unused concession balance and, provided that the person's social security pension is payable to them for that instalment period, the person's unused concession balance is reduced to nil.
The following example is provided at the end of subsection 1073AA(4):
Example:
Bill earns $1,250 of employment income in an instalment period of 14 days. Bill's rate of social security pension for that period is greater than nil.
Under subsection (2), Bill's employment income for that period is reduced by $250, leaving Bill $1,000 of employment income for that period.
Assume Bill's unused concession balance is $800.
Under subsection (4), Bill's employment income for that period is further reduced by $800 leaving Bill $200 of employment income for that period.
Bill's unused concession balance is now nil.
New subsection 1073AA(4A) applies where the person's employment income for a period is less than the income concession amount. In these circumstances, the person's employment income is reduced to nil and, provided that the person's social security pension is payable to them for that instalment period, the person's unused concession balance will be increased by an amount equal to the difference between the income concession amount and the amount of the employment income.
The following example is provided at the end of subsection 1073AA(4A):
Example:
Emma earns $100 of employment income in an instalment period of 14 days. Emma's rate of social security pension for that period is greater than nil.
Emma's employment income for that period is reduced to nil.
Emma's unused concession balance is increased by $150.
New subsection 1073AA(4B) provides that, where a person has zero employment income for an instalment period and the person's social security pension is payable to them, the person's employment income bank balance is increased by the income concession amount.
New subsection 1073AA(4C) defines the income concession amount as $250 where the instalment period is 14 days. Where the instalment period is less than 14 days, the income concession amount is calculated on a pro-rata basis using the formula provided.
Item 2 repeals the examples at the end of subsection 1073AA(6).
Item 3 repeals subsection 1073AA(8), which is to be inserted by the Families, Housing, Community Services and Indigenous Affairs and Other Legislation Amendment (Budget and Other Measures) Act 2011 , and substitutes new subsection 1073AA(8), which deals with how the rate calculators, in particular, the modules relating to a couple's ordinary income, interact with section 1073AA, where one member of the couple is in receipt of a payment from the Department of Veterans' Affairs.
New subsection 1073AA(8) is inserted to clarify that, where one member of a couple has the benefit of any income reduction under the Veterans' Entitlements Act, then that reduction is to be taken into consideration when determining that person's partner's ordinary income under point 1064-E2 of the rate calculator at the end of section 1064 of the Social Security Act (Pension Rate Calculator A) or under point 1066-E2 of the rate calculator at the end of section 1066 of that Act (Pension Rate Calculator C).
This item commences either on 1 July 2011 or immediately after Schedule 6 to the Families, Housing, Community Services and Indigenous Affairs and Other Legislation Amendment (Budget and Other Measures) Act 2011 , whichever occurs later. However, the provision will not commence if Schedule 6 to the Families, Housing, Community Services and Indigenous Affairs and Other Legislation Amendment (Budget and Other Measures) Act 2011 does not commence.
Item 4 inserts new section 1073AB at the end of Division 1AAA of Part 3.10 to define the term 'unused concession balance'.
New subsection 1073AB(1) provides that, on the first day the work bonus provisions apply to a person, the person is taken to have an unused concession balance of zero on that day.
Subsection 1073AB(2) provides that the maximum unused concession balance for a person is $6,500. At the end of this subsection, the following example is used to illustrate how the balance is capped at $6,500:
Example:
John has an unused concession balance of $6,400. John earns $50 of employment income in an instalment period of 14 days.
Instead of John's unused concession balance increasing to $6,600 under subsection 1073AA(4A), John's unused concession balance increases to $6,500.
New subsection 1073AB(3) provides that, if a person stops receiving one of the social security pensions referred to in paragraph 1073AA(1)(a), the person's unused concession balance will be retained.
The note at the end of new subsection 1073AB(3) confirms for the reader that, if the work bonus provisions apply to the person again, the person's unused concession balance will be that retained balance.
Item 5 is an application provision. The amendments in this Schedule, other than item 3 , apply in relation to an instalment period that includes 1 July 2011 and later instalments periods. The commencement date for item 3 is set out above.
Amendments to the Veterans' Entitlements Act
Item 6 repeals subsections 46AA(2) to (4) of the Veterans' Entitlements Act, which currently provide rules for working out how much employment income can be disregarded by the ordinary/adjusted income test in the Pension Rate Calculator. It inserts new subsections (2) to (4C).
New subsection 46AA(2) applies where a person's employment income for a pension period is greater than or equal to the income concession amount, as defined in subsection 46AA(4C). In those circumstances, the person's employment income for that period is reduced by the income concession amount for the purposes of the ordinary/adjusted income test in the Rate Calculator.
The following two examples are provided at the end of subsection 46AA(2):
Example 1:
David earns $2,250 of employment income in a pension period. David's rate of service pension or income support supplement for that period is greater than nil.
David's employment income for that period is reduced by $250, leaving David $2,000 of employment income for that period.
Example 2:
Amy earns $1,000 of employment income in a pension period. Amy's rate of service pension or income support supplement for that period is greater than nil.
Amy's employment income for that period is reduced by $250, leaving Amy $750 of employment income for that period.
New subsection 46AA(3) applies where a person's unused concession balance as defined in new section 46AC (inserted by item 10 below) is greater than or equal to the amount of the person's employment income that remains after applying subsection (2) (the current amount ) for the pension period. In these circumstances, the person's employment income for that period is reduced to nil and, provided service pension or income support supplement is payable for the pension period, the person's unused concession balance is reduced by an amount equal to the current amount.
The following two examples are provided at the end of this subsection:
Example 1:
To continue example 1 in subsection (2), assume David's unused concession balance is $2,000. The current amount is $2,000.
David's employment income for that period is further reduced to nil.
David's unused concession balance is now nil.
Example 2:
To continue example 2 in subsection (2), assume Amy's unused concession balance is $1,600. The current amount is $750.
Amy's employment income for that period is further reduced to nil.
Amy's unused concession balance is now $850.
New subsection 46AA(4) applies where the person's unused concession balance is greater than nil but less than the current amount of the person's employment income after applying subsection (2) in relation to the relevant pension period. In these circumstances, the person's employment income is further reduced by an amount equal to that balance and, provided service pension or income support supplement is payable for the pension period, the person's unused concession balance is reduced to nil.
The following example is provided at the end of the subsection:
Example:
Bill earns $1,250 of employment income in a pension period. Bill's rate of service pension or income support supplement for that period is greater than nil.
Under subsection (2), Bill's employment income for that period is reduced by $250, leaving Bill $1,000 of employment income for that period.
Assume Bill's unused concession balance is $800.
Under subsection (4), Bill's employment income for that period is further reduced by $800 leaving Bill $200 of employment income for that period.
Bill's unused concession balance is now nil.
New subsection 46AA(4A) applies where the person's employment income for a pension period is less than the income concession amount. In these circumstances, the person's employment income is reduced to nil and, provided service pension or income support supplement is payable for the pension period, the person's unused concession balance will be increased by an amount equal to the difference between the income concession amount and the amount of the employment income.
The following example is provided at the end of the subsection:
Example:
Emma earns $100 of employment income in a pension period. Emma's rate of service pension or income support supplement for that period is greater than nil.
Emma's employment income for that period is reduced to nil.
Emma's unused concession balance is increased by $150.
New subsection 46AA(4B) provides that, where a person has zero employment income for a pension period and service pension or income support supplement is payable for the pension period, the person's employment income bank balance is increased by the income concession amount.
New subsection 46AA(4C) defines the income concession amount for a pension period as $250.
Item 7 repeals the examples at the end of subsection 46AA(5).
Item 8 repeals subsection 46AA(5A), which is to be inserted by the Families, Housing, Community Services and Indigenous Affairs and Other Legislation Amendment (Budget and Other Measures) Act 2011 , and substitutes a new provision which deals with how the Rate Calculator interacts with section 46AA, where one member of the couple is in receipt of a payment under the Social Security Act.
New subsection 46AA(5A) is inserted to clarify that, where the employment income of the partner of a member of a couple is reduced under section 1073AA of the Social Security Act, the person's partner's ordinary/adjusted income is reduced by the amount of that reduction for the purposes of point SCH6-E3 of Schedule 6.
This item commences either on 1 July 2011 or immediately after Schedule 6 to the Families, Housing, Community Services and Indigenous Affairs and Other Legislation Amendment (Budget and Other Measures) Act 2011 , whichever occurs later. However, the provision will not commence if Schedule 6 to the Families, Housing, Community Services and Indigenous Affairs and Other Legislation Amendment (Budget and Other Measures) Act 2011 does not commence.
Item 9 repeals and substitutes subsection 46AA(6). Subsection 46AA(6) was applicable in the circumstances where an amount of employment income was earned by an invalidity service pensioner who, under section 115G, is a participant in the Veterans' Vocational Rehabilitation Scheme (VVRS).
The new provision provides that section 46AA will be subject to new section 46AD (inserted by item 10 below), which ensures that income reductions will not be duplicated under both section 46AA and section 115G.
Item 10 inserts new sections 46AC and 46AD at the end of Division 1A of Part IIIB to determine the amount of the 'unused concession balance' and provide that income reductions will not be duplicated under the operation of both section 46AA and section 115G.
New subsection 46AC(1) provides that, from the first day on which the work bonus provisions apply to a person on a day that is after the commencement of the Schedule, then the person is taken to have an unused concession balance of zero on that day.
Subsection 46AC(2) provides that the maximum unused concession balance for a person is $6,500. At the end of this subsection, the following example is used to illustrate how the balance is capped at $6,500:
Example:
John has an unused concession balance of $6,400. John earns $50 of employment income in a pension period.
Instead of John's unused concession balance increasing to $6,600 under subsection 46AA(4A), John's unused concession balance increases to $6,500.
New subsection 46AC(3) provides that, if a person stops receiving service pension or income support supplement, the person's unused concession balance will be retained indefinitely.
The note at the end of new subsection 46AC(3) confirms for the reader that, if the work bonus provisions apply to the person again, the person's unused concession balance will be that retained balance.
New subsection 46AD(1) provides that new section 46AD will be applicable in the circumstances where it is determined that an invalidity service pensioner will be eligible for both the ordinary income concession (referred to as the 'initial amount') available under section 115G (to participants in the Veterans' Vocational Rehabilitation Scheme) and the employment income concession (referred to as the 'reduction amount') available under section 46AA.
New subsection 46AD(2) provides that the employment income concession under section 46AA will be applicable in the circumstances where the total of the 'reduction amounts' under subsections 46AA(2) to (4A) are greater than the 'initial amounts' determined under subsections 115G(1) and 2).
New subsection 46AD(3) provides that the ordinary income concession under section 115G will be applicable in the circumstances where the total of the 'reduction amounts' under subsections 46AA(2) to (4A) is less than the 'initial amounts' determined under subsections 115G(1) and 2).
A note to subsection 46AD(3) refers the reader to the effect of subsections 115G(1) and (2) on excluding income amounts for certain veterans.
The following example is provided at the end of this subsection:
Example:
Jim earns $100 of employment income in a pension period. Jim's rate of service pension or income support supplement for that period is greater than nil. Assume Jim also has an amount of $100 worked out under subsection 115G(1) in relation to that period.
There is no reduction in Jim's employment income under section 46AA for that period, but $100 is excluded under subsection 115G(1).
Under subsection 46AA(4A), Jim's unused concession balance is increased by $150.
Item 11 repeals and substitutes subsection 115G(4). Repealed subsection 115G(4) had referred to the interaction of the provisions of section 115G and section 46AA.
New subsection 115G(4) provides that section 115G is subject to the provisions of new section 46AD concerning the interaction of sections 46AA and 115.
Item 12 is an application provision. The amendments made by items 6, 7, 9, 10 and 11 of this Schedule apply in relation to the pension period that includes 1 July 2011 and later periods.