Tax-Free Income …
It is possible to receive amounts that you don’t need to tell the tax man about, and don’t have to include as income on your tax return.
The ATO classifies these into three different categories:
- Exempt Income – amounts that have been deemed to be tax-free. Most often this includes government allowances such as disability pensions, carer payments, rent assistance and such, but also some scholarships, child care payments and so on (some of which are listed below).
- Non-assessable non-exempt income – This may sound like more of a curly concept to define, but basically “non-assessable non-exempt” means that these amounts are considered income on which there is no need to pay tax (that’s the “non-assessable” part), however the amounts are still taken into consideration for other liabilities or when tallying up an eligibility income threshold (so it’s not “exempt” in that sense). A few examples are also listed below. Generally, you cannot deduct expenses you have incurred in gaining this type of income.
- Other amounts – Basically, this covers most child support and spouse maintenance payments. These don’t neatly fit into the above categories, but they are not taxable and do not affect any calculation on your tax return.
If you are not sure whether a payment you receive is exempt income, non-assessable non-exempt income or is another type of amount that is not taxable, feel free to contact the accountants at our office.
Exempt Australian government pensions, allowances and payments
- Carer payment where:
- both the carer and the care receivers are under age-pension age, or
- the carer is under age-pension age and any of the care receivers has died
- Disability support pension paid by Centrelink to a person who is under age-pension age
- Double orphan pension
- Invalidity service pension where the veteran is under age-pension age
- Partner service pension where either:
- the partner (excluding the non-illness separated spouse of a veteran) and the veteran are under age-pension age and the veteran receives an invalidity service pension, or
- the partner is under age-pension age and the veteran has died and was receiving an invalidity service pension at the time of death
- Veterans’ Affairs disability pension and allowances, war widows and war widowers pension
- Wife pension where both the recipient and their partner are under age-pension age, or the recipient is under age-pension age and their partner has died.
Lump sum bereavement payments received as part of any of the payments listed above are exempt only up to the tax-free amount. Check with the ATO if you are in this situation.
Exempt Australian government education payments
- Allowances for students under 16 years old, including the Austudy payment and those allowances paid under ABSTUDY, Youth Allowance, the Assistance for Isolated Children Scheme and the Veterans’ Children Education Scheme
- Apprenticeship wage top-up
- The first $1,000 of an apprenticeship early completion bonus provided under a specified state or territory scheme for occupations with skill shortages
- Australian-American Educational Foundation grant
- Commonwealth scholarships or bursaries provided to foreign students
- Commonwealth secondary education assistance
- Commonwealth Trade Learning Scholarship
- Language, literacy and numeracy supplement
- Endeavour awards research fellowships or an Endeavour Executive Award
- Pensioner education supplement and fares allowance paid by Centrelink
- Rent assistance paid to Austudy recipients
- Some scholarships and bursaries received by full-time students
- Supplementary allowances for students paid under the Assistance for Isolated Children Scheme.
Other exempt Australian government payments
- Australian Government disaster recovery payments
- Carer allowance paid under the Social Security Act 1991
- Child care benefit
- Child care rebate
- Child disability assistance under Part 2.19AA of the Social Security Act 1991
- Family tax benefit
- Farmers hardship bonus under the Social Security Act 1991
- Education entry payment supplement under the Social Security Act 1991
- Income support bonus under the Social Security Act 1991
- Pay and allowances for part-time service in the Australian Naval, Army or Air Force Reserves
- Pension bonus and pension bonus bereavement payments under Part 2.2A of the Social Security Act 1991 or Part IIIAB of the Veterans’ Entitlements Act 1986
- Pharmaceutical allowances paid under the Social Security Act 1991
- Remote area allowance
- Rent assistance
- Schoolkids Bonus
- Utilities allowance paid under the Social Security Act 1991.
Other exempt payments
- Certain annuities and lump sums which are paid to an injured person under a structured settlement
- Your share of certain profits or gains arising from disposal of investments by a venture capital limited partnership (VCLP), an early stage venture capital limited partnership (ESVCLP) or an Australian venture capital fund of funds (AFOF)
- Certain distributions from an early stage venture capital limited partnership
- Certain distributions from a pooled development fund
- Certain payments relating to persecution during the Second World War
- Certain profits or gains from disposal of shares in a pooled development fund.
Non-assessable non-exempt income
A few of the common types of non-assessable non-exempt income include but are not limited to:
- the tax-free component of an employment termination payment (ETP)
- that part of the taxable component of a death benefit ETP paid to a dependant below the 2013-14 cap of $180,000
- the tax-free component of a superannuation benefit
- the taxed element of a superannuation income stream or lump sum received by a person 60 years old or older
- the taxed element of a death benefit superannuation income stream paid to a death benefit dependant where:
- the deceased was 60 years old or older at the time of their death, or
- the recipient was 60 years old or older when the benefit was received
- a tax-free superannuation lump sum benefit paid to a person with a terminal medical condition existing at the time when the lump sum was received or within 90 days after its receipt
- National Rental Affordability Scheme payments or non-cash benefits paid (whether directly or indirectly, such as through an NRAS consortium of which you are a member) by a state or territory government or a relevant body established under a state or territory law
- a superannuation lump sum death benefit received by
- a dependant, or
- someone who is not a dependant but received the benefit because of the death of a member of the Australian Defence Force or an Australian police force (including Australian Protective Services) who died in the line of duty
- genuine redundancy payments and early retirement scheme payments shown as “Lump sum D” amounts on your payment summary
- amounts on which family trust distribution tax has been paid
- interest or other earnings credited to a first home saver account that you hold or a payment to you from such an account
- government contributions paid under the First Home Saver Accounts Act 2008
- government super contributions.