Legislation has now been passed which changes how defined benefit income will be taken into account under the social security income test from 1 January 2016.
Further to the proposed changes communicated in the Federal Budget update provided in May 2015, the Commonwealth Parliament has now passed legislation to give effect to the Budget announcement that the tax free component (deductible amount) of defined benefit income streams, other than those paid from military schemes, will be capped at 10% under the social security income test from 1 January 2016. This means that if the tax free percentage of your SSS, PSS or SASS fortnightly pension is greater than 10%, a larger proportion of your defined benefit income will be taken into account when applying the relevant social security income test.
This change may cause a reduction in Age Pension entitlements for many STC pension members who are income tested, as current deductible amounts can be as high as 50% or more.
The Government has announced that the intention of this measure is to ensure that a fairer amount of income received from a defined benefit income stream is subject to the income test for the pension. This measure reverses the unintentional increase of the deductible amount which occurred for some individuals in 2007 when amendments relating to the tax free amount were made to the Income Tax Assessment Act 1997.