Deeming Rates: How Australia Calculates Your Income

Deeming rates are an important consideration for Australians receiving or intending to receive government pensions, including the age pension, service pension, veteran payments, and income support supplements. Deeming rates are used to estimate assumed income from financial assets, which can impact eligibility for government payments. These rates are set by the Minister for Social Services and reflect expert advice on market performance. The income generated from financial assets is assessed using deeming rates, assuming a fixed rate of income regardless of the actual earnings. This encourages individuals to choose investments based on their merits rather than their potential impact on pension entitlement. Deeming rates also provide the benefit of consistent treatment of financial investments, ensuring pension payments remain stable.

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Deeming rates and the age pension

Deeming rates are an important consideration for anyone receiving or intending to receive the age pension. Deeming rates are used to estimate assumed income from financial assets as part of the age pension income test. The age pension is income-tested, meaning that money earned elsewhere will impact how much one can receive from the pension. Deeming rates set a fixed rate of income for all financial assets, regardless of the actual income generated. This means that if your investment return is higher than the deemed rates, the extra amount does not count as your income.

Deeming is used for assessing income from financial assets only, as the income generated by some of these assets is not always simple to calculate. There are two deeming interest rates: a high deeming rate and a low deeming rate. The deeming rate that is applied depends on the amount of financial assets one has. The low deeming rate applies up to what is called a deeming threshold. Everything above this threshold is deemed to earn the higher deeming rate. The deeming thresholds are different for singles and couples. For example, for couples, amounts up to $103,800 (combined) are deemed to earn the lower deeming rate of 0.25%. That portion over $103,800 is deemed to earn the higher deeming rate of 2.25%.

The deeming rates reflect the returns available in the market to pensioners for a range of financial investments. By treating all financial investments in the same way, the deeming rules encourage people to choose investments based on their merit rather than the effect the investment income may have on their pension entitlement. Deeming also applies to other Australian government payments and benefits, such as the service pension, veteran payments, and income support supplements.

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Deeming rates and income support supplements

Deeming rates are an important consideration for people receiving or planning to receive government pensions or benefits in Australia, including the age pension, service pension, veteran payments, and income support supplements. Deeming is a method used to estimate the income generated from an individual's financial assets, such as term deposits, shares, or superannuation funds. It assumes that these assets earn a set rate of income, known as the deeming rate, regardless of the actual income received.

The deeming rates are set by the Minister for Social Services and are monitored regularly to reflect appropriate rates of return available in the market. There are two types of deeming rates: a high deeming rate and a low deeming rate. The low deeming rate is applied to financial assets up to a certain threshold, known as the deeming threshold. Any assets above this threshold are deemed to earn the higher deeming rate. As of June 2024, for single individuals, assets valued up to $62,600 are deemed to earn 0.25% per year, while assets above this amount are deemed to earn 2.25%. For couples, the first $103,800 of combined financial assets is deemed at 0.25%, and anything above is deemed at 2.25%.

The deemed income is then used to determine eligibility for government payments and the amount of income support an individual can receive. It provides individuals with an incentive to invest, as any interest rate achieved above the deeming rates does not count as income. Additionally, it allows individuals to choose investments based on their merits rather than the potential impact on their pension entitlement.

For those receiving income support supplements, such as war widow(er)'s or veteran payments, deeming also applies. The income generated from their financial assets, including superannuation funds, is assessed to determine their eligibility for these supplements. Deeming rules provide a simpler and fairer way to assess income from financial assets, especially in cases where the actual income generated may be challenging to calculate.

Deeming rates and the service pension

Deeming rates are a set of rules used to assess income from financial investments for social security and Veterans' Affairs pension/allowance purposes. Deeming assumes that financial investments are earning a certain rate of income, regardless of the amount of income they are actually earning. The deeming rates reflect the returns available in the market to pensioners for a range of financial investments.

Deeming rates set a fixed rate of income for all financial assets, even if the actual income is higher or lower. The deeming rate that is applied depends upon the amount of financial assets one has. The low deeming rate applies up to what is called a deeming threshold. Everything above this threshold is deemed to earn the higher deeming rate. The deeming thresholds are different for singles and couples. For example, the first $51,900 of each of an individual's own and their share of joint financial assets has a deemed income of 0.25% per year. Anything over $51,900 is deemed to earn 2.25%. For couples, amounts up to $103,800 (combined) are deemed to earn the lower deeming rate of 0.25%That portion over $103,800 is deemed to earn the higher deeming rate of 2.25%.

Deeming is used to determine eligibility for the Age Pension under the income test. The other requirements are passing the assets test, reaching Age Pension age, and qualifying as an Australian resident. Deeming rules are used by Services Australia (via Centrelink) for income test calculation purposes. Centrelink uses deeming rates to work out how much individuals are getting from returns on their super investments once they reach the qualifying age for the Age Pension.

If an individual's investment return is higher than the deemed rates, the extra amount doesn't count as income. Deeming exemptions are granted only in special circumstances. The Minister for Social Services is the only person who can grant a deeming exemption.

Deeming rates and veteran payments

Deeming rates are a central part of the Australian social security income test. They are used to assess income from financial investments for social security and Veterans' Affairs pension/allowance purposes. Deeming assumes that financial investments are earning a certain rate of income, regardless of the amount of income they are actually earning. If income support recipients earn more than these rates, the extra income is not assessed. Deeming rates set a fixed rate of income for all financial assets, even if the actual income is higher or lower.

The Department of Veterans' Affairs (DVA) uses deeming to calculate income from financial assets. Financial assets include bank accounts, shares, and managed funds. A financial asset is deemed to earn a set rate of return, regardless of how much interest a financial asset actually earns. The deeming rates are monitored to ensure they reflect appropriate rates of return. There are two deeming interest rates: a high deeming rate and a low deeming rate. The deeming rate that is applied depends upon the amount of financial assets one has. The low deeming rate applies up to what is called a deeming threshold. Everything above this threshold is deemed to earn the higher deeming rate. The deeming thresholds are different for singles and couples. For singles, amounts up to $62,600 are deemed to earn the lower deeming rate of 0.25%. That portion over $62,600 is deemed to earn the higher deeming rate of 2.25%couples, amounts up to $103,800 (combined) are deemed to earn the lower deeming rate of 0.25%. That portion over $103,800 is deemed to earn the higher deeming rate of 2.25%.

If you have deemed income, the DVA will automatically apply the new deeming rates. If you are a veteran who has qualifying service and receives a Service Pension, or a War Widow(er) who receives an Income Support Supplement, your superannuation is assessable when you reach 60 years. NDIS amounts held by, or on behalf of, an NDIS participant to pay for future disability expenses under their NDIS plan are exempt from the deeming provisions of the income test.

Deeming rates and social security

Deeming rates are a central part of the social security income test in Australia. They are used to assess income from financial investments for social security and Veterans' Affairs pension/allowance purposes. Deeming assumes that financial investments are earning a certain rate of income, regardless of the actual income generated. This means that if income support recipients earn more than the deemed rates, the extra income is not assessed.

The deeming rates reflect the returns available in the market to pensioners for a range of financial investments. By treating all financial investments in the same way, the deeming rules encourage people to choose investments based on their merit rather than the effect the investment income may have on the person's pension entitlement.

The deeming rate that is applied depends on the amount of financial assets a person has. There are two deeming interest rates: a high deeming rate and a low deeming rate. The low deeming rate applies up to what is called a deeming threshold. Everything above this threshold is deemed to earn the higher deeming rate. The deeming thresholds are different for singles and couples. For instance, at the time of writing, single pensioners can earn up to $180 per fortnight before their pension payments are reduced. A couple can earn a combined fortnightly income of $320 before their pension may be altered.

The deeming rates are determined by the Minister for Social Services under SSAct section 1082 and reflect rates of return available on a range of financial products. Exemptions from deeming are granted only in special circumstances. Examples include where a financial investment has failed fundamentally or, for some superannuation investments, where the funds are fully preserved and/or inaccessible.

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