Understanding Centrelink rules for working in retirement
In theory, the Age Pension age is set as the minimum age at which a typical senior is considered no longer able to work enough hours to generate the income needed for a modest standard of living. However, this doesn’t mean that you can’t work.
If you choose to continue in the paid workforce after reaching your Age Pension age you might still be eligible for a part Age Pension. Keep in mind, though, that any extra income you or your partner generate from work will be included in the Age Pension Income Test.
The impact on your Age Pension payment rate depends on who you work for and how you work.
Working in your own business or as a ‘sole trader’
Any profits you generate from your own business count as income for the Age Pension Income Test.
As a business, you’re expected to prepare annual accounts and submit an income tax return. You’ll then have an income and expenditure statement for the financial year and a statement of assets and liabilities at the end of the financial year.
These annual statements show you where your business is going financially. You or your accountant uses the information from these statements as the basis for your income tax return to the ATO (Australian Taxation Office).
Centrelink usually accepts the information in your annual statement of income and expenditure with your statement of assets and liabilities as a basis for means testing your Age Pension rate for the following year.
Your ‘business income’ will count in full for your Age Pension Income Test. That is, the profit or ‘net income of your business’—business income minus business expenses—becomes part of your income test.
If your business makes a loss you could have a ‘nil’ amount of ‘business income’. But Centrelink doesn’t allow you to claim a negative amount of business income to offset business loss against other income.
Similarly, your ‘business assets’ are included in your assessable assets. And Centrelink has tight rules about offsetting personal loans to your business for Asset Test purposes.
Profiting from your hobbies
In general, any financial reward from your hobby activities is not counted as income for the Age Pension Income Test.
If you make serious money from your hobbies then you need to think hard about what to do. You must consider if you’re just having fun making things for which, say, friends and family give you cash. In contrast, if you’re generating significant profits from hobbies you could be classed as operating a business.
Another thing to keep in mind is that you can’t reclaim any GST paid for materials and other expenses incurred in hobby activities.
Working in a family business
The Age Pension Income Test includes both your own income and the income of your domestic partner or spouse. Therefore any payment you receive for helping out in your spouse’s business is ignored; Centrelink has already counted the net income of the business in your assessable income for the Income Test.
Your wages for working in a business operated by another family member counts as assessable income. If the family business treats your wages as an employee payment, then Centrelink will also treat those amounts as real income for the Age Pension Income Test.
Working as an employee of an unrelated entity
The Age Pension ‘Work Bonus’ is available to Age Pensioners who work for unrelated businesses. Some seniors return to their previous employers and work as casuals or short-term contract employees to cover for busy spells and regular employees taking leave. Other seniors find new jobs with different employers.
The Work Bonus allows for the first $250 per fortnight of income earned from working as an employee of an unrelated entity, to be excluded from your assessable income for the Age Pension Income Test. Keep in mind that Age Pensioners can save Work Bonus allowances to use later in the year.
Over a Centrelink year of 26 fortnights, you could have $6,250 of wages excluded for Income Test purposes. To do this, you could be earning wages from working a few days each fortnight and/or working several days per week for a short period.
Reporting your work earnings for the Age Pension Income Test
Age Pensioners are required to inform Centrelink of any changes in their income. This means updating Centrelink whenever your wages, or your partner’s income, changes. An annual update is usually adequate for self-employed Age Pensioners and their domestic partners.
Christine Hopper is the Director of Financial Care Services, an independent financial advisor.
Financial Care Services is focused on mature people considering a change of lifestyle including retirement and particularly new living arrangements in: retirement lifestyle community villages; granny flats; supported or assisted living; and Commonwealth regulated aged care. She can be contacted through https://financialcareservices.com.au.
Christine talks to Centrelink as a customer receiving a Carers Allowance and on behalf of clients. She understands the range of Department of Veteran Affairs and Centrelink income support benefits, their relevant means tests and eligibility conditions. She’s an actuary who also holds a Bachelor of Science, a Diploma of Financial Planning and a Certificate of Theology.