Private ruling: Tax offsets - adjusted taxable income
Date of advice: 14 August 2015
Published: August 2015
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Is a disability support pension included in adjusted taxable income for tax offset purposes? | A1: Yes

Relevant facts and circumstances: You receive a special needs disability support pension in respect of your invalid child. You also claim a dependent tax offset in respect of your invalid child. The special needs disability support pension is exempt income for income tax purposes.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 995-1 | Income Tax Assessment Act 1936 Section 6(1) | A New Tax System (Family Assistance Act) 1999 Schedule 3

Reasons for decision: Summary: The eligibility for certain tax offsets can be affected by a taxpayer or their dependants' adjusted taxable income. Section 995(1) of the Income Tax Assessment Act 1997 defines adjusted taxable income for offsets as that definition for adjusted taxable income in section 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936). Section 6(1) of the ITAA 1936 defines adjusted taxable income as the definition of adjusted taxable income contained in Schedule 3 of the A New Tax System (Family Assistance Act) 1999 with parts 3 and 3A of Schedule 3 disregarded. Schedule 3 of A New Tax System (Family Assistance Act) 1999 defines adjusted taxable income as follows: Adjusted taxable income For the purposes of this Act and subject to subclause (2), an individual's adjusted taxable income for a particular income year is the sum of the following amounts ( income components ): a) the individual's taxable income for that year; b) the individual's adjusted fringe benefits total for that year; c) the individual's target foreign income for that year; d) the individual's total net investment loss (within the meaning of the ITAA 1997) for that year; e) the individual's tax free pension or benefit for that year; f) the individual's reportable superannuation contributions (within the meaning of the ITAA 1997) for that year; g) less the amount of the individual's deductible child maintenance expenditure for that year. For the purposes of this Schedule, the following payments received in an income year are tax free pensions or benefits for that year: a) a disability support pension under Part 2.3 of the Social Security Act 1991; b) a wife pension under Part 2.4 of the Social Security Act 1991 ; c) a carer payment under Part 2.5 of the Social Security Act 1991 ; d) a pension under Part II of the Veterans' Entitlements Act 1986 payable to a veteran; e) a pension under Part IV of the Veterans' Entitlements Act 1986 payable to a member of the Forces or a member of a Peacekeeping Force; f) an invalidity service pension under Division 4 of Part III of the Veterans' Entitlements Act 1986; g) a partner service pension under Division 5 of Part III of the Veterans' Entitlements Act 1986 ; h) a pension under Part II of the Veterans' Entitlements Act 1986 payable to the widow or widower of a deceased veteran; i) a pension under Part IV of the Veterans' Entitlements Act 1986 payable to the widow or widower of a deceased member of the Forces or the widow or widower of a deceased member of a Peacekeeping Force; j) income support supplement under Part IIIA of the Veterans' Entitlements Act 1986; k) Defence Force Income Support Allowance under Part VIIAB of the Veterans' Entitlements Act 1986 ; l) a Special Rate Disability Pension under Part 6 of Chapter 4 of the Military Rehabilitation and Compensation Act 2004 ; m) a payment of compensation under section 68, 71 or 75 of the Military Rehabilitation and Compensation Act 2004 ; n) a payment of the weekly amount mentioned in paragraph 234(1)(b) of the Military Rehabilitation and Compensation Act 2004 (including a reduced weekly amount because of a choice under section 236 of that Act) or of a lump sum mentioned in subsection 236(5) of that Act; to the extent to which the payment: is exempt from income tax; and a) is not a payment by way of bereavement payment, pharmaceutical allowance, rent assistance, language, literacy and numeracy supplement, remote area allowance or energy supplement; and b) if the payment is a payment under the Social Security Act 1991 -does not include tax-exempt pension supplement (within the meaning of subsection 20A(6) of that Act); and c) if the payment is a payment under the Veterans' Entitlements Act 1986 -does not include tax-exempt pension supplement (within the meaning of subsection 5GA(5) of that Act). A disability support pension paid under Part 2.3 of the Social Security Act 1991 (SSA) is included in the above definition of tax free pension and benefits. It is therefore taken into account in determining a dependent's adjusted taxable income for tax offset purposes.