Employment can cease for various reasons, with redundancy, permanent incapacity, retirement and voluntary resignation being the most common.

This article outlines the main income support payments that may be available to someone following termination of employment, and an analysis of the Centrelink opportunities, potential access to superannuation benefits and strategies to maximise the ongoing amount of income support that may be available.

Centrelink considerations

The reason for an employee’s termination, and any termination payments received, can have an impact on the individual’s eligibility for Centrelink benefits.

For example, an individual hoping to qualify for JobSeeker Payment or the Disability Support Pension (DSP) may have to serve a liquid asset waiting period (LAWP) and/or an income maintenance period (IMP).

While individuals eligible for the Age Pension do not have to serve these waiting periods, termination payments (net of tax) received are included in their assets based means testing but are otherwise disregarded for the income test (unless deeming applies).

Recipients of means tested income support payments often automatically receive a concession card (e.g. the Pensioner Concession Card (PCC) or Health Care Card (HCC)). Those who are of Age Pension age but who do not qualify for income support may be eligible for the income tested Commonwealth Seniors Health Card (CSHC), which offers a range of pharmaceutical benefits similar to the PCC, and other concessions.

JobSeeker Payment

In many cases, people who have terminated employment will seek to apply for JobSeeker Payment (JSP). This is the new working age payment that replaced Newstart Allowance from 20 March 2020. It broadly provides financial assistance to people who have capacity to work now or in the near future, and are prepared to meet mutual obligation requirements.

Basic eligibility conditions

To satisfy the ‘standard’ qualification criteria for JSP, a person must:

– be aged 22 or over but under Age Pension age, and

– meet mutual obligation requirements (unless exempted), and

– be unemployed, or

– temporarily unable to work or study due to illness or injury and have a job or study to return to.

Due to COVID-19, the JSP eligibility requirements have been temporarily expanded until 31 December 2020 to also include people who:

– are unemployed as a result of the adverse economic effects of COVID-19, or

– are self-employed or sole traders whose business was suspended, or suffered a reduction in turnover as a result of the adverse economic effects of COVID-19, or

– have had their working hours reduced (including to zero) as a result of the adverse economic effects of COVID-19, or

– are in quarantine or self-isolation or caring for an immediate family member or a member of the person’s household who is in such quarantine or self-isolation, and the person’s working hours were reduced (including to zero).

Mutual obligation requirements

These obligations are designed to ensure that unemployed people receiving JSP are actively looking for work and/or participating in upskilling activities (e.g. training or study) that will help them into employment. Mutual obligation requirements are generally determined by a person’s age, assessed work capacity and whether the person has primary responsibility for the care of a child.

After earlier being lifted in response to the COVID-19 pandemic, mutual obligation requirements recommenced, on a limited basis, from 9 June 2020.

However, from 28 September 2020, mutual obligation requirements become mandatory in all states and territories (except for Victoria).

The personal circumstances of job seekers will shape their mutual obligation requirements, which may entail:

– participating in appointments with an employer service provider.

– applying for a set number of jobs each month.

– attending job interviews.

– accepting suitable work.

– attending activities, studying or training, including Work for the Dole.

Note: Special circumstances exemptions continue to be available for job seekers who require them, including those directly affected by COVID-19. Sole traders and those who are self-employed continue to be exempt from the requirements while they continue to work to re-establish their business.

Job seekers may have their income support payment suspended or financial penalties applied if they do not meet their mutual obligation requirements.

Assets test

Due to the COVID-19 pandemic, the assets test was temporarily waived for JSP recipients but was reinstated on 25 September 2020.

Waiting periods

Several Centrelink benefits have waiting or preclusion periods before benefits become payable.

Due to the COVID-19 pandemic, some of these waiting periods have been temporarily waived as noted below. Please note that the income maintenance period and compensation preclusion/non-payment periods still apply and have not been waived.

Ordinary Waiting Period

Generally, an individual applying for JSP must serve a one week Ordinary Waiting Period (OWP).

However, due to the COVID-19 pandemic, at the time of writing, the OWP has been waived from 12 March 2020 to 31 December 2020.

Liquid Assets Waiting Period

Generally, an individual applying for JSP must serve a Liquid Assets Waiting Period (LAWP) based on the total liquid assets available to them.

Liquid assets include cash, bank accounts, term deposits, shares, managed funds, amounts held in mortgage offset accounts, insurance bonds and so forth.

The amount of available credit in a mortgage redraw facility is not assessed as a liquid asset. Contrast this with the treatment of a ‘mortgage offset’ account, which is a ‘credit’ account of the individual(s) and is included as an asset for the LAWP.

Due to the COVID-19 pandemic, the LAWP was waived for JSP from 25 March 2020 to 24 September 2020, but was reinstated on 25 September 2020 for new income support claims.

The length of the LAWP is calculated set out in Table 1:

Table 1

Type of individual	LAWP (weeks)
–   Member of a couple* or –   Single person with a dependant child	(liquid assets – $10,000) ÷ $1,000
Single person without a dependant child	(liquid assets – $5,000) ÷ $500

* When calculating the LAWP for a member of a couple, combined liquid assets are used.

In most cases, the LAWP commences on the date the person (or their partner) ceased employment.

The maximum LAWP an individual can be asked to serve is 13 weeks.

Given the low thresholds for the LAWP, a single person only needs to have $11,500 of liquid assets and a couple require $23,000 of liquid assets to invoke the maximum 13-week waiting period.

An individual or their partner can make one voluntary payment on a debt (or on several debts) after becoming unemployed, with the non-compulsory amount(s) of such a payment being disregarded when calculating the individual’s liquid asset level. However, this can only be done where:

• the debt is not related to the principal home or any other residential property,
• the payment is voluntary (i.e. more than the minimum payment), and
• the payment is the first voluntary payment made on that debt since the recipient became unemployed.

For example, assume an individual has an outstanding credit card balance of $2,000. If the minimum payment is $25, but the individual pays the outstanding balance in full, their liquid assets will be reduced by $1,975.

Proposed extension to the LAWP

The Government has introduced legislation proposing to extend the LAWP from a maximum of 13 weeks to a maximum of 26 weeks for new claims of JSP and Youth Allowance applications. However, at the time of writing, the legislation has not been passed.

Income Maintenance Period

Individuals applying for JSP or DSP may also need to serve an Income Maintenance Period (IMP)^[1]. Under the IMP, Centrelink assesses the total amount of certain payments received on ceasing employment as income spread out over a particular period commencing on the day the payments are received.

The following payments are included in the IMP:

• employment termination payments (ETPs),
• annual leave and long service leave payments, and
• tax-free amounts relating to genuine redundancy or early retirement schemes.

The length of the IMP is calculated by adding together:

• the number of weeks (or days) that the leave payments represent,
• the number of weeks that the portion of the termination payment based on the employee’s wage (e.g. two weeks redundancy payment for every year of service) represents, and
• the number of weeks that the portion of the termination payment not based on the employee’s gross wage (e.g. a gratuity payment) represents, obtained by dividing that portion of the termination payment by the relevant weekly wage, rounding down this figure to a whole week figure (a five-day working week is used).

As the individual is essentially still seen to be earning income over this IMP, Centrelink entitlements are likely to be reduced. The IMP usually (but not always) precludes the individual from receiving any Centrelink benefits during this period, unless the individual was on a relatively low salary/wage.

The IMP can also impact the person’s partner if they are applying for a payment affected by the IMP.

Unemployment non-payment period

Where an individual wishes to apply for JSP after leaving employment voluntarily or due to misconduct, they may need to serve an ‘unemployment non-payment period’, which can be up to eight weeks.

Financial planning opportunities

Income support and relaxed means testing

On 25 September 2020, the income test free area for JSP temporarily increased from $106 per fortnight to $300 per fortnight. Fortnightly income above that level reduces the payment by 60 cents for each dollar over $300. This means that people receiving JSP will be able to earn more before their income support is reduced.

In addition, the JSP partner income test was also amended to reduce the JSP recipient’s payment by 27 cents for each dollar of their partner’s income over $1,165 per fortnight. The partner can earn up to $3,086.11 per fortnight ($80,238 per annum) before the JSP recipient becomes ineligible for the payment.

Impact of termination payments on Centrelink waiting periods

Where the client is applying for JSP, they could consider making one voluntary payment on those debt(s) which are not related to their principal home or other residential property, to reduce their liquid assets for the LAWP. This could include credit cards, personal loan or car loan.

Personal superannuation contributions

People who terminate employment and receive taxable payments could consider making a personal deductible superannuation contribution to reduce the tax payable. This strategy can be particularly effective if the client is eligible to use catch-up concessional contributions to claim a substantial tax deduction for their personal superannuation contributions.

In addition, amounts held in superannuation (accumulation) by those who are below their Centrelink Age Pension age are exempt from Centrelink means tests, therefore, sheltering assets in superannuation by making deductible contributions may result in an increase in Centrelink entitlements.

While moving assets into superannuation in this way does not decrease an assessed IMP, it may assist with general income and assets tests. Further, lump sum withdrawals from superannuation do not count as income and are not included in other means testing, as long as they are spent immediately.

Of course, prior to moving assets into super, it’s important to ensure that preservation and the possible need for future access to the funds is considered.

Superannuation conditions of release

When someone is receiving JSP, there is usually a requirement that the person is actively looking for and available to take up suitable paid employment. This could preclude someone from accessing superannuation under a retirement condition of release, where they may have to declare their intention to never work for more than 10 hours a week ever again.

An alternative is to access preserved superannuation under the ‘severe financial hardship’ condition of release. This operates at two levels:

• For someone who has reached their preservation age plus 39 weeks: when they have been on Centrelink (means tested) income support for a cumulative period of 39 weeks since reaching their preservation age, they can apply to their fund trustee for release of preserved superannuation benefits. Subject to the fund’s rules, this would generally allow access to all of a person’s superannuation benefits.
• Alternatively, individuals of any age can apply for release of benefits to their fund trustee when they have been on income support for a continuous period of at least 26 weeks, and are currently unemployed and unable to meet their reasonable living expenses as evidenced by a current family budget. In this situation, the trustee can release between $1,000 and $10,000 as a single lump sum, as assessed by the trustee and based on the member’s need.

Normal age based tax applies to amounts released under this condition of release.

Those who are unemployed, or whose employment has been terminated, their work hours or turnover significantly reduced or who are eligible to receive the JSP (or another specified Centrelink payment) may also qualify to access up to $10,000 of preserved superannuation under the ‘compassionate grounds – COVID-19’ temporary condition of release. Superannuation released under this condition is tax-free. Application is made directly to the Australian Taxation Office. The closing date for second round applications is 31 December 2020.

In addition, when someone ceases employment when they are age 60 or older, this satisfies the ‘retirement’ condition of release, allowing access to all of their super benefits accrued to that time. A JSP applicant could access benefits under this condition of release without having to declare their intention to ‘retire’ and never re-join the workforce.

Finally, someone who has reached their preservation age could also commence a transition to retirement income stream and access up to 10 per cent of the starting account balance as an income payment(s). Note that amounts moved to an account based pension will be subject to Centrelink means testing, unlike amounts in accumulation super held by someone who is below Age Pension age, which are exempt from Centrelink means tests.

Concession cards

Where an individual does not qualify for income support payments, certain concession cards, such as the Commonwealth Seniors Health Card (CSHC) and the Low Income Health Care Card (LIHCC), may also be available.

The CSHC is broadly available to those who are of Age Pension age or older, are Australian residents, are not receiving Government income support, and who meet the income test.

The current income test thresholds are $55,808 for a single person and $89,290 for couples.

Income for the CSHC includes taxable income (which could include taxable termination payments), investment losses, employer provided fringe benefits, reportable super contributions and foreign income. Income also includes deemed amounts from account based pensions, unless grandfathered (no other financial assets are deemed for the CSHC income test).

Where someone has retired, or their financial circumstances may be markedly different in the future, Centrelink may accept an estimate of the person’s income for the following year in assessing eligibility for the CSHC.

Leave payments

An often asked question is whether it is financially better to take paid leave and terminate employment at the expiration of the leave payments, as opposed to terminating employment and having the leave payments paid out as a lump sum.

Table 2 contains some broad Centrelink considerations when making this decision.

Table 2

Consideration	Lump sum	Take paid leave
Disability Support Pension and JobSeeker Payment	–       Income maintenance period applies. –       Net lump sum means tested as per subsequent use.	–       No income maintenance period. –       Assessed as ordinary income over the period to which the leave relates.
Age Pension and Carer Payment	–       Net lump sum means tested as per subsequent use.	–       Assessed as ordinary income over the period to which the leave relates, with reduction for $300 pf work bonus.
Family Tax Benefit and Child Care Subsidy	–       Included in adjusted taxable income (ATI) for the year in which the payment is received.	–       Ongoing payments included in ATI for the year(s) in which the payments are received.
Commonwealth Seniors Health Card	–       Included in taxable income and therefore, forms part of ATI. Centrelink may accept an estimate of future income for assessing eligibility and exclude these leave payments.	–       Ongoing payments included in taxable income and therefore, forms part of ATI.
Low Income Health Care Card	–       Apportioned over a 12-month period and included as ordinary income.	–       Ongoing payments forms part of ordinary income.

Footnote

1. The Income Maintenance Period (IMP) also applies to Youth Allowance, Austudy and Parenting Payment.

 

QUESTIONS

To answer the following questions, go to the Learn tab at moneyandlife.com.au/professionals

1. Jenny’s job has been terminated as a consequence of the COVID-19 pandemic. Jenny has applied for the JobSeeker Payment (JSP), however, she has been informed that she must first serve a Liquid Assets Waiting Period (LAWP) based on the total liquid assets available to her. Which of Jenny’s following assets will not be included when calculating her LAWP?

a. Bank account balance.

b. Shares.

c. The amount available in a mortgage redraw facility.

d. Managed funds (a property trust).

 

2. Which of the following is not a criterion to qualify for the Commonwealth Seniors Health Card?

a. Be of Age Pension age or older.

b. Meet the income test.

c. Meet the ‘residency’ test.

d. Be receiving a means tested income support payment.

 

3. The tax-free amount of a genuine redundancy payment is included in the calculation of the ‘income maintenance period’. True or false?

a. True.

b. False.

 

4. David has been on continuous income support for over six months but he remains unemployed and unable to meet his living expenses, as evidenced by his current family budget. David wants to access his preserved superannuation under the ‘severe financial hardship’ condition of release. However, there are a number of aspects of the severe financial hardship condition of release that he needs to consider. Which of the following statements is incorrect?

a. The maximum amount that can be released to someone who has been on income support for a continuous period of not less than 26 weeks is $10,000.

b. Amounts released are always tax-free.

c. Assessment of the severe financial hardship condition of release is done by the super fund trustee.

d. For someone who has been in receipt of income support for at least 39 weeks since reaching preservation age, approval of severe financial hardship provides a condition of release for all the person’s preserved benefits.

 

5. Until 31 December 2020, temporary eligibility criteria for the JobSeeker Payment has been expanded to include which of the following:

a. An individual has had their working hours reduced due to adverse economic effects of COVID-19.

b. An individual who is in quarantine or self-isolation or caring for an immediate family member who is in quarantine or self-isolation.

c. An individual who is self-employed or a sole trader and whose business was suspended or suffered a reduction in turnover due to the adverse economic effects of COVID-19.

d. All of the above.