The "Work Bonus"
The Work Bonus provides an incentive for individuals and couples in receipt of a pension to continue earning employment income by reducing the impact of any employment earnings on the Income Test and therefore on the level of the pension they receive.
Who is eligible for the Work Bonus?
All pensioners over Age Pension age are eligible for the Work Bonus if they have "employment income" - which is defined as including:
- wages paid in Australia and outside Australia
- leave, where you remain an employee of the same employer and
- director’s fees, and
- self employed income which involves "active participation"
Self employed income was excluded from the Work Bonus until relatively recently, but the "active participation" requirement means that the work must involve individual effort, examples provided include bookkeeping, lawn mowing and plumbing, and the bonus doesnt extend to activities such as managing investments or rental properties.
How does the Work Bonus affect pension rates?
As mentioned above, the Work Bonus increases the amount an eligible pensioner can earn from employment before it affects their pension rate. The first $300 of fortnightly employment income is not assessed or counted under the pension Income Test. Note that the Work Bonus applies to individual pensioners; it cannot be shared by a pensioner couple.
Work Bonus "Income Bank"
Note that any unused portion of the excluded fortnightly $300 will accumulate in an ‘income bank’ up to a maximum amount of $7,800. This balance is not time limited and, if unused, it will carry forward, even across a number of years. This should happen automatically as long as you report your income to Centrelink.
The consequence of both the fact that individuals can earn up to $174 per fortnight without affecting their pension plus the $300 work bonus is that Age pensioners can regularly earn up to $12,324 per annum without it affecting their pension and potentially more in a particular year if they have an Income bank to draw on.
Bob claims the single Age pension and works on a regular, part time basis at a local store, earning $396 per fortnight with no other income sources. Applying the Work Bonus, only $96 of that income ($396-$300) is assessable income under the Income Test - that is below the income test free level of $174 per fortnight and he can earn this income without it affecting his Age pension
Angela and Jim are a couple who both receive the Age pension. Angela works at an accountancy firm for 2 days a week earning $600 per fortnight, while Jim regularly works as a handyman on a regular part time basis earning $300 per fortnight. Effectively a combined employment income of $23,400 per annum.
Angela and Jim's combined assessable income of $900 per fortnight is $592 higher than the income test free area for a couple of $308 per fortnight. Without the Work Bonus their combined pension would be reduced by $296 per fortnight - from $1297.40 to $1001.40 per fortnight (excluding supplements).
Applying the Work Bonus to both Angela and Jim; Angela has her assessable income reduced to $300 pfn ($600 - $300) and Jim to $0 ($300 - $300) for a total of $300. This is less than the $308 pfn (the couples income test full pension threshold) and therefore they remain entitled to the full fortnightly pension, even after their earnings.
Mark is employed seasonally for 8 weeks on the grape harvest, earning $6000. Mark has not worked in the previous 12 months and as a result he has accumulated the maximum income bank amount of $7,8000 (26 fortnights x $300). As Mark's Work Bonus income bank” amount of $7,800 exceeds his employment income, none of the $6,000 is assessed under the income test and he will continue to receive the maximum Age Pension.
In addition, Mark will still have $3,000 in his Work Bonus “income bank” to offset any future employment earnings ($7,800 - $6,000 earnings + $300 Work Bonus concession for each of the four fortnights that Mark works).
Application for the Work Bonus
Pensioners don't need to apply for the Work Bonus. Pensioners with variable fortnightly employment income must however keep Centrelink informed of their income, as the Work Bonus can only be applied to employment income that has been reported.
The whole process is complicated but it is taken into account in our Age Pension Calculator.