The Age Pension income test reduces your payment once fortnightly income rises above the free threshold, and Centrelink runs both an income test and an assets test, then pays you whichever result gives the lower payment reduction. Employment income, deemed income from financial assets, and income streams all feed into the calculation, while the Work Bonus lets working pensioners earn more before their payment starts dropping.
TL;DR:
- The income test thresholds are set at $218 per fortnight for singles and $380 combined for couples, with reductions starting above these limits.
- Deeming applies to most financial assets, potentially inflating assessed income if actual returns are lower than the deemed rate, affecting pension eligibility.
- The Work Bonus allows pensioners earning less than $300 a fortnight from employment to exempt that amount from income testing, with unused portions banked for future use.
- Centrelink pays the lower result between the income test and assets test, so strategic asset management is crucial to maximize pension entitlements.
- Thresholds and rules change several times a year, making it vital to consult the latest figures and plan financial moves accordingly before major transactions.
Table of Contents
- What counts as income under the Age Pension income test?
- What are the income free area and cut-off points?
- How does deeming affect your assessed income?
- How does the Work Bonus treat employment income?
- Why does Centrelink use the lower of two tests?
- How and when do you report income to Centrelink?
- Worked examples: how the reduction actually plays out
- Amber Wealth perspective: turning the rules into a plan
- Transitional pensions and grandfathered rates
- How do lump sums and irregular income affect your assessment?
- How is self-employed or business income assessed?
- Does the income test affect concession cards and other benefits?
- How often does Centrelink reassess your income?
- What can you do if you disagree with an income test decision?
- A short note on where clients go wrong
- How Amber Wealth can help you plan around the income test
- Sources
What counts as income under the Age Pension income test?
Services Australia counts almost everything you might reasonably call income. That includes wages and salary, business income, rental income, interest, dividends, income from account-based pensions and annuities, and most overseas income. Superannuation still sitting in accumulation phase generally isn't counted until you draw on it, but once it converts to an income stream, it's assessed under the deeming rules or as actual income, depending on the product.
Centrelink groups your income sources into a single fortnightly figure using Services Australia's income test, which also confirms it applies both the income test and the assets test and pays out whichever produces the lower reduction. The main categories are:
- Employment and self-employment earnings
- Superannuation income streams, annuities and account-based pensions
- Rental income and investment property returns
- Interest, dividends and managed fund distributions
- Deemed income from financial assets (covered below)
- Most overseas pensions and foreign income
MoneySmart's overview of Age Pension eligibility notes that thresholds shift depending on whether you're single, partnered, and whether you or your partner are Australian residents, so your own numbers may not match a friend's even at the same fortnightly income.
What are the income free area and cut-off points?
Singles can earn up to $218 a fortnight and couples up to $380 combined before their pension starts reducing, based on thresholds Services Australia applies from 1 July 2026 with further adjustments through September 2026. Above that, the pension drops by 50 cents for every dollar earned for a single person, and by 25 cents in the dollar for each member of a couple.
Those reduction rates apply until the payment reaches zero, known as the cut-off point. SuperGuide's rundown of the income test confirms these cut-off figures move with each scheduled update in March, July and September, so a number that was accurate six months ago can be out of date.
Pro Tip: Bookmark the Services Australia payment rates page rather than relying on a saved screenshot or an old blog post. Thresholds move at least twice a year, and outdated figures lead to miscalculated retirement plans.
| Situation | Fortnightly free area | Reduction rate | Approx. cut-off point (fortnightly income) |
|---|---|---|---|
| Single | $218 | 50 cents per dollar over | Pension reaches $0 well above the free area |
| Couple (combined) | $380 | 25 cents per dollar over, per partner | Higher combined cut-off than a single person |
Transitional rate pensioners, a shrinking group grandfathered under pre-2009 rules, have their own separate thresholds and taper rates. If you're unsure which category applies to you, it's worth checking directly with Services Australia rather than assuming the standard rates apply.
How does deeming affect your assessed income?
Deeming assumes your financial assets earn a set rate of return, regardless of what they actually earn. Centrelink applies this to bank accounts, term deposits, shares, managed funds and most superannuation income streams, rather than tracking your real interest or dividend payments fortnight by fortnight, according to Services Australia's deeming rules.
This matters more than most retirees expect. If your term deposit is paying less than the deemed rate, you're assessed as earning more than you actually receive. If it's paying more, the excess doesn't count against you at all.
- Deeming applies to savings accounts, shares, managed investments and most account-based pensions.
- Direct property, your own home, and most defined-benefit pensions are usually assessed differently, not deemed.
- Moving money between deemed products rarely changes your assessed income, since the total asset value matters more than which account it sits in.
Pro Tip: Before moving super or savings into a different product, ask how it's assessed under both the income test and the assets test. A product that looks better on one test can quietly cost you on the other.
How does the Work Bonus treat employment income?
The Work Bonus exempts the first $300 of fortnightly employment income from the income test, and any unused portion accumulates in a work bonus income bank you can draw on later, up to a cap, under Services Australia's Work Bonus scheme.
- Every fortnight you earn less than $300 from work, the unused amount adds to your income bank.
- When you take on extra shifts or seasonal work, Centrelink draws down your income bank first before counting the excess against your pension.
- Report your income each fortnight through myGov so Centrelink can apply the exemption and bank balance correctly.
Retirees who work irregular hours, think seasonal farm work or relief teaching, often build a healthy income bank during quiet periods that shields a later burst of earnings.
Why does Centrelink use the lower of two tests?
Centrelink calculates your entitlement under both the income test and the assets test, then pays whichever result gives you the lower reduction (in other words, the higher payment). Services Australia confirms this explicitly: whichever test cuts your pension more is the one that applies.
This creates a genuine trap. Someone with modest income but a large share portfolio might sail through the income test but get caught by the assets test, and vice versa for someone with high super income streams but few other assets. National Seniors has pointed out that strategic modelling of deeming and asset structure often matters more than simply tracking cash flow, because moving assets between categories can shift your deemed income even when your actual spending money hasn't changed.
Common pitfalls to watch for:
- Converting cash into an asset that gets deemed at a higher effective rate than the interest it was actually earning.
- Receiving a lump sum, like an inheritance or redundancy payout, that pushes you over the assets test threshold before you've had time to plan.
- Gifting money to family to "reduce" assets, which Centrelink still counts against you for five years under gifting rules.
Before shifting money anywhere near retirement, run the numbers through both tests, and understand how the assets test thresholds interact with your income position.
How and when do you report income to Centrelink?
Centrelink assesses most Age Pension recipients on a fortnightly reporting cycle, though your specific reporting dates depend on your payment schedule. You report through your myGov account linked to Centrelink, or the Express Plus mobile app, and you need to report any change in income as it happens, not just at your scheduled reporting date.
- Report wages, casual shifts and any new income source before your next payment is due.
- Keep payslips, bank statements and superannuation income stream statements on hand, since Centrelink can request them to verify your reported figures.
- A missed or late report can delay payment or trigger a debt recovery notice if your income was higher than what Centrelink last assessed.
Self-employed pensioners and those with irregular income streams should expect closer scrutiny, since Centrelink can't verify these figures against a payslip the way it can for employees.
Worked examples: how the reduction actually plays out
- Single pensioner, $300 a fortnight in wages. The first $218 sits inside the free area. The remaining $82 is reduced at 50 cents in the dollar, cutting the pension by $41 a fortnight.
- Couple, $500 combined fortnightly income. After the $380 free area, $120 remains. Split between two people and reduced at 25 cents each, the combined pension drops by $30 a fortnight.
- Single retiree with $200,000 in term deposits. Deeming assesses a portion of that balance as income regardless of the account's actual interest rate, which can push someone close to the free area over the threshold even without earning a cent in wages.
These are simplified illustrations. Your actual reduction depends on the exact thresholds in force when you're assessed, since SuperGuide's threshold tracker shows these figures move several times a year.
Amber Wealth perspective: turning the rules into a plan
Understanding the thresholds is one thing. Applying them to your own super balance, investment property and part-time income is another. A short checklist helps:
- Model both the income test and the assets test before making any lump sum decision.
- Check how your specific super products are deemed versus assessed as direct income.
- Review timing before receiving an inheritance, selling an asset, or gifting money to family.
- Get advice before restructuring anything if you hold an SMSF, multiple income streams or a large share portfolio.
Amber Wealth works through these scenarios directly with clients through its Age Pension strategy service.
Transitional pensions and grandfathered rates
Some retirees still sit on transitional rate pensions, a legacy arrangement from the 2009 pension reforms that changed how income and assets were assessed. If you were receiving a part pension before September 2009 and would have been worse off under the new rules, Centrelink grandfathered your rate using the old taper of 40 cents in the dollar for singles, rather than the current 50 cents.
This group is shrinking every year, since transitional arrangements only apply to those already assessed under the old rules at the time of the changeover, but if you or your parents fall into this category, it's worth checking directly rather than assuming the standard 2026 thresholds apply. The transitional rate is recalculated alongside the standard rate at every assessment, and Centrelink pays whichever is higher. For most people currently approaching pension age, transitional rates are irrelevant. But if you've been on a part pension continuously since before the reforms, don't assume the current thresholds in this article describe your situation.
A related grandfathering issue applies to certain account-based pensions purchased before 1 January 2015, which can retain more favourable income test treatment than pensions purchased today. If you hold one of these older products, check its assessment method before making any changes, since switching providers or restructuring the pension can strip away that grandfathered status permanently. This is a genuine trap for people who think they're simply consolidating super into a better-performing fund, only to find the new pension is assessed less favourably than the one they gave up.
How do lump sums and irregular income affect your assessment?
A one-off payment, like an inheritance, redundancy payout, or the sale of an investment property, isn't automatically treated as fortnightly income. Centrelink generally treats a lump sum as a change in your assets rather than ongoing income, unless it's a periodic payment like a compensation instalment.
Once that lump sum sits in your bank account or gets invested, it becomes part of your assessable assets and gets deemed like any other financial holding. This is where people get caught out: they receive $150,000 from a house sale, park it in a savings account "temporarily," and suddenly their deemed income jumps enough to push them past the income test threshold, even though they haven't spent a cent of it.
Irregular income, think an annual bonus, seasonal work, or a one-off consulting fee, gets averaged differently depending on the source. Employment income reported irregularly is generally assessed in the fortnight it's received, which can create a sharp but temporary reduction in payment. If you know a lump payment is coming, it's worth reporting it proactively rather than waiting for Centrelink to catch it during a data match, since retrospective debts carry the same weight as any other Centrelink overpayment.
Compensation payments, redundancy payouts and inheritance windfalls each have slightly different treatment under Centrelink's rules, and the timing of when you report versus when the money actually lands can shift your assessment period. If a lump sum is on its way, this is exactly the kind of situation where checking Age Pension eligibility criteria before the money arrives, rather than after, gives you room to plan around the assessment rather than reacting to it.
How is self-employed or business income assessed?
Self-employed pensioners face a more complex assessment than employees, because Centrelink looks at net income from the business, not gross revenue. That means your assessable income is what's left after legitimate business deductions, similar to how the Australian Taxation Office treats business profit, though Centrelink's assessment doesn't always align perfectly with your tax return timing.
If your business income fluctuates, a busy season followed by a quiet one, Centrelink can average that income over a period rather than assessing you purely on your worst or best fortnight. This matters for tradespeople, farmers, and anyone running a seasonal operation, since a single strong quarter shouldn't necessarily wipe out your pension for the following six months if the annual picture balances out.
Business assets also complicate the picture. Equipment, stock, and any property used in the business generally get assessed under the assets test alongside your other holdings, while the income itself falls under the income test. This dual assessment means a small business owner needs to think about both sides of the ledger, not just their take-home pay.
Documentation matters more for self-employed pensioners than for employees, since there's no payslip to verify figures automatically. Centrelink will typically ask for profit and loss statements, BAS lodgements or tax returns to confirm what you're reporting. If your business income genuinely varies month to month, keeping clean records isn't just good business practice, it's what protects you if Centrelink queries your reported figures later.
Does the income test affect concession cards and other benefits?
A reduced pension because of the income test doesn't automatically strip away everything that comes with it. Many pensioners who drop to a small part pension, or even lose the pension entirely due to income, can still retain access to the Pensioner Concession Card or qualify for the Commonwealth Seniors Health Card instead, which carries its own separate income thresholds.
Rent Assistance, if you're eligible, is calculated as an add-on to your pension rate and reduces in line with any income test reduction to your base payment, rather than being assessed completely separately. If your income test reduction is severe enough to bring your total payment close to zero, it's worth checking whether you retain any concession card eligibility before assuming you've lost everything Centrelink offers.
The Pharmaceutical Allowance and various state-based concessions, seniors' transport cards, utility rebates, and council rate reductions in some states, are often tied to holding a valid concession card rather than to the pension amount itself. This is a detail that catches people out: they see their pension reduced to a small fortnightly amount and assume the associated concessions have vanished too, when in fact the concession card can remain active even at a very low or nil pension rate, provided you still meet the underlying eligibility rules.
How often does Centrelink reassess your income?
Centrelink reviews most Age Pension recipients on a fortnightly cycle tied to your individual payment schedule, not a single fixed date for everyone. Beyond the routine fortnightly reporting, Services Australia runs scheduled threshold updates in March, July and September each year, meaning your entitlement can shift even if your personal income hasn't changed at all.
Data matching with the Australian Taxation Office and other government agencies happens periodically throughout the year, which is how Centrelink catches unreported income or asset changes that weren't self-reported. If a data match reveals a discrepancy, you'll typically get a letter requesting clarification or supporting documents before any debt is raised, rather than an automatic reduction.
Annual reviews are also common for pensioners with more complex financial situations, self-employment income, overseas pensions, or multiple income streams, where Centrelink wants a fuller picture than the standard fortnightly report provides. If you fall into this category, expect a more detailed annual reconciliation on top of your regular reporting obligations.
The practical takeaway is that your assessment isn't a "set and forget" figure. Even if you report accurately every fortnight, the free area and cut-off points themselves shift several times a year, so a payment that felt stable in January can look different by September without you doing anything wrong.
What can you do if you disagree with an income test decision?
If Centrelink reduces or cancels your pension based on an income test decision you believe is wrong, you have a formal right to seek an explanation and ask for a review. The first step is requesting an explanation from Services Australia directly, since sometimes the issue is a data entry error or a misclassified income source that can be corrected without a formal appeal.
If that doesn't resolve it, you can request a formal review by an Authorised Review Officer, a Centrelink staff member who wasn't involved in the original decision. This review is free and doesn't require legal representation, though providing clear documentation, payslips, bank statements, or evidence of how an asset is structured, strengthens your case considerably.
If you're still unsatisfied after the Authorised Review Officer's decision, the next step is the Administrative Review Tribunal, an independent body that reviews Centrelink decisions from outside the agency itself. There are time limits for lodging an appeal at each stage, so acting promptly matters more than gathering every possible piece of supporting evidence first.
Throughout any dispute, your existing payment generally continues at the disputed rate while the review is underway, though this can vary depending on the nature of the decision. Keeping records of every submission, phone call reference number, and letter exchanged with Centrelink makes the process considerably smoother if your case progresses beyond the first review stage.
A short note on where clients go wrong
The mistake I see most often isn't ignorance of the rules, it's timing. Someone sells a property, parks the proceeds, and only afterwards asks what that does to their pension. Model both tests before the transaction, not after. Get advice early enough that you still have options.
— Adam
How Amber Wealth can help you plan around the income test
Working through free areas, deeming rates and the interaction between two separate tests is exactly the kind of problem that benefits from a second set of eyes, especially when a decision (selling an investment, restructuring super, receiving an inheritance) can't easily be undone once it's made.
Financial advisers can model your specific income sources and assets against both the income test and the assets test, rather than relying on general thresholds that may not reflect your actual mix of super, savings and property. An initial appointment typically covers a full review of your current and projected income, an assessment of how your super and investments are likely to be deemed, and a practical Centrelink strategy tailored to your timeline rather than a generic checklist. If you're weighing up a major financial decision, selling a rental property, restructuring an SMSF, or planning how to handle an upcoming inheritance, that's precisely when a wrong move can cost you thousands in lost pension entitlement over time. Beyond the pension itself, broader retirement planning advice can help you see how these decisions fit your overall retirement income picture, not just your Centrelink assessment. For homeowners weighing up granny flat arrangements as part of their asset planning, Navilot's plain-English guide to granny flat approval in NSW is a useful starting point before those conversations begin. If you'd like your own numbers modelled properly, book a consultation through Amber Wealth's Age Pension strategies service and get a clear picture before you make your next move.
This article is general information, not a substitute for advice from a qualified financial advisor. Consult a qualified financial professional about your own circumstances before acting on anything here.