Calculating Deeming Rates

Calculate your deeming rates for financial assets with precision

Comprehensive Guide to Calculating Deeming Rates

Deeming rates are a critical component of Australia’s social security system, used to estimate income from financial assets when assessing eligibility for government payments like the Age Pension. This guide explains everything you need to know about deeming rates, how they’re calculated, and how they impact your financial situation.

What Are Deeming Rates?

Deeming rates are assumed rates of return that the Australian Government applies to your financial assets when calculating your income for social security purposes. Instead of using the actual income your assets earn, the government uses these standard rates to estimate your income.

The deeming system was introduced to:

• Simplify the assessment of income from financial assets
• Encourage fair treatment of all pensioners regardless of their investment choices
• Prevent people from structuring their finances to maximize pension payments

Current Deeming Rates (as of 2023)

The Australian Government sets two deeming rates:

1. Lower deeming rate: 0.25% per annum (applies to financial assets up to the threshold)
2. Higher deeming rate: 2.25% per annum (applies to financial assets above the threshold)

Situation	Single Threshold	Couple (combined) Threshold
Standard Threshold (from 1 July 2023)	$60,400	$100,200
Pensioner (single)	$60,400	N/A
Pensioner (couple, combined)	N/A	$100,200
Allowance recipient	$60,400	$100,200

How Deeming Rates Are Calculated

The deeming calculation follows these steps:

1. Identify your financial assets: This includes bank accounts, term deposits, managed funds, shares, and other financial investments (but not your principal home or superannuation in accumulation phase if you haven’t reached pension age).
2. Determine your threshold: Based on your situation (single or couple) and whether you’re receiving a pension or allowance.
3. Apply the deeming rates:
   • Lower rate (0.25%) to assets up to the threshold
   • Higher rate (2.25%) to assets above the threshold
4. Calculate deemed income:
   • (Assets ≤ threshold) × 0.25% = Income from lower portion
   • (Assets > threshold) × 2.25% = Income from higher portion
   • Total deemed income = Sum of both portions

Example Calculation

Let’s consider a single pensioner with $120,000 in financial assets:

1. Threshold for single pensioner: $60,400
2. Amount below threshold: $60,400
3. Amount above threshold: $120,000 – $60,400 = $59,600
4. Deemed income calculation:
   • $60,400 × 0.25% = $151 per year
   • $59,600 × 2.25% = $1,341 per year
   • Total deemed income = $151 + $1,341 = $1,492 per year
   • Fortnightly deemed income = $1,492 ÷ 26 = $57.38

Types of Assets Subject to Deeming

The following financial assets are typically subject to deeming:

• Bank, building society and credit union accounts
• Cash
• Term deposits
• Managed investments (including cash management trusts)
• Listed shares and securities
• Loans and debentures
• Gifts made after a certain date (currently $10,000 in a financial year or $30,000 over 5 financial years)
• Superannuation investments if you’ve reached pension age
• Account-based income streams (from 1 January 2015)

Assets Not Subject to Deeming

Some assets are exempt from deeming rules:

• Your principal home
• Superannuation in accumulation phase if you haven’t reached pension age
• Life interest in a property
• Certain income streams purchased before specific dates
• Funeral bonds up to the allowable limit
• Prepaid funeral expenses
• Certain compensation payments

Historical Deeming Rates

Deeming rates have changed over time in response to economic conditions. Here’s a historical overview:

Date Effective	Lower Rate	Higher Rate	Threshold (Single)	Threshold (Couple)
1 July 2023	0.25%	2.25%	$60,400	$100,200
1 July 2022	0.25%	2.25%	$56,400	$93,600
1 May 2020	0.25%	2.25%	$53,000	$88,000
1 July 2019	1.00%	3.00%	$51,800	$86,200
20 March 2015	1.75%	3.25%	$48,600	$79,600

How Deeming Rates Affect Your Payments

Deeming rates directly impact your eligibility for various government payments:

1. Age Pension: The most common payment affected by deeming. Your deemed income is added to your other income to determine your pension rate under the income test.
2. Disability Support Pension: Also subject to the income test which includes deemed income.
3. Carer Payment: Affected by both income and assets tests, with deeming applying to financial assets.
4. JobSeeker Payment: For those over the qualifying age, deeming applies to financial assets.
5. Parenting Payment: May be affected by deeming rules for some recipients.

The income test reduces your payment by 50 cents for every dollar of income over the free area. For single pensioners, the income free area is $190 per fortnight (as of 2023), and for couples it’s $336 per fortnight combined.

Strategies to Manage Deeming Rates

While you can’t avoid deeming rules entirely, there are legitimate strategies to manage their impact:

• Diversify your assets: Consider a mix of deemed and non-deemed assets to optimize your income stream.
• Review your investment structure: Some income streams purchased before certain dates may be assessed more favorably.
• Consider gifting within limits: You can gift up to $10,000 per financial year or $30,000 over 5 years without it counting under the gifting rules.
• Prepay funeral expenses: These are exempt from deeming and can help reduce your assessable assets.
• Home ownership: Your principal home is exempt from both the assets test and deeming rules.
• Superannuation strategies: If you’re below pension age, superannuation in accumulation phase isn’t deemed.

Common Misconceptions About Deeming Rates

There are several myths about deeming rates that can lead to confusion:

1. “Deeming rates are the same as interest rates”: Deeming rates are standard rates applied for social security purposes, not the actual rates you earn on your investments.
2. “All my assets are subject to deeming”: Many assets like your home and superannuation (in accumulation phase) are exempt.
3. “I can avoid deeming by choosing different investments”: The actual income your investments earn doesn’t matter – deeming applies regardless.
4. “Deeming rates never change”: The government reviews and adjusts deeming rates periodically, often in response to economic conditions.
5. “Deeming only affects pensioners”: Deeming can apply to various income support payments, not just the Age Pension.

Recent Changes and Future Outlook

The most recent change to deeming rates occurred on 1 July 2023, when the thresholds were increased to $60,400 for singles and $100,200 for couples. The deeming rates themselves (0.25% and 2.25%) have remained unchanged since 1 May 2020.

Future changes to deeming rates will likely depend on:

• Economic conditions, particularly interest rate movements
• Government budget considerations
• Inflation rates and cost of living pressures
• Political priorities and election commitments

It’s important to stay informed about potential changes, as they can significantly impact your financial situation. The Department of Social Services typically announces changes well in advance of their implementation.

Where to Get Help and More Information

If you need assistance with deeming rates or want to understand how they affect your specific situation, consider these resources:

• Services Australia: The government agency that administers social security payments. Their website has comprehensive information about deeming rules and calculators.
• Department of Social Services: Responsible for social security policy. Their website provides policy details and updates.
• Financial Information Service (FIS): A free service offered by Services Australia that provides confidential financial information and education. You can learn more here.
• Registered Financial Advisers: Can provide personalized advice about how deeming rates affect your overall financial situation and retirement planning.
• Community Legal Centres: Offer free or low-cost legal advice, including on social security matters.

For the most accurate and up-to-date information, always refer to official government sources or consult with a qualified professional.

Frequently Asked Questions About Deeming Rates

Q: Why does the government use deeming rates instead of actual income?
A: Deeming creates a fair and consistent way to assess income from financial assets, regardless of how people choose to invest their money. It prevents people from structuring their finances to minimize their assessable income while still benefiting from their assets.

Q: How often do deeming rates change?
A: There’s no fixed schedule for changing deeming rates. The government reviews them periodically and may adjust them in response to economic conditions, particularly changes in interest rates.

Q: Are deeming rates the same as the official cash rate?
A: No, deeming rates are set by the government and are different from the Reserve Bank’s official cash rate. However, movements in the cash rate can influence decisions about deeming rates.

Q: Do deeming rates apply to my superannuation?
A: It depends on your age and whether your superannuation is in accumulation or pension phase. Generally, superannuation in accumulation phase isn’t deemed if you haven’t reached pension age. Once you start an account-based pension, it becomes subject to deeming.

Q: Can I appeal a decision based on deeming rates?
A: If you disagree with how deeming rates have been applied to your situation, you can request a review of the decision. You may need to provide additional information about your assets or income.

Q: How do I calculate deeming if I have multiple financial assets?
A: All your financial assets are added together, and the deeming rules are applied to the total amount. The calculator above can help you work through this.

Q: What happens if my assets fluctuate in value?
A: For social security purposes, your assets are typically valued at their current market value. If your assets increase or decrease significantly, you should notify Services Australia as this may affect your payments.