What’s not considered “income” by the ATO?
Rudd Mantell Accountants • June 7, 2024
It is possible to receive amounts that are not expected by the ATO to be included as income in your tax return. However some of these amounts may be used in other calculations and may therefore need to be included elsewhere in your tax return.
The ATO classifies the amounts that it doesn’t count as assessable into three different categories: exempt income; non-assessable non-exempt income; and other amounts that are not taxable.
Exempt income
As the name may suggest, exempt income doesn’t have tax levied on it. The thing to remember here however is that certain exempt income may be taken into account for other adjustments or calculations — for example, when calculating the tax losses of earlier income years that you can deduct, and perhaps “adjusted taxable income” of your dependants.
Exempt income includes:
- certain government pensions, including the disability support pension paid by Centrelink to a person who is younger than age-pension age
- certain government allowances and payments, including the carer allowance and the child care subsidy
- certain overseas pay and allowances for Australian Defence Force and Federal Police personnel
- government education payments, such as allowances for students under 16 years old
- some scholarships, bursaries, grants and awards
- a lump sum payment you received on surrender of an insurance policy where you are the original beneficial owner of the policy – generally these payments are not earned, expected, relied upon or occur regularly (examples include payments for mortgage protection, terminal illness, and permanent injury occurring at work).
Non-assessable, non-exempt income
Non-assessable, non-exempt income is income you don't pay tax on and that also does not count towards other tax adjustments or calculations such as tax losses.
Non-assessable, non-exempt income includes:
- the tax-free component of an employment termination payment (ETP)
- genuine redundancy payments and early retirement scheme payments
- super co-contributions
- various disaster recovery assistance packages (although these need to assessed on a case-by-case basis).
Other amounts that are not taxable
Generally, you don't have to declare:
- rewards or gifts received on special occasions, such as cash birthday presents and gifts from relatives given out of love (however, gifts may be taxable if you receive them as part of a business-like activity or in relation to your income-earning activities as an employee or contractor)
- prizes you won in ordinary lotteries, such as lotto draws and raffles
- prizes you won in game shows, unless you regularly receive appearance fees or game-show winnings
- child support and spouse maintenance payments you receive.
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