1.4 COMPONENTS OF INCOME
COMPONENTS OF INCOME
In the HES and SIH, income is collected by separate components. This section describes the definitions used for each of those components, and also describes some components of income that are not included in the aggregate income measures included in HES and SIH publications. Data for some of the excluded components are available from the surveys. Each of the detailed income data items available, and the alternate aggregate measures of income, are included in the data item list referred to in section 2.3 'Data collection and data item description'.
Wage and salary income
Wage and salary estimates
Wage and salary income is collected in the HES and SIH from each person aged 15 years and over who worked for an employer or in his/her own limited liability business. It comprises the gross cash income received as a return to labour from an employer or from a person's own incorporated business.
The aggregate current income estimates produced from the HES and SIH include the usual pay that survey respondents received in the most recent pay period. They include wages and salaries, tips, commissions, piecework payments, penalty payments and shift allowances, remuneration for time not worked (e.g. sick and holiday pay) and workers’ compensation paid through the payroll. They do not include overtime if not worked on a regular basis, leave loadings, bonuses and the like. These receipts are excluded because they are not received each pay and therefore their inclusion would overstate the overall economic wellbeing of the recipient. However, estimates of leave loadings and other bonuses received on a regular basis are available separately.
The aggregate annual income estimates produced from SIH include total income from all jobs. Because the annual income estimates relate to a longer time period, they include the less regular receipts from irregular overtime, leave loading, bonuses and the like. Appendix 1 'Current and annual income' illustrates the differences between the current and annual estimates of wage and salary income.
Salary sacrificed income
The aggregate income estimates produced from the HES and SIH are essentially restricted to cash income for ease of collection, measurement and interpretation. It is often difficult for survey respondents to report the value of in-kind income received in the form of employer supplied housing, motor vehicle or superannuation contributions. However, in the case of negotiated salary sacrifice arrangements, the value of salary foregone to receive additional employer supplied benefits can be reported relatively easily by survey respondents. Furthermore, employees have a choice about taking the income as cash income or as employer supplied benefits. Therefore salary sacrificed income can be regarded as cash or 'near cash' income, and, in principle, is included in the scope of cash wages and salaries in the HES and SIH.
The SIH collected supplementary information about salary sacrificed income for the first time in 2003-04. In that year it was found that about two thirds of salary sacrificed income had been included by survey respondents when reporting the value of wages and salaries as included in the aggregate income estimates produced from the SIH and HES. Details about salary sacrificed income are available, both for that part included in the aggregate income estimates and that part that is not.
Other in-kind income from employment
While not included in aggregate estimates of wages and salaries, estimates are available from the HES of the difference between the full retail value of a good or service provided by an employer and the amount paid by the household member, with the exception of subsidies for goods and services which cannot be distinguished from refunds.
Own unincorporated business income
Own incorporated business income is collected from all persons aged 15 years and over who are working as owners or partners in unincorporated enterprises. Own business income is the share of profit/loss of the enterprise accruing to the person. Profit/loss consists of the value of the gross output of the enterprise after the deduction of operating expenses and an allowance for depreciation of assets used in producing the output. Losses occur when operating expenses and depreciation are greater than gross receipts and are treated as negative incomes.
Since profit or loss calculations are often only made by businesses on a quarterly or annual basis, it is not possible to collect data on current income in the same way as can be done for wages and salaries or current cash transfer income. Instead, survey respondents are requested to provide an estimate of the own business income they expect to receive in the current financial year. Responses are likely to be less accurate when collected early in the year and more accurate when collected later in the year, and there is some likelihood that responses will tend to be too optimistic or too pessimistic, resulting in some bias in the aggregate estimate. However, this methodology gives better results than the methodology used in surveys up to and including 2002-03 that simply extrapolated reported own business income from the previous financial year onto the current period. Under the previous methodology, estimates could also have a strong downwards bias, particularly for new businesses, but could also be significantly upwardly biased if the current business circumstances had turned down from the previous year. The new methodology results in far fewer households being recorded with current business incomes that are negative, zero or only slightly positive.
Investment income
Investment income includes interest and dividend income received as a result of the ownership of financial assets such as bank accounts and shares, and rent and royalty income received from the ownership of non-financial assets. The rent component of investment income is measured on a net basis, that is, gross rent less operating expenses and depreciation allowances. The other components, for which associated expenses are normally relatively small, are on a gross basis.
Rent comprises receipts from residential properties, other than owner-occupied dwellings, and from non-residential properties. Operating expenses deducted from gross rent include repairs and maintenance expenses, rates, interest payments and the like. If the operating expenses plus depreciation allowances are greater than the gross rent, net rent income is negative.
Current investment income is collected by asking survey respondents for an estimate of their total expected income in the financial year, as described above for own unincorporated business income.
Government pensions and allowances
Government pensions and allowances are cash transfer payments made by government to persons under social security and related government programs. They are primarily paid by Centrelink or the Department of Veterans' Affairs, and include pensions paid to aged persons, Newstart, benefits paid to veterans and their survivors, study allowances for students, family tax benefit, etc.
Receipts of family tax benefit are treated as income, regardless of whether they are received fortnightly or as a lump sum. However, they are only included in gross income if they are received fortnightly. To facilitate estimation, they are excluded from gross income if taken as a lump sum but these amounts are added to disposable income.
The one-off payment to seniors paid in 2000-01 and the one-off payments to families and carers paid in 2003-04 are included as income as they were primarily a supplement to existing income support payments. However, the aged persons' savings bonus and self-funded retirees' supplementary bonus, paid as part of the introduction of The New Tax System in 2000-01, are regarded as capital transfers as they were designed to help retired people maintain the value of their savings and investments following the introduction of the GST.
Values of family tax benefit paid as a lump sum and one-off payments regarded as income are annualised, that is, treated as though they were paid evenly through the year. Therefore the amount included in current weekly income is the total payment for the year divided by 52.14, the average number of weeks in a year. The payments are assigned to all respondents who would have met the eligibility criteria at the time that they were interviewed, even if the payments were only announced after the interview took place. (See also section 2.5 'Income tax and other modelled data items'.) If an annualised approach were not taken, a few respondents receiving the benefit would include a large amount in the current income, and most people eligible for the benefit would not include any payment because it was not received in the fortnight before the interview.
All pensions received from overseas are included under government pensions and allowances.
Other cash transfer income
Other cash transfer income include non-government pensions such as superannuation and life insurance pensions, regular annuity benefits, private scholarship or study allowances, workers’ compensation not paid through the payroll, child support payments (non-government), and other regular transfers between households such as parental allowances paid to students living away from home.
Note that, while child support and other transfers from other households are included in the income of the households receiving the transfers, they are not deducted from the disposable income of the households making the transfers.
The surveys collect current transfer information by asking recipients what their last payment is and the period it covers. Assuming that transfer payments are fairly uniform, the last actual receipt is considered a good proxy for usual income.
Children's income
Estimates of the income of children aged less than 15 years are available from the HES only, but are not included in the aggregate estimates of income from the HES or the SIH. Income of children is collected from the first parent or guardian interviewed.
Income tax and Medicare levy
In the SIH and HES, estimates of income tax and the Medicare levy relate to the liability associated with the income being reported by respondents, regardless of when it is actually paid. In other words, an accrual rather than cash based concept is being used.
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