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Name of variable
Definition of variable
Components of total income
Reference periods
NAME OF THE VARIABLE
5. The name of the variable is 'Total income'.
DEFINITION OF THE VARIABLE
Nominal definition
6. The standard nominal definition of 'Total income' is:
Total income consists of all current receipts, whether monetary or in kind, that are received by the household or by individual members of the household, and which are available for, or intended to support, current consumption.
Total income includes receipts from:
- employment (employee income and income from self employment)
- investment (interest, dividends, rents and royalties)
- production of household services for own consumption (owner-occupied dwellings, unpaid domestic services)
- current transfers (pensions, annuities, benefits and allowances; transfers from non-profit institutions and other households).
Total income excludes capital transfers received and certain current transfers treated as offsets against expenditures. It excludes receipts that reduce the net worth of the household, or individual members of the household, through a reduction of cash reserves, the disposal of other financial or non-financial assets, or an increase in liabilities. It also excludes holding gain / losses resulting from changes in the value of assets and liabilities.
Exclusions
- capital transfers e.g. inheritances, lump-sum retirement benefits, life insurance claims (except annuities), compensation (except for foregone earnings), loan repayments
- certain current transfers offset against expenditures e.g. lottery and other gambling winnings, non-life insurance claims, government reimbursements of expenditure such as Medicare and child care rebates
- receipts that result from a reduction in net worth e.g. sale of assets, withdrawals from savings and loans obtained.
- holding gains / losses resulting from changes in the value of financial and non-financial assets and liabilities e.g. the value of shares held.
7. The Conceptual framework for income provides the conceptual definition for each of the income components and discusses the exclusions in more detail.
Operational definition
8. The standard operational definition of 'Total income' is the sum of amounts from the following sources before any deductions such as income tax, the Medicare Levy or salary sacrificed amounts are taken out:
- employee income;
- own unincorporated business income (profit or loss from self employment);
- government pensions and allowances;
- investment income;
- superannuation pensions and annuities;
- other current transfers received.
9. Consistent with the conceptual definition, the operational definition excludes capital transfers, certain current transfers offset against expenditures, holding gains and losses and other receipts that result from a reduction in net worth.
10. The standard operational definition is more limited in scope than the conceptual definition of income as it is constrained by practical considerations such as the availability of data. For practical reasons, the operational definition normally excludes income from the production of household services for own consumption, that is, imputed rent from owner occupied dwellings and subsidised rentals, estimates of unpaid domestic services and services from consumer durables. There are other differences between the conceptual and operational definitions and these are described in the section below, 'Components of total income'.
11. In addition to the differences between the standard conceptual and operational definitions, there are also differences in the level of implementation of the operational definition possible in each of the standard income modules. While the operational definition is fully implemented in the detailed income module, it is not possible to collect details on all the components in the shorter modules due to space and time constraints.
12. For more detailed information about the conceptual and operational exclusions from 'Total income', see 'Appendix D:Exclusions from the nominal and operational definitions of income' under the downloads tab.
COMPONENTS OF TOTAL INCOME
13. Income may be received from employment (employee income or own unincorporated business income), through government pensions and allowances or from the ownership of assets (investment income). Other sources of income include superannuation pensions and annuities and other current transfers received.
Employee income
14. Employee income is the total (or gross) income received as a return to labour from an employer or from a person's own incorporated business.
15. Employee income comprises direct wages and salaries for time worked and work done, overtime, bonuses and gratuities, commissions and tips, directors’ fees, profit-sharing bonuses or pay, piece rates, penalty payments and shift allowances, directors' fees for working directors, remuneration for time not worked (e.g. sick leave, public holidays) and severance and termination pay. Salary packaged income is also included in employee income (that is, amounts salary sacrificed as well as free or subsidised goods provided from an employer, such as employer supplied housing or a motor vehicle).
16. The operational definition of employee income does not include employers' social contributions. Employers' social contributions are those payments made by employers to schemes for the benefit of their employees such as workers' compensation insurance and mandated payments to superannuation schemes.
Own unincorporated business income
17. Own unincorporated business income is the profit or loss that accrues to owners of, or partners in, their own unincorporated businesses. Profit or loss is the value of the gross output of the enterprise after the deduction of operating expenses, including depreciation and operating costs, but before income tax is taken out. Losses occur when operating expenses are greater than receipts and are treated as negative income.
18. Profits or losses from capital investments of partners who do not work in these enterprises i.e. "silent" partners are included in investment income, rather than own unincorporated business income.
19. The operational definition of own unincorporated business income excludes the estimated value of goods and services produced for barter as well as goods produced for own consumption, less the expenses of producing them.
Government pensions and allowances
20. Government pensions and allowances include cash transfer payments made by government entities to persons under social security and related government programs. They are primarily paid by Centrelink, the Department of Veterans' Affairs and the Family Assistance Office and include pensions paid to aged persons and jobseekers, benefits paid to veterans and their survivors, study allowances for students and family support payments. All pensions received from overseas are included under government pensions and allowances.
21. Some government payments are excluded as they are considered to be a capital transfer rather than a current transfer. Their respective treatment is determined by the intent of the government payments and the associated eligibility criteria. For example, receipts from the First Home Owner Grant Scheme are regarded as capital transfers as they are designed to help first home buyers purchase their own home, while the Baby Bonus is considered a current transfer as the intention of the payment is to offset some of the extra costs associated with the birth of a child.
22. Income from government pensions and allowances does not include government payments considered reimbursements of expenditures such as the Medicare Rebate, the Private Health Insurance Rebate, Child Care Benefit and the Child Care Tax Rebate.
Investment income
23. Investment income, also commonly referred to as property income, includes interest and dividends received as a result of the ownership of financial assets such as shares and funds deposited in bank accounts, and rent and royalty payments received from the ownership of non-financial assets.
24. Interest receipts are payments from banks and other financial institutions (e.g. credit unions), for the use of funds held in accounts with them, certificates of deposit, government bonds, securities, debentures and loans to non-household members (excluding repayments of the principal). Dividends are receipts from investment in an enterprise in which the investor does not work i.e. "silent" partners. Dividends should be recorded net of expenses.
25. Rent comprises receipts from residential properties and from non-residential properties. Operating expenses deducted from gross rent may include repairs and maintenance expenses, rates, body corporate fees, real estate agent management fees, insurance costs, interest payments and the like. If the operating expenses plus the depreciation allowances are greater than the gross rent, net rental income is negative.
26. Royalties are payments made to the owners of intellectual property in return for the right to use the intellectual property i.e. patented or copyright materials. Superannuation pensions and annuities
27. Superannuation pensions and annuities include all pensions and regular superannuation payments other than those received under government social security and related schemes i.e. government pensions and allowances. Lump sum retirement benefits are excluded.
Other current transfers received
28. Other current transfers received include:
- Workers' compensation
- Payments from accident/sickness insurance, i.e. income protection insurance or life insurance annuities
- Transfers from other households (includes alimony and child support and other financial assistance provided by family members not resident in the household)
- Scholarships.
29. The operational definition of 'other current transfers received' does not include social transfers in kind, that is non-cash benefits and services provided by the government or by non-profit institutions to households for education, health, housing, social security and welfare. These benefits include reimbursements of approved expenditures such as the Medicare Rebate, the Private Health Insurance Rebate, the Child Care Benefit and the Child Care Rebate.
REFERENCE PERIODS
Current income
30. For most purposes, the ABS uses current income, rather than annual income. Current income is the income received by respondents at the time data are collected. Current income provides the most up to date information available and in some cases the most accurate information available.
31. Current income is collected using a number of different reporting periods. For income from investments or own unincorporated businesses, respondents are generally asked to estimate the amount they expect to receive in the current financial year. For income from other sources, respondents are generally able to select the period to which the income amount relates e.g. week, fortnight, four weeks, calendar month, year or other. The income amounts reported are divided by the number of weeks in the reporting period to obtain weekly income.
Annual income
32. Annual income, with respect to the previous financial year, is collected in the detailed income module. Annual income provides a somewhat longer term perspective of income, providing data about income obtained from all sources over a period of a whole year. It has the advantage of being less sensitive to short term variations in income, such as a person having little or no income for a short period of non-employment, but for which they have adequate resources from past employment or prospective employment to avoid economic hardship.
33. However, annual income has the potential to be limited in its relevance to the current situation of respondents, especially when analysing the combined income of a household which gained or lost adult members during the course of the year. There are also practical difficulties in collecting annual income, especially from respondents who may have had relatively short periods of time in different jobs or who received government pensions for relatively short periods of time during the year. |
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