The income test is one of two tests Centrelink applies to determine your Age Pension rate (the other is the assets test). Centrelink pays the lower of the two outcomes. The income test includes employment income, business income, rental income, and 'deemed' income from financial assets. Most retirees end up income-test controlled at lower balances and assets-test controlled at higher balances.

Deeming is the rule that says financial assets (account-based pension balances, shares, term deposits, managed funds) are assumed to earn a fixed return regardless of what they actually earn. Current deeming rates (since 1 July 2025, after the multi-year COVID-era freeze ended) are 1.25% on the first $64,200 (single) or $106,200 (couple), and 3.25% above that. The actual interest/dividends from those assets are ignored — only the deemed income counts. If your assets actually earn more than the deemed rate, you keep the difference; if they earn less, the deeming amount still counts against you.

Employment income gets a special concession called the Work Bonus: the first $300 per fortnight of employment income is excluded from the income test (about $7,800/yr). This makes part-time work in retirement attractive — a small job won't immediately reduce your pension. The remainder is added to deemed income; the total is compared to the income free area ($218/fn single, $380/fn couple combined, effective from 20 March 2026). Anything above the free area reduces the pension at 50 cents per dollar.

Pair this with the Assets Test Calculator to see which side controls your rate, and the Sweet Spot Calculator to see where additional assets stop being financially worthwhile.