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CONTENTS
Passage History
Purpose
Background
Main Provisions
Endnotes
Contact Officer & Copyright Details
Social Security Amendment (Disposal of
Assets) Bill 1999
Date Introduced: 30 June 1999
House: House of Representatives
Portfolio: Family and Community Services
Commencement: 1 July 1999
To reduce the
amount that assets may be decreased in a year before the excess is
included in the calculation of the value of a person's assets from
$10 000 to $5 000. The Bill will also change the calculation of a
year during which assets are disposed of from a pension year to tax
year basis.
The Bill also aims to provide that transitional
amounts that otherwise would be recoverable as overpayments due to
the operation of the reduced threshold will not be recoverable. The
Bill fails to achieve this purpose.
Under the Social Security Act 1991 (SS
Act) an assets test operates to reduce the benefits payable to a
person where their assets exceed a certain level, which can vary
depending on the individual's circumstances (i.e. whether they are
partnered and/or are a home owner). Like the income test, the
assets test is designed to operate so that those with sufficient
resources to support themselves received reduced or no social
security benefits. In particular, the assets test aims to address
the situation where people place their wealth in low or no income
producing assets to be eligible to receive benefits. The assets
test applies to most pensions, benefits and allowances, including
the aged and disability support pensions for people who are not
blind, carer payment, youth allowance and sole parent pension. It
does not apply to the Newstart allowance. Most assets are included
in the test, the main exemption being a principle place of
residence, but this is reflected in a lower assets limit for home
owners.
The assets test contains rules, commonly known
as the gifting rules, whereby assets disposed of for low or no
consideration remain included in the asset value of a person for 5
years after their disposal. The gifting rules operate to address
situations where people who may be eligible for a benefit, except
that they are excluded by the operation of the assets test, arrange
their financial affairs to dispose of assets so that they are
eligible for either a full or part benefit and, where relevant, the
associated fringe benefits, such as greater pharmaceutical
benefits. Schemes to take advantage of the gifting rules have been
promoted by some financial advisers.
Under the SS Act a person will be taken to have
disposed of their assets if they destroy, diminish or reduce the
value of their assets and either:
-
- They received no or inadequate monetary consideration, or
-
- The Secretary is satisfied that the person's purpose or
dominant purpose was to obtain a social security advantage.
If a person has been taken to have disposed of
their assets, it will be deemed to have been for the value of the
assets, or if the value of the assets has been diminished, the
value that the assets were reduced by.
If there has been such a disposal:
-
- For an individual, the value of the disposal of the assets
which exceeds the threshold amount ($10 000) will be included in
their assets value if the total amount of assets disposed of in a
year exceeds $10 000, with the value so included being reduced by
10% each year.
-
- For a member of a couple who during a year was a recipient of
certain benefits or pensions, or the partner of a recipient if the
person is not in receipt of a relevant payment, and the amount of
the person's and partner's disposition exceeds the threshold amount
($10 000), there is to be included in the value of each of the
person and their partner's asset 50% of the lesser of:
-
- The sum of the value of the assets
disposed of by the person and their partner during the year that
exceeds the threshold amount, or
- The value of assets disposed of.
The value of the asset/s disposed of is to be
included for 5 years, with the value falling by 10% each year.
The above description is a simplified version of
the rules, particularly for members of a couple where the rules
become complex when relationships form or break up during the year
under consideration. The calculation is further complicated by the
year used in determining the value of the assets disposed of, which
is currently the person's pension year, i.e. the year based on the
anniversary of the receipt of the pension or benefit. The Bill will
address the later problem by substituting the financial year for
the calculation so that there is a standard basis for determining
the inclusion or exclusion of a disposal. Similar rule also apply
to dispositions before eligibility for pensions and benefits
subject to the assets test and these aim to prevent pre-eligibility
disposal being used to gain access to full or part benefits.
It was announced in the 1999-2000 Budget that
the threshold for the disposal of assets before payment is affected
would be reduced from $10 000 to $5 000. The reason given for the
change was:
The current $10 000 limit is very generous- it
is higher than the maximum single rate of pension. Gifting up to
the $10 000 allowable each year has become a favourite tool for
many financial planners to increase the income support entitlement
of their clients.
Savings in administered expenses (ie payments)
will be $766 000 in 1999-2000; $1.942 million in 2000-01; $3.157
million in 2001-02; and $4.405 in 2002-03.
It was also announced in the 1999-2000 Budget
that this measure would commence from 1 July 1999 and that existing
cases will continue under the old limit, so that only disposals
after that date will be affected. (1)
Changes to the assets test are contained in
items 15 to 19 of Schedule 1 of the Bill, with the
operative change being made by item 19 which
insert new sections 1126A, 1126B and 1126C into the SS Act.
Proposed section 1126A deals
with assets disposed of by individuals on or after 1 July 1999. The
proposed section contains the same rules as apply at present except
that the threshold has been reduced to $5 000, so that if an
individual disposes of an asset and the disposal brings the total
of assets disposed of by the person during the year to more than $5
000 then the value of total disposals over $5 000 is to be included
in the asset value of the person for the purposes of the assets
test.
Proposed section 1126B deals
with disposals by individuals on or after 1 July 1999 and contains
the same rules as presently apply to couples except that the
threshold has been reduced to $5 000.
Proposed section 1126C deals
with the situation where people become members of a couple during
the year and have both disposed of assets prior to becoming a
couple. Where the combined value of the assets disposed of exceeds
$5 000, proposed subsection 1126C(2) provides that the excess is to
be disregarded so that the assets test reduction will not apply.
However, if one or both of the individual's assets disposal
exceeded $5 000 in the year that amount is to be included in the
assets test calculation.
The proposed sections deal with disposals during
the 'income year' which is defined in item 1 to be the same as
defined in the Income Tax Assessment Act 1997. This will
generally be the financial year commencing on 1 July each year,
although if a person uses a different accounting period this will
apply. This will replace the current 'pension year' with a
standardised year.
Part 2.2 of the SS Act provides for the payment
of a pension bonus where a person has not received an aged pension
that they would otherwise be entitled to as they have remained in
the workforce. Section 93U provides that if a person or a couple
has disposed of assets valued in excess of $10 000 in a year, then
for 5 years after the disposal they will be subject to a disposal
preclusion period. Time during such a period cannot be included in
calculating if a person is eligible for the pension bonus or in the
calculation of the bonus if they are eligible. Item
3 will insert a new section 93UA which
will decrease the threshold from $10 000 to $5 000. If a person is
subject to a preclusion period solely because their partner
disposed of assets in excess of the threshold and the two people
cease to members of a couple, the preclusion period will end at the
time that the people ceased to be a couple. The proposed section
refers to an income, rather than pension years, so that the
financial year will, again, generally be used to calculate if the
threshold has been exceeded.
Part 2.5 of the SS Act, which deals with carer
payments, contains a number of provisions dealing with the disposal
of assets while eligible for, and prior to, payment. The provisions
currently contain references to the $10 000 threshold.
Items 4 to 13 will amend current provisions and
insert new provisions that apply after 1 July 1999 to change the
threshold from $10 000 to $5 000.
Proposed item 127 of Schedule 1A of the
SS Act aims to provide a transitional period so that if a
payment is made to a person based on the $10 000 threshold before
this Bill is passed into law and there is a resulting overpayment
as the Bill provides for the $5 000 threshold to be used from 1
July 1999, the amount of the overpayment is not recoverable. The
explanatory memorandum to the Bill states:
New item 127 provides that, where this Act
commences on or after 1 July 1999, amounts paid prior to the Royal
Assent under the existing disposal rules are protected from
recovery insofar as the provisions of this Act are concerned.
However, proposed item 127 refers not to this
Bill/Act not receiving the Royal Assent prior to 1 July 1999, which
if it did would achieve the stated result, but to a Bill/Act named
'Budget Measures 1999 Legislation Amendment (Social Security -
Disposal of Assets) Act 1999'. Such an Act does not exist and there
is no Bill of this name before Parliament. The Portfolio Budget
Statements for the Family and Community Services Portfolio refer to
only one change to the disposal of assets, those contained in this
Bill. It can be presumed that proposed section 127 is intended to
contain the name of this Bill/Act but as it stands it will not have
the desired effect as amounts overpaid due to the operation of this
Bill/Act will remain recoverable.
-
- Portfolio Budget Statements 1999-2000, Family and Community
Services Portfolio, p. 127.
Chris Field
10 August 1999
Bills Digest Service
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ISSN 1328-8091
© Commonwealth of Australia 1999
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