Bills Digest No. 25 1999-2000 Social Security Amendment (Disposal of Assets) Bill 1999


Numerical Index | Alphabetical Index

WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

CONTENTS

Passage History
Purpose
Background
Main Provisions
Endnotes
Contact Officer & Copyright Details

Passage History

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

Purpose

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.

Background

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)

Main Provisions

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.

Endnotes

  1. Portfolio Budget Statements 1999-2000, Family and Community Services Portfolio, p. 127.

Contact Officer and Copyright Details

Chris Field
10 August 1999
Bills Digest Service
Information and Research Services

This paper has been prepared for general distribution to Senators and Members of the Australian Parliament. While great care is taken to ensure that the paper is accurate and balanced, the paper is written using information publicly available at the time of production. The views expressed are those of the author and should not be attributed to the Information and Research Services (IRS). Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion. Readers are reminded that the paper is not an official parliamentary or Australian government document.

IRS staff are available to discuss the paper's contents with Senators and Members
and their staff but not with members of the public.

ISSN 1328-8091
© Commonwealth of Australia 1999

Except to the extent of the uses permitted under the Copyright Act 1968, no part of this publication may be reproduced or transmitted in any form or by any means, including information storage and retrieval systems, without the prior written consent of the Parliamentary Library, other than by Members of the Australian Parliament in the course of their official duties.

Published by the Department of the Parliamentary Library, 1999.

Back to top


Facebook LinkedIn Twitter Add | Email Print