Bills Digest No. 128 2003-04
Veterans' Entitlements Amendment (Direct Deductions and
Other Measures) Bill 2004
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
Contact Officer & Copyright Details
Veterans' Entitlements Amendment
(Direct Deductions and Other Measures) Bill
25 March 2004
House: House of Representatives
Portfolio: Veterans' Affairs
Most of the provisions
commence on the day the Act receives Royal assent. Items 11, 12 and
14 of Schedule 1 commence from 1 July 2004. Items 38-40 and
item 42 of Schedule 1 which relate to Victoria Cross Allowance have
retrospective operation from 1 July 1995.
This Bill is an
omnibus Bill. It contains various, unrelated, proposed amendments
to the Veterans Entitlements Act 1986 (VEA). There is no
central theme to the whole Bill, rather each proposed amendment is
separate and stands on its own.
There are 16 parts in Schedule
1 of the Bill, signifying there are at least 16 different
and separate proposals in the Bill. The proposed amendments give
effect to several minor policy initiatives and improvements to the
application and administration of the VEA.
If there is a central theme to the 16 parts it
would be that many parts (Parts 6, 8, 9, 10, 11, 14 and
15) are designed to update provisions in the VEA with like
or mirror provisions in the Social Security Act 1991
(SSA). Many provisions for income support payments in both acts
mirror each other and parity is desirable to ensure consistency and
equity. All of the income support pensions and allowances provided
under the SSA (except for the blind pension), are income and asset
tested. The like income support payments provided under the VEA
that are also income and asset tested are the service pension,
income support supplement (ISS) and invalidity service pension.
None of the proposals on their own, or
collectively, is significant either in terms of numbers of persons
affected or in terms of government expenditure or savings.
Generally the proposed amendments are
beneficial to the recipients of income support payments provided
under the VEA.
This background does not discuss each of the
16 different parts in Schedule 1, just the
proposals requiring some explanation. Some of the parts are simple,
self explanatory and not controversial and therefore are not
discussed in this digest. These parts are:
Part 1 - enhancements to the direct deduction
Part 5 - the partner service pension to Norfolk
Part 12 - the ceiling rate of service
Part 13 - referring to offences,
Part 16 - the minor technical amendments
The current annual rate of the VCA is $2808
per annum and is paid annually in advance to those veterans who
have been awarded this decoration. In the past, the VCA has been
increased on an ad-hoc basis as governments have perceived the need
to raise the allowance. While direct information was not available
from the Department of Veterans Affairs (DVA), there is indirect
evidence there are at present two recipients of the Victoria Cross
Part 2 proposes to increase
the annual rate of the VCA to $3230 effective from 1 July 2004 and
to index the annual rate of the VCA to the CPI from 1 July
Probably the first item of Schedule
1 that requires some background explanation is
Part 3, which refers to ISS.
ISS refers to the income tested income support
supplement paid to some recipients of veterans disability pension
or a veterans war widows pension. Neither the veterans disability
pension or the veterans war widows pension is means tested (income
or assets), because it is largely paid as compensation for war
related illness/injury or death. Some recipients of these veterans
compensation payments may also qualify for another income tested
income support payment provided under the SSA, for example age
pension or wife pension. If they are entitled, the amount of age or
wife ISS is paid at a reduced rate, recognising they are also
receiving a means test free veterans war compensation payment.
Some disability pension or war widows pension
recipients do not qualify for ISS as their income and/or assets
preclude payment of age or wife pension under the means tests.
Prior to March 1985, any additional age or
wife pension was provided by the then Department of Social Security
(now provided by Centrelink) as a frozen rate age or wife pension
under the SSA. With the passage of the Veterans' Affairs
(1994-95 Budget Measures) Legislation Amendment Act
1994,(2) ISS was introduced as a replacement
payment arrangement to be provided by the Department of Veterans
Affairs (DVA). ISS is paid at the same rate and under the same
conditions as any age pension or wife pension otherwise payable
under the SSA.
In introducing the ISS in March 1985, DVA then
automatically transferred all age and wife pension payments under
the SSA across to be paid ISS by DVA. There was theoretically a
choice but a recipient actually had to object in order to not be
automatically transferred, so the vast majority of recipients are
now paid ISS through DVA.
Normally, to be granted a pension under either
the VEA or the SSA a person is required formally to lodge a claim.
Part 3 of Schedule 1 proposes to provide for the
automatic grant of ISS to eligible age and wife pensioners, where
their veteran partner has died. This will eliminate the necessity
for the surviving partner to lodge a formal claim, on the death of
their veteran partner, when DVA already knows the person is
entitled to ISS. This is in line with other automatic grant
arrangements for ISS that already exist under the VEA and is a
Part 4 of Schedule 1 proposes
to amend the definition of arrears period in section 27A of the VEA
for the purpose of calculation disability pension arrears.
In almost all cases where any pension is
granted or the rate increased, the action to process the grant or
rate increase occurs after the date of effect. For example, a claim
for a pension that was lodged on 14 January 2004 may not be
assessed and determined until some time in February or March 2004.
Even then, the grant may not be processed through the payment
system until some days or weeks after the determination date. Then,
when the claim is processed, the arrears of payment owed are
backdated to the original date of claim, that is 14 January, or
where the VEA otherwise allows, up to 3 months prior to that claim
Where the claimant was also receiving another
income support payment paid under the SSA in that arrears period ,
for example age pension, there may also need to be a deduction from
the arrears of disability pension owed, to recover the excess of
age pension already paid.
Part 4 proposes to amend the
VEA to define in the VEA what period the arrears period covers.
Currently the arrears period is defined as being from the date of
claim (or up to 3 months earlier) up to the date of the decision on
the claim. The arrears period will be defined as being up to the
date the claim decision is processed through the payment system.
This will align the definition of the arrears period in the VEA
with the realities of claim and payment processing and also with
other arrears period definitions in the VEA and the SSA.
Part 6 of Schedule 1 proposes
to amend the VEA to clarify the impact of disability pension on the
rate of rent assistance, where either the person or their partner
is receiving a disability pension.
Disability pension, whilst not considered as
income for veterans service pension, is considered as income for
the purpose of calculating any rent assistance paid in addition to
service pension. This is essentially legislative housekeeping to
ensure the wording in the VEA achieves the desired result and the
original intention of the legislature.
Part 7 of Schedule 1 refers
to the same issue in the VEA as does Part 6, that
is the impact of disability pension as income for the purposes of
the calculation of the rate of any rent assistance paid in addition
to veterans service pension.
As mentioned above, disability pension is not
considered as income for the purposes of calculating the service
pension paid to the veteran or their partner. However, disability
pension is income for the purposes of calculating any rent
assistance, paid in addition to service pension to the veteran or
their partner. The VEA does allow for the reduction in rate of
on-going rent assistance where disability pension is being
received. However, at present, where there has been a retrospective
grant of disability pension, or a retrospective increase in the
rate of disability pension, there is no provision to recover any
overpayment of rent assistance paid to the partner.
This proposed amendment is to ensure that the
application of the provisions in the VEA achieves the desired
result and the original intention of the legislature.
Part 8 proposes amendments to
the VEA to clarify the application of the legislation in regard to
the value of an asset for the assets test, as opposed to the value
of that same asset for the deemed income provisions. See
Part 9 below for a description of the deeming
principles and process.
For the assets test, the net value of the
asset is to be taken into account. However, for the purposes of the
income test and the deeming of income from the asset, the whole of
the value is to be regarded, when setting the deemed amount of
income. An example occurs with marginal lending accounts , where a
bank lends money to a person who then invests the money in shares.
The banks will commonly lend up to 70% of the value of the shares
purchased. For the assets test, the value of the shares is the net
value, which is the market value of the shares less the money owed
back to the bank. However, for the purposes of deeming income from
the shares, the whole asset value of the shares is to be taken into
Changes were made to the SSA with the recent
passage of the Social Security Amendment (Further
Simplification) Bill 2003. It is another example of the VEA
being kept in alignment with the SSA for the application of mirror
provisions and legislation. It is beneficial and will ensure there
is legislative support for the current treatment of assets under
the asset test and the income test.
As with other parts in this Bill, Part
9 proposes to amend the VEA to maintain parity with other
like provisions in the SSA. The deemed income arrangements are
explained below. The amendments in Part 9 are
designed to ensure that income from financial investments is not
counted twice, once under the deeming arrangements then again under
the ordinary income provisions of the VEA.
Under the income test in the VEA and the SSA,
any income realised from financial investments is assessed under
one simple set of rules, known as the deeming principles. The
deeming rules were introduced to both the SSA and the VEA with the
Social Security and Veterans Affairs Amendment Act
1995.(3) Deeming assumes the financial investment
is earning a prescribed rate of income, no matter what income it is
Financial investments include:
bank, building society and credit union accounts
friendly society bonds
assets in superannuation and rollover funds (for people over 55
who have been on income support for a total cumulative period of at
least 39 weeks after reaching the age of 55, or people of age
listed shares and securities
loans and debentures
shares in unlisted public companies, and
gold, silver or platinum bullion.
Financial investments do not include:
residential home or its contents
cars, boats and caravans
antiques, stamp or coin collections
assets held in superannuation and rollover funds if are under
age pension age
standard life insurance policies
holiday homes, farms or other real estate, and
income streams other than asset-tested income streams (short
From 20 March 2004, the deeming rates are:
if single and getting either a pension or allowance, the first
$35 600 of financial investments is deemed to earn income at
3% per annum and any amount over that is deemed to earn income at
5% per annum; or
if a member of a couple and at least one is getting a pension,
the first $59 400 (combined) of financial investments is
deemed to earn income at 3% per annum and any amount over that is
deemed to earn income at 5% per annum.
Deeming rates are set by the Minister for Family and Community
simply, the amendments proposed in Part 9 are
beneficial and will ensure income from an asset is not counted
twice, once under the deeming provisions and again under the
ordinary income provisions.
Part 10 proposes to align the
asset test provisions in respect of superannuation assets in the
VEA with the similar provisions in the SSA. The amendments to the
superannuation provisions in the SSA were made by the Family
and Community Services and Veterans' Affairs Legislation Amendment
(Further Assistance for Older Australians) Act 2001. Bills
Digest No. 18 of 2001-02 refers.(4)
The exemption of superannuation assets for
persons aged 55 or more but less than retirement age is primarily
designed to encourage persons to invest in superannuation to
provide for their own retirement. By investing in superannuation,
persons are maximising self-provision in retirement and reducing
outlays for the age pension, or for veterans, the service pension.
This is a beneficial provision.
Part 11 has two separate
unrelated parts, the first dealing with small superannuation
accounts held and administered by the Australian Tax Office (ATO).
As with Part 10, the first part of Part
11 aligns the VEA with provisions in the SSA. As mentioned
above, the proposal to treat small superannuation accounts held by
the ATO as recognised superannuation assets has benefits,
especially for those aged 55 or more but less than retired age.
The second part of Part 11
proposes changes to the assessment of private rental income and
again proposes to align sections in the VEA with like sections in
the SSA. The treatment of rental income in the SSA was amended by
the Family and Community Services Legislation (Simplification
and Other Measures) Act 2001. Bills Digest No. 161 of 2000-01
refers.(5) Like provisions were made to the VEA with the
Veterans Affairs Legislation Amendment (Further Budget 2000 and
Other Measures) Act 2002. Bills Digest 17 of 2001-02
refers.(6) However, the VEA amendments did not contain
provisions in regards to private rental income as opposed to
business rental income. Part 11 proposes to fix
At present, the VEA treats private rental
income like ordinary business income, so the range of deductions
that would be allowed for tax purposes are generally also allowed.
In the SSA, the allowable rental deductions for private rental
income have been narrowed and are now directly linked to the
general definitions of allowable income deductions provided in
section 51 of the Income Tax Assessment Act 1936 and also
subsection 8-1 of the Income Tax Assessment Act 1997. In
both of these provisions, the general definitions of allowable
income deductions target those deductions directly incurred in
earning or producing the income. For rental properties, some
examples are rates, property maintenance and agents fees.
In allowing only deductions directly incurred
in earning the rental income, some rental income deductions allowed
under the Income Tax Assessment Acts (ITAA) may not be allowed
under the SSA. An example is capital depreciation.
The main reason for the differences in
allowable income deductions between the SSA and ITAA largely stems
from the different treatment and measurement of income between the
acts. The ITAA assesses an individual s level of income in order to
determine a tax liability to provide revenue to government,
regardless of a person's need. The SSA assesses income as one means
of measuring need for support and requirement for welfare
assistance. In other words, the ITAA are income measurement and tax
revenue acts, whilst the SSA is a welfare assistance act.
The proposed alignment of the private rental
provisions in the VEA with those in the SSA will only affect the
means tested income support payments provided under the VEA, being
the service pension, ISS and invalidity service pension.
This proposal in the Bill means that where
private rental income is received which is not income from a
business, losses and outgoings that relate to the rental property
will be allowed as deductions against the rental income.
As with most of the proposed changes to the
VEA presented in this Bill, Part 14 proposes
amendments to the VEA to maintain parity with like provisions in
the SAA. Part 14 has parallels with Part
9 in that it is designed to ensure income from one source
is not counted twice.
The proposed amendments in Part
14 are designed to ensure that income from a deprived
asset is not counted twice, as can currently apply under the
existing provisions in the VEA (that is, counted once under the
deeming provisions and also counted again under the ordinary income
The explanatory memorandum gives an extensive
history of the development of the issue leading to this proposed
amendment. Part 9 above provides an explanation of the deeming
principles. There is one other concept that may not be readily
understood, being deprivation of assets - see below.
Deprivation refers to an individual giving
away or depriving themselves of an asset without receiving adequate
consideration for the transaction. For example, a person passes
title of a property to a relative for less than its true value or
even gifts the property. There are provisions in the SSA and the
VEA which provide that the deprived asset is to be considered an
asset of the original owner, and (where appropriate), also regard
that asset as continuing to earn income. These provisions are
designed to not allow individuals to gift or deprive themselves of
an asset and indirectly gain access to a payment or a higher rate
Put simply, the amendments proposed in
Part 14 are beneficial and will ensure income from
a deprived asset is not counted twice, once under the deeming
provisions and again under the ordinary income provisions.
Part 15 proposes to align the
compensation recovery provisions in the VEA with the similar
compensation provisions in the SSA. The amendments to the SSA were
provided for with the passage of the Family and Community
Services Legislation (Simplification and Other Measures) Act
2001. Bills Digest No. 161 of 2000-01 refers.(7)
That Bills Digest gives a good background about the impact of
compensation payments on means tested income support payments
provided under both the VEA and the SSA.
Where there has been more than one payment
period of periodic compensation, the current description of
periodic payments of compensation in the VEA may not pick up both
periods. Only one period may be counted. The amendments proposed in
Part 15 reword the description of periodic
payments period in the VEA to ensure where there is more than one
period of periodic payments, each is accounted for.
Item 11 in Part 2 will
provide for the proposed one-off increase in the rate of VCA from
the current $2808 per year up to the proposed $3230 per year.
Item 12 in Part 2 will ensure the rate is indexed
annually to the CPI and Item 14 in Part 2 sets out
the mechanics of how the VCA rate is indexed to the CPI.
Item 16 in Part 3 sets out
those war widows who will qualify for automatic grant of ISS on
death of their partner.
Item 20 in Part 4 sets out
the proposed period of arrears that is to apply for the
retrospective grants or rate increase of disability pension.
Item 25 in Part 6 inserts
disability pension into the income definitions for the calculation
of rent assistance.
Item 31 in Part 7 ensures a
partner s rent assistance, paid in addition to service pension, is
accounted for in any retrospective grant of disability pension to
Item 32 in Part 8 inserts an
exception for the valuing of an asset for deeming into subsection
52C(1) of the VEA. Subsection 52C(1) in the VEA refers to asset
value where there is a charge or encumbrance on the asset.
Item 37 in Part 10 will
insert the proposed description of superannuation assets that are
to be disregarded as assets in some circumstances.
Item 40 in Part 11 propose to
add small superannuation accounts administered by the ATO to the
list of described assets that are superannuation type assets. This
will mean they will also get the beneficial concessional treatment
under other sections of the VEA this class of asset currently
Items 50 and 51 in Part 14
will ensure that income from a deemed asset is counted only once,
not under both the ordinary income provisions and again under the
deemed income provisions.
Item 54 and Item 56 in Part
15 proposes to amend the wording of periodic payment
period in the VEA to pick up one or more periods of periodic
This omnibus Bill of proposed amendments to
the VEA presents changes that are generally beneficial. Many of the
items are maintaining parity between the VEA and like provisions in
Australian War Memorial, List of Australian winners of the
Victoria Cross; see: http://www.anzacday.org.au/education/medals/vc/austlist.html
Marco Bini, Veterans' Affairs (1994-95 Budget Measures)
Legislation Amendment Act 1994 , Bills Digest no. 96,
1994, Parliamentary Library, Canberra 1994; see:
Max Spry, Social Security and Veterans Affairs Amendment Act
1995, Bills Digest no. 60, 1995 96, Parliamentary Library,
Canberra, 1995; see:
Nathan Hancock and Dale Daniels, Family and Community Services
and Veterans' Affairs Legislation Amendment (Further Assistance for
Older Australians) Act 2001 , Bills Digest no. 18, 2001
02, Parliamentary Library, Canberra, 2001; see: http://www.aph.gov.au/library/pubs/bd/2001-02/02bd018.htm
Nathan Hancock and Peter Yeend, Family and Community Services
Legislation (Simplification and Other Measures) Act 2001 ,
Bills Digest no. 161, 2000 01, Parliamentary Library,
Canberra, 2001; see: http://www.aph.gov.au/library/pubs/bd/2000-01/01BD161.htm
Peter Yeend, Veterans Affairs Legislation Amendment (Further
Budget 2000 and Other Measures) Act 2002 , Bills Digest
no. 17, 2001 02, Parliamentary Library, Canberra, 2001; see:
7 May 2004
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