Bills Digest No. 25 1999-2000
Social Security Amendment (Disposal of Assets) Bill 1999
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
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
Information and Research Services
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ISSN 1328-8091
© Commonwealth of Australia 1999
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Published by the Department of the Parliamentary Library, 1999.
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