You are here

Scope of Deeming

Document
Last amended 
6 January 2015
Payments affected by deeming provisions

The following payments are affected by deeming:

Financial assets to which deeming applies

Deeming applies to financial assets, which consist of:

Examples of financial investments affected by deeming

Financial investments to which deeming applies include:

  • bank, building society and credit union cheque and savings accounts,
  • cash,
  • term deposits,
  • cash management accounts,
  • money voluntarily held in solicitors' trust accounts,
  • managed investments,
  • listed shares and securities,
  • bonds, debentures, unsecured notes, bank bills,
  • loans made to individuals, private companies and trusts,
  • shares in unlisted public companies,
  • gold and other bullion,
  • investments in superannuation and roll-over funds held by pensioners who are pension age,
  • asset-tested income streams (long term deemed), or
  • asset-tested income streams (short term).    
    More →

     

    Types of Income Streams

    Section 10.5.2

     

    More → (go back)

Note that the ex-gratia compensation payment to prisoners of war of the Japanese and Koreans is deemed if invested as above. This applies to both Australian payments and Commonwealth and Allied countries payments.

Assets excluded from deeming

Deeming provisions do not apply to the following assets: More →

 

Exemption of certain financial investments from deeming

Section 9.5.3

 

More → (go back)
  • a person's principal home,    
    More →

     

    Constitutes a principal home

    9.2.2/Principal Home

     

    More → (go back)
  • an entry contribution to a retirement village,
  • other real estate investments, such as:
  • vacant land,
  • holiday homes, and
  • farms,
  • personal effects and household contents
  • vehicles, boats, and caravans,
  • collectibles, such as antiques, stamp or coin collections,
  • conventional life insurance policies,
  • shares in private companies,
  • investments in superannuation and roll-over funds held by pensioners who are under pension age, and
  • income streams other than asset-tested income streams (short-term or long-term deemed).    
Deeming income on exempt assets

Sometimes an asset may be considered exempt for a specified period and income may or may not be generated by this asset, such as when a pensioner sells their home, intending to buy or build another.    More →

 

Sale of the Principal Home and Deemed Income from Sale of Principal Home

Section 9.2.7

9.5.4/Deemed Income from Savings Investments

 

More → (go back)

For income test purposes the proceeds, whether deposited into an account or kept as cash in hand, are included in the total value of cash on hand and accounts, and assessed under the deeming provisions.

 
Treatment of income from financial investments for deeming purposes

VEA →

If a financial investment is exempted from deeming by the Minister, any return generated by that investment is assessable, even if the return is greater than the current applicable deeming rates. A return can be in the form of valuable consideration by way of indirect benefits, or actual income received. If the investment is not declared as exempt from deeming, the return generated by the investment is disregarded and deeming rules are applicable.    More →

 

Assessment of financial assets that are exempted from deeming

Section 9.5.3

 

More → (go back)

 

Treatment of investment costs for deeming purposes

Deeming applies to the gross current value of a financial investment and excludes any amount that is charged in order to make the investment.

Example of treatment of investment costs

If a pensioner advised that they have purchased an investment for $10,500, of which $300.00 was an entry fee payment, the value of the investment is $10,200 ($10,500 minus $300) and this is the amount to which the deeming rules apply.

Treatment of encumbrances on income and assets for deeming purposes

For income test purposes, the deemed rates of interest will be applied to the current gross market value of financial assets (i.e. the value of a financial asset should not be reduced by exit fees, charges or encumbrances).

For assets test purposes, the value of a pensioner's asset is reduced by the value of a charge or encumbrance over that asset, such as a mortgage secured against an investment property. This means that the assets test value is the pensioner's equity in the asset.    

 


 

 

A service pension is an income support payment broadly equivalent to the social security age and disability support pensions. It may be paid once a veteran or partner has reached the nominated age or is incapacitated for work.

ISS is an income support payment that may be paid to eligible war widows and widowers under the VEA and persons receiving wholly dependent partners' compensation under the MRCA, and who satisfy the means tests. It is an indexed rate, increased twice-yearly in March and September in line with changes to the cost of living and/or average wages. Income Support Supplement (ISS) legislation commenced on 20 March 1995. It is a payment created to replace the ceiling rate income support age, carer, wife and disability support pensions, paid to war widows/widowers by Centrelink.

 

 

According to section 5J(1) of the VEA a financial asset means;

 

According to section 5J of the VEA, a financial investment means:

     but does not include an investment in an FHSA (within the meaning of the First Home Saver Accounts Act 2008) or a designated NDIS amount.

 

A deprived asset is an asset:

  • that has been disposed of for less than its value (that is, adequate financial consideration has not been received), and
  • the value of which is included in the value of the person's assets for the purpose of determining that person's rate of pension.

For asset test purposes, personal effects and household contents include;

  • clothing; jewellery; hobby collections (such as stamps and coins); furniture; paintings and works of art; soft furnishings (curtains etc.); and electrical appliances other than fixtures (such as stoves, light fittings etc).

The following assets are not considered to be personal effects:

  • Unmounted gems; collections held for other than purely personal purposes; cars and trailers; and boats and caravans.

Currently, the pension age for a veteran is 60 years of age (VEA 5QA).

The pension age for a non-veteran is determined by the table below:

Date of birth (both dates inclusive)

Age Pension age

1 July 1952 to 31 December 1953

65 years and 6 months

1 January 1954 to 30 June 1955

66 years

1 July 1955 to 31 December 1956

66 years and 6 months

On or after 1 January 1957

67 years

 

One element of the means test for income support pensions whereby the rate of pension payable to a pensioner reduces progressively as their assets increase above a certain threshold known as the assets value limit (AVL).

According to section 5J(1) of the VEA, an income stream includes:

  • an income stream arising under arrangements that are regulated by the Superannuation Industry (Supervision) Act 1993; or
  • an income stream arising under a public sector scheme (within the meaning of that Act); or
  • an income stream arising under a retirement savings account; or
  • an income stream provided by a life insurance business (within the meaning of the Life Insurance Act 1995); or
  • an income stream provided by a friendly society (within the meaning of the Income Tax Assessment Act 1996); or
  • an income stream designated in writing by the Commission for the purposes of this definition, having regard to the guidelines determined under subsection 5J(1F) of the VEA;
  • but does not include any of the following:
  • available money;
  • deposit money;
  • a managed investment;
  • a listed security;
  • a loan that has not been repaid in full;
  • an unlisted public security; or
  • gold, silver or platinum bullion.

 

 

In 1990 the government introduced legislative changes called “deeming” to simplify the assessment of cash deposits and income from certain investments. These changes were made:

  • in response to pensioner concerns about complex income and assets test rules;
  • to encourage pensioners to maximise their private income.

Deemed income is the minimum rate that the government expects income support pensioners to earn from investments.

Banks created “pensioner accounts” which paid interest at the deeming rate set by the government.

On 1 July 1996 further changes meant the deeming rate was applied to all financial assets as defined in section 5J(1) of the VEA.

 

 

For asset test purposes, personal effects and household contents include;

  • clothing; jewellery; hobby collections (such as stamps and coins); furniture; paintings and works of art; soft furnishings (curtains etc.); and electrical appliances other than fixtures (such as stoves, light fittings etc).

The following assets are not considered to be personal effects:

  • Unmounted gems; collections held for other than purely personal purposes; cars and trailers; and boats and caravans.