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B66/1995 VETERANS' AFFAIRS LEGISLATION AMENDMENT AND REPEAL ACT 1995 INCOME SUPPORT MATTERS

Document

DATE OF ISSUE:  12 DECEMBER 1995

VETERANS' AFFAIRS LEGISLATION AMENDMENT AND REPEAL ACT 1995 INCOME SUPPORT MATTERS

The purpose of this departmental instruction is to advise of the legislative amendments contained in the Veterans' Affairs Legislation Amendment and Repeal Act 1995 (no: 118 of 1995), relating to income support matters.  This act contains a large number of minor policy and technical changes to the Veterans' Entitlement Act 1986.

BACKGROUND

2.The Veterans' Affairs Legislation Amendment and Repeal Act 1995 was introduced to Parliament as the Veterans' Affairs Amendment and Repeal Bill 1995.  It received Royal Assent on 17 October 1995.

3.The following list the Income Support amendments and relevant effective dates.

Amendment

Paragraph

Date of Effect

Calculation of rate of rent assistance for blind service pensioners with no dependent children

4 - 10

Royal Assent

Assessment of child related payments for blind service pensioners and repeal of requirement for blind veterans to pursue a maintenance claim

11 - 14

Royal Assent

Exchange Trading Systems

15 - 16

Royal Assent

Maintenance Income

17 - 19

1/1/94

Income Support Supplement

20 - 21

20/3/95

Refugees' Eligibility For Service Pension

22 - 23

1/1/95

Superannuation Investment Products

24 - 25

1/7/94

Definition Of Child In Receipt Of Income

26

Royal Assent

Definition Of 'Dependent Child'

27

Royal Assent

Remote Area Allowance

28 - 29

Royal Assent

Amend The Definition Of Income To Allow For Averaging Income Over A Period

30 - 32

Royal Assent

Certain Life Interest Created By A Person's Deceased Partner To Be Treated As An Asset

33 - 37

Royal Assent

Rent Assistance To War Widows/ers Who Receive A Frozen Rate Of Service Pension With Dependent Children

38 - 39

1/1/94

Portability Of Carer Service Pension

40

Royal Assent

Preserving Eligibility For Partners Of Service Pensioners Affected By The Compensation Recovery Provisions

41 - 42

1/1/95

Special Maintenance Income Ceiling

43 - 44

Royal Assent

Super Definitions

45

19/12/94

RATES OF SERVICE PENSION FOR BLIND PEOPLE

Calculation of rate of rent assistance for blind service pensioners with no dependent children

Background

4.The rate of rent assistance (RA) payable to blind veterans is subject to income and assets tests.  However the basic rate of service pension payable to blind veterans is not subject to the income and assets tests.  An unintended outcome of the 1991 Rewrite resulted in the 1987 Poverty Traps legislation not being applied correctly.

5.The intention of the poverty traps legislation was to ensure that in applying the income and assets tests, the taxable component of the total service pension payment received (the basic rate of service pension) was reduced prior to any of the non-taxable allowances.  The order of reduction was firstly; service pension, secondly; rent assistance and thirdly; additional payments for children.  Therefore, service pension had to be reduced to nil before rent assistance was reduced.

6.Prior to the poverty traps legislation a blind veteran's basic rate was not subject to the income and assets tests.  Although the VEA stated that a veteran eligible for rent assistance was only entitled to the amount that would be payable if they were an invalidity service pensioner, that is, they had to satisfy the income and assets tests.

7.It was not the intention of the poverty traps legislation to remove the requirement of applying the income and assets tests to the additional allowances payable to a blind service pensioner.  When that legislation was introduced it should have been amended to prescribe the following calculation:

1.a notional rate of pension is calculated by adding the maximum basic rate of service pension, RA and pharmaceutical (PA) and applying the ordinary income and assets tests;

2.a maximum payment rate is calculated by adding the maximum basic rate of service pension and PA together (without applying the income and assets tests; then

3.the amounts resulting from 1. and 2. are compared and the greater amount payable.

Note:  In calculating the taxable component, the reduction for ordinary income is first deducted from the maximum rate of service pension.

8.Current administrative practice and the total amount of service pension calculated by PIPs reflects the intention of the legislation.

9.An unintended outcome of the poverty traps legislation resulted in blind veterans receiving a more generous rate of rent assistance than intended, that is, the rate of rent assistance payable will be the maximum rate of rent assistance unless the pensioner's income is greater than the income limit at which service pension ceases.

Amendment

10.This amendment ensures that blind service pensioners without dependent children, are only eligible to receive rent assistance if they satisfy the income and assets tests; and that their tax liability is reduced as poverty traps legislation intended.

Assessment of child related payments for blind service pensioners and repeal of requirement for blind service pensioners to pursue a maintenance claim

Background

11.Blind pensioners receive maximum basic rate of service pension and pharmaceutical allowance (PA) exempt from the income and assets tests.  Prior to the amendment all other payments (except for Dependent Child Add-On (DCAO) ) were subject to the income and assets tests.  In addition blind veteran service pensioners and their partners were required to claim maintenance if they were entitled.

12.The amendment eliminates anomalies existing between the Veterans' Entitlement Act (VEA) and Social Security Act (SSA).  With the introduction of Families Integration by Department Social Security (DSS), child payments are now paid separately from DSS pension and benefit payments.  As such blind DSS pensioners with dependent children qualify for the maximum rate of Additional Family Payment (AFP), (which is equivalent to DCAO, Guardian Allowance (GA) and RA payable under the VEA), free from the income and assets tests.

Amendments

13.The amendment ensures that blind pensioners with dependent children receive DCAO, GA and RA free from the income and assets tests.

14.Section 43-C3A has been repealed to remove the requirement for blind veterans to pursue a maintenance claim.  These amendments align DVA with DSS.

EXCHANGE TRADING SYSTEMS

Background

15.A local exchange trading system or a comparable community exchange program is similar to a barter system, in that goods and services are exchanged and participants accrue non-cash credits.  Treating non-cash credits in such accounts as income for the purposes of pension rate assessment would be a discouragement to participation in these schemes.  Exempting the credits from the definition of income will overcome this disincentive.

Amendment

16.The amendment provides that non-cash credits received by a participant in an exchange trading system will be defined as exempt income in section 5H(8) of the VEA.  A further two definitions have been added to section 5H of the VEA.  One defines an exchange trading system and the other defines an approved exchange trading system.

MAINTENANCE INCOME

Background

17.Maintenance income received by a service pensioner is taken into account in assessing the rate of service pension under the maintenance income test.  Currently any maintenance income provided in relation to expenses arising from a disability or learning difficulty that is likely to be permanent is included in the definition of special maintenance income.

Amendment

18.An amendment to the definitions relating to maintenance income now exclude maintenance income in relation to expenses arising from a disability or learning difficulty which is likely to be permanent, for the assessment of service pension.

19.This amendment aligns DVA with DSS where similar changes have been made to the SSA.

INCOME SUPPORT SUPPLEMENT

Background

20.As part of the May 1994 Budget, the Government announced the introduction of a new Veterans' Affairs income support payment, the Income Support Supplement (ISS).  A number of other minor amendments were not included in the two Bills that introduced ISS.  The Veterans' Affairs Legislation Amendment and Repeal Act 1995 allows for further changes.

Amendments

21.These amendments address a number issues:

  • It was originally intended to allow a social security pensioner living overseas to successfully submit a transfer claim.  These changes allow transfer claims to be successful.

  • Provisions allowing for the oral withdraw of a claim for ISS, similar to those for service pension was originally overlooked.  These changes are identical to those applying for service pension.

  • A requirement for an ISS recipient to test their eligibility for an overseas pension was originally overlooked.  These changes are identical to those applying for service pension.

  • To ensure that references to pension age in Part IIIB will be taken to be references to qualifying age.

  • A number of other minor technical amendments have also been incorporated.

REFUGEES' ELIGIBILITY FOR SERVICE PENSION

Background

22.The removal of the waiting period for refugees for service pension eligibility was announced in the 1994-95 Budget.  The Budget initiative removed the requirement for people who are both refugees and either Commonwealth veterans, allied veterans or allied mariners to be Australian residents for a continuous period of 10 years.  Further consequential amendments were necessary to amend the definitions of a 'refugee' and 'declaration of class of visas'.

Amendment

23.The amendment clarifies the type of visa or entry permit a refugee is required to have to satisfy the Commission that they are a refugee.  Subsections 5C(4) and (5) have been amended to include these new definitions.

SUPERANNUATION INVESTMENT PRODUCTS

Background

24.This amendment is a consequence to amendments to the Income Tax Assessment Act (ITAA) in which the definition of 'undeducted purchase price' has been changed.  The new definitions in the ITAA would have resulted in a change in policy to the detriment of DVA clients who take out annuities after 1 July 1994.

Amendment

25.The amendment to the VEA enables DVA to use the pre 1 July 1994 definition of 'undeducted purchase price'.  It has been ongoing policy to apply the pre 1 July 1994 definition.  This definition is more favourable for pensioners and aligns with DSS.

OTHER AMENDMENTS

Definition Of Child In Receipt Of Income

26.This amendment provides that income from all sources is used to determine whether a child younger than 16 years who is not a full time student is dependent on a service pensioner veteran.

Definition Of 'Dependent Child'

27.This amendment provides that the definition of 'dependent child' for service pension purposes, requires that the child be wholly or substantially dependent on the person.  This returns the legislative definition to the pre 1991 Rewrite definition that unintentionally did not carry through all the features that were present in the Act prior to the Rewrite.

Remote Area Allowance

28.Remote Area Allowance (RAA) is paid to service pensioners to compensate residents for the higher than normal cost of living associated with living in a remote area.  Under the current definition of 'remote area' as found in section 5Q(1) of the VEA 1986, there is currently no mechanism providing eligibility for RAA for service pensioner residents of Norfolk Island or Lord Howe Island.

29.The amendment ensures those service pensioners residents of Norfolk Island and Lord Howe Island are eligible to receive RAA.

Amend The Definition Of Income To Allow For Averaging Income Over A Period

Background

30.Prior to the Rewrite of Part III of the VEA in 1991, service pension was assessed using a person's 'annual rate of income'.  Currently the method statement to work out the effect of a person's ordinary income prescribes that the first step in the process is to "work out the amount of the person's ordinary income on a yearly basis".

31.It had been highlighted through prosecution activity, that the terms 'amount' and 'yearly basis' provide for a different meaning to 'annual rate'.  The High Court of Australia in Harris v Director-General Social Security (1985) 57 ALR 729, distinguished an annual rate of income from an annual amount of income.

Amendment

32.The amendment returns the VEA to the pre 1991 Rewrite wording of an 'annual rate of income'.  The Service Pension and ISS Rate Calculators in Part III and IIIA now determine income by reference to the annual rate of a person's income on a yearly basis.

Certain Life Interest Created By A Person's Deceased Partner To Be Treated As An Asset

Background

33.Currently the VEA provides that certain assets are to be disregarded in calculating the person's assets under the assets test.  In particular the right or interest of a person in the person's principal home that gives them reasonable security of tenure in the home is disregarded.  In addition, the legislation provides that the value of any life interest of the person is disregarded unless it is a life interest in the principal home of the person or the person's partner, or it has been created by the person or the person's partner.

34.The value of the life interest in a person's principal home is not disregarded as it is covered under the broader provisions of paragraphs 52(1)(a) and 52(1)(b), that is, "any right or interest of the person in the person's principal home".

35.A Social Security Appeals Tribunal case highlighted a deficiency in the 'life interest' legislation.  In that case a pensioner was left a life interest in a family farm under the terms of her late husband's will.  The tribunal decided that the life interest should be regarded as an exempt asset.

36.DSS argued that the life interest was created by the deceased partner and therefore should be assessable.  The tribunal however stated that the life interest was created by the will.  It was believed therefore by the tribunal that it was inappropriate to say the life interest was created by the pensioners partner.

Amendment

37.This amendment ensures that a life interest of a person created under the will of a deceased person's partner is not disregarded when calculating the value of a person's assets under the assets test.

Rent Assistance To War Widows/ers Who Receive A Frozen Rate Of Service Pension With Dependent Children

38.'Frozen rate' service pensioner war widow/ers with dependent children are currently paid less than their DSS counterparts.  This is due to DSS pensioners being paid child related payments (including rent assistance) separately to their pension payments rather than as part of their pension.  In addition, the AFP that they receive is not affected by receipt of any disability pension.

39.The amendments align the VEA with the SSA so that 'frozen rate' service pensioners are treated on a similar basis to DSS 'frozen rate' pensioners.

Portability Of Carer Service Pension

40.This amendment provides that a person in receipt of a carer pension does not lose eligibility for that pension while temporarily out of Australia to accompany the person being cared for, up to a maximum period of three months.

Eligibility For Partners Of Service Pensioners By The Compensation Recovery Provisions

41.A veteran must be receiving a service pension in order for a partner to retain eligibility for partner service pension.  Under the compensation recovery provisions, a veteran who is under pension age may have service pension reduced to nil due to receipt of compensation.  If the veteran's partner is over pension age, the partner's pension would not be affected by the compensation recovery provisions.  However, because the veteran is not in receipt of service pension, the partner loses eligibility for partner service pension.  This was an unintended result of the introduction of the compensation recovery provisions.

42.The amendment ensures where a veteran is reduced to nil because of the application of the compensation recovery provisions, the partner will continue to be eligible for partner service pension.

Special Maintenance Income Ceiling

43.Currently the VEA allows for a ceiling to be set on the amount of special maintenance income that can be assessed.  The purpose of the ceiling is to limit the reduction to service pension caused by receipt of special maintenance.

44.This amendment ensures that the ceiling that applies to special maintenance income for a person who is not a member of a couple aligns with the special maintenance income ceiling with that of a member of a couple.

Super Definitions

45.These amendments make changes to the definition of foreign super fund, foreign super pension, super fund and super pension.  These amendments are consequential to amendments to the ITAA and are necessary for the definitions within the VEA to work correctly.

OTHER MINOR

Section 56EB

46.The VEA currently has two sections 56EB.  The second occurring section 56EB has been renumbered to 56EC.  Section 56EC deals with 'Cancellation determination where pension not payable'.  Section 56EC is taken to have commenced on 16 December 1994, which was the date of Royal Assent of Veterans' Affairs

(1994 - 95 Budget Measures) Legislation Amendment Bill (No: 2) 1994, which originally introduced the second occurring section 56EB.

Somalia

47.This proposal amends Schedule 2 to include a cessation date for Somalia as an operational area.  The Department of Defence (DoD) advised that as from 30 November 1994, all Australian personnel serving in Somalia have been withdrawn.

REPEAL

48.The following Acts have been repealed:

  • War Service Homes Agreement Act 1932

  • War Service Homes (South Australia) Agreement Act 1934

GOSP AMENDMENTS

49.The need for amendments to the GOSPs will be examined and if required will be completed for a future amendment release of the General.

50.If you have any enquires in relation to this DI please call Kathleen O'Kane, Senior Policy Adviser, Policy Administration & Advice on 06 289 6440.

R J HAY

BRANCH HEAD

INCOME SUPPORT BRANCH