Central Office Instruction

Instruction No. 10

Date of Effect: 8 January 1991

AMENDMENTS TO THE DEFENCE SERVICE HOMES ACT 1918

BY THE VETERANS' AFFAIRS LEGISLATION AMENDMENT ACT 1990

PORTABILITY AND RETIREMENT VILLAGES

Purpose of Instruction

The purpose of this Instruction is to explain the amendments made by Part 2 of the Veterans' Affairs Legislation Amendment Act 1990 (VALA) which relates to the Defence Service Homes Act 1918. The Act implements the Government's initiatives extending the DSH Scheme to provide portability for existing loans and DSH loan availability to meet entry charges to retirement villages. The major new initiatives are found in the main body of the legislation. However, minor and technical amendments are found in Schedule 2 to the Act.

Also included in the legislation at Schedule 1 is the new Supplementary Agreement with Westpac which covers the business aspects of the new provisions. The effective date of the amendments is 8 January 1991.

The major changes can be broken down into five different areas. A brief description of the changes and the sections affected are given here and a more detailed outline is included in the attachment to this instruction.

Portability

Summary of major provisions

• DSH loans granted since 9 December 1987 have been portable - transferable from home to home when a person moves. Loans granted before then have not been portable;
• The Act provides for the extension of portability to all mortgages outstanding on 9 December 1987 - about 140,000 borrowers will benefit;
• The new interest rate is 6.85%. The term will be the used portion of the loan term subtracted from 25 years. If a zero or negative balance results, portability will not be able to be utilised. The maximum loan will be the balance of the previous loan when it was discharged.

Sections affected:

s.4, definitions affected - further advance

s.19, criteria for issue of Certificate of Entitlement: further advance

s.25, maximum amounts for which subsidy is payable

s.34, rate of interest

s.36, maximum terms of advances

Married Eligible Applicants

The Act gives two eligible persons who are married, the right of access to an initial loan each, in turn. This replaces the previous discretionary policy approach embodied in the now repealed Second Assistance arrangements.

Section affected:

s.4, definitions - further advance and initial advance

Transfers to Ineligible Persons

The Act removes provisions enabling the transfer of DSH benefits to ineligible persons. This amendment is associated with portability in that benefits are preserved for the portable use by eligible persons.

No eligible person will lose. In marital breakdown cases, the decision as to property arrangements will be left to the family and Court. Careful implementation will ensure that the parties are aware that the benefit can continue so long as the eligible person remains on the title and mortgage.

Section affected:

s.22, C of E: transfer of property subject to the specified portfolio asset or advance

Abolition of Second Assistance

For most, second assistance is fully replaced by portability. But a small number of clients will lose those who might have received more than the balance of previous loan, especially those with two or more periods of service. However, all of these will benefit from the automatic, non-tested nature of the portability benefit.

Former borrowers who discharged their loans before 9 December 1987 lose but, in practice, would rarely have obtained second assistance so long after the sale of the first DSH home.

Sections affected:

s.19, criteria for issue of Certificate of Entitlement: further advance

s.25, maximum amounts for which subsidy is payable

s.34, rate of interest

s.36, maximum terms of advances

Retirement Villages

Summary of main provisions

• The loan will be a normal, portable DSH loan, except for the lack of requirement for first mortgage security provisions;
• Mortgage or other security stipulations will be left solely to Westpac;
• Retirement villages are defined in relevant State Legislation (or VEA) which are to be approved by the Minister for DSH purposes (an instrument will be presented for signature immediately after enactment); The portable use of current DSH loans will be available;
• The loan is available only for housing "ownership" purposes not health care etc.;
• The full range of ancillary benefits will be available, where appropriate, to the retirement village situation.

Sections affected:

s.4, definitions

s.18, criteria for issue of C of E, advances other than widows advances and advances for essential repairs

s.20, criteria for issue of C of E: widows advances

s.21, criteria for issue of C of E: essential repairs

s.24, subsidy payable to the Commonwealth

s.26, cancellation of subsidy

s.29, recovery of subsidy

s.38, insurance

s.38C, insurance of dwelling houses, etc.

s.38FA, (new section) applies to s.38E

s.45A, bankruptcy of purchaser or borrower

Other Amendments

The following other amendments are included in the Act:

• replacement of the term outstanding balance in s.25 of the Act to avoid current problems with the effect of arrears and excess credits in the calculation of further advance amounts;
• insertion of a new power to enable implementation of certain AAT decisions to overcome the problem of having to discharge a mortgage where there is no power in the Act to do so although the Tribunal has so ordered;
• insertion of a new category of qualifying service - for service in the Middle East after 2 August 1990 for persons who enlisted in the ADF on or before 14 May 1985. Post 14 May 1985 personnel are to be covered by the Australian Defence Force Home Loan Assistance Scheme which is administered by the Defence Housing Authority;
• clarification of the term allotment in line with amendments to the VEA;
• introduction of tabling provisions for hardship guidelines (see below for more details).

Westpac Agreement

A Supplementary Agreement has been entered into with Westpac, covering the purchase by Westpac of the rights to the new DSH lending business arising from the portability and retirement village initiatives;

Westpac will pay $400 for each person who utilises one of the new loans for the first time. There is also some scope for increasing this amount in the future;

The Supplementary Agreement is Schedule 1A of the Act. A number of adjustments to the current Agreement are also included to overcome operation difficulties and to include references to retirement village arrangements.

Hardship Guidelines

The terms financial hardship and serious financial hardship are currently used in the Act in connection with tests to be made by the Secretary in considering applications for:

financial hardship

• the issue of a Certificate of Entitlement for a Widows Advance (s.20)
• the issue of a Certificate of Entitlement for Instalment Relief (s.23)

serious financial hardship

• the discharge of an existing mortgage (s.18(4))
• the issue of a Certificate of Entitlement for an Essential Repairs Advance (s.21)

The Act provides that the Minister will table before the Parliament his approved guidelines for the Secretary to use in assessing the degree of hardship. They are subject to a motion of disallowance.

General Orders

An update of the GOs will be undertaken at an early date.

FELICITY M. BARR

GENERAL MANAGER

8 January 1991

IMPLEMENTATION ARRANGEMENTS

FOLLOWING AMENDMENTS TO THE

DEFENCE SERVICE HOMES ACT 1918

SECTION A - Introduction of portability for all loans current on 9 December 1987

Sections of the DSH Act affected

Sections 4, 19, 25, 34 & 36.

Description of change

Section 19 has been repealed and a new section inserted to:

• remove the discretionary power of the Minister in respect of second assistance cases; and
• extend portability to all DSH loans that were in force on 9 December 1987.

Sub-section 4(1) - definitions of "initial advance" and "further advance", section 25 - maximum amounts for which subsidy is payable, section 34 -interest rate, and section 36 - maximum terms of advances, have also been amended.

These amendments give effect to the Government's decision to extend the DSH Scheme to make DSH loans in force at 9 December 1987 portable. Further loans will be available up to the outstanding principal exclusive of arrears and excess credits (i.e. the limit) of the previous DSH loan at discharge. The interest rate is 6.85% per year (rather than the previous section 34 specification which has been repealed) and the total portable loan term will be as specified in section 36, generally 25 years.

Section 36 has been amended, consistent with the Government's decision when portability was introduced in 1987 that portability be offset by a shorter loan term. Accordingly, all applications for portability by applicants with previously non-portable loans will have a reduced loan term. Loans that have been in existence for at least 25 years will have a zero loan term, resulting in an inability to utilise portability. In this context it is important to note that discretion to extend the term has been removed.

Portability is not available to persons who had been assisted previously and discharged the loan before 9 December 1987. In addition, the abolition of the Ministerial power from section 19 will negatively affect some clients. A further period of qualifying service does not entitle any client to further assistance. The test for portability is: Was the loan current on 9 December 1987?

A savings clause has been inserted specifying that section 19 approvals for second assistance in force at the date of enactment remain effective but a formal application for a Certificate of Entitlement must be received by 8 January 1992. An applicant's right of appeal has also been preserved. Current appeals on second assistance matters before the Administrative Appeals Tribunal will not be affected. However, each case should be reviewed under the new provisions and the client advised of whatever entitlement is available.

Process of implementation

Applications will fall into the following categories:

• a loan was current at 9 December 1987;
• the previous loan was discharged prior to 9 December 1987.

Transitional arrangements

Requests lodged for second assistance under the previous rules which have received section 19 approval should be processed according to those rules. In most cases it will be to the applicant's advantage because certain benefits are no longer available under the revised legislation, viz.:

• access to additional finance in excess of liability;
• retention of the former interest rate(s);
• access to an increased loan term where financial hardship would be caused if the total loan term(s) were adjusted to 25 years.

There will be other cases which could not be admitted under the previous provisions. Where these have not been finalised, they may be considered under the amended legislation. Even though some second assistance requests which would otherwise have been declined may be admitted under the new portability provisions, they should not be denied access to the normal appeal facilities against the unfavourable denial of second assistance under the savings provisions.

Where an application can be admitted, the applicant should receive written advice in terms of Attachment 1 explaining the reduced term.

Loans that have been in existance for at least 25 years will have no further repayment period available - resulting in an inability to utilise portability. Where an application is declined because there is no term available, the applicant should receive written advice in terms of Attachment 2.

There is no provision in the legislation for former borrowers who discharged their loans prior to 9 December 1987 to be considered for any further assistance.

Possible problem areas

Loss of access to second assistance

Discharge of liability before 9 December 1987

All clients who discharged their DSH liability before 9 December 1987 no longer qualify for further assistance benefits under the DSH Scheme.

All clients in this category who apply for or make written inquiries regarding further assistance should receive written advice in terms of Attachment 3. Any oral information given should be consistent with the terms of Attachment 3, and should be followed up in writing.

Two periods of Qualifying Service

Many clients in this category will be aware of the previous policy allowing them to lodge a further application and may consider they are disadvantaged by this decision.

Clients who discharged their liability prior to 9 December 1987 cannot be considered for further assistance. All clients in this category who enquire regarding further assistance should receive written advice in terms of Attachment 4. Any oral information given should be consistent with the terms of Attachment 4, and should be followed up in writing.

Clients who had a loan in force on 9 December 1987 are entitled to further assistance (portability) subject to the terms and conditions set out in the DSH Act. The fact of having served a second period of qualifying service does not entitle clients to additional consideration in respect of further assistance. All clients in this category who enquire regarding further assistance should receive written advice in terms of Attachment 5. Any oral information given should be consistent with the terms of Attachment 5, and should be followed up in writing.

Shortened term of loan

The amendment of section 36 to maintain consistency with the Government's decision when introducing portability in 1987 will impact on those clients seeking to utilise portability.

Loan terms in excess of a total of 25 years

Those clients whose loan(s) have been in existence for 25 years or more will not be able to utilise portability. Under the terms of section 36, the potential term of a portable loan would be zero or a minus figure.

Loan terms under a total of 25 years

Clients who are able to utilise portability may have to pay an increased instalment as a result of the reduced loan term.

Interest rate

All newly portable loans attract an interest rate of 6.85% per year.

The majority of clients exercising portability will probably have a three tier interest rate which will translate with little or no impact on the amount of instalment to be paid.

Clients whose loan has a single tier or two tier interest rate will be paying a higher rate when they exercise portability. This factor will increase the amount of instalment payable.

Maximum advance

The maximum advance permitted on portability will be the amount outstanding on discharge of the previous liability, excluding arrears and excess credits. There is no provision for a loan in excess of the previous liability.

Post Implementation

Section 19 approvals

The savings provisions in the amending legislation provide that any outstanding section 19 approvals given under the Minister's discretion will have until 8 January 1992 by which to lodge a formal application for a Certificate of Entitlement.

State Managers will need to ensure that all clients are aware of the implications of the section 19 approval lapsing.

Register of new portable loans

Under the terms of the Supplementary Agreement between the Commonwealth and Westpac Banking Corporation, the Bank will pay a unit fee of $400 for the first use of a newly portable loan arising from the introduction of the new provisions. Loans which are already portable will not attract a unit fee.

Accordingly, State Managers should ensure that each Certificate of Entitlement issued for the first use of a newly portable loan is identified by a "P" at the end of the file number at the top of the form. Such Certificates of Entitlement will need to be recorded when they are returned by the Bank. This information is to be forwarded to C.O. for collation each year.

The Commonwealth will invoice Westpac each year for the period 1 May to 30 April specifying the cases assisted under the new provisions. Any omissions will result in a loss of revenue to the Commonwealth.

This manual system will operate until the appropriate modifications have been made to the CELS system.

Complaints

State Managers should ensure that complaints are recorded by type (e.g. loss of entitlement, shortened loan term, etc.) and details of complaints are included in the monthly report to the G.M.

SECTION B - Extension of the Scheme to allow an eligible person to acquire a permanent right to reside in a retirement village

Sections of the DSH Act affected

Sections 4, 18, 20, 21, 22, 24, 26, 29, 38C & 45A

Clause 8 of the Commonwealth/Westpac Agreement

Description of change

Sub-section 18(2) has been amended to include the acquisition of a permanent right to reside in a retirement village as a purpose for which a subsidised advance may be applied.

Section 4 has introduced concepts of what constitutes retirement village accommodation:

"retirement village" means:

1. a retirement village registered under a law of a State or Territory approved by the Minister as being applicable for DSH purposes; or
2. in the case of a State or Territory that has no law approved by the Minister as being applicable for DSH purposes – a retirement village within the meaning of the Veterans' Entitlement Act 1986.

Sub-section 35(1) of the Veterans' Entitlement Act 1986 defines "retirement village" as meaning:

"residential premises the accommodation in which is primarily intended for persons who are at least 55 years old, being premises consisting of:

1. one or more of the following kinds of accommodation:

(i) self-care units;

(ii) serviced units;

(iii) hostel units; and

2. communal facilities for use by the occupants of the units referred to in paragraph (a);

and includes residential premises that, in the Commission's opinion, have similar functions to those first-mentioned residential premises."

Further instructions will issue regarding retirement villages which meet the Commission's requirements.

The retirement village must be registered under applicable State or Territory legislation approved by the Minister for DSH purposes. At this time only the Retirement Villages Acts of NSW, Vic., Qld, and SA will be approved. (A copy of the Instrument will be forwarded when endorsed by the Minister).

Note: A "retirement village" does not include a property covered under strata title legislation. These are already covered in the Act and are not treated as retirement villages in the DSH Act.

These amendments give effect to the Government's decision to introduce loans to fund entry into retirement villages. Loans made to persons acquiring a right, licence or lease to occupy a retirement village are portable and are made on the same terms and conditions as other DSH loans.

It should be noted the legislation does not specify what form the security must take and it does not require the definition of "holding" to be met. As a consequence the Bank is free to determine the nature of the security (if any).

Other relevant sections of the DSH Act have been amended as a consequence of the above amendments. They maintain a consistent approach in interpretation and application, e.g. the tests of ownership of another dwelling; intention to occupy; purposes for additional advances, etc.; and undertaking of insurance.

Process of implementation

Applications for assistance to obtain a permanent right to reside in a retirement village should be made on the Subsidy Application (Form DSHL2). Pending revision of this Form, the existing Form will need to be suitably modified.

A self-adhesive label detailing the new purpose should be affixed to the front of the Form as "Part D - Retirement Village".

Assistance is available for the payment of the one-off in-going contribution that the applicant is required to make in order to secure a permanent right to reside in the village. However, any costs associated with obtaining this right may be included subject to the maximum advance not exceeding $25,000.

It is important to remember that the full range of benefits available under the Act apply equally to retirement village accommodation.

There may be a small group of clients who will seek assistance to discharge a debt incurred in gaining access to the retirement village. Such applications will be processed under the normal rules applying to discharge of mortage requests.

Certificates of Entitlement issued as a result of applications for advances in respect of retirement villages should have the purpose expressed in the same terms as the Act.

Possible problem areas

Misinterpretation

Clients may have a perception that the retirement village purpose is available notwithstanding a client has previously been assisted and has discharged the liability before 9 December 1987. This is not the case; the rules applying to further assistance for a property apply equally to retirement village accommodation.

Special Accommodation

A retirement village may comprise individual units, hostel or hospital accommodation. The DSH loan can be used to acquire rights to entry to residential accommodation, i.e. individual units/hostel even if the person eventually is transferred into a hospital section. However, it is not available to gain direct access into a hospital section. Such entry is covered by different State legislation such as Health Acts.

Discharge of debt

Paragraph 18(2)(k) of the Act requires that for a debt to be refinanced, that debt must have been incurred in acquiring entry into a retirement village. Therefore, clients are required to provide reasonable evidence that the debt they are requesting to be refinanced was in fact incurred for that purpose.

Post implementation

Register of retirement village cases

Under the terms of the Supplementary Agreement between the Commonwealth and Westpac Banking Corporation, the Bank will pay a unit fee of $400 for the first entry into a retirement village loan arising from the introduction of the new provisions. Loans for villages under strata title legislation are not to be included.

Accordingly, State Managers should ensure that each Certificate of Entitlement issued for the first entry into a retirement village is identified by an "R" at the end of the file number at the top of the form. Such Certificates of Entitlement will need to be recorded when they are returned by the Bank. This information is to be forwarded to C.O. for collation each year.

The Commonwealth will invoice Westpac each year for the period 1 May to 30 April specifying the cases assisted under the new provisions. Any omissions will result in a loss of revenue to the Commonwealth.

This manual system will operate until the appropriate modifications have been made to the CELS system.

Complaints

State Managers should ensure that complaints are recorded by type (e.g. misinterpretation, special accommodation, etc.) and details of complaints are included in the monthly report to the G.M.

SECTION C - Recognition of the special circumstances of married eligible applicants

Section of the DSH Act affected

Section 4

Description of change

Sub-section 4(1) has been amended to exclude from the definition of "further advance" applications involving married eligible applicants. Where a husband and wife are both eligible and they have jointly received a DSH loan on the basis of the eligibility of one, the person whose eligibility has not been utilised previously will be entitled to receive a subsidised advance on initial terms and conditions, and to further advances where appropriate.

This amendment is a statutory recognition of the special circumstances of a husband and wife who are both eligible in their own right. However, this does not mean that both entitlements can be used at the same time in respect of the same property.

Process of implementation

All current requests for second assistance should be examined to see if there is an unused entitlement by a spouse. If this is the case, the client should be given the option of proceeding with the second assistance request or changing to this new provision where the spouse has the right to a loan on initial loan terms.

Post implementation

State Managers should ensure that complaints are recorded by type (e.g. misinterpretation, etc.) and details of complaints are included in the monthly report to the G.M.

SECTION D - Removal of the discretionary provision in respect of transfers to ineligible persons

Section of the DSH Act affected

Section 22

Description of change

Sub-section 22(3) has been amended to provide that a Certificate of Entitlement under section 22 can be issued only to a proposed transferee who is an eligible person.

This implements the Government's decision that transfers of the estate or interest of a purchaser or borrower in land, land and dwelling-house, or rights of retirement village residence to ineligible persons are no longer to be permitted.

A savings clause has been inserted permitting the Secretary to issue a Certificate of Entitlement to a proposed ineligible transferee where:

• written notice had been given to the proposed transferee that the Secretary would, in the absence of a significant change in the proposed transferee's circumstances, issue a Certificate of Entitlement; and
• the proposed transferee applies for the Certificate of Entitlement before 8 January 1992.

Process of implementation

It is important to note that no further requests to transfer to an ineligible person can be processed, even if the request was lodged before the enactment of the amending legislation. Only those cases which have been given written notice that a Certificate of Entitlement would most likely issue, may continue to be processed.

State Managers should ensure that all such cases are monitored and the proposed ineligible transferee informed that the formal application for a Certificate of Entitlement must be lodged before 8 January 1992.

All clients in this category should receive written advice in terms of Attachment 6. Any oral information given should be consistent with the terms of Attachment 6, and should be followed up in writing.

Applications for transfer of ownership should be made on the Transfer Application (Form DSHL3). Pending revision of this Form, the existing Form will need to be suitably modified.

A self-adhesive label detailing the new provision should be affixed to the front of the Form over the old paragraph regarding transfers to ineligible persons.

Family court registries, legal practitioners, marriage counsellors and other affected parties will need to be informed of the prohibition on subsidies being transferred to ineligible spouses so that they may devise alternative property settlement arrangements. C.O. is working on a planned approach on how to disseminate this information. Further instructions will be provided shortly to enable the State Manager to inform relevant groups in your State.

Possible problem areas

Family Court orders

The prohibition of transfers to ineligible persons will impact on the operations of the Family Court and legal practitioners. The options available to the property settlement process may be altered by the loss of the ability to transfer the DSH subsidy when a property is transferred to the ineligible spouse. Options which may be available to an ineligible spouse are:

• leaving the property in the joint names of the eligible person and spouse;
• approaching Westpac for a transfer of the loan on an unsubsidised basis;
• refinancing through another financial institution; or
• selling the property.

Tenancy in common

Section 4A of the DSH Act gives the Secretary a discretionary power to treat an eligible person and the husband or wife of that eligible person together as an eligible person for the purposes of the DSH Act. The Secretary is specifically prohibited from applying this section to any land or land and dwelling-house that is not held by the eligible person and his/her spouse as joint tenants.

This section forms the basis for not permitting applicants to be granted DSH loans as tenants in common. However, a subsequent transfer to a tenancy in common, in some instances, has been approved subject to the requirements of section 22 being met.

The removal of the power to transfer to an ineligible person means that a transfer to a tenancy in common situation can now be effected only if the transferees are eligible persons.

Post implementation

State Managers should ensure that complaints are recorded by type (e.g. misinterpretation, tenancy in common, etc.) and forwarded to C.O. monthly report to the G.M.

SECTION E - Power to implement review decisions

Section of the DSH Act affected

Sub-section 18(5A)

Description of change

New sub-section 18(5A) has been inserted into the Act to give effect to a review decision to authorise a subsidy in respect of an advance by Westpac where a person has proceeded to acquire a home pending internal or AAT review of a decision.

The new sub-section will enable the Secretary to give effect to an AAT direction or a decision made by internal review by issuing a Certificate of Entitlement where the mortgage, charge or encumbrance was raised without the approval of the Secretary.

SECTION F - Hardship Guidelines

Sections of the DSH Act affected

Widows advances – sub-sections 20(3) & (4)

Instalment relief – sub-sections 23(5) & (6)

Essential repairs – sub-sections 21(2) & (3)

Other advances – sub-sections 18(58) & (5C)

Description of change

The DSH Act provides that the Minister may approve guidelines to which the Secretary is to have regard when deciding whether a person is suffering Financial Hardship or Serious Financial Hardship for the purposes of certain paragraphs of the Act. The Act also provides that the approved guidelines must be tabled before both Houses of Parliament within 15 Sitting days and be subject to disallowance.

The terms Financial Hardship or Serious Financial Hardship each appear in two sections of the Act as follows.

FINANCIAL HARDSHIP

Widows advances

Section 20 of the DSH Act provides that the Secretary may issue a Certificate of Entitlement in relation to subsidy on a widows advance for the purposes of:

• keeping the buildings, fences, fixtures and other improvements on the land in good order and repair; and/or
• paying rates, taxes, charges or other outgoings in relation to the land or dwelling-house.

The Secretary is prevented from issuing a Certificate of Entitlement by sub-section 20(2) of the DSH Act unless satisfied that it would cause financial hardship to the person if she were to bear the cost of the repairs or she were to pay the outgoings.

Sub-section 20(3) of the DSH Act makes provision for the Secretary to have regard to any guidelines approved by the Minister when deciding whether a person is suffering financial hardship for the purposes of sub-section 20(1) of the DSH Act. Sub-section 20(4) of the DSH Act provides the authority for the Minister to approve guidelines setting out matters to be taken into account by the Secretary when deciding whether a person is suffering financial hardship for the purposes of sub-section 20(1) of the DSH Act.

Instalment Relief

Sub-section 23(1) of the DSH Act provides that the Secretary may issue a Certificate of Entitlement in relation to instalment relief that a person may seek from the Bank where the person is a purchaser or borrower who is:

• the widow or widowed mother of an eligible person, or the wife of an eligible person who is insane; or
• any other eligible person whose instalments include interest at a rate of more than 3.75% per year.

Where the Secretary is satisfied that it would cause financial hardship to the applicant if he or she were to to pay the instalments in full, the Secretary can reduce the instalments payable for a period of time.

Sub-section 23(5) of the DSH Act makes provision for the Secretary to have regard to any guidelines approved by the Minister when deciding whether a person is suffering financial hardship for the purposes of sub-section 23(1) of the DSH Act. Sub-section 23(6) of the DSH Act provides the authority for the Minister to approve guidelines setting out matters to be taken into account by the Secretary when deciding whether a person is suffering financial hardship for the purposes of sub-sections 23(1) of the DSH Act.

SERIOUS FINANCIAL HARDSHIP

Advances other than widows advances and advances for essential repairs

Sub-section 18(2) of the DSH Act provides that the Secretary may issue a Certificate of Entitlement in relation to subsidy on an advance for the purpose of discharging any mortgage charge or encumbrance which already exists on a person's holding or for the purpose of discharging a debt in relation to obtaining a right of residence in a retirement village. Sub-section 18(3) of the DSH Act makes similar provision where the advance is an additional advance.

The Secretary is prevented from issuing a Certificate of Entitlement by sub-sections 18(4) and (4A) of the DSH Act unless satisfied, inter alia, that:

• the terms of the mortgage, charge or encumbrance or the terms for repayment of the debt are onerous and, having regard to the person's income, compliance with those terms is causing the person serious financial hardship; or
• the person is suffering serious financial hardship for other reasons beyond the control of the person.

Sub-section 18(5B) makes provision for the Secretary to have regard to any guidelines approved by the Minister when deciding whether a person is suffering serious financial hardship for the purposes of paragraphs 18(4)(c) or (d) of the DSH Act. Sub-section 18(5C) of the DSH Act provides the authority for the Minister to approve guidelines setting out matters to be taken into account by the Secretary when deciding whether a person is suffering serious financial hardship for the purposes of sub-sections 18(4) or (4A) of the DSH Act.

Advances for essential repairs

Section 21 of the DSH Act provides that the Secretary may issue a Certificate of Entitlement in relation to subsidy on an advance for essential repairs.

The Secretary is prevented from issuing a Certificate of Entitlement by paragraph 21(d) of the DSH Act unless satisfied that it would cause serious financial hardship to the person if he or she were to bear the cost of essential repairs to keep the buildings, fences, fixtures and other improvements on the land in good order and repair.

Sub-section 21(2) of the DSH Act makes provision for the Secretary to have regard to any guidelines approved by the Minister when deciding whether a person is suffering serious financial hardship for the purposes of sub-section 21(1) of the DSH Act. Sub-section 21(3) of the DSH Act provides the authority for the Minister to approve guidelines setting out matters to be taken into account by the Secretary when deciding whether a person is suffering serious financial hardship for the purposes of sub-sections 21(1) of the DSH Act.

GUIDELINES

The guidelines approved by the Minister form the basis for all future decisions on what constitutes financial hardship or serious financial hardship. A copy of the guidelines will be forwarded when endorsed by the Minister.

In respect of financial hardship, there is a dual level of hardship based on income level. Those persons whose basic income is a pension are considered to be in hardship at a level of 20% commitments to income ratio; while persons with higher income are considered to be able to meet a 25% ratio. Pension recipents are allowed to earn additional income (called the Basic Income Limit) before their pension is reduced. Persons at the lower level may receive the Basic Income Limit in addition to a pension before the higher test is invoked. At 10 January 1991 the Basic Income Limit was:

$80 for a single veteran;

$70 each for a married couple; and

$70 for a widow or a married woman.

Appendix E of the GOs is hereby cancelled. As a general rule, clients obtaining instalment relief or a widows advance will be expected to contribute the percentage of income used in the Minister's guidelines to determine the point at which hardship is deemed to begin. You should use your discretion to require a lower amount if the situation warrants it - especially when reviewing current recipients who are contributing to their commitments below this level.

SECTION G - Eligibility

Section of the DSH Act affected

Sub-section 4(1) - definition of "Australian soldier"

Middle East Service

The definition of "Australian soldier" has been amended to include in new paragraph (gb) any person who, as a member of the Australian Defence Force, was allotted for duty in the Middle East in the area described in the new item 10 of Schedule 2 to the Veterans' Entitlements Act during the period specified in the item and whose first service in the ADF began on or before 14 May 1985.

The area in which a member of the ADF must have been allotted for the purpose of DSH and VEA entitlements is:

• the countries of Bahrain, Oman, Qatar, Saudi Arabia, the United Arab Emirates and the Island of Cyprus;
• the sea areas contained within the Gulf of Suez, the Gulf of Aqaba, the Red Sea,the Gulf of Aden, the Persian Gulf and the Gulf of Oman;
• the sea area contained within a defined area of the Arabian Sea;
• the sea area contained within the Suez Canal and the Mediterranean Sea east of 30 degrees east.

The member must have been allotted during the period on or after 2 August 1990.

Any person who satisfies the requirements of the new paragraph (gb) is entitled to assistance on the same basis as any other person who satisfies the definition of "Australian soldier".

Clarification of Allotment for Duty

Sub-section 5(12) of the Veterans' Entitlements Act has been amended to overcome the Federal Court decisions in which the Court construed the phrase "allotted for duty" as being equivalent to "posted for duty". Such a construction resulted in an unintended extension of benefits to all service personnel who were in an operational area during a relevant period irrespective of the duration of that service, of the purpose of their presence in the area, of the actual duties undertaken during that period and of the fact that the ADF, apart from posting them to that area, had not formally allotted them for service in that area.

The concept of "allotment for duty" is a special one which was developed to cater for and identify service which attracted Repatriation and DSH benefits. It has been developed in respect of service undertaken in response to the war-like situations that have arisen since the Second World War and in respect of which there has been no formal declarations of war by Australia.

No action will be taken which would disadvantage any persons in respect of whom final determinations have been made to grant eligibility on the basis of the Federal Court decisions.

ATTACHMENT 1

The following should be included in the approval letter.

To be used in those cases which permit portability, i.e. there is a term available.

Refer Page 2 Implementation Arrangements.

A portable loan is limited to the amount owing on the previous loan at the time of discharge. The interest rate is 6.85% per year and the total term of all loans must not exceed 25 years.

When the Government decided to introduce portability for new loans from 9 December 1987, it was also decided that all portable loans would be repayable over a maximum term of 25 years. Legislation now allows all loans that were current as at 9 December 1987 to be made portable. These loans also have a maximum term of 25 years. Therefore, the total of all the terms of each loan may not exceed 25 years. As an example, a person who received a DSH loan in 1976 may, in 1991, have a loan on another home over a maximum of 10 years.

In respect of interest rates, the Government's commitment to portability in 1987 was offset by the shorter loan period and the increase in the interest rate to 6.85% per year. Now that portability has been extended to all loans current at 9 December 1987, the interest rate will increase to 6.85% per year in line with new loans, once a request for portability is exercised. Borrowers who do not wish to move will not have their existing loan conditions affected.

I note that your DSH loan has been running for approximately ?? years and if you were to exercise portability, your new loan term would be over ?? years.

ATTACHMENT 2

The following should be included in the written advice enclosing the Statement of Reasons.

To be used in those cases which do not permit portability, i.e. there is no term available.

Refer Page 2 Implementation Arrangements

A portable loan is limited to the amount owing on the previous loan at the time of discharge. The interest rate is 6.85% per year and the total term of all loans must not exceed 25 years.

When the Government decided to introduce portability for new loans from 9 December 1987, it was also decided that all portable loans would be repayable over a maximum term of 25 years. Legislation now allows all loans that were current as at 9 December 1987 to be made portable. These loans also have a maximum term of 25 years. Therefore, the total of all the terms of each loan may not exceed 25 years. As an example a person who received a DSH loan in 1976 may, in 1991, have a loan on another home over a maximum of 10 years.

Loans which were taken out with 32 and 45 year terms have had the benefit of reduced instalments as a result of the longer terms. Portable loans have higher instalments due to the 25 year term. To permit portability on loans which had already run 25 years or more would be to permit a double benefit to be conferred - the reduced instalment/longer term and the advantage of portability.

I note that your DSH loan has been running for approximately ## years and that, accordingly, you will be unable to utilise portability since your loan term has exceeded 25 years.

I am sorry that I have no better news for you on this occasion.

ATTACHMENT 3

The following should be included in the written advice enclosing the Statement of Reasons, or in response to a general inquiry.

To be used in those cases which are not portable, i.e. they discharged the previous loan before 9 December 1987.

Refer Page 2 Implementation Arrangements.

On 9 December 1987 the Government introduced portability for all new loans. At that time, further assistance remained available to applicants who had a current non-portable loan if they were compelled to move from the DSH-subsidised house. The granting of further assistance was at the discretion of the Minister.

Under revised legislation introduced on 8 January 1991, the benefits flowing from the DSH Scheme are available only where a DSH subsidised loan existed at 9 December 1987. In your case, the DSH loan was discharged before 9 December 1987, and the legislation does not permit such a loan to be portable.

I am sorry I do not have better news for you.

ATTACHMENT 4

The following should be adopted as the written advice in response to a general inquiry.

To be used in those cases which are not portable, i.e. they discharged the previous loan before 9 December 1987, but have a further period of qualifying service.

Refer Page 3 Implementation Arrangements

I refer to your recent inquiry regarding the portability provisions in the DSH Scheme as they affect a further period of qualifying service.

On 9 December 1987 the Government introduced portability for all new loans. At that time, further assistance remained available to applicants who had a current non-portable loan if they were compelled to move from the DSH-subsidised house. Where the applicant had a further period of qualifying service, the criterion of compulsion to move was applied less stringently in recognition of the extra service. The granting of further assistance was at the discretion of the Minister.

The further assistance policy in force before 1991 allowed some persons who had completed more than one period of qualifying service to pay out the first loan, and apply for a further loan several years later. However, policy and legislation are subject to change, and most applicants in this category would have been advised accordingly.

Revised legislation on 8 January 1991 introduced portability for all loans that were current on 9 December 1987. Accordingly, the portability provisions have fully replaced the earlier further assistance provisions. The revised legislation does not provide any additional benefits for person with further qualifying service.

Portability is intended to provide continuity of benefit from home to home, and to ensure parity with those loans granted since 9 December 1987.

Under the revised legislation, the benefits flowing from the DSH Scheme are available only where a DSH-subsidised loan existed as at 9 December 1987.

ATTACHMENT 5

The following should be adopted as the written advice in response to a general inquiry.

To be used in those cases which are portable i.e. they had a loan current on 9 December 1987, but have a further period of qualifying service.

Refer Page 3 Implementation Arrangements

I refer to your recent inquiry regarding the portability provisions in the DSH Scheme as they affect a further period of qualifying service.

On 9 December 1987 the Government introduced portability for all new loans. At that time, further assistance remained available to applicants who had a current non-portable loan if they were compelled to move from the DSH-subsidised house. Where the applicant had a further period of qualifying service, the criterion of compulsion to move was applied less stringently in recognition of the extra service. In addition, access to additional finance to maximum of $25,000 was available. The granting of further assistance was at the discretion of the minister.

Revised legislation on 8 January 1991 introduced portability for all loans that were current on 9 December 1987. Accordingly, the portability provisions have fully replaced the earlier further assistance provisions. The revised legislation does not provide any additional benefits for persons with further qualifying service.

Automatic access to a continuing subsidy will benefit a greater number of persons. Portability is intended to provide continuity of benefit from home to home, and to ensure parity with those loans granted since 9 December 1987.

A portable loan is limited to the amount owing on the previous loan at the time of discharge. The interest rate is 6.85% per year and the term of all loans must not exceed 25 years.

In respect of interest rates, the Government's commitment to portability in 1987 was offset by the shorter loan period and the increase in the interest rate to 6.85% per year. Now that portability has been extended to all loans current at 9 December 1987, the interest rate will increase to 6.85% per year in line with new loans, once a request for portability is exercised. Borrowers who do not wish to move will not have their existing loan conditions affected.

I note that your DSH loan has been running for approximately ?? years and if you were to exercise portability, your new loan term would be over ?? years.

ATTACHMENT 6

The following should be adopted as the written advice in respect of a transfer to an ineligible person.

To be used in those cases which have not received a Certificate of Entitlement.

Refer Page 9 Implementation Arrangements.

I refer to previous correspondence regarding the transfer of an interest in a property subject to a DSH subsidised loan.

Legislative changes were introduced on 8 January 1991 which prevent the Secretary consenting to a transfer of a subsidy where the transferee is not an eligible person as defined in the DSH Act.

Previously, the Secretary had a discretion in issuing a Certificate of Entitlement to a proposed transferee who was not an eligible person.

However, as I indicated in my previous letter that I would most likely approve your request on satisfaction of various criteria, the amending legislation allows your request to proceed provided you apply for a Certificate of Entitlement before 8 January 1992.

In the event that an application is not received by this date the proposed transfer will not be able to proceed. Therefore, it is in your interest to proceed as soon as possible.