16/1992 VALA Bill - Amendments to DSHA 1918

Central Office Instruction

Instruction No. 16

Date of Effect: 26 June 1992

VETERANS' AFFAIRS LEGISLATION AMENDMENT BILL

AMENDMENTS TO THE DEFENCE SERVICE HOME ACT 1918

The purpose of this instruction is to advise and explain the legislation changes to the DSH Act as a result of passage of the Veterans Affairs Legislation Amendment Act 1992. Royal Assent was given on 26 June 1992.

The changes relate to the following areas:

• Insurance Trust Account
• first mortgage requirement
• withdrawal of revocations
• portability - maximum amount to be "ported"
• portability - "top-up" finance
• eligibility on medical grounds

Most of the legislation changes are a consequence of the Minister's announcement on 22 August 1991 to allow pooling of loans in respect of the one property and other changes are simply minor changes to reflect current practice. Changes to the Insurance Trust Account have resulted from the introduction of Home Contents Insurance and the agreement between the Commonwealth and Mercantile Mutual. The changes are detailed below and implementation instructions are at Attachment A. The changes will be reflected in the forthcoming revised GOs.

Copies of the amending legislation have been distributed separately. An in-house consolidation of the amendment is being arranged by the Legal Services Group.

Delegations

There are some changes to current delegations resulting from the legislation changes. Instruments of delegations and guidelines will be forwarded shortly.

INSURANCE TRUST ACCOUNT

This amendment enables the existing Insurance Trust Account to transact all types of insurance business arising from the agreement between the Commonwealth and Mercantile Mutual.

Background

The agreement between the Commonwealth and Mercantile Mutual provides for the Commonwealth to act as an agent for Mercantile Mutual Insurance in respect of household contents insurance and to receive commission for incidental business introduced to Mercantile Mutual. Under the previous legislation the Insurance Trust Account was set up purely to deal with business resulting from building insurance and was unable to transact the business arising from the agreement between the Commonwealth and Mercantile Mutual.

The financial transactions arising from the Home Contents Insurance arrangements are currently being conducted through a temporary trust account set up specifically for that purpose under section 62A of the Audit Act.

Clauses involved in the change

Section 40 of the DSH Act is amended by omitting existing subsections (2) & (3) and inserting new subsections (2) & (3) to provide that all credits and all debits in respect of payments to and by the Commonwealth in connection with its insurance activities will be to the Defence Service Homes Insurance Trust Account established under Section 40(1) of the DSH Act.

WITHDRAWAL OF REVOCATION OF ENTITLEMENT

This amendment allows certain persons who revoked their DSH entitlement in favour of assistance under the Defence Force (Home Loans Assistance) Act to withdraw that revocation and regain their eligibility under the DSH Act.

Background

The Act was amended in January 1991 to allow a member of the Australian Defence Forces whose service began before 15 May 1985 and who had an unused entitlement to a DSH loan, to elect to revoke that entitlement in favour of eligibility under the Defence Force (Home Loans Assistance) Act. The opportunity to revoke was a once only offer and had to be exercised in the period 1 March 1991 to 31 August 1991. Section 4BA of the DSH Act provided that such elections, once exercised, were irrevocable.

On 22 August 1991, the Minister announced that persons eligible for DSH assistance could "pool" their entitlements. Some clients who had revoked early in the revocation period felt aggrieved by the late announcement. Given the situation it was decided to seek amendment to the legislation to enable revocations to be withdrawn.

Persons wishing to withdraw their revocation election must notify the Secretary of the Department, in writing by 30 June 1992. The legislation also provides for a late notice to be accepted by the Secretary up to 1 January 1993, provided the Secretary can be satisfied of the bona fides of the claim. In the latter, the Secretary's decision will be reviewable by the AAT.

Clauses involved in the changes

Section 4BA of the DSH Act, which outlines the revocation requirements, will be subject to new section 4BB, which sets out the conditions under which a revocation election may be withdrawn.

Section 18 of the DSH Act is amended by inserting a new section 5AA which will provide for the Secretary to issue a CofE in certain circumstances to a person who has elected to withdrawn their revocation under the new section 4BB.

Section 4 of the DSH Act is amended by inserting before paragraph (a) of the definition of "reviewable decision" a reference to decisions under subsection 4BB(2). The effect of this is to allow a right of review to the AAT against a decision of the Secretary to refuse a notice, seeking to withdraw a surrender election, which is lodged after 30 June 1992.

PORTABILITY - Maximum amounts for which subsidy is payable

The purpose of this amendment is to outline the elements to be considered when calculating the limit of the amount of a further portable loan and the amount of loan which can be 'ported'.

Background

Paragraph 25(1) (d) of the DSH Act provides that the maximum amount for which subsidy is payable in regard to a further advance is:

the limit of the last corporation advance, subsidised advance or contract of sale in relation to which the person was a borrower or purchaser; or

$25,000; whichever is the less.

Given the definition of "limit" this does not allow for the situation where a person's last Corporation advance, etc. includes the amount of any additional advance that has subsequently been made to the person.

The amendment will ensure that the amount of any additional advance can be taken into account when determining the limit of the loan which may be "ported". The maximum amount of a further portable loan for which a CofE can be issued, remains unchanged at $25,000.

Clauses involved

Section 25 of the DSH Act is amended by inserting after subsection (1) a new subsection (1A).

PORTABILITY - Refinancing of supplementary loans

This amendment allows an eligible person to "pool" his/her entitlement with another eligible person who has already taken out a DSH loan and not fully repaid that loan, to refinance any loan taken out to supplement the original DSH loan of that other eligible person. This amendment will mainly apply to spouses of eligible persons. However there may be some cases where other combinations of eligible persons may apply.

Background

On 22 August 1991 the Minister announced that persons eligible for DSH assistance could 'pool' their entitlements. This decision was taken following advice given in connection with an appeal to the AAT, that amendments made to the DSH Act in January 1991 would allow such pooling.

As a consequence, a policy decision was taken that where a person had used his or her entitlement to acquire a home with a DSH-subsidised loan, but had also taken out supplementary finance in connection with that acquisition, then another eligible person should be permitted to pool his or her entitlement to refinance the supplementary loan. Refinancing is available only where there is an outstanding balance to be repaid on the DSH loan.

Sub section 18(4) of the DSH Act provides that a loan taken out without the prior approval of the Secretary may not be refinanced with a DSH-subsidised loan unless the person is suffering serious financial hardship. An amendment is necessary to permit an exception to be made in the circumstances described above.

Clauses involved in changes

Section 18 of the DSH Act is amended by inserting a new sub-section 5AB after the new sub-section 5AA to allow refinancing of loans in these circumstances.

ELIGIBILITY OF PERSONS DISCHARGED ON MEDICAL GROUNDS AFTER 14 MAY 1985

This amendment permits eligibility to be re-established under the DSH Act for persons whose first service in the Defence Force began after 14 May 1985 and who were discharged on invalidity grounds or whose service in the Defence Force ceased by reason of death before completing the minimum period of six years' service, during the period 15 May 1985 to 19 December 1988.

The changes are limited to those who have been previously advised of their entitlement and to the surviving widows or widowers of such persons. A further limitation is that the provision will not apply to any person who is or has been a subsidised borrower under the Defence Force (Home Loans Assistance) Act.

Background

In May 1985, the Government announced that persons who enlisted in the Forces after 14 May 1985 would no longer qualify for housing assistance under the DSH Act. Housing assistance for these persons was to be provided under the subsequent Defence Force (Home Loans Assistance) legislation.

The DSH Act was amended in 1988 to take account of this decision. However, the amendments did not take account of the special requirements relating to those members of the forces, or their dependants, who could become eligible for assistance under the DSH Act by reasons of their early discharge on medical grounds or termination of service before completing six years' service by reason of the death of the service person.

The eligibility of persons in this category continued to be correctly determined in accordance with the provisions of the DSH Act as in force prior to the amendments in 1988.

When the DSH Act was amended in 1988, the definition of "Regular serviceman" excluded all persons whose first service in the Defence Force began after 14 May 1985. The special needs of this group of servicemen was overlooked and, as the Act previously stood, they were prevented from obtaining a CofE under the Act for an initial or portable loan even though they had been notified of their eligibility and, in some cases, been granted a loan.

Clauses involved in the amendment

Section 4AAA of the DSH Act is amended by making subsection (1) subject to the new provisions to take account of the category of service and inserting new subsections (5A), (5B) and (5C).

CONSEQUENTIAL, MINOR AND TECHNICAL AMENDMENTS

As a result of the rewrite of the Veterans' Entitlements Act, some references to the VEA in the DSH Act need to be amended.

The references to 5(12) of the VEA in sub-paragraphs (g)(i) and (ii) of the definition of "Australian Soldier" and paragraph 4(2)(a) have been amended to "5B(2)"

Date of effect of this amendment is 1 July 1991.

DATE OF EFFECT

All other amendments are effective on the date of Royal Assent.

Felicity M. Barr

GENERAL MANAGER

1 July 1992

ATTACHMENT A

VETERANS' AFFAIRS LEGISLATION AMENDMENT BILL 1992 AMENDMENTS TO THE DEFENCE SERVICE HOME ACT 1918

IMPLEMENTATION ARRANGEMENTS

1. INSURANCE

Defence Service Homes Insurance Trust Account

Section 40 of the Act is amended by omitting subsections (2) and (3) and substituting the following subsections:

(2) To that Trust Account there must be credited all payments to the Commonwealth in connection with its activities:

(a) as an insurer under this Act, including a payment to it under a contract or arrangement referred to in section 38F; and

(b) with respect to insurance, as an agent for an insurer.

(3) To that Trust Account there must be debited all payments by the Commonwealth in connection with its activities:

(a) as an insurer under this Act including:

(i) a payment by it under a contract or arrangement referred to in setion 38F; and

(ii) a payment by it under section 38G; and

(iii) a payment by it that it is not legally required to make but that is of a kind that would be made by a person carrying on the business of insurance in accordance with sound commercial principles; and

(b) with respect to insurance, as an agent for an insurer.

Immediately after the commencement of this section:

(a) any amount standing to the credit of the Defence Service Homes Contents Insurance Trust Account is payable to the Defence Service Homes Insurance Trust Account; and

(b) the Defence Service Homes Contents Insurance Trust Account is taken to be closed under subsection 62A(4) of the Audit Act 1901; and

(c) any investment that was held for the purposes of the Defence Service Homes Contents Insurance Trust Account immediately before the commencement of this section, becomes an investment held for the purposes of the Defence Service Homes Insurance Trust Acount.

In regard to operational requirements resulting from the change, Budget Branch, Central Office, have been requested on our behalf to ascertain from the Department of Finance the possible implications following the closing of DSH Contents Insurance Trust Account, such as the Contents Insurance charge codes.

DoF have notified the Department that the establishment of new Contents charge codes will be delayed and that the DSH Contents Insurance Trust Account will remain open until the new codes are put in place. States should therefore, continue to use existing Contents charge codes until further notice.

3. WITHDRAWAL OF REVOCATION OF ENTITLEMENT

Revocation of election before 1 July 1992

4BB(1) A person who has elected to surrender his or her status as an eligible person under section 4BA may revoke that election (the 'surrender election') if:

(a) the person is not and has not been a subsidised borrower under the Home Loans Assistance Act; and

(b) the person gives the Secretary a written notice stating that the person wishes to revoke his or her surrender election; and

(c) the notice is given to the Secretary before 1 July 1992.

Revocation of election before 1 January 1993

(2) A person who has elected to surrender his or her status as an eligible person under section 4BA may revoke that election (the 'surrender election') if;

(a) the person is not and has not been a subsidised borrower under the Home Loans Assistance Act; and

(b) the person gives the Secretary a written notice stating that the person wishes to revoke his or her surrender election; and

(c) the notice is given to the Secretary on or after 1 July 1992 and before 1 January 1993; and

(d) the person satisfies the Secretary that:

(i) the person was not aware before 1 July 1992 that the person's surrender election was revocable; and

(ii) the person would not have made the surrender election if the person had been aware of the matters announced in the statement made by the Minister on 22 August 1991 relating to pooling of entitlements under this Act.

Date of effect of revocation

(3) If a person's surrender election is revoked by a notice under subsection (1) or (2), the revocation takes effect on the day on which the notice is given to the Secretary.

(4) If a person revokes his or her surrender election the Secretary must cause a copy of the notice that revoked the election to be given to the Secretary to the Department of Defence.

Essentially there are two types of withdrawal revocations, those that are received before 30 June 1992 and those that are received up to 1 January 1993.

Revocations received before the date of effect of the legislation will be taken to be effective from the date the legislation receives Royal Assent. All others will be taken to be effective from the date of receipt before 1 July 1992. Appealed decisions before 1 January 1993 will become effective when their case has been favourably determined by the relevent delegated officer on the Secretary's behalf.

Clients who revoked and contacted the Department advising of their wish to withdraw their revocation were contacted by letter advising of the amendment to the Act to allow revocations to be withdrawn. In that letter it was stated that we would write again once legislation was passed. A draft letter is provided at Attachment B advising clients that the legislation is now effective and if they have changed their mind about withdrawing they should contact DSH immediately. State Managers should takes steps to ensure the letter is ready to be sent to respective clients as soon as possible after the date of Royal Assent. The draft may be modified as the circumstances of a particular case warrant.

Attachment C outlines steps to be taken in processing withdrawal of revocations. Essentially, confirmation will need to be sought to ensure that a person did in fact revoke in the first place, and then the client's details, name, address, date of birth and service number will be forwarded via Central Office to DHA on a manual listing. A photocopy of the withdrawal notification or tear-off confirmation is also required to be fowarded to DHA. (There is a legislative requirement that an actual copy of the withdrawal notification be given to the Secretary of the Department of Defence).

This information will then be verified by DHA to confirm the client's status according to their records (mainly to check that they have not been assisted under their Act) and then Central Office will update the CELS records accordingly. The details of who to contact in DHA for these cases is included on the attachment.

DSH Central Office will forward a national list of service numbers and personal details of those who wish to withdraw their revocation to DHA after the first withdrawal revocation period 1 July 1992 and after the second withdrawal revocation period 1 January 1993.

A further period, to 1 January 1993 provides for those who may miss the 30 June 1992 cutoff. However, these cases will be treated in a different manner. Clients who fall into this category will have to put a case to the Secretary demonstrating that they have been adversely affected by the original announcement by the Minister on 22 August 1991 and that they were not aware of the initial withdrawal opportunity.

In respect of those clients who may change their mind about withdrawing their revocation after indicating their intention to do so, a commonsense approach should be adopted. These cases should be dealt with as they arise in consultation with DHA.

4. MAXIMUM AMOUNTS FOR WHICH SUBSIDY IS PAYABLE

This amendment outlines elements to be considered in calculating a persons maximum loan amount which can be 'ported'.

Section 25 is amended by inserting after subsection (1) the following subsection:

(1A) In working out the limit of a person's last Corporation advance, subsidised advance or contract of sale under paragraph (1)(d), the amount of the person's last Corporation advance, subsidised advance or contract of sale is taken to include the amount of any additional advance that has subsequently been made to the person.

In calculating a person's amount of loan which can be 'ported', any outstanding balance of the original loan, additional advance, instalment relief, should be taken into consideration. Additional Advance should be taken to mean both pre 1988 Corporation additional advances as well as post 1988 (Westpac) subsidised advances.

5. PORTABILITY - TOP UP FINANCE

This amendment only affects those clients who are able to pool their loans with another eligible person who has already taken out a DSH loan and has supplemented that original loan with other top up borrowings. The amendment allows clients who fit into this category to refinance the "other top up borrowings" of an existing DSH borrower, with a DSH loan. It is expected that the majority of clients who fit into this category will be the eligible spouse of an existing DSH borrower. However, there will be exceptions to this and so long as clients are made aware of the implications of the joint tenants provision, and provided they meet the other usual requirements, then eligible persons may use their entitlement in this manner.

Certificates of Entitlement should be completed in the same way a Certificate of Entitlement for concurrent assistance cases is completed, except in these cases the reference to the person with whom they are being concurrently assisted will be to the existing DSH borrower.

6. ELIGIBILITY ON MEDICAL GROUNDS

Section 4AAA is amended by making subsection (1) subject to the new provisions to take account of the category of service and inserting new subsections (5A), (5B) and (5C).

If a client has already approached DSH and been advised of their eligiblity under the DSH scheme then it is reasonable to assume that a file record will have raised.

A person approaching DSH who fits into this category should be subject to the usual checks. If a person fits into this category but has not previously approached DSH, then they should be referred to DHA. Complementary amendments have been made to the ADFHLAS legislation to pick up these clients.

7. STATISTICAL COLLECTION

The effect of the changes with regard to the first mortgage variation and the revocation withdrawal is to be tracked. Revocation matters have been dealt with above.

However, it is necessary to record the number of first mortgage exceptions made. We are looking at the options of recording this information in CELS. In the meantime, State Managers should arrange to set up local systems to record:

• number of instances where we become aware that the applicant is seeking a DSH second mortgage behind a State Government instrumentality.
• number of instances where both parties to the Agreement have made a formal exception to the first mortgage requirement

It is noted that in regard to the number of cases where the first mortgage requirement is waived that this information is reliant upon the exchange of correspondence between DSH and Westpac and that there may be cases which slip through this process. State Managers are to ensure that steps are taken to reduce this risk.

ATTACHMENT B

ADDRESS

DATE

I am writing in regard to your wish to withdraw your election to revoke your DSH eligibility in favour of an ADFHLAS entitlement. You may recall from my previous letter to you in December 1991 that I said I would be writing again when the amending legislation had been passed by Parliament.

The legislation has now been passed and consequently your notice of intention to withdraw your election to revoke your DSH entitlement has become effective. You are again able to apply for a DSH loan and, in accordance with the requirements of the amending legislation, the Department of Defence will be advised that your original election has been withdrawn. If you no longer wish to withdraw, please contact the number below immediately.

I emphasise that this letter does not automatically entitle you to assistance under the DSH Act. It is still necessary for you to apply for a Certificate of Entitlement and meet the usual requirements.

Should you have any queries regarding the contents of this letter please contact (OFFICERS NAME) on (PHONE NUMBER).

State Manager

Defence Service Homes

(STATE)

ATTACHMENT C

PROCEDURE OUTLINE FOR WITHDRAWAL OF REVOCATION ELECTIONS

• When the legislation receives Royal Assent send letter to those identified as wishing to withdraw revocation. (see proforma letter at Attachment B)
• State Offices should ensure that written advice is received from all persons who have indicated a desire to withdraw.
• Staff should ensure that those clients wishing to withdraw their revocation election, actually revoked their entitlement initially. A simple query on CELS will confirm this.
• Names, service details, DOB of clients wishing to withdraw should be recorded on the proforma provided (Attachment D) and forwarded to Central Office following the 30 June 1992 deadline.
• A photocopy of the written advice from clients should also be forwarded to Central Office with the above list.

In cases where only verbal advice of intention to withdraw was received from a client, State Manager's should endeavour to contact these people and request they confirm in writing their verbal advice.

• Central Office will compile a national list of all clients who wish to withdraw and forward this to DHA to ascertain any clients who have or have had a DHA subsidy (and are therefore ineligible to withdraw).
• When those able to withdraw have been confirmed by consultation with DHA, Central Office will update clients' CELS records indicating that their revocation has been withdrawn.
• Central Office will then provide DHA final confirmation of those clients who have had their eligiblity re-established under DSH.

Persons who approach DSH to withdraw their revocation election after 30 June 1992 (and before the 30 December 1992 final deadline) require the approval of the delegate on behalf of the Secretary. Delegations and guidelines for these cases will be issued at a later date.

ATTACHMENT D

Persons wishing to withdraw their election to revoke DSH eligibility

State:

Date:

File No.	Surname	Initials	Service Number	Date of Birth	Written notification