C39/2004 Changes to assessment of Income Support Supplement and Rent Assistance paid to ISS recipients

Purpose

T — his instruction provides policy information relevant to the:

• Exemption of adjusted disability pension from the assessment of income support supplement (ISS); and
• Application of a disability income rent test to ISS assessments.

Systems information will be provided in a separate instruction.

A separate departmental instruction is also available on the disability income rent test.

Legislative amendments

The ISS income test rules are contained in the Veterans' Entitlements Act 1986 (VEA).  Those rules have been amended by Schedule 1 of the Veterans' Entitlements (Clarke Review) Act 2004 (the Clarke Act) http://scaleplus.law.gov.au/html/comact/12/6857/t…

Commencement date

The amendments came into effect on 20 September 2004.

Further changes to commence on 1 January 2005

From 1 January 2005, rent assistance will become payable in addition to war widow/er income support payments.  This instruction does not cover those changes; this instruction deals only with the assessment changes beginning on 20 September 2004.

New term:

adjusted disability pension

'Adjusted disability pension' (adjusted DP) is a new term introduced by the Clarke Act.

It is defined in section 118NA of the VEA and means:

• General Rate (payable in multiples of 10% up to 100%), Extreme Disablement Adjustment, Intermediate Rate and Special Rate disability pensions paid under Part II or IV of the Veterans' Entitlements Act 1986 (VEA);
• Increased rates of disability pension for amputation and blindness, paid under section 27 of the VEA;
• temporary incapacity allowance paid under section 107 of the VEA;
• dependant's pension, which is a small frozen amount paid to dependants of disability pensioners, not granted since 1986; and

• permanent impairment payments and Special Rate Disability Pension paid under the Military Rehabilitation and Compensation Act 2004.

Affected population

War widow(er)s receiving ISS that is reduced due to the inclusion of adjusted DP may receive an increase in their rate of ISS as a result of these changes. However, for war widow(er)s who are renting, the increase may be partly or wholly offset by a reduction in the amount of rent assistance payable.

Attachment 3 explains the changes to the calculation of rent assistance payable to war widow(er)s with adjusted DP in their assessment.

The exemption of adjusted DP will also result in ISS becoming payable to a small, but unknown, additional number of war widow(er)s.

Attachments

The additional information attached to this instruction is divided into the following parts:

1. Background
2. Exemption of adjusted disability pension from ISS assessments
3. Application of disability income rent test in assessment of income support supplement
4. Amendments to VEA.

Guidelines

CLIK will be updated to reflect the information in this DI.

Client communication

Relevant automatic advice paragraphs and standard letters have been updated to reflect these changes.

An article appeared in the June 2004 edition of Vetaffairs explaining the changes to clients.  A follow up article will also appear in the Summer edition of Vetaffairs.

Publications and Forms

Relevant Fact Sheets, claim forms and chapters of You and Your Pension have been updated to reflect the changes.

Contact officer

Brenda Franklin, Income Support Policy: (02) 6289 6426

The Clarke Review

The Review of Veterans' Entitlements (known as the Clarke Review) recommended that disability pension be exempt from the assessment of income support payments made under the Veterans' Entitlements Act 1986 and the social security law.

In response to this recommendation the government introduced the Defence Force Income Support Allowance (DFISA) in respect of social security payments, and made changes to the assessment of ISS.

DFISA

Social security payments

DFISA is a payment made by DVA to veterans and their partners whose social security payment is reduced (including to nil) because of the inclusion of adjusted DP in the assessment of those payments.

Further information on DFISA is contained in Departmental Instruction C38/2004.

ISS changes

Income Support Supplement

Adjusted DP has been excluded from the assessment of ISS. The disability income rent test has been applied to ISS renters.

DFISA is not paid to war widow(er)s in receipt of ISS.

Adjusted income

'Adjusted income' is the term used to describe payments included in the ISS income test.  It is defined in subsection 5H(1) of the VEA.

Prior to 20 September 2004 adjusted income included the following payments:

• ordinary income;
• disability pension;
• permanent impairment compensation payments made under the Military Rehabilitation and Compensation Act 2004;
• Special Rate Disability Pension paid under the Military Rehabilitation and Compensation Act 2004;
• war widow(er)s' pension

• a foreign pension, similar in character to a war widow(er)'s pension.

Amendment to definition of 'adjusted income'

From 20 September 2004, adjusted disability pensions are excluded from the definition of 'adjusted income'.

As a result, the only payments now included in the ISS income test are:

• ordinary income;
• disability pensions paid by other governments
• war widow(er)s' pension

• a foreign pension, similar in character to a war widow(er)'s pension.

Application of the rent test to ISS

Adjusted DP is no longer included in the assessment of ISS.  However, it is now included in the assessment of rent assistance payable with ISS.

Therefore, while the amount of ISS payable to some war widow(er)s will increase as a result of the exemption of adjusted disability pension from their assessment, some renters will receive a reduced amount of rent assistance. (An example of such a scenario is provided below.)

This makes the overall assessment of ISS more closely aligned with the assessment of service pensioners.

Assets tested ISS

Where ISS is paid under the assets test, the exemption of adjusted DP will not result in an increase in the ISS payment.  However, as is the case with service pension, the DI rent test still applies to the person's rent assistance.

Disability income rent test

Adjusted DP is included in the assessment of rent assistance paid with ISS by applying the 'disability income rent test'.

The term 'disability income rent test' refers to the method of calculating the 'rent assistance reduction amount'.

This is the amount by which a person's (or their partner's) disability income reduces the amount of rent assistance included in the calculation of the ISS.

A disability income rent test also applies to rent assistance paid to service pensioners.  A separate Departmental Instruction explains the disability income rent test as it applies to service pension and ISS.

Disability income

The meaning of the term 'disability income' depends on whether it is being used in respect of a service pensioner or an ISS recipient.  In the case of an ISS recipient, it equates to 'adjusted DP'.

ISS calculation

The amount of ISS payable to a war widow(er), is the lower of three amounts. These are:

• the income reduced rate;
• the assets reduced rate; and

• the person's ceiling rate.

Use of rent test in calculation of income/assets reduced rate

The amount of rent assistance used in the calculation of the income/assets reduced rate applicable to an ISS renter who receives (and/or whose partner receives) adjusted DP is calculated as follows:

Step

Action

1

Excess rent = rent paid – rent threshold

2

Excess rent * 0.75

3

If 2 > maximum rent assistance, the provisional rate of rent assistance = maximum rent assistance rate

4

If 2 < maximum rent assistance, the provisional rate of rent assistance = 2

5

If adjusted DP < person's rent assistance free area, rate of rent assistance = provisional rate of rent assistance (from 2 or 3)

6

If adjusted DP > person's rent assistance free area, go to 7

7

Adjusted DP – rent assistance free area = excess adjusted DP

8

Excess adjusted DP * 0.4 = rent assistance reduction amount

9

Provisional rate of rent assistance (from 2 or 3) – rent assistance reduction amount = rate of rent assistance

Rate of adjusted DP - members of a couple

If a war widow(er) is a member of a couple, the amount of adjusted DP used in the calculation of rent assistance is worked out as follows:

• if each member of the couple receives adjusted DP, add the rate payable to each and divide by 2;
• if only one member of the couple receives adjusted DP, divide the amount payable to that member by 2.

Example

Renting ISS recipient has her rent assistance reduced to nil

Julia Browne is a re-married war widow who, with her husband, pays $200 per fortnight rent. She has been receiving ISS for several years.  During that period, her rate of ISS has been reduced because her husband receives disability pension (EDA) from DVA and because of other joint income (excluding war widow's pension) of $975.80.  Just prior to 20 September, her overall ISS rate was $72.84, made up of $49.66 ISS and $23.18 rent assistance.

As a result of the changes on 20 September 2004, her overall rate of ISS has increased to $139.90 (ceiling rate), but the amount of rent assistance included in her ISS has been reduced to nil.

Summary of legislative changes

Below is a list of the amendments which have been made to the VEA to give effect to the changes in ISS assessments.

VEA sections amended

Effect of amendment

5H(1) para (b)

Disability pension paid by DVA excluded from definition of 'adjusted income'.

5H(1) paras (cc), (cd), (ce) repealed

Permanent impairment payments and Special Rate Disability pensions paid under the Military, Rehabilitation and Compensation Act 2004 excluded from definition of 'adjusted income'.

Schedule 6-C

Introduces a disability income test for ISS, where the war widow(er) or their partner is in receipt of adjusted disability pension.