C26/1999 GIFTING AND PENSION YEAR

Purpose

The purpose of this Departmental Instruction is to provide policy information and procedural guidelines outlining the joint 1999/2000 Department of Veterans' Affairs (DVA) and Department of Family and Community Services (FaCS) Budget initiative, referred to as 'Gifting and Pension Year'.

RJ HAY

Branch Head

Income Support

Introduction

The 1999/2000 Budget announced an initiative that proposes to change the current gifting provisions.  The changes for DVA income support recipients are similar to the changes for Centrelink customers that also will apply to age and wife pensioners administered by DVA.

Budget announcement

One of the measures announced in the Government's 1999-2000 Budget provided for the revision of the gifting rules under the Veterans' Entitlement Act 1986 (VEA) and Social Security Act 1991.

Objective of changes to the rules

The objective of the initiative is to simplify administrative procedures relating to the current pre-pension and pension year concepts and to reduce the amount that pensioners can give away before the gift has an effect on their pension.

Deprivation Provisions

VEA Section 48 and VEA Sections 52E to 52J contain what is commonly known as the deprivation of income and deprivation of assets provisions.  The excess amount is included as a deprived asset for 5 years from the date of disposal.  These are intended to prevent people from circumventing the income and assets tests by giving away their income or assets.  The provisions work by ensuring that income or assets given away by a person can still be taken into account in assessing the rate of service pension or income support supplement (ISS) payable, if any.

This initiative reduces the deprivation amount from $10,000 to $5,000 and changes the concept of pension year and pre-pension year to a financial year.  Any asset given away in excess of $5,000 will continue to be treated as a deprived asset for 5 years from the date it was given away and be subject to the deeming rules.

Background

Income and assets are taken into account in calculating whether a service pension or an income support supplement is payable to a person or couple.  If the person or couple have reduced their assets this may affect their level of pension payment.  Disposing of income may also affect the pension, but the provisions relevant to disposal of ordinary income are not affected by this proposal.  Income disposed of continues to be maintained for as long as the income is deprived.

Currently, a person or a couple can give away (or dispose of for inadequate consideration) assets to the value of $10,000 per year without that gift being considered to be a deprived asset.  However, the amount of any gifts that exceed $10,000 is considered to be a deprived asset, and is included in the value of the person's assets for the purpose of calculating the amount of pension payable under the assets test.  It also becomes a financial asset subject to the deeming rules under the income test.

Current

Terminology

• A pension year is a period of 12 months commencing on the date service pension or ISS was granted or the date that a couple were married or became de facto partners.  A new pension year begins on each anniversary of that date.

• Where a person is a claimant for a pension, benefit or allowance, a pre‑pension year for deprivation purposes is a period of 12 months prior to the date of the claim, and each preceding period of 12 months.

• The disposal limit is the value of assets a person can dispose of in a pension year without that gift being considered to be a deprived asset.  Prior to 1 July 1999 the allowable gifting limit was $10,000 for a standard rate (single) pensioner and $10,000 combined for members of a couple.

• Pension Bonus Scheme allows income support recipients to defer commencement of their pension in return for a bonus payment.  Gifting can affect the eligibility for and the amount of this bonus.

DVA amendments and Royal Assent

The proposal is to be implemented on 1 July 2000 but will apply to gifts made from 1 July 1999.

Proposed amendments to the VEA are expected to be introduced in Parliament and receive Royal Assent later this year.

1999 Budget changes for DVA income support recipients

Sections 52FA, 52G, 52GA and 52H contain provisions relating to the disposal of assets in pre-pension and pension years for couples and those who are not a member of a couple (singles).  These sections define the disposal limit for disposals prior to 1 March 1991 and for disposals on or after March 1991.  The current  relevant sections of the VEA are outlined in Attachment 1.  It is proposed to:

➢replace the concept of pension year and pre-pension year with the term “disposal year” which refers to a financial year; and

➢reduce the $10,000 disposal limit for couples and singles to $5,000 for couples and singles in each disposal year.

SSA amendments and Royal Assent

The proposal is to be implemented from date of Royal Assent but will apply to gifts made from 1 July 1999.

Amendments to the SSA were recently introduced in Parliament and are expected to receive Royal Assent later this year.

1999 Budget changes for SSA age and wife pensioners

Under proposed changes announced in the 1999-2000 Budget, the amount that can be given away each year without attracting the deprivation provisions reduces from $10,000 to $5,000.

The concept of pension year and pre-pension year will be abolished and replaced with income year (referring to a financial year).  The current relevant sections of the SSA are outlined in Attachment 2.

Introduction of new terms

It is proposed to define some currently used and new terms in the amendments to the VEA 1986.  They are set out below:

• Deprivation period will be a newly defined term to describe the period of five calendar years from the date on which the disposal limit is exceeded.

• Amount of the disposition will be a newly defined term to describe the amount of assets exceeding $5000 that will be treated as a deprived asset for five years from the date on which the disposal limit of $5000 is exceeded.

• Disposal year  will be a new term to describe the period to which the new disposal limit applies and will change from a pension year and pre-pension year to a financial year.

Pension Bonus Scheme

This initiative could affect entitlement under the Pension Bonus Scheme.  It will therefore change relevant sections of both the VEA and SSA.  The relevant sections of each act are outlined in Attachment 1 for the VEA and Attachment 2 for the SSA.

Comparison of provisions under the VEA and the SSA

The Veterans' Entitlement Act and the Social Security Act will differ slightly.  The following table summarises the main changes.

Provisions

VEA

SSA

Pension year

Disposal year

(= financial year)

Income year

(= financial year)

Disposal limit – now $10,000

Disposal limit – will be $5,000

Disposal limit – will be $5,000

Applies from

1 July 1999

1 July 1999

Implementation date

1 July 2000

Date of Royal Assent

Transitional Procedures

Transitional procedures for State Offices are set out in Attachment 3.  These procedures;

• outline the treatment of overpayments and arrears;

• outline the differences between DVA income support recipients and age and wife pensioners paid by DVA;

• provide a number of common questions and answers for use by staff; and

• detail the manual recording required by state office staff for age and wife pensioners.

Required communication

The gifting and pension year initiative involves providing publicity material, changes to fact sheets, advices, standard letters and forms to ensure that pensioners are aware of the changes associated with the initiative.

VetAffairs Articles

The Budget edition of VetAffairs included an article explaining this initiative.  This article will be followed up with further articles in the September 1999 and June 2000 editions of Vetaffairs.  These articles will outline the new rules for gifting and pension year as the changes become imminent.  A Stateline with a copy of the draft article was forwarded to staff on 15 July 1999.

June SI

The June SI mailout contained the following information on the Gifting and Pension Year initiative:

• From 1 July 1999, you now need to tell us if you give away $5,000 or more over the course of a financial year.  These new rules will apply immediately for age and wife pensioners, but if you are a service pensioner or income support supplement recipient and you give away more than $5,000 in the 1999-2000 financial year your pension may be re-assessed early in July 2000.

You and Your Pension booklet

update

As indicated above, it is necessary to amend the obligations in the You and Your Pension booklet.  Those pensioners who already have a copy of the booklet will receive an amending notice before 1 July 2000.

Those pensioners being sent a booklet at the time of a new grant will also need a copy of the amending notice with their booklet.  This notice should be mailed along with the booklet.  The notice will be provided in pre-printed bulk stock, stored in the State Office, and will also be available in a desk top printable version via the DVA Facts System, through the Online Forms.

The internet version of You and Your Pension will be revised to reflect the changes.

Changes to Advices

Advices will be amended to reflect the new gifting obligations.  In addition to the paragraph inserted in the June 1999 advice, changes applicable to amounts given away after 1 July 2000 will also be notified in the June 2000 advice.

Changes to standard letters and forms

Standard letters and forms will be amended to reflect the changes.

Financial advisers

F&CS have sent a letter to financial industry peak bodies and approximately 7500 financial advisers alerting them to these changes so that they can correctly advise their veteran clients.  An insert explaining the DVA arrangements was contained in the mailout.

A Stateline with a sample of all the material enclosed was forwarded to staff on 9 July 1999.

Fact Sheets

Further information can be found on gifting:

• Giving Away Income and Assets: IS92

• Assets Test Overview: IS88.

NO Contacts

• Natashia Allitt – Team Leader

Phone: (02) 6289 6188

• Robyn Carroll – Project Officer

Phone: (02) 6289 6185.

SO Gifting Contact Officers

• Elaine Tse – .NSW

Phone: (02) 9213 7933

• Toola Marcou – Vic

Phone: (03) 9284 6392

• Geraldine Howard – Qld

Phone: (07) 3223 8802

• Scott Sandercock – SA

Phone: (08) 9366 8438

• Charles Valles – WA

Phone: (08) 9366 8438

• Bryon Kelly – Tas

Phone: (03) 6221 6682

VEA Sections

The following table sets out the principal sections of the Veterans' Entitlement Act that relate to the current gifting and pension year rules.

Subject

VEA Ss

Description

Definitions

5L (9)

Pension year – disposals of assets

5L (10A)

Pre-pension year – disposals of assets

Pension Bonus Scheme

45TN

Non-accruing membership — preclusion periods

45UT

Pension Bonus Scheme — Disposal preclusion period

Disposal of ordinary income

48

Disposal of ordinary income

48A

Amount of disposition

Disposal of assets

52E

Disposal of assets

52F

Amount of disposition

52FA

Disposal of assets in pre-pension years — not a member of a couple

52G

Disposal of assets — not a member of a couple

52GA

Disposal of assets in pre-pension years — members of couples

52H

Disposal of assets — members of couples

52J

Dispositions more than 5 years old to be disregarded

SSA Sections

The following table sets out the principal sections of the Social Security Act that relate to the current gifting and pension year rules.

Subject

SSA Ss

Description

Definitions

11.(10)

Pension year – disposals of assets

11.(10A)

Pre-pension year – disposals of assets

Pension Bonus Scheme

92P(1)

Non-accruing membership — preclusion periods

93U

Pension Bonus Scheme — Disposal preclusion period

Disposal of ordinary income

1106

Disposal of ordinary income

1107

Amount of disposition

1108

Disposal of ordinary income-individuals

1109

Disposal of ordinary income-members of couples

1110

Treatment of transactions that constitute both a disposal of ordinary income and a disposal of assets

1111

Dispositions more than 5 years old to be disregarded

Disposal of assets

1123

Disposal of assets

1124

Amount of disposition

1124A

Disposal of assets in pre-pension years — individuals

1125

Disposal of assets — individuals

1125A

Disposal of assets in pre-pension years — members of couples

1126

Disposal of assets — members of couples

1127

Dispositions more than 5 years old to be disregarded

Background

Changes to the gifting rules announced in the Budget on 11 May 1999 will affect current procedures.  A gifting Departmental Instruction is being prepared but the following advice and procedures have been prepared so that staff in state offices dealing with financial assets can immediately understand the changes and follow changed procedures with effect from 1 July 1999.

The legislation to change the deprivation amount from $10,000 to $5,000 and to change the current pension year concept to a disposal year is expected to receive Royal Assent later this year.

If a pensioner makes gifts both pre- and post-1 July 1999, two disposal limits are in operation.  This change-over period will finish on 30 June 2004 - after this date only the new gifting rules will be in operation.

Overpayments and Arrears

The following procedures will not result in any overpayments or arrears between 1/7/1999-30/6/2000 for DVA income support recipients and between 1/7/1999 and date of Royal Assent for SSA age and wife pensioners.

Proposed Policy for VEA Income Support Recipients

The implementation date for the proposed changes for service pensioners and income support supplement recipients is 1 July 2000, but will apply to gifts made in the transitional period of 1 July 1999 to 30 June 2000.

Pensioners on less than the maximum rate pension who have already gifted in the previous pension year and who wish to gift an amount in the 1999-2000 transitional year, should be advised to give away no more than $5,000 and to do so after their pension year date.

Proposed Policy for SSA Age and Wife Pensioners

The implementation date for the proposed changes for age and wife pensioners is from date of Royal Assent, but will apply to gifts made from 1 July 1999 to date of Royal Assent.  Date of Royal Assent is expected to be August/September this year.

Comparison of policy under VEA and SSA

The following table compares the differences in policy changes under the VEA and the SSA.

Policy

VEA

SSA

Date of implementation

1/7/2000

Royal Assent

Period applicable from

1/7/1999

1/7/1999

Old rules still in use

1/7/1999 – 30/6/2000

1/7/1999 to date of Royal Assent

Administer new rules from

1/7/2000

date of Royal Assent

Procedures for VEA Income Support Recipients

Current DVA procedures and systems will continue to operate the same as they do now until 1 July 2000 at which time the system will have been modified to automatically re-examine the amounts gifted and make the appropriate pension adjustments.

Common Questions and Answers

Refer Attachment B1 for some answers to questions about giving away assets during the period 1/7/1999 and 30/6/2000.

Procedures for SSA Age and Wife Pensioners

Age and wife pensioners will need to be manually adjusted.  From 1 July 1999 to 30 June 2000, all gifts for age and wife pensioners must be recorded on the “Other Financial Assets” screen.

It is estimated that 5% of the approximately 8,800 (440) age and wife pensioners will give away assets in the 1999-2000 transitional year.  These cases will need to be managed by using a combination of the current system and manually over-riding automatic calculations from date of Royal Assent.

Transitional Procedures

The following procedures are required from 1 July 1999 to Date of Royal Assent.

Step 1

Under owner - type “vet” or appropriate owner

Step 2

Under Type – type other financial asset

Step 3

Under Description type in the order specified:

GIFT;

Amount; and

Date of gift.

Step 4

Record only that amount which exceeds $10,000.  Gifts that do not exceed $10,000 will be recorded as $0.01.  See screen example below.

Amounts given away totalling between $5,000 and $10,000 will not be deprived between 1 July 1999 and date of Royal Assent.  Remember to record all gifts notified no matter how small using the keyword “GIFT”.

Manual Records

It will be necessary for each state office to record details of each age and wife pensioner case on an excel spreadsheet.  A suggested format is at Attachment B.  This spreadsheet will be used to identify all age and wife pensioners requiring manual re-assessment from date of Royal Assent.  It is suggested that each state nominate a Gifting and Pension Year contact officer who is given the responsibility for maintaining the central spreadsheet.

Date of Royal Assent

Following Royal Assent, manual adjustment of all cases where age or wife pensioners have given away a total of more than $5,000 is required.  It is important to review the recorded cases as soon as Royal Assent is granted so that the appropriate adjustments are made to pension payments and overpayments are minimised.

To reassess cases:

Manually calculate any amount in excess of $5,000; and Record the excess over $5,000 in the asset field.  This will result in the excess over $5,000 being deemed from date of Royal Assent.

Gifts post Royal Assent and pre 1 July 2000

Continue to record all gifts on the Other Financial Screen.  Once the total gifts exceed $5,000 the excess is to be recorded under the Asset amount.

Step 1

Under owner - type “vet” or appropriate owner

Step 2

Under Type – type other financial asset

Step 3

Under Description type in the order specified:

GIFT;

Amount; and

Date of gift

Step 4

Record only that amount which exceeds $5,000 in financial assets totalling over $5,000.  Gifts that do not exceed $5,000 will be recorded as $0.01.  See screen example below.

Manual Records

For the period 1 July 1999 – 30 June 2000, ie pre and post Royal Assent, as previously mentioned, each State should record details of all gifts made by age and wife pensioners on the separate Excel spreadsheet that will be maintained by the State Gifting and Pension Year Contact Officer.

Review Action

In July 2000 each state office will extract details of age and wife pensioners from the manual records maintained by the Gifting and Pension Year contact officer, and transfer them to the new 1 July 2000 Deprived Asset Screen.

Common Questions and Answers

Refer Attachment B2 for some answers to questions about giving away assets during the period 1/7/1999 and date of Royal Assent.

File

Number

Date of

Gift

Previous

Pension Year Date

Gifted in gifting

year up to 1/07/1999

Initial

Amount

Assessed

Amount

Deprivation

Date

Review Yes/No

Date of

Royal Assent

Changes Required?

Yes/No

New Deprived Amount

xxxx12345

1/8/1999

14 September

$8,000

$6,000

$4,000

1/08/2004

Yes

Yes

$1,000

xxxx12346

15/11/99

1 November

$0

$5,000

$0

No

No

xxxx12347

20/12/99

10 August

$4,000

$5,000

$0

No

No

xxxx12348

20/12/99

10 August

$10,000

$5,000

$5,000

Yes

Yes

nil

xxxx12349

15/09/99

10 August

$0

$8,000

$0

15/09/2004

Yes

Yes

$3,000

xxxx12349

15/11/99

1 November

$10,000

$5,000

$5,000

15/11/2004