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Effect of Deprivation on Application of Financial Hardship Rules
Last amended: 24 July 2007
Effect of deprivation on application of hardship provisions
Access to the financial hardship rules is denied to people who have:
- disposed of income or
- disposed of assets of more than $10,000 per year or $30,000 in total over a rolling period of 5 years,
for less than adequate financial consideration, unless the Commission makes a written determination to disregard the disposal provisions for hardship purposes.More ?
Situations where Commission may disregard disposal provisions
Situations where it may be appropriate to disregard the application of the disposal provisions for hardship purposes include:
- a person is in severe financial hardship,
- the hardship is not a direct result of disposing of the income or asset, and
- the person would have qualified for hardship even if they had not disposed of the income or asset.
Example of situation where disposal provisions might be disregarded
If a person disposed of income of $4,000, and had only $1,000 left in available funds, they would still be considered to have satisfied the test of severe financial hardship if the gifting had not occurred. The discretion could then be exercised in favour of the applicant because the severe financial hardship would not be considered to be a direct consequence of the disposal.
Example of situation where disposal provisions would not be disregarded
If a person disposed of realisable assets worth $25,000 and still had $5,000 in readily available funds, the severe financial hardship would be considered a direct consequence of the disposal and the disposal provisions would not be disregarded.
Assessment of disposed income and assets under hardship rules
Where the disposal provisions are disregarded, the pension rate under the hardship rules is determined on the basis that the person still has the disposed income or the deprived asset. Notional income may be assessed against the asset.More ?
Section 52Z(3) VEA and Section 52Z(7) VEA
If there is a disposition of assets on or after 1 July 2002, the rolling period is the period comprising the tax year in which the relevant disposition took place and such (if any) of the 4 previous tax years as occurred after 30 June 2002. This means that disposals that occurred prior to 1 July 2002 are not counted in the rolling period. Subsection 52JB(4) VEA (for individuals) and subsection 52JD(6) VEA (for members of a couple) define the rolling period relevant to the $30,000 disposal of assets 'free area' rule.
For adequate financial consideration to be received when disposing of an asset, a person must receive value in the form of money or assets. Adequate financial consideration can be accepted when the amounts received reasonably equate to the market value of the asset. It may be necessary to obtain a valuation from a property valuation service provider.
When disposing of income, in order for adequate financial consideration to be received, the person must receive money, goods or services which approximate in value to the rate of disposed income. If a person disposes of an income producing asset and receives adequate financial consideration in money or money's worth for the asset, then it can be accepted that they have received adequate financial consideration for the disposal of both the income and the asset.
According to Section 179 of the VEA, the Commission is a body corporate under the name of Repatriation Commission.
A deprived asset is an asset:
- that has been disposed of for less than its value (that is, adequate financial consideration has not been received), and
- the value of which is included in the value of the person's assets for the purpose of determining that person's rate of pension.