Last amended: 21 March 2014
Disposing of an asset or income
Disposition of assets
Part IIIB, Division 11, Subdivision B VEA
Income Test - disposal of ordinary income
A person disposes of an asset or income when they:
- engage in a course of conduct that diminishes the value of their assets or income, and
- do not receive any or adequate financial consideration in exchange for the asset or income, or
- engage in a course of conduct to enable themselves or their partner to obtain, or obtain a higher rate of, service pension, income support supplement or social security payment.
It is not considered that disposal of income has occurred if a person:
- forfeits a payment to qualify for a higher payment, which cannot be paid simultaneously*,
- becomes unemployed, or
- reduces their working hours and therefore their income.
The free area is $10,000. Any disposition amounts over this are included as an assessable asset or ordinary income. The $10,000 applies to all dispositions that year accumulative. The $10,000 applies to an individual or a couple combined.
The rationale for this limit is that it allows people to provide reasonable support and assistance to others, including children and family, without any impact on income support payments.
* For example, a spouse receiving a payment similar in nature to WWP, such as the New Zealand Surviving Spouse Pension or the United States Dependency and Indemnity Compensation, can forfeit this payment to qualify for the higher payment of PSP. It is only the receipt of these payments which are similar to WWP (rather than entitlement) which precludes payment of PSP. The forfeited amount is not to be held as deprivation.
Obligation to notify - small gifts
The purpose of the means testing provisions is not to restrain a person from reasonably spending money for another person's benefit from time to time in the way any other member of the public might on a day-to-day basis (for instance, buying a coffee or lunch for somebody, purchasing icecreams or small toys for the grandchildren). However, the $10,000 free area can be reached through an accumulation of smaller gifts, and so it is the obligation of an income support recipient to notify DVA of any gift made that is more that trivial. If a person is in doubt about whether a particular gift needs to be reported, it is advisable for them to notify DVA.
Disposing of an asset from a later date
It is not necessary that the course of conduct results in an immediate reduction in asset value. A reduction in asset value occurring at a future time, that is still directly or indirectly a consequence of the person's course of conduct, is a disposal of asset value. For example, a decision to transfer legal title to an asset at a future date will be deprivation, with the deprived amount to be held from that future date.
Assessable period - before 1 July 2002
Pension Year
Section 5L(9) VEA
section 5L(9A) VEA
Pre-pension Year
Section 5L(10A) VEA
Section 5L(10B) VEA
For disposals of assets that occurred prior to 1 July 2002, the $10,000 disposal limit refers to assets disposed of during a pension year or within five pre-pension years. Assets disposed of by a person in receipt of, or eligible to receive a service pension, income support supplement or social security pension were assessed for the full five years from the day the disposition took place.
Assessable period - on or after 1 July 2002
For disposals of assets that occurred on or after 1 July 2002, the tax year and rolling period rules replace the pension year and pre-pension year rules. The $10,000 limit applies to all assets disposed of during a tax year and a $30,000 limit applies over a rolling period of up to 5 tax years. Assets disposed of are assessed for the full rolling period applicable from the day the disposition took place.
Return of a gifted asset means it is no longer held as a deprived asset
If, during the five year period, adequate consideration for a gifted asset is received, or the gifted asset is returned, the value of the asset will no longer be held as a deprived asset. This will apply from the date that the person notified the department of the return or receipt of adequate consideration. The asset may still be included in the pension assessment, depending on how it is used.
Example: A person gives $40,000 to a family member and receives nothing in return. Consequently, $30,000 is held in the person's pension assessment as a deprived asset, and will remain there for five years from the date of the gift. Two years after the gift, the family member returns $30,000 to the person. The $30,000 is no longer assessed as a deprived asset. However, if the funds are used to purchase a car, then the value of the car will be included in the pension assessment. If the funds are invested, they will be assessed as a financial asset and will be deemed.
The value of a partial return or consideration can also be removed from the deprived asset amount in the person's pension assessment. When only a partial value is removed from the assessment, it is important the original gifting date remains the same, to ensure that the 5 year gifting period is not extended or reduced.
Disposal of a non-farm asset to a family member
An asset is disposed of if a person:
- transfers an asset to a family member, and
- does not receive adequate financial consideration in return, or
- where the purpose in transferring the asset is to obtain (or enable the person's partner to obtain) a pension or benefit, or to obtain a higher rate of payability of pension or benefit.
Acceptance of adequate financial consideration
Adequate financial consideration is not accepted as having been received when a person disposes of an asset or income to a family member:
- for the promise of future accommodation, or
- in recognition of work done by the family member.
Adequate financial consideration may be accepted if a person transfers:
- money or valuable consideration for a granny flat, or
- a farm to a close relative in recognition of past contributions.
Disposals to be disregarded
A disposal of an asset or income will be disregarded if the disposal took place:
- more than 5 years before the person, or the person's partner, if a member of a couple, became eligible to receive a service pension or income support supplement, or
- less than 5 years before the person or the person's partner became eligible to receive a service pension, and the Commission is satisfied that the disposition took place before the person or their partner could have reasonably expected that they would become eligible to receive a service pension or income support supplement (known as unforeseen circumstances).
Please note that the above applies to disposals both before and after 1 July 2002. The second dot point is policy only when applied to disposals on or after 1 July 2002. A legislative amendment is being prepared to request inclusion of this policy in legislation.
Example of unforeseen circumstance
A 49 year old person has no plans for retiring and makes a gift of more than $10,000 to his family. The person has a car accident and becomes a paraplegic. The money given away to his family would be disregarded as he qualified for an income support pension due to an unforeseen circumstance.
Disposal of a life interest
The asset value of a life interest is generally disregarded for the assets test. Any income it produces, however, is assessable. Surrendering the value of a life interest disposes of both the asset and its income. If a person surrenders the value of a life interest, the asset value must be obtained from the Australian Government Actuary (AGA). The AGA valuation is the amount of disposition.
Deprivation provisions may not apply to life interest
Deprivation provisions do not apply:
- if a person chooses not to receive income from their life interest in an income producing asset. The person has not formally surrendered the life interest, so any income produced in this instance continues to be assessable.
- i — f a person chooses not to live in a house in which they have a life interest. The person still owns the life interest, which has a value and therefore it is still an assessable asset (subject to the exceptions to this situation, set out below). A valuation from the Australian Government Actuary may be required. The AGA valuation is held in the pension assessment as an assessable asset amount, rather than as a disposed amount
- if a person has been left the right of residence only and the person decides to move (into aged care for example), where the value of the home reverts to the estate.
- if a person is bequeathed an accommodation life interest in a property and the person does not take up the accommodation life interest because they have an established place of residence at another property. In this situation, in addition to not having any market value as it cannot be on-sold to another party, the life interest has no value to the recipient.