DATE OF ISSUE: 28 JULY 1992
Veterans' Affairs Legislation Amendment Act 1992
The Veterans' Affairs Legislation Act 1992 contains the Autumn 1992 legislative amendments including:
. Extension of repatriation benefits to Australian Defence Force personnel serving in Cambodia
. Telephone Allowance
. Modified income assessment rules for unlisted property trusts
. Eligibility for carer service pension
. Provision of the tax file number -exemption for overseas residents
. -"Saving" fringe benefit eligibility for service pensioners affected by deeming provisions
-"Saving" treatment entitlement for service pensions affected by deeming provisions
-"Concessional beneficiary" -amendments to definition to "save" entitlements for pensioners affected by deeming provisions
. Assets test -sale/leaseback arrangements
. Income Support non-Budget legislation
2.The Act gained Royal Assent on 26 June1992.
3.Departmental instructions on Telephone Allowance, B25/92 and Carer, B33/92 have been issued. Other departmental instructions will be issued shortly.
4.The Income Support non-Budget legislative amendments detailed in this instruction all commenced on either 1 July 1991 or at Royal Assent.
Table of Contents
ParagraphsDate of Effect
Indexation of the income free area-5 - 71 July 1991
the rounding base
Reduction of asset value by charge or 8 - 9Royal Assent
encumbrance
Assets test -family farming enterprises10 - 17Royal Assent
Direct credit of payments made under 18 - 20Royal Assent
the VEA and the SWP&A Act
Effective date or cancellation or 21 - 231 July 1991
suspension of service pension
Remote area allowance24 - 30Royal Assent
Income test -realisation of an investment31 - 34Royal Assent
Foreign sourced superannuation 35 - 40Royal Assent
payments
Exclude as "income" insurance payments 41 - 42Royal Assent
to cover debt repayments
Assets test- disregard insurance 43 - 45Royal Assent
proceeds and compensation
Powers of exemption under the deeming 46 - 511 July 1991
provisions
Indexation of the income free area-rounding base
Background
5.When the indexation of the income free area was introduced in 1989, it was rounded to the nearest whole $1 by both DVA and DSS. For ease of administration and advice to clients, the $1 base was changed to $26 in the 1990 Budget Sittings, the rounded figure being easily divisible by the number of fortnights in a year.
6.During the Autumn 1991 sittings DSS amended its rounding provision to a base of $52. The DSS amendment has meant that when applying the CPI conversion factor for the income free area, DVA "married" couples received $1 less pension than the equivalent DSS pension.
The amendment
7.This amendment to the VEA will provide legislative authority for the current practice of applying the higher DSS figure when applying the CPI conversion factor. Subsection 59B(1), column 6 of item 4, of the VEA is amended to change the rounding base for indexing the income free area from $26 to $52. This amendment ensures ongoing consistency between DVA and DSS income free areas.
Reduction of assets value by charge or encumbrance.
Background
8.Prior to this amendment to section 52 VEA, section 52 allowed the value of an encumbrance, other than an "excluded security", to be deducted from the value of an asset in assessing its net market value. The intent was to prevent pensioners from reducing the value of their assessable assets by using their property as security for another person's loan.
The amendment
9.This amendment to the definition of "excluded security" in subsection 52C(5) ensures that it is only where the pensioner or partner gets the benefit of the loan secured by an asset owned by the pensioner, that the encumbrance can reduce the value of the asset. This amendment ensures ongoing consistency between DVA and DSS definitions of excluded security and brings legislation into line with current practice.
Assets test - family farming enterprises
Background
10.Prior to this amendment section 52C of the VEA provided that the value of any charge or encumbrance, other than excluded security, was to be deducted from the value of an asset in assessing its market value. As a result, the value of any debt could only be exclusively offset against the asset which provided the primary security for that debt, and this could only occur when the owner of the asset and the primary debtor were the same party.
11.The purpose of these provisions was to limit the scope for people to engage in negative gearing in order to become eligible for income support pension. Until this amendment, these provisions also excluded farmers from deducting certain charges from the value of their farming property and effectively disadvantaged them under the assets test.
The amendment
12.This amendment refers to section 52C of the VEA and provides specific assessment rules for negative gearing in relation to farms. This amendment operates alongside the existing provisions to allow Commission discretion which will operate in the following circumstances:
13.If;
.a person owns or has a share in a property which is operated as a farm; and
.there is property (including plant, machinery, real property) which is, or the Commission considers, is used for the running of that farm;
then the proportional value of any charge or encumbrance on that farming property is to be deducted from the value of the person's and/or partner's share in the farming property.
If;
.a person has a farm or a share of one;
.the person's farm or share of it is used as security for borrowings by the farming company/situation; and
.the Commission considers that the farming company/situation has an excess of farm-related liabilities over farm-related assets;
then the value of that excess is to be deducted from the value of the person's farm or share in the farm in proportion to the farmer's share in the farming company/situation.
14.This amendment will also insert a number of definitions in section 5L VEA to facilitate the operation of section 52C VEA and preclude "hobby farmers" from benefiting by these provisions.
15.Extra definitions in section 5L are as follows:
.primary producersomeone whose principle occupation, in the Commissions opinion, is primary production.
.primary productionmeans production resulting directly from:
a. the cultivation of land; or
b. the maintenance of animals or poultry for the purposes of selling them or their bodily produce, including natural increase; or
c. fishing operations; or
d. forest operations;
and includes the manufacture of dairy produce by the person who produced the raw material used in that manufacture.
16.Family member, fishing operations and forest operations are also defined in section 5L.
17.Cases that are affected by this amendment will be reassessed under these new provisions at the time of the annual assets test review.
Direct credit of payments made under the VEA and the SWP&A Act
Background
18.Sections 58F & 122A of the VEA and section 54A of SWP&A were intended to provide specific authority for the Commission to direct that pension payments be made directly to a bank, credit union or other financial institution. Opinion received from the Attorney-General's Department, in respect of a similar provision in the SSA, indicated that there is nothing in the provisions to imply that the Commission had the control it wished to exercise over the manner in which payments of pension were to be made.
The amendments
19.The amendments:
.give Commission the authority to require a pensioner to nominate a financial institution for direct payment of pension or other allowance;
.provide authority for the Commission to withhold payments should the request not be complied with. This includes the statutory obligation to subsequently restore pension payments from date of suspension if the request is complied with; and
.continue to permit payments by means other than direct credit where in the Commission's opinion this is warranted.
20.The decision to require the form the pension payments are made in, ie direct payment, cheque payment etc, remains a Commission discretion by virtue of
section 58C VEA.
Effective date of cancellation or suspension of service pension
Background
21.This amendment clarifies the authority to cancel or suspend a service pension due to the failure of a service pensioner to comply with a notice under section 54A VEA, and establishes the effective date from which a service pension could be cancelled or suspended under this circumstance. It restores the situation that existed prior to the rewrite of Part III VEA on 1 July 1991.
The amendments
22.This amendment provides that where a service pensioner has failed to return a form sent under section 54A VEA, the Repatriation Commission may determine under new section 56EA, that the service pension is to be cancelled or suspended and that the cancellation or suspension take effect from the date of determination or later.
23.The amendments to section 56H ensure that a date of determination for suspension or cancellation of a pension due to section 54A(6) cannot be set earlier than the date of the adverse determination.
Remote Area Allowance
Item A
Background
24.Prior to this amendment, subsection 5Q(2) allowed a veteran who was receiving child rate of remote area allowance to be absent from the remote area for up to eight weeks without losing entitlement to the allowance. Absence from a remote area for a longer period entails loss of entitlement to the remote area allowance but not loss of entitlement to the additional amounts for the dependant child.
25.There are instances where the veteran may be absent from the remote area for longer periods. The amendment provides discretion for Commission to continue payment of child rate of remote area allowance under special circumstances. These circumstances would include any situations such as medical treatment requiring extended convalescence or attendance at a training or rehabilitation course outside the remote area for more than 8 weeks.
The Amendment
26.To include a new subsection 5R(11) VEA that provides Commission with the discretion to extend eligibility for payment of remote area allowance beyond the 8 weeks continuation period. A note is also included in subsection 5Q (2) and the relevant rate calculators to alert the reader to the existence of new subsection 5R(11).
Item B
Background
27.This amendment allows the non partnered rate of remote area allowance to be paid to couples who are separated due to illness, or where one member of a couple is receiving respite care outside the remote area. This is in line with the treatment of basic service pension and rent assistance.
The amendment
28.This amendment effects points 41-G(3), 42-H(3) and 43-E(3) and the headings of points 42-H(3) and 43-E(3).
Item C
Background
29.There are instances where the child add-on which is usually payable to the veteran, is paid to the partner of a veteran, ie in the case of an illness separated or a respite care couple. Until this amendment, there has been no authority under the VEA to pay the child rate of remote area allowance to any one other than the veteran service pensioner.
The amendment
30.This amendment enables payment of child rate of remote area allowance to the service pension partner of an illness separated or respite care veteran where that partner receives the additional amount for the dependant child. Points 42-H(4) and 43-E(4) are amended.
Income test-realisation of an investment
Background
31.Section 46BA defines, for income test purposes, the circumstances under which an accruing return investment made prior to 1 January 1988 is considered to be realised. It stipulates that a person realises an investment if all or part of the investment is "withdrawn".
32.Section 46J contains similar provisions governing the realisation of market-linked investments made prior to 9 September 1988.
33.It has been unclear when these provisions defining the realisation of investments as a "withdrawal" cover the following situations:
.the payment in money, or in the form of a return on the investment, where that action was not initiated by the investor; or
.where the fund manager winds up the funds of a managed investment, through the transfer of assets to another managed investment fund.
The amendment
34.This amendment ensures that both these circumstances constitute a realisation for the purposes of the income test for service pension purposes. Paragraphs 46BA(a) and 46J(2) of the VEA have been amended accordingly.
Foreign sourced superannuation payments
Background
35.The definition of "superannuation benefit", "superannuation fund" and "superannuation pension" are in subsection 5J(1) VEA. The definitions are fundamental to the assessment of superannuation under Division 8, Part III VEA.
36."Superannuation benefit" is defined by reference to the Income Tax Assessment Act 1936 (ITAA). Superannuation income from foreign sources is specifically excluded by the operation of this provision.
37.It is not DVA policy to treat foreign-sourced superannuation under the investment income provisions. Foreign-sourced superannuation is assessed as ordinary income.
The amendment
38.In order to effect this change, the definition of "superannuation pension" at subsection 5J(1) has been repealed and replaced by the following definition:
."superannuation pension means a pension payable from a superannuation fund."
39.As the definition of a "superannuation fund" in the VEA is based on the same term in the ITAA, the effect of this definition is to limit the operation of the investment income provisions to Australian-sourced superannuation. Foreign-sourced superannuation will be assessed as ordinary income as defined in subsection 5H(1).
40.Foreign-sourced superannuation will continue to be treated as an "exempt asset" and disregarded for the application of the assets test purposes. As a result, subsection 52(1) is amended to include foreign sourced superannuation as being disregarded for the application of the assets test.
Excluded as "income" insurance payments to cover debt repayments
Background
41.This amendment allows mortgages and other allowances, ie.any amount paid by a finance company or a mortgagee as a payment for the pensioner being unable to meet insured payments due illness or unemployment, to be excluded from the income test. This amendment maintains consistency between the SSA and the VEA.
The amendment
42.Subsection 5H(8) of the VEA is amended to include these sorts of payments as "excluded income" for service pension purposes.
Assets test-disregard insurance proceeds and compensation
Background
43.Payments in the form of insurance and compensation for the loss of plant, equipment or personal effects were excluded as income or as an asset under the Social Security Act for DSS pension purposes during the 1990 budget sittings. DSS introduced this amendment by excluding these types of payments from both the income and assets tests.
The amendment
44. Amendments to paragraph 5H(8)(q) VEA for income exemption, and paragraph 52(1)(o) VEA for asset exemption aligns the treatment of insurance proceeds and compensation payments under the VEA with that of the SSA. Although the assets exemption is statutory for 12 months, Commission has the discretion to extend the period beyond the 12 months.
45.Paragraphs 5H(8)(q) and 52(1)(o) are cross referenced by notes.
Powers of exemption under the deeming provisions
Item A
Background
46.Section 46Z VEA gives the Minister power to exempt income money of a person, or a class of persons from the deeming provisions. This provision is intended to prevent all 'exempted' income money from being included in the application of the deeming rules.
47.Until this amendment, money held in accounts which had been exempted under the deeming provisions were also included in the deeming free areas.
The amendment
48.Section 46Z VEA is amended to ensure that income money exempted from deeming by the Minister is not included in the application of the deeming rules and not counted in the deeming free area.
Item B
Background
49.The Minister has the power to exempt income money of a person or a class of persons from the deeming provisions in section 46Z with respect to money not invested or invested at a low interest rate and in section 46ZF with respect to a specific loan or specific class of loans.
The amendment
50.This amendment effects sections 46Z and 46ZF VEA to provide the Minister with the discretionary power to determine the date of effect of a decision:
.under section 46Z to exempt specified income money: and
.under section 46ZF to exempt specified loans, in relation to deemed income.
51.The inclusion of this provision gives the Minister the power to set a date of effect of a decision to grant an exemption under the deeming provisions prior to the date of determination. This power is delegated to the SPM(B)'s as per the Instrument of Delegation, Volume 1/91/73.
Peter Hawker
National Program Director (Benefits)
24 July 1992