C08/1999 DISPOSAL OF INCOME, clarification of policy & legislation

Purpose

The purpose of this departmental instruction is to clarify the assessment of disposed income cases.

Background

Policy section received a query from the Victorian State Office requesting clarification of this issue.

Example

The example is of a pensioner who owns three houses, one of which he lives in.  His children have occupied the other two, since the time of purchase, with no rent being paid.  The pensioner had estimated that the properties could earn approximately $85 per week.

The veteran states that the purpose of this arrangement is to enable his children to save a deposit to purchase the homes from him.  Legal title to both properties remains in the veteran's name.

Issue

Does the $85 per week per house constitute disposed income, when the income was never initially received?

Relevant legislation

Section 48 of the VEA deals with disposal of income.  Section 48 states:

(1) For the purposes of this Act, a person disposes of ordinary income of the person if the person engages in a course of conduct that diminishes, directly or indirectly, the rate of the person's ordinary income and either:

(a) the person receives no consideration in money or money's worth for the diminution; or

(b) the person receives inadequate consideration in money or moneys' worth from the diminution; or

(c) the Commission is satisfied that the purpose, or the dominant purpose, of the person in engaging in that course of conduct was:

(i)to obtain or enable the person's partner to obtain o a service pension, income support supplement or social security pension or benefit; or

(ii)to obtain or enable the person's partner to obtain a service pension, income support supplement or a social security pension or benefit at a higher rate than that which would otherwise have been payable; or

(iii)to ensure that the person or person's partner would be eligible for benefits under Division 12 of this Part or fringe benefits under the Social Security Act.

(2)  For the purposes of subsection (1), the value of any granny flat interest of the person is taken not to be consideration received by the person.

Relevant provision

For this case the relevant provision is paragraph 48(1)(a) in that:

• the veteran has undertaken a course of conduct which directly or indirectly diminishes his ordinary income; and

• the veteran did not receive consideration for the diminution.

Purpose test

The purpose test need only be applied to paragraph 48(c).  To satisfy paragraph 48 the veteran need only satisfy one criterion of parts (a), (b) or (c).

In circumstances where the person has received no, or inadequate, consideration it is not necessary to examine the intention or purpose, as per paragraph 48(a) and (b).

Ordinary income exclusion

A periodic payment from a family member, by way of a gift or allowance is excluded income for the purposes of subsection 5H(8)(zd) of the VEA.  The receipt of rental income cannot be characterised as a gift or allowance.  These payments are therefore not excluded by this provision.

Income disposal

The veteran in this example has disposed of income.

He does not have to first receive the income then stop receiving it for him to have diminished his income.  It is sufficient that his actions have made his income smaller than it would otherwise have been.

Amount of disposition

In order to determine the amount of the disposition under section 48A of the VEA, the delegate would need to investigate what would be a reasonable amount of rent taking into account the age, location and condition of the properties as well as the property market in the area.

Contact officer

The contact officer for this issue is Elizabeth Quinn.  If you have any questions please contact Elizabeth by email or by telephone on 02 6289 6078.