C39/2002 DETERMINATIONS UNDER SUB-SECTION 5R(3) - NOT A MEMBER OF A COUPLE

Introduction

The purpose of this Departmental Instruction is to provide advice on the use and application of sub-section 5R(3) of the Veterans' Entitlements Act 1986 (VEA).  This sub-section allows a delegate to decide, for any special reason, that a person who is a member of a couple may be treated under the VEA as not being a member of a couple.

This Departmental Instruction replaces the earlier instructions given in DI C16/99, Determination of member of a couple, particularly regarding the method of calculation of the rate of pension when a determination under sub-section 5R(3) has been made.

Sub-section 5R(3)

Sub-section 5R (3) states:

“Person may be treated as not being a member of a couple”

(3) The Commission may determine, for any special reason, that a person who is a member of a couple is not to be treated as a member of a couple for the purposes of this Act.

Background

Prior to October 1995, if a veteran was a member of a couple and the veteran's partner was not receiving a service pension or social security pension or benefit, the veteran could receive the single rate of service pension (calculated on the couple's combined income and assets).  Under changes announced in the 1995/96 Budget, the rate of service pension for a member of a couple was limited to the partnered (married) rate.  This applied even where only one member of the couple is eligible for, or chooses to receive the pension.

The rate of pension was calculated using the couple's combined income/assets and the partnered income free areas (IFA) and asset free areas (AFA). There was a proviso that the determined rate could not exceed twice the partnered rate at which the service pension would be paid to the veteran if the partner were receiving a service pension or social security pension or benefit.  The exceptions to using a couple's combined income/assets, and payment at the partnered rate, were limited to illness and non-illness separated couples, or in exceptional circumstances.  This would include any special reasons envisaged under sub-section 5R(3).

Previous Departmental Instruction

Departmental Instruction C16/99, issued in July 1999, advised that the calculation of the rate of pension in 5R(3) cases should be based on the partnered assessment, using the partnered rates of IFA/AFA, but with any excess income or assets to be deducted from the single rate of pension.

This method of calculation continued the previous practice of recognising the couple's combined income and assets.  It was also intended in part to prevent the inappropriate payment of higher levels of pension, in circumstances where a couple transfer all income and assets to the name of the partner not claiming a pension or benefit, while the other partner claimed single rate of pension.

While this previous instruction was intended as a response to the possibility that a couple may contrive to transfer all income/assets to one partner, it is not supported by the source legislation.  A decision under 5R(3) applies for all the purposes of the Act, and cannot be partially applied.  Section 5E(5) (Standard family situation categories) reinforces this position, by stating that a person is regarded as being partnered for the purposes of the Act where they are a member of a couple.  This is not the case where a 5R(3) determination has been made.

Revised method of pension calculation in  5R(3) cases

In view of the legislative requirements, the method of calculating pension in 5R(3) cases has been amended.

Where a person has been determined under 5R(3) to be not a member of a couple, their partner's income and assets are excluded from the assessment.  The non-partnered IFA and AFA are used, with any excess income or asset values to be deducted from the non-partnered rate of pension.

Existing 5R(3) cases

Existing 5R(3) cases should be reviewed, based on the revised method of calculation outlined above, effective from the date of this Departmental Instruction.

Application of sub-section 5R(3)

Sub-section 5R(3) is intended to be used in situations where either member of the couple does not, or cannot reasonably expect to, enjoy the benefits from the pooling of resources that usually occurs in a marital relationship.

The discretion to treat a person as not being a member of a couple should be exercised only where a full consideration of all the circumstances relevant to the individual's case would make it unjust or unreasonable not to do so.

It is not possible to predict all of the situations in which it would be appropriate to exercise the discretion. However, the following considerations should be borne in mind:

• The reasons for exercising the discretion would be expected to be those that relate to the nature of the marital relationship;

• Financial hardship is not, of itself, a sufficient reason for exercising the discretion; and

• The discretion will usually only be exercised if the marital situation is unusual, uncommon or abnormal – all the circumstances of the case should be examined before considering whether it is reasonable to exercise the discretion.

There may be other circumstances requiring close examination, such as where the affairs of a married couple may have been arranged so that the access of one partner to the other's income is limited.  In examining such cases, great care should be taken to ensure that the situation has not been contrived to circumvent the purposes of the Act.

Income/Asset transfer

Delegates should carefully examine cases, before making a 5R(3) determination, if there is reason to believe that income and assets have been transferred to the partner not in payment.  Cases of genuine transfer, to meet a proven financial need of the partner, may be allowed, but unnecessary transfer for the purposes of affecting the rate of pension should not be allowed.

Cases of suspected income/asset transfer should be carefully reviewed (see below).

Examples of appropriate circumstances

Situations where it may be appropriate to exercise the 5R(3) discretion, based on the “special reasons” of the couple, include the following.  (These examples are not intended to be exhaustive).

• Where a partner travels overseas, with the result that the partner remaining in Australia is deprived of access to the travelling partner's income.  In this situation, delegates should weigh all relevant factors, including any legal restrictions on the transfer of funds from overseas, whether the overseas partner has sufficient funds to remit to Australia, whether either party has the power to alter the situation and is taking reasonable steps to do so, and whether the situation arose as an unintended consequence of the partner's actions;

• Where there are legal restrictions which limit access to a partner's income.  This might include the circumstance where the use of a partner's income is subject to the approval of a person with power of attorney, or otherwise limited by law.  Cases where a partner is unable to access overseas sources of income due to exchange controls (overseas 'blocked' income) could also be considered ;

• Where there are visa problems or delays which prevent the payment of a social security pension or benefit to the partner;

• Where partners are subject to the Centrelink rules which require a two year waiting period before benefits are payable (the Newly Arrived Resident Waiting Period rule);

• Where a partner may be prevented from working and has no other source of income; and

• Where the veteran is not TPI and the partner is under the partner service pension age limit, with no dependent children, resulting in the partner being ineligible for partner service pension and where there is no eligibility for a Centrelink pension or benefit.

Reviews

It is important to regularly review 5R(3) determinations, to ascertain whether it is appropriate that they continue, or whether the person's (and their partner's) circumstances have changed so that it is no longer appropriate to apply the discretion.

Reviews might include periodically obtaining information on the partner's income and assets, by obtaining a copy of the partner's tax return or by completion of an income/asset statement.

Where the information necessary to conduct a review is not provided, without reasonable explanation, this should be regarded as sufficient cause to cancel the 5R(3) determination.

Death of a veteran – where a 5R(3) determination exists

While for the purposes of the Act a veteran subject to a 5R(3) determination is deemed as, and treated as, a non-partnered person, their marriage or relationship remains a fact.  On a veteran's death, the 5R(3) determination is automatically cancelled.  Provided the normal qualifying tests are satisfied, payment of war widow/er's pension can be made to the surviving partner.

Social Security age pensions

This Departmental Instruction applies to service pension payments, and the discretion available under 5R(3) should not be considered when assessing age pension payments under the Social Security Act 1991.  For these cases the Centrelink guidelines (at paragraph 2.2.5.50 of the Guide to Social Security Law) should be followed.

Inquiries

Any question regarding this DI should be directed to the Policy Section in National Office:

• Jeanette Ricketts, Director              (02) 6289 6085
• Brian Butler, Assistant Director              (02) 6289 6564