External
Departmental Instruction

DATE OF ISSUE:  30 January 2007

Extended Curtilage' exemption initiative

Purpose

The purpose of this Departmental Instruction is to inform staff of amendments to the Veterans' Entitlements Act1986 (VEA) regarding the definition of 'principal home' as it relates to land holdings, and the associated changes to the Consolidated Library of Information and Knowledge (CLIK).

Background

On 9 May 2006 as part of the 2006-07 Budget, the Australian Government announced an initiative to exempt (in certain circumstances) excess land surrounding the principal home from the pension assets test. The land is exempt if the “extended land use test” is met.

The legislation was passed by the Parliament on 28 November 2006 and Royal Assent was granted on 8 December 2006.

The implementation date for this initiative was 1 January 2007.

Legislative changes

Subsections 5L(5), 5L(6), 5L(7) and 5L(8) of the VEA have been repealed.  They have been replaced by new section 5LA.

Policy updates

Fact sheets IS88 Assets Test Overview and IS104 Farms have been updated to reflect the changes to the VEA, and policy associated with these changes.

Policy in relation to the assessment of land has been updated in the following areas of CLIK:

Self-assessment of commercial assets

When a pensioner's property consists of only one title and the title is exempt under the extended land use test, the pensioner will be asked to give an estimate of the value of any improvements on the property that are not used for private or domestic purposes, for example, milking sheds etc.

DVA are adopting this policy position as it would be an excessive cost to have the AVO assess only the commercial buildings on a property, when the actual land is exempt and does not need an AVO assessment.

Any self-assessment that appears to be a reasonable estimate should be accepted.  This is only where all land is exempt and is held on a single title.  If the property consists of multiple titles or only 2 hectares of the property is exempt, the AVO will be valuing the land, so they will value the improvements as well.

CLIK will be updated with this information.

Tree plantations

If a client has a tree plantation that is on an exempt single title principal home block, the AVO should not be requested to provide a valuation of the plantation. DVA will assess a nil asset value for the plantation.  The plantation will only be assessed as an asset when the plantation is realised.

If the tree plantation is across multiple titles, only the value of the plantation on the same title as the principal home will be exempt from assessment.  AVO will provide a value for the whole property, including the value of the plantation, less the value of the exempt land, including the value of any portion of the tree plantation which is located on the exempt land.  The value of a tree plantation is based on the maturity of the trees, those which are more mature are of a higher value.

CLIK will be updated with this information.

Water rights

Water rights are a legal and in most cases saleable commodity. They are not attached to a specific title, but rather belong to the owner.

When a property with water rights is on a single title, the value of the water right is added to the value of the property to give a total value as an irrigated block.  If the property is made up of multiple titles, the value of the water right is apportioned across all titles.  This done because if the water right is only added to one of the titles, all other titles are devalued as they can only be assessed as 'dry land'.

AVO valuations of water rights – single title

When a pensioner owns a water right and their principal home and adjacent land is held on one title, the water right will not be assessed as an asset provided the land is being used productively. AVO is not required to provide a valuation in these circumstances.

AVO valuations of water rights – multiple title

If there are multiple titles, AVO will provide a valuation including part of the value of the water right. The value of the water right will be apportioned across all titles, and only the percentage apportioned to the principal home block will be exempt.

AVO valuations of water rights – land not being used productively

If the effective land use test has been satisfied, but the land is not being used productively eg. because of health or caring reasons, the water right will be assessed as an asset.  DVA staff should instruct AVO to include all of the water right in the valuation in this situation (providing the water right is saleable).

This is to prevent creating an incentive for the water right to be kept by the pensioner when it is not being used and could be sold.  This applies to single or multiple title properties.

CLIK will be updated with this information.

Transitional arrangements

Current pensioners who:

  • are receiving a reduced rate of pension; and
  • have excess curtilage in their assessment; and
  • notify the department with the required information by 31 March 2007

            (or 30 June in special circumstances),

can have any increase in their pension backdated to 1 January 2007.

New claimants who:

  • have more than two hectares of land adjacent to their principal home; and
  • lodge their claim before 31 March 2007 (or 30 June 2007 in special circumstances),

will have the grant backdated to the later of 1 January 2007, provided they were eligible and payable on that date, or the date that they became eligible and payable.

Standard letters

Two new standard letters are now on the system under the Miscellaneous tab.  These are:

  • Curtilage exemption - qualified - no increase; and
  • Curtilage exemption - not qualified.

These letters can be modified by the delegate to reflect the circumstances of the client.

Contact

Any queries should be directed to Chris Johnston, Income Support and Aged Care Policy, on 14773.

Ric Moore

Acting National Manager

Income Support and Aged Care Policy

30 — th January 2007