DATE OF ISSUE: 17 July 2007
Property Reviews – Addendum to DI C44/2005
Purpose |
The purpose of this Departmental Instruction is to provide policy instruction in addition to DI C44/2005 regarding the application of the 3 month period of grace where other changes occur during the 3 month period resulting in a lower rate or the same rate of pension applying under the income test. |
Background – DI C44/2005 |
DI C44/2005 issued on 29 November 2005 provides information on the correct determination of the date of effect for reduction or cancellation of pension due to revaluation of a property other than the client's principal home. When a revaluation of a property has taken place, and the client is to be moved from the income test to the assets test, or the income test to nil rate pension because of the value of their assets, the client is advised that they have a 3 month period of grace in which to rearrange their assets to provide themselves with an additional source of income. This period of grace is granted because income tested pensioners who are adversely impacted by a property revaluation may not have immediate access to sufficient liquid assets to supplement their reduced or cancelled pension entitlement. |
Maximum rate pensioners |
An omission in DI C44/2005 regards pensioners receiving maximum rate service pension and war widow(er)s who would be receiving maximum rate income support supplement other than due to the application of the ceiling rate. The 3 month period of grace should also be applied to these pensioners when moving from maximum rate pension to an assets tested rate of pension, or to nil rate pension due to the value of their assets. |
Change of circumstances during period of grace |
DI C44/2005 also omitted to explain what action should be taken if the person's circumstances changed during the 3 month period and, if the reassessed value of the property was included in the assessment, the pension rate would be the same as their current rate or would result in an income tested rate. For example, the person sells the property and the proceeds become a financial asset which is deemed, or a rise in earnings results in the new pension rate no longer being the assets tested rate. The information provided in this DI addresses this omission. |
Changes to income and assets other than reassessed property |
If, during the 3 month period of grace a person's financial or residential situation changes and the changes are to income or assets other than the property, then the changes should be processed using normal date of effect rules. The value of the property should not be updated to the new value until the end of the 3 month period of grace. This will ensure that a person whose income fluctuates during this period receives the full benefit of the 3 month period of grace. |
Sale or disposal of reassessed property |
If the pensioner notifies the department that they have sold or disposed of the reassessed property within the 3 month period of grace, the review should be processed using normal date of effect rules. The 3 month period of grace ends from the date of effect of the review. |
End period of grace due to 20 Sept assets test taper rate changes |
The reduction in the taper rate from 20 September 2007 (see DI C12/2005) may benefit a number of pensioners where a review and revaluation of a property other than their principal home is conducted, and this revaluation would otherwise have moved them from receiving maximum rate or being assessed under the income test to being assessed under the assets test, or to nil. If, on 20 September 2007, the person's pension rate under the new assets test taper rate rules is the income tested rate of pension, from 20 September the reassessed value of the property should be included in their assessment and the period of grace should end. |
3 month period expires before 20 Sept 2007 |
All clients who have previously had a 3 month period of grace applied that is still current but will expire before 20 September 2007 or has expired since 21 June 2007, should be tested for payability using the new estimated 20 September assets test rates. If the estimated 20 September rate results in:
the client should be notified immediately of the results of the 20 September reassessment. This is to ensure that the client is not forced to rearrange their assets, only to find that it was unnecessary as they will be payable or payable at a higher rate under the new assets limits. The reduction or cancellation of pension should be applied from the appropriate 3 month deferral date regardless of whether the pension will commence or increase again from 20 September 2007. |
3 month period commences before 20 Sep 2007 |
All cases processed before 20 September where a period of grace will be applied and the 3 months would normally end on a date on or after 20 September 2007 must have the new estimated pension rate under the 20 September 2007 assets test rates calculated using the attached spreadsheet and including the reassessed value of the property. This will ascertain whether the pension assessment will actually switch to the assets test after 20 September 2007. If the pension will remain income tested after 20 September 2007, notify the pensioner of the reassessed value of the asset and apply a period of grace until 20 September 2007. Following the September SI run on the weekend of 8 September 2007, record the updated property valuation with effect from 20 September 2007 and if the pension remains income tested end the period of grace. If the pension assessment will switch to the assets test after 20 September 2007 follow normal procedure. Advise the client of the reassessed value of the asset, the estimated pension rate (using the new estimated 20 September 2007 assets limits) and the application of the 3 month period of grace and set DRS Review. |
Attachment - spreadsheet |
Attached to this Departmental Instruction is a spreadsheet (Attachment A) that has been provided to assist you to determine what the client's estimated rate of pension will be as at 20 September 2007, and whether the client will be income or assets tested. This will enable you to provide advice to the client that is relevant to their circumstances. |
Advice |
Any advice issued until 20 September 2007, either in writing or verbally, needs to be carefully worded with regard to the particular circumstances of the case, to ensure that clients are not advised to rearrange their assets where there is no need to do so. A new IS Standard Letter will be included under the ECP tab and is at Attachment B. This letter 'Assets test taper - property review' is to be sent when the client has been given the 3 month period of grace, and a calculation using the new estimated 20 September rates indicates that the client's pension may revert back to being assessed under the income test on 20 September 2007, and they would continue to be payable at the same rate. |
SSA pensioners |
It should be noted that this 3 month period of grace applies only to those pensioners paid under the Veterans' Entitlements Act 1986 (VEA), not to age pension recipients paid under the Social Security Act 1991 (SSA). |
Contact officer |
Any queries that arise from this Departmental Instruction can be directed to Chris Johnston, Income Support Policy, x14773. |
Jeanette Ricketts
National Manager
Income Support and Aged Care Policy
17 July 2007
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This letter is to advise you of a revised valuation of your real estate property used to assess your under the assets test.
Valuation of property (other than principal residence)
The Australian Valuation Office (AVO) provides an up to date property market value when requested and has provided a new value for the property situated at . The value of is the current market value of the property based on the most recent sales evidence available to the Valuer.
Effect of valuation
Due to the increase in your property value, your pension would reduce and be assessed under the assets test. Because your pension would move from being payable at the maximum pension rate to being assessed under the assets test/assessed under the income test to the assets test, t — he inclusion of the revised property value will be deferred for up to 3 months and your current rate of payment will continue.
20 September 2007 changes to the assets test
On 20 September 2007 the rate at which income support pensions reduce under the assets test will be halved. This means that, although your pension would reduce under the current assets test due to the increased value of your property, from 20 September 2007 your pension will not be affected by the assets test. You will be advised again in September following the assessment of your pension rate under the new assets test limits. Although the actual assets limits that will apply from 20 September 2007 are not known, under the estimated assets limits the inclusion of the reassessed value of your property is not expected to affect your pension rate.
Sale/disposal of property during deferral period
If you sell or dispose of your property within the next 3 months, before then you must advise this office within 14 days of that event (28 days if you are living overseas or receive Remote Area Allowance). Your pension must be reassessed immediately as a result of the change in property ownership and therefore the 3 month deferral of the inclusion of the reassessed value of the property will cease from the time you sell/dispose of the property. Your pension rate may reduce from that date.
The full deferral period will only apply if you still retain the property at the end of that period. Any changes you make to your other income and assets during the 3 month period can be processed in the usual way provided you notify DVA of the changes.
Effect on pension
If on 20 September 2007 you still own the property situated at the revised value of your property will be included in your assessment. As the value of your assets (based on your current asset details including the revised property value) is not above the estimated new thresholds which will apply from 20 September 2007, based on the estimated thresholds your pension may continue to be assessed under the income test and may continue to be paid at the current rate of $.............
Please note: If you make changes to your other income and assets during the 3 month period, or DVA changes pension rates due to CPI increases, Managed Investment and Share updates and/or the 20 September 2007 changes to the assets test vary to the rates we have estimated, the final rate of pension payable may be different from the amounts shown in this letter.
Obligations – Events You Must Tell Us About
This advice is issued under Section 54 of the Veterans' Entitlements Act 1986 (VEA). Please read the following obligations carefully. You must tell us within 14 days (28 days if you are living overseas or receive Remote Area Allowance) if any of the events listed below occur. If you do not tell us of any of these changes you may be overpaid. We are entitled under the VEA to recover any overpayment.
Obligations – General
We have explained your obligations to you in previous letters and the booklet You and Your Pension. These obligations still apply.
Obligations – Financial
You need to tell us within 14 days (28 days if you are living overseas or receive Remote Area Allowance) if your gross income from all sources increases above per fortnight or the value of your assets, apart from your home, increases above . This will ensure that your pension is paid at the correct rate.
If your income or assets reduce, any increase in pension can only be made the day your new details are received by us.
Your Right of Review
If you do not agree with the new valuation of your real estate property, you may apply to have this decision reviewed by a Review Officer at this office. If you do decide to apply, you must do so within three months of receiving this letter, being the advice of the new valuation of your property. Such a request for review must be in writing and must set out your reasons for seeking this review.
If you have any questions about this letter or require any additional information please contact me on .
Yours sincerely
As Delegate of the Secretary and Repatriation Commission