C18/2007 Veterans' Affairs Legislation Amendment (2007 Measures No. 1) Act 2007 DFISA Amendments

Purpose

The purpose of this DI is to provide advice on the effect of amendments to the Defence Force Income Support Allowance (DFISA) provisions in Part VIIAB of the Veterans' Entitlements Act 1986 (VEA) and the Income Tax Assessment Act 1997 (ITAA). The amendments are made by the Veterans' Affairs Legislation Amendment Act (2007 Measures No. 1) 2007 (VALA Act).

Commencement of Act

The VALA Act received Royal Assent on 21 June 2007. All of the provisions listed below commence from the day of or the day after Royal Assent, other than the change to the taxable status of DFISA which commences from 1 July 2007.

What are the changes?

Amendments to Part VIIAB of the VEA are contained within Schedule 1 of the VALA Act:

• Items 13, 14 and 15 make changes to section 27A and 27B of the VEA, concerning the recovery of debts from arrears of disability pension (attachment A); 
• Items 65, 66, 67, 68 and 69 make changes to section 118ND of the VEA, concerning changes to social security bereavement payments payable to certain carers (attachment B);
• Items 70 and 71 make changes to section 118NH of the VEA, concerning changes to the DFISA bonus (attachment C);
• Items 61, 62, 63 and 64 make technical changes to 118NC of the VEA. The incorrect term “rent reduction amount” is corrected to “rent assistance reduction amount”.

Amendments to the ITAA are contained within Schedule 5 of the VALA Act:

• Item 1 makes changes to section 52-65 (table item 5A.1) of the ITAA, concerning the taxable status of DFISA (attachment D).

Contact officer

The contact officer for this instruction is Kirrily Lucas, Income Support and Residential Aged Care Policy section.

Details of changes

Prior to the amendments, section 27A required a person's social security income support pension or benefit, service pension or income support supplement debt raised as a result of disability pension becoming payable or became payable at an increased rate to the person's partner to be recovered from the arrears of disability pension payable to the person's partner.

This meant that a person's debt had to be recovered from their partner's disability pension arrears, even if an arrears payment of DFISA equivalent to the amount of the debt was payable to the person.

The changes to section 27A allow the person's overpayment to be recovered firstly under section 205 or 205AA, allowing the overpayment to be recovered from the person's DFISA arrears payment. If there is an amount of debt outstanding it can then be recovered from the person's partner's disability pension arrears payment under section 27A.

The changes to section 27B reflect the new step added to the method statement in section 27A.

Application

The person's debt can be recovered initially from the person's DFISA arrears if the decision to grant or increase disability pension was made after 21 June 2007.

Systems

When a disability pension arrears payability is created, notification is automatically sent to Centrelink. At Centrelink the notification generates a retrospective reduction to the person's social security pension. The system reports the following information to DVA:

• notification of the amount of the person's social security debt, and
• a DFISA rate change which generates a DFISA arrears payment.

Currently, there is no mechanism to prevent release of the DFISA arrears payment. This means that there is no way to automatically offset the social security debt with the DFISA arrears. A system solution to allow implementation of this change is being worked on currently and a BusinessLine will be issued when the program is available.

Example

A DVA assessor determines on 22 June 2007 that Mr Field's disability pension is increased with effect from 20 June 2004. Centrelink is notified of the increase in disability pension and advises that Mrs Field's social security age pension has been overpaid by $3000.  Centrelink also send a retrospective date of effect for DFISA for Mrs Field which generates an arrears payment of DFISA of $2800.

Mrs Field's DFISA arrears payment is completely offset by $2800 of the social security debt and the $200 remaining is recovered from Mr Field's disability pension arrears.

OMM

Chapter 8.7 of the Overpayment Management Manual (OMM) will need to be updated to reflect the change in legislation.

Details of changes

In certain circumstances a social security bereavement payment may be payable to a carer payment recipient where they were caring for a care recipient who was not their partner and the care recipient dies. Prior to the amendments, only carers who were the partner of the deceased person were entitled to have their bereavement payment increased to take account of any DFISA payment payable to the carer under subsection 118ND(1) of the VEA.

New subsection 118ND(1A) provides that, for the purposes of calculating the bereavement payment, any social security income support payment that was payable to the pensioner on the day the care recipient died is to be increased by any DFISA payable. This will ensure that the bereavement payment the carer receives reflects their full income support entitlement on the day of the death.

New subsection 118ND(2) ensures that if the carer receives a payment of DFISA after the death of the caree, the bereavement payment is reduced by the amount of the DFISA payment and the DFISA payment is not recoverable.

References in section 118ND to the Social Security Secretary are also replaced with the Commission. These changes reflect the correct situation, as it is the Commission that is able to determine whether a person has had the benefit of a DFISA amount.

Application and payment

A bereavement payment includes the amount of DFISA payable to the person if the death of the care recipient occurs on or after 22 June 2007.

Centrelink calculates and pays the bereavement payment.

Example

Mr Farthing receives carer payment for caring for his mother, Mrs Farthing. He is entitled to carer payment of $300 per fortnight and DFISA of $150 per fortnight.  His mother dies on 22 June 2007.

Previously, Mr Farthing's bereavement payment would have been calculated based on the carer payment only of $300 per fortnight. The changes ensured that his DFISA entitlement is now included in the bereavement payment calculation. Centrelink pay Mr Farthing a bereavement payment which is based on total payments of $450 per fortnight.

Guide to Social Security Law

The department of Families and Community Services and Indigenous Affairs have policy responsibility for bereavement payments to carers under the Social Security Act 1991. The Guide to Social Security Law will be amended to include reference to the changes to the carer bereavement payments.

Details of changes

Prior to the changes, DFISA bonus was not payable to a person who claimed a social security pension bonus and died before the claim was determined, despite the Social Security Act 1991 allowing payment of the social security pension bonus in these circumstances. The changes to section 118NH ensure that the DFISA bonus is payable to the legal representative of the person.

Application

The changes to the DFISA bonus provisions apply if the claim for a social security pension bonus is made at any time before, on or after 21 June 2007.

Example

Mrs Fletcher claims pension bonus on 27 June 2007 and dies on 29 June 2007.  Her social security pension bonus is $10,000 and her DFISA bonus is $3000.

Prior to the amendments, the DFISA bonus of $3000 would not have been payable.  However, the new rules ensure that the $3000 DFISA bonus is payable to Mrs Fletcher's estate.

Procedural

If the social security pension bonus claim is determined by Centrelink, the DFISA bonus amount will be provided automatically to DVA via the computer link and payment of the DFISA bonus can be released to the estate.

If the social security pension bonus claim is lodged at DVA, staff should now calculate and release to the estate the DFISA bonus amount in addition to the age pension bonus amount.

Details of changes

The ITAA previously described DFISA as being a tax exempt payment where the social security pension or benefit payable to the person was tax exempt. The changes clarify that DFISA is only a tax exempt payment where the whole of the social security pension or benefit is fully tax exempt.

This matches the original intention of the legislation that pensioners should pay the same tax as if their disability pension was exempt under the income test for social security purposes.

Application

The amendment clarifies from 1 July 2007 that all DFISA payments are tax exempt if the person's social security payment or benefit is a tax exempt payment.

Example

DFISA is tax exempt if payable in respect of the following tax exempt social security payments:

• disability support pension payable to a person who is under pension age;
• carer payment payable to a person under pension age and the care recipient is also under pension age; or
• wife pension payable to a person under pension age and the partner is also under pension age.

System impacts

There are no changes required. The system correctly identifies DFISA as a tax exempt payment in the above circumstances.