Central Office Instruction
amending General Orders (1993 edition)
Instruction No. 14
Date of Effect: 22 August 1991
POOLED USE OF ENTITLEMENTS ON THE ONE PROPERTY
Purpose
The purpose of this Instruction is to introduce a change to the treatment of applications from two or more eligible persons in respect of the same property.
Concurrent assistance may now be made to two or more eligible persons whether they are married persons or not.
Background
It has been the view that only one subsidy could be paid in respect of the one home - except in respect of hospitals/nursing homes acquired by nurses. This view has been confirmed recently by the President of the AAT when hearing an appeal based on the DSH Act as in force before 8 January 1991. However, she expressed the opinion that the AAT would view the matter differently if it was reviewing a decision based on the Act as revised by the Veterans' Affairs Legislation Amendment (VALA) Act 1990.
The interpretation was that, once a married couple became joint borrowers based on the entitlement of one party and the other party became a borrower solely on the basis of having been joined as a joint tenant, the second party was then capable of applying for a Certificate of Entitlement based on his/her own entitlement. This interpretation was obtained from the definitions of "initial advance" and "further advance".
Outcome
The intention of the changes effected by the VALA Act was to grant sequential access to subsidised advances to each of the eligible married persons. However, legal advice has confirmed that the amended Act also allows for concurrent use of subsidised loans by two or more eligible persons.
In the past, one reason why it was accepted that only one entitlement was available at the one time was s.4A of the Act. This section provides that the Secretary may join a spouse with the eligible person to create one eligible person. The purpose of s.4A was to enable joint tenancy ownership by an eligible person and his/her ineligible spouse and it can be applied only to join an ineligible spouse to an eligible person. It cannot be applied where all parties are eligible persons whether they are spouses or unrelated. They must, of course, own the property as joint tenants and the Certificate of Entitlement will specify this.
It needs to be pointed out that the Act as it stands at present does not permit a loan to be made as tenancy-in-common under any circumstances. Joint ownership must be as joint tenants irrespective of whether the provisions of s.4A are invoked. In a situation where more than one entitlement is being used concurrently and part of the group is a married couple with only one of those persons being eligible, the Secretary's discretion under s.4A must be invoked for that couple but the joining of other eligible persons as joint owners of the property must be of their own volition and the Certificate of Entitlement should state the joint tenancy requirement.
Although tenancy-in-common would be the preference of most unrelated eligible persons, they need to be informed that this is not possible under the DSH Act and that they need to obtain independent advice on the implications of holding property as joint tenants.
Procedure
Separate applications need to be obtained from each eligible person. A question on combined use is contained in the revised Subsidy Application form which will be available shortly.
Separate Certificates of Entitlement also need to be issued because s.25 of the Act provides that the maximum that can be expressed in a Certificate of Entitlement is $25,000. Where it is known that clients intend to use Certificates of Entitlement in conjunction, the Certificates should be endorsed to that effect.
As an example, John and Jill Citizen, who each have eligibility for DSH assistance, lodge separate applications for a Certificate, to purchase the same property. The purpose panel on the Certificate naming John Citizen as the entitled applicant should read;
"to purchase a dwelling-house together with the holding on which it is built, with Jill Citizen as joint tenants".
The purpose panel on the Certificate naming Jill Citizen as the entitled applicant should read;
"to purchase a dwelling-house together with the holding on which it is built, with John Citizen as joint tenants".
Westpac will require the joint mortgagors/debtors to execute one first mortgage to cover situations where a separate loan is advanced to each mortgagor in his/her own name.
It is possible that each person will be entitled to a different amount of subsidised loan. This would be the case where at least one of the persons is entitled only to the balance of a previous portable loan. Westpac will maintain two separate loan accounts for concurrent loans. Therefore, individual balances will be known if the individuals eventually cease to require concurrent assistance.
On the death of one concurrent borrower, the debt transfers to the other owner/s by survivorship. The overall amount may continue to be paid off by the surviving person/s. A separate Instruction will be issued on the procedures to be followed where surviving spouses request further advances after the pooled use of entitlements.
The changes have no effect on divorced or separated persons where they are each eligible.
This Instruction should be read in conjunction with the attached document "Circumstances in Which Eligible Persons May Pool Their Entitlements on the One Property".
Effect on ss.26(4) of the Act
It is not intended that application of ss.26(4) of the Act will dramatically change because of acceptance of concurrent use of entitlements on the one property. The essential difference is that ss.26(4) relates to situations which involve two properties - only one of which will be occupied by the new couple. The other property, therefore, has the potential of being an investment property.
You are reminded that cancellation of subsidy under ss.26(4) is a discretionary provision and judgment should be exercised in deciding whether cancellation should be proceeded with depending on the circumstances of each individual case.
CELS
In order to process these applications, State Offices will need to create separate records on CELS. This will result in different file numbers for each of the eligible persons. CELS will be amended to allow for a link between these file numbers. This will mean that details of the other person/s file number/s will be available on any enquiry of the CELS database.
In the meantime, manual records will need to be kept so that these details can be input to CELS at a later date. Cross references to all relevant files should also be made on each person's paper file.
Implications for the Insurance Scheme are under consideration.
General Orders
GOs 6.12 and 6.13 are cancelled and this Instruction constitutes authority to process concurrent applications until the revised GOs are issued.
DON FAGET
Atg GENERAL MANAGER
29 August 1991
CIRCUMSTANCES IN WHICH ELIGIBLE PERSONS MAY POOL THEIR ENTITLEMENTS ON THE ONE PROPERTY
The purposes for which an initial or further advance can be made are governed by ss.18(2) of the DSH Act. The purposes are:
(a) to build a house;
(b) to buy land and build a house;
(c) to buy a house or unit;
(d) to complete a part built house;
(e) to enlarge a home;
(f) to refinance any mortgage on a home
[tests of serious financial hardship apply];
(g) to buy a right of residence in a retirement village;
(h) to complete a person's part built retirement village accommodation;
(j) to enlarge a person's retirement village accommodation;
(k) to refinance a debt raised to buy a right of residence in a retirement village
[tests of serious financial hardship apply].
If a person has held a DSH loan which was paid off before 9 December 1987, he/she has no further access to a DSH loan. Therefore, only eligible persons who have never used their DSH entitlement or who are entitled to the portable use of a previous loan may pool their entitlements.
Where neither person currently owns a home
Both persons can use their entitlements:
(a) to build a house;
(b) to buy land and build a house;
(c) to buy a house or unit;
(g) to buy a right of residence in a retirement village;
Where one person has a current DSH loan
The other person could use his/her entitlement:
(d) to complete a part built house
[where the home being built using the other persons entitlement has not been finished];
(e) to enlarge a home;
(f) to refinance any mortgage on a home
[tests of serious financial hardship apply];
(h) to complete a person's part built retirement village accommodation;
[where the retirement village accommodation being built using the other persons entitlement has not been finished];
(j) to enlarge a person's retirement village accommodation;
(k) to refinance a debt raised to buy a right of residence in a retirement village
[tests of serious financial hardship apply].
If the persons were to sell the current home and seek assistance in respect of another home, they would be in the same position as persons in the 'neither person owns a home' category.
Where the persons own a home not financed with a DSH loan
The persons could use their entitlement:
(d) to complete a part built house
[where there is no mortgage on the home or where any existing mortgagee agrees to surrender first mortgage security to Westpac];
(e) to enlarge a home
[where there is no mortgage on the home or where any existing mortgagee agrees to surrender first mortgage security to Westpac];
(f) to refinance any mortgage on a home
[tests of serious financial hardship apply];
(h) to complete a person's part built retirement village accommodation
[provided security acceptable to Westpac can be given];
(j) to enlarge a person's retirement village accommodation
[provided security acceptable to Westpac can be given];
(k) to refinance a debt raised to buy a right of residence in a retirement village
[tests of serious financial hardship apply].
If the persons were to sell the current home and seek assistance in respect of another home, they would be in the same position as persons in the 'neither person owns a home' category.
Where one person is eligible under the DSH Scheme and the other person is eligible under the ADFHLA Scheme.
At present an eligible person under the DSH Scheme cannot pool his/her entitlement with a person eligible under the ADFHLA Scheme.
Persons who have already lodged an election to revoke a DSH entitlement should get in touch with DSH.
- At present the legislation provides that an election is irrevocable
- DSH is seeking legal advice
- In the meantime we are taking the names of anyone who wishes to change their election as a result of the new decision and we will advise you in due course.