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47/1995 DSH Budget Measures - 1 July 1995

Document

National Office Instruction

amending General Orders (1993 edition)

Instruction No. 47

Date of Effect: Immediate

ile No. 95/1497

DSH BUDGET MEASURES - 1 JULY 1995


AMENDMENTS TO THE DEFENCE SERVICE HOMES ACT 1918 BY THE VETERANS' AFFAIRS (1995-96 BUDGET MEASURES) LEGISLATION AMENDMENT ACT 1995

Purpose

The purpose of this instruction is to explain the effects of the amending legislation covering the changes to the DSH Scheme announced in the Budget of 9 May 1995.

Background

Details of the Budget measures were forwarded on 9 May 1995. The Defence Service Homes Act 1918 was amended by the Veterans' Affairs (1995-96 Budget Measures) Legislation Amendment Act 1995. The amending legislation received Royal Assent on 14 November 1995. All measures are to apply retrospectively from 1 July 1995 with the exception of the cancellation of subsidy in relation to deceased estates which is to apply from the date of Royal Assent.

The May 1995 DSH Budget measures were:

1. Assistance under the Defence Service Homes Act 1918 where title is to be held as tenants in common;

2. Assistance under the Defence Service Homes Act 1918 where title is a company title or leasehold;

3. Issue of generic certificates of entitlement under the Defence Service Homes Act 1918;

4. Extension of pool of persons eligible to insure dwelling-houses under the Defence Service Homes Act 1918;

5. To redefine terms and to stabilise interest rates for further advances under the Defence Service Homes Act 1918;

6. Extension of eligibility for Defence Service Homes benefits to full time members of the World War II Women's Services;

7. Allow the assignment of a DSH loan entitlement to certain providers of retirement village accommodation and persons providing "granny flat" accommodation to eligible persons;

8. Cancellation of payment of subsidy in respect of deceased estates where there is no surviving spouse.

Policy to be applied

Details of the policy to be applied and where relevant, of procedures to be followed, for each of the measures are set out below.

1. Assistance under the Defence Service Homes Act 1918 where title is to be held as tenants in common;

2. Assistance under the Defence Service Homes Act 1918 where title is a company title or leasehold;

These measures relate to the form of title and the manner in which it is held by clients.

The rule to be applied when processing cases involving tenancies in common is that the tenancy value must equal or exceed the amount of the subsidised advance. The tenancy value represents the client's share of the total property value.

Where applicants and spouses are seeking assistance jointly as is more often the case, unless they specifically request assistance as tenants in common, they should be joined under section 4A and the certificates issued in joint names. Thus subsection 4A(3) requiring joint tenancy will still apply. If however, on return of the C of E it is noticed that the property is under a tenancy in common, the file should be noted that the decision to join the spouse with the eligible person under section 4A is set aside. The tenancy value should also be examined and the file noted that the tenancy value is adequate if appropriate. This will satisfy new subsection 17A(2).

Where a certificate of entitlement is to be issued for a single tenancy or tenancy in common, the certificate is to be issued in the single name of the eligible person. If the certificate relates to a tenancy in common, the Bank will require a mortgage from all of the tenants in common. If, on return of the certificate from the Bank it is evident that the loan was provided in relation to a joint tenancy ownership, instead of requiring a fresh application and issuing a new certificate, it will be necessary to first of all establish whether the other joint tenant is a spouse. If the joint tenant is a spouse, the file should be noted that the parties have been joined under section 4A. The joint tenancy will also need to be recorded in the property details on the 'Returned C of E Screen'. In addition, the spouse's details will need to be recorded in the 'Spouse Details Screen'. A note should be keyed into the 'Notepad' indicating that the spouse has been joined under section 4A after the certificate was issued. These arrangements will overcome the need for a fresh application, cancellation and re-instatement of subsidy etc. If the other joint tenant is not a spouse, it will be necessary to point out the legislative provisions and require the client to remedy the situation, ie arrange an appropriate transfer. The legislation does not allow joint tenancies with parties other than spouses.

These procedures are necessary due to a basic underlying legal principle in paragraph 18(1)(a) that certificates may be issued only to eligible persons and husbands or wives of eligible persons who are temporarily or permanently insane. Unless joined under section 4A, or the eligible person is insane, spouses of living eligible persons are not eligible, unless they have performed their own military service. It is not for anyone other than a delegate of the Secretary to apply section 4A. A loan provided not in accordance with the certificate is potentially a breach of Clause 7.3 of the Agreement and could result in termination of subsidy under Clause 11.15 of the Agreement.

Please note that the computer system is designed to prevent the issue of certificates where ownership is to be held as tenants in common, unless details regarding equity value and total cost of proposal are entered into the system. This is to help delegates focus on the equity value requirement as laid down in new subsection 17A(2). Where applicants are seeking assistance as tenants in common and haven't yet selected a property, it will be necessary to point out the equity value requirement, then key estimated figures into the system based on the applicants' advice.

Where a certificate is issued for a single tenancy acquisition and upon return of the certificate from the Bank it is evident that the purchase was made as a tenancy in common, the eligible person's tenancy value needs to be examined to ensure that it is adequate. The file should be appropriately noted to this effect. This will also satisfy subsection 17A(2).

The only other circumstance where certificates are to be issued in joint names is where both the applicant and the other joint tenant is the applicant's wife or husband who is also an eligible person. This is not to say that both use their entitlement by this action if only one party applies, as the definitions of Initial and Further Advances in section 4 protect the unused spouse's entitlement. What it does mean is that it is not allowable for unrelated eligible persons to be assisted under joint tenancies, and sets aside the policy on this issue contained in COI 14. Eligible persons seeking assistance with persons other than spouses, including where the other non-spouse parties are themselves eligible, may only be provided under a tenancy in common. This is to protect the leakage of the benefit by the rules of survivorship on death of the eligible person.

It is important that applicants be advised of these rules when they enquire about assistance. If clients are unaware of the implications of joint tenancy v. tenancy in common, the implications should be explained and legal advice suggested. It should be stressed that the decision is theirs to make

The amending legislation also provides for assistance where the title to the property is in the form of a company title. This will provide greater flexibility of choice for clients seeking medium density housing, some of which was established before strata titles became available.

The extension of assistance to tenants in common and for company titles has implications for the test of ownership of other homes. Since the issue of COI 133 in May 1987 the policy has been that ownership by the applicant or spouse in a form which would be regarded as sufficient to grant a loan would prevent the granting of a loan in respect of another property. The test was two pronged. Firstly, the property must have been a suitable security and secondly, the person or persons holding an interest must have been in the categories of persons to whom a loan could have been granted. This policy was explained in more detail in Entitlement GO 3.7.5. This test of ownership was based upon the legislation that existed at the time. To continue to hold to the same test would now seem to lack that legislative backing. Paragraphs 18(1)(b) and (e) covering ownership are quite specific. The real question is whether the applicant or the applicant's wife or husband own another dwelling house or have a right of residence in a retirement village other than the dwelling-house or right of residence in respect of which the advance is to be payable.

Joint Tenancy is where land is owned by two or more persons concurrently under the same title. Though joint tenants as between themselves have separate rights as far as outsiders are concerned, each is treated as the single owner of the entire property. On the death of one joint tenant his or her interest passes to the surviving joint tenant or tenants automatically, notwithstanding any disposition of his or her interest which the deceased may have attempted to make by his or her will. A joint tenancy is distinguished from a tenancy in common.

A Tenancy in Common is where two or more persons hold the same land under the same title but in distinct shares. It is co-ownership under which each tenant has a distinct interest in the property, though no one tenant has a right to possession of any particular part of the property. Tenants in common may acquire their interests under separate titles and at different times and there is no rule of survivorship. Tenants in common may devise their interest by will and if they fail to do so, title passes on death to the executor or administrator for the benefit of persons entitled on intestacy. There is a unity of possession but an entire disunion of interest.

In view of the common law definitions of these terms, we have taken the view that a tenant in common could not as an individual, be regarded as the owner of another home, but rather is a person who has a share or interest in another home. Ownership of another home as a tenant in common, even where the only other tenant in common is the applicant's spouse, would not constitute ownership in terms of paragraphs 18(1)(b) or (e).

Likewise ownership of shares in a company which owns another home does not make a shareholder an owner even where that person holds controlling shares in the company. A company is a legal entity separate and distinct from its shareholders and a shareholder has no legal or equitable interest in land registered in the name of a company. Notwithstanding that the Budget measures provide for assistance under company titles, a shareholder cannot be regarded as the owner of any property held in this way.

In view of the foregoing, the longstanding test of ownership is set aside. In its place will be a new two pronged test. The first part relating to the property remains unchanged from the former test. That is, the property must represent a suitable security for a loan having regard to the usual test - acceptable holding, whether it is a house etc. Secondly, the applicant or wife or husband if applicable must not own another house as either a single tenant or as a joint tenant, no matter who the other joint tenant(s) may be. Although holding other property as a company shareholder or as a company title shareholder might satisfy the first part of the test, it would not be considered ownership under the second part.

3. Issue of generic certificates of entitlement under the Defence Service Homes Act 1918;

Measure number 3 is not to commence on receipt of this instruction and further advice will follow at a later date. It involves a change from the existing arrangements whereby the purposes of advances are required to be inserted on certificates when issued. This measure allows for certificates for initial, further and additional advances to be issued for any of the purposes listed in ss.18(2) and (3) of the Act. The purpose(s) will need to be captured off the application form for entitlement processing purposes, but not printed on the certificate for these advances. There will also need to be provision for the purpose for which the advance was made to be captured/updated from the returned certificate as indicated by Westpac.

Coupled with this measure, but not part of the Budget itself, is the proposal to abolish expiry dates from certificates. Certificates are to be useable at any time after issue and not restricted to the current three months limit. This change cannot be implemented until an amendment to the Agreement has been finalised. As mentioned above, further advice about these changes will follow later.

4. Extension of pool of persons eligible to insure dwelling-houses under the Defence Service Homes Act 1918;

This measure allows all eligible persons to insure under the Scheme irrespective of whether they have had, or intend to apply for, a Subsidised Advance. The Act already allowed for insurance cover over whole retirement village complexes and not just the unit occupied by an eligible person. In addition, the new arrangements allow in assigned cases, insurance cover over assignees' retirement village complexes and family homes which include granny flat accommodation for our clients.

Assessing eligibility for insurance purposes will be done solely in Insurance section. This action is not a formal determination of eligibility as such, nor to be taken as an indication of entitlement to a loan. A warning to this effect is included on the form. The assessment is not to be checked by Subsidy staff at all. If the person applies for a Notice of Eligibility or a Certificate of Entitlement, then the usual 'best evidence' approach to formally determining eligibility is to be followed. The fact that Insurance Section has extended insurance cover is not to be considered to be material under 'best evidence'.

A subsidiary matter related to the insurance measure is the cancellation of the 'insurer of last resort' provisions in subsection 38D(2) of the Act. This provision has been repealed.

5. To redefine terms and to stabilise interest rates for further advances under the Defence Service Homes Act 1918;

This measure makes all existing loans and loan entitlements portable for the remainder of their current term and stabilises the interest rate at the rate of the current loan. This also applies to all cases where, although the loan was not current, there is an unused portable loan entitlement under the rules which applied at the time of the Budget announcement ie 9 May 1995. In other words, for any case seeking a Further Advance where the previous loan was not current as at 9 May 1995, the total periods of preceding advances as at 9 May 1995 as per the definition of "prescribed period" in the former section 36 must not have equalled or exceeded 25 years. Once having satisfied this prerequisite, the term of the further advance is to be the unexpired term of the immediately preceding previous advance. Although the former subsection 36(4) which contained the definition of the term "prescribed period" has been substituted, the application provision in Item 66 of the VALA Act provides for its continued application where subsidy was not payable on 9 May 1995.

The result of this change is that tiered certificates will need to be issued to provide for tiered loans. The amounts shown on certificates will be the limits on discharge of the existing advance/s currently applying for the remaining term (excluding widow/er and essential repairs advances). In any case where the amount taken on portability is less than the amount of the previous advance discharged, the reduction must be apportioned across all tiers in the same ratio of the discharged advance. This same rule is to apply to the interest charges for cases involving building with progress payments.

There are difficulties with the system providing estimates of remaining terms because of the lack of settlement date information in many cases. Where this occurs, the necessary information should be accessed from the file.

6. Extension of eligibility for Defence Service Homes benefits to full time members of the World War II Women's Services;

This measure means that no longer will the restrictive provisions of subsection 4(2A) requiring overseas service for members of the women's services listed be applied. This also applies to full time paid members of the Voluntary Aid Detachment. A service number for a VAD member would be sufficient to establish full time paid status. As for other members of the services, best evidence is to be used in determining eligibility for WWII women.

It is important to note that benefits flowing from this initiative are not to be affected by, nor affect, any previous assistance received directly or indirectly as the spouse or widow of another eligible person. A woman eligible on her WWII service who is also an eligible widow may receive concurrent assistance at any time and not 'once only'.

The system has been modified to identify the service details for this category. The rules for allocating file numbers for applications from full time members of the WWII Women's Services are as follows:-

If the applicant is currently in receipt of a subsidised advance as the spouse of an eligible person with the eligible person's file number eg as a survivor of a joint tenancy, then it is necessary to create a new file number and application for the applicant as a concurrent group.

If the applicant is currently in receipt of a subsidised advance as an eligible person eg widow, and already has her own file number, then it is necessary to create a duplicate client with a new file number as a concurrent group.

7. Allow the assignment of a DSH loan entitlement to certain providers of retirement village accommodation and persons providing "granny flat" accommodation to eligible persons;

This measure allows an eligible person who has a current certificate of entitlement but for which a subsidised advance has not been made, to apply for and receive a certificate of assignment. The effect of these arrangements is that the benefit of the eligible person's subsidised advance is able to be assigned to another person on the basis that the assignee will provide retirement village or granny flat accommodation for the assignor for an indefinite period. Both certificates are to be issued to the eligible person. Both certificates are to be presented by either the eligible person or the assignee at the Bank in order to negotiate the loan. The Bank will apply its normal lending criteria to such proposals and not those specified in Schedule C to the Agreement. The assignee will become the borrower and any financial arrangement entered into by the parties in relation to the provision of the accommodation is not our concern. The action of applying for a certificate of entitlement and a certificate of assignment are two separate actions. This is to ensure that the eligible person is fully aware of what he/she is doing and that the assignor and assignee have consciously agreed to the terms of the assignment arrangement.

Assignors once having assigned an Initial Advance are to be able to apply for C of Es and C of As for Additional Advances, Further Advances, Widow/Widower Advances, and Advances for Essential Repairs, but not Instalment Relief. As for Initial Advances, assignors seeking any of these advances will need to apply for both C of Es and C of As as per the two step process. The restrictive provisions of subsection 22(1) in relation to transfers are not to apply to assigned advances.

8. Cancellation of payment of subsidy in respect of deceased estates where there is no surviving spouse.

This measure provides for the cancellation of subsidy from a date three months after the death of the eligible person or spouse whichever occurs last. If there is a surviving spouse, no change to the existing arrangements is to occur. If a surviving spouse who is not a veteran in her/his own right subsequently remarries then dies, subsidy is to be cancelled unless the second spouse is also eligible.

Certain aspects of the Agreement between the Commonwealth and the Bank are also implicated by the Budget measures. A draft amended Agreement has been prepared and is still under consideration. Once this aspect is finalised a further instruction covering procedures will be issued.

Changes to General Orders

The Budget measures necessitated a number of changes to the General Orders. Brief explanations of the changes are as follows:

Eligibility

Amendments to the Eligibility General Orders have been made explaining the new provisions for World War II ex-servicewomen. Replacement pages 11-16 are attached.

A typographical error in the schedule to the War Gratuity Act 1945 has also been corrected. Replacement pages 45-46 are attached.

Amended Contents pages 1-2 are also attached.

Subsidy Administration

Amendments to the Subsidy Administration General Orders have been made to take account of assignments and deceased estates cases. Revised pages 15 - 36 replacing pages 15-31 and revised Contents pages are attached

Administrative Framework and Decision Making

Amendments to the Administrative Framework and Decision Making General Orders have been made to take account of assignments and deceased estates cases. Certain decisions in relation to assignments and deceased estates are reviewable and appealable. Replacement pages 17-22 are attached.

Entitlement

Amendments to the Entitlement General Orders have been made covering generic certificates of entitlement, assignments, company titles, leasehold titles, granny flats, the changed terms and interest rates for further advances, and tenancies in common

As mentioned earlier, the extension of assistance to tenants in common and for company titles has implications for the longstanding test of ownership of other homes. Accordingly, Entitlement GO 3.7.5 and 3.7.5.2 have been amended.

This opportunity has also been taken to insert a new GO 3.6.1.1 and amend GO 10.12 as a result of NOIs 44 and 46 covering the purchase of equity in properties and transfers to tenants in common.

The Widows' Table at Appendix A has also been amended to reflect the special status of WWII women who might also be eligible as widows.

In view of the extent of the changes to the Entitlement General Orders, a revised volume has been prepared to replace the existing volume. The revised volume is attached.

Subsidy Procedural Matters

Amendments to the Subsidy Procedural Matters General Orders have been made to take account of assignments. Replacement pages 11-16 and revised Contents pages 1-2 are attached.

Subsidy Verification and Payment

Amendments to the Subsidy Verification and Payment General Orders have been made to take account of assignments and deceased estates cases. The opportunity has also been taken to incorporate the changes necessary as a result of the transfer of the National function to the NSW Office.

In view of the extent of the changes to the Subsidy Verification and Payment General Orders, a revised volume has been prepared to replace the existing volume. The revised volume is attached.

Effect on previously issued NOIs (formerly COIs)

This instruction supersedes COI 35 on WWII ex-servicewomen, COI 31 on transfers to tenants in common, refines the policy in COI 14 on pooled use of entitlements, refines the policy in COI 11 on widows if they are also WWII ex-servicewomen, and refines the definitions of initial and further advances in COI 5. It also supersedes the basic test of ownership of other homes promulgated in old COI 133.

G E FITZGERALD
General Manager

25 January 1996