Professional valuations provided by the person

A person is not expected to obtain professional valuations for any asset. If a person provides a written valuation this can be used to determine market value if the valuation:

• was done by a professionally qualified valuer, and
• it is based upon the highest and best use of the asset and is supported by evidence of recent comparable sales.

If there is a doubt about correctness of the valuation, or someone other than a professionally qualified valuer provides the valuation, it is treated as though it is a person's estimate.

Council rates notices provided by the person

The use of council rates notices to form the basis of a property valuation is not recommended due to the variance of methods used by different councils.

Valuations of assessable property

Real estate is valued using the person's estimate of the market value [11], unless the:

• person is paid under the assets test [11], or
• the pension is assessed under the income test and the total value of the person's assets falls within $10,000 of the assets value limit [11].

In these cases, a valuation from a property valuation service provider should be obtained at no cost to the person.    

Reviewing the value of assessable property

Property values already included in a pensioner's assessment may be reviewed through the annual bulk valuations, targeted compliance reviews, individual reviews and pensioner initiated reviews. Pensioners are generally not required or expected to obtain property valuations, or to notify the Department of the change in asset value of an existing property, as there is not an identifiable 'event'. However, if any changes are made that may impact on the value of the assessable property, a revaluation may be required. For example, an existing assessable property which has been extended, or the creation of an easement that limits the way part of the property can be used, may require a revaluation by a property valuation service provider.

Actuarial valuations

Actuarial valuations are also required for the following:

• a life interest [11] created by the person, the person's partner, or on the death of the person's partner (other than a life interest in their principal home [11]), or
• a life interest surrendered for disposal purposes, or
• a contingent interest [11], remainder interest [11], or reversionary interest [11] created by a person or acquired for valuable consideration [11].

Actuarial valuations should be sought from the Australian Government Actuary as this organisation has the recognised expertise in undertaking actuarial valuations for government. This also ensures that the same methodology is always used, ensuring consistency in assessment.

Requests for actuarial valuations should be referred to the Team Leader of the Investment Database Unit.

Valuing a Jointly owned asset

Where an asset is jointly owned, the value of a person's partial interest in the asset is held in their assessment.  Their partial interest (such as a determined percentage) is then applied to the market value of the asset.

The market value of the property still applies where the property is jointly owned.  A long-established principle of determining asset value is that a hypothetical situation is envisaged, where a willing purchaser meets a willing vendor. This valuation approach is based on the High Court decision Spencer v Commonwealth of Australia, 1907.  It is not necessary that an actual purchaser who wants to acquire only the partial interest in the jointly owned asset exists.  For this reason, the market value of the whole property is not discounted based on the inability of the joint owner to find a real buyer for their partial share in the property.

A joint owner's share of the property can be calculated on the basis of their direct share of the legal title.  However, as with wholly-owned properties, delegates should also consider whether there are other factors beyond the legal title which may affect the extent of the person's interest in the asset, such as the proven beneficial interest of another party.      

Valuing an Interest in an Asset subject to a Will

A person, such as the executor of a will, may be provided with full legal title to an asset solely for the purpose of facilitating a sale, with the executor then distributing the proceeds of the sale in accordance with the instructions in the will. The executor may also have a known personal interest in the asset value, based on the will. In these circumstances, it is reasonable for the delegate (for a short period of time) to disregard the legal title, and to not assess the person as having any interest in the asset until after it is realised.  The person's anticipated interest in the asset (based on the terms of the will) can be disregarded in the short term given that the asset value is unable to be accessed or relied upon for self-support by the person before it has been realised.

This disregarding of the asset value for a short period of time is based on the expectation that the change of legal title is solely for the purposes of a rapid sale, with the share of proceeds then being useable by the executor, and so assessable for pension purposes. If the finalisation of the sale and the distribution of the asset value is unduly delayed, the person's known interest in the asset, based on the terms of the will, should be held.

Valuing a property asset during construction

During the progressive construction of an assessable house or other property asset, there is no standard approach, such as obtaining a property valuation, to determine the increasing value of the asset. One possible measure is to accept the value of the funds periodically transferred towards the completion of the property. Alternative approaches may be to accept the client's estimate of the increasing value of the property during construction, or to compare the period of construction with the expected final valuation on completion, and to apportion the value to the stage of completion.

Other factors may also be considered, such as the extent of land ownership, which has a value independent of the construction process. It is not necessary that a series of official property valuations be obtained, as the alternative valuation approaches outlined above provide a readily available and satisfactory measure of the change in the market value of the property, at each stage in its completion. It is not correct to defer a decision on the valuation of the property until it is completed. The test of market value allows a willing purchaser of a property asset which is still under construction to be assumed.

Effect of encumbrance or loan on value of assets

If there is an encumbrance or loan against a particular asset [11], the following formula is used:

The assessable value of the asset = the net value of the asset - the value of the encumbrance or loan

Secured loans on assets

For secured loans on assets the asset value is the amount of the person's interest in the asset. The value of any charge or encumbrance secured against the asset is deducted from the value of the asset. If, for example, a person's land is subject to a mortgage, the assessed assets value of the land is its current market value [11] minus the amount of the outstanding mortgage.

Secured loan on principal home or other disregarded assets

If a loan obtained to purchase an asset is secured against a person's principal home [11] or another disregarded asset, the value of the outstanding loan cannot be deducted from the value of that asset.

Unsecured loans or mortgages on assets

The outstanding value of an unsecured loan or unregistered mortgage may be deducted from an assessable asset's value in certain circumstances. For the value of the asset to be reduced, the person must provide evidence that the loan was obtained specifically to purchase the asset. Unsecured loans obtained for other purposes e.g to purchase a different asset, cannot be offset against the assessable asset's value.

Excluded security loans

Excluded security loans cannot be deducted from the value of an asset. An excluded security is the amount of a charge or encumbrance that is:

• a collateral security [11], or
• provided for the benefit of a third party, other than the person's partner [11].

Examples of excluded security loans

The following are examples of excluded security loans:

• A person obtains a loan to purchase a block of land. As part of the loan the land and another asset (a home unit) are offered as security. The value of the loan may only be deducted from the land value. It cannot be deducted from the value of the collateral security, the home unit.
• A person provides their property as security for a mortgage to a third party (other than his or her partner). The outstanding balance of the loan cannot be deducted from the value of that property.
• A person and his son borrow $80,000 to jointly purchase an asset but the security for the loan is an assessable asset owned solely by the person. The person is only able to deduct $40,000 from the value of the asset: the son's part of the loan is an excluded security and cannot be deducted.

Unregistered mortgages

To determine whether the value of an asset can be reduced by an unregistered mortgage, the decision maker must obtain copies of all documents supporting a person's claim, such as contracts or unregistered agreements. These documents are sent to the Department's Legal Services Group, who are responsible for clearing all unregistered mortgages.

Apportioning a loan or encumbrance

If a person has one encumbrance or loan for both a disregarded asset (e.g. their principal home) and an assessable asset, the value of the loan is shared between the assets in proportion to the respective values of the assets.   The following formula is used to apportion the loan and determine the value of the assessable asset:

(Value of loan X Value of assessable asset) divided by the Value of assets loan is secured against

Example of apportioning a loan

A person has one loan secured against both their farm and  principal home [11]. The total amount of the loan is $100,000.  The value of the farm is $180,000 and the value of the principal home is $60,000.  The total combined value of the farm and principal home is $240,000.  Using our formula (ie. $100,000 x $180,000) ÷ $240,000 = $75,000), the net asset value of the farm is $105,000 (ie. $180,000 minus $75,000).

Primary Production Assets

If a primary producer has assets that are used in the carrying on of the primary production, and also has liabilities that are related to the carrying on of the primary production then these assets are taken to be a single asset. The value of the single asset is the total value of the production assets minus the total value of the production liabilities. This gives the value of the person's primary production assets. If the result gives an asset value of less than zero then the value of the asset is taken to be nil.

Example of aggregating assets for primary producers

A person has farmland worth $200,000 and a mortgage of $50,000 is secured against the land. The person runs the farm in partnership with his son. The partnership owns plant, stock and machinery to the value of $100,000. The partnership has liabilities of $150,000. The person has:

• primary production assets of $250,000 (ie. his own farmland plus his share of the partnership assets), and
• primary production liabilities of $125,000 (ie. his mortgage on the farmland plus his share of partnership liabilities).

The total assets of $250,000 minus total liabilities of $125,000 = net primary production assets of $125,000.

Last amended: 15 July 2008

Effect of beneficial interest on value of assets

The value of an asset [11] held in a pensioner's assessment may be reduced where there is evidence that another party holds a beneficial interest in that asset. Recognising a beneficial interest is authorised by section 5L(2) of the Act (Assets test definitions), which provides that the value of an asset is limited to the value of the person's interest in the asset. Federal Court judgments have confirmed that it is permissible for a pensioner's asset value to be reduced by the beneficial interest held by a party, where there is acceptable evidence of the contribution made by that party.

Beneficial interest

Beneficial interest is the extent to which a person, other than the legal owner of an asset, has acquired a share in the value of that asset. It arises out of the reasonable expectation, following a promise or assurance, that a person may through their actions generate some equity or interest in an asset (as distinct from the question of legal ownership or control). Equity courts recognise that an unfair outcome will occur if an asset is sold or if a party is dispossessed, without considering the contribution made by them to the value of the asset. A large body of equity law exists to protect the rights of parties who have acquired an interest in an asset, without acquiring a share of the legal title.

Life interest may arise beneficially

A beneficial interest of a person may result in a contingent, remainder or reversionary interest for the legal owner, which is not assessable. A life interest can arise beneficially, that is, can be created without recourse to a formal or legal written agreement such as a will. For example, if a disabled or elderly relative, who may or may not be a part owner of a house, has a long term attachment to it, and an understanding or commitment exists that this person is to have possession of the house until death or choosing to move out, then a beneficial life interest exists and can be recognised. This means that the property cannot be counted as an asset in the assessment of a DVA pension recipient who has legal title. This exemption continues until the life interest ceases, for example on the person vacating the property.

Calculation of beneficial interest

The calculation of beneficial interest requires that the extent of a party's proven contribution to the purchase of an asset, and subsequently adding value to the asset, be determined on the basis of the available evidence.

Relevant factors to consider

The Federal Court has ruled that consideration may be given to the following factors when determining the extent of a party's beneficial interest:

• the value of the property at the time at which expenditure was incurred and the relationship between the expenditure and the increase in the property's value as a consequence of that expenditure,
• the funds that were expended in carrying out renovations or other capital improvements to the property,
• property costs, such as rates and other outgoings,
• whether compensation for occupying the property rent-free should be made, and
• whether dispossession would be unconscionable having regard to the emotional investment put into the property by the person claiming a beneficial interest.

The Federal Court ruling acknowledges that this list is not exhaustive, and that there may be other relevant factors. If it is likely that an equity court would find that a party's contribution to the value of an asset requires that they be compensated, then it is relevant to determine that beneficial interest has arisen out of that contribution.

Balancing beneficial interest against legal title

While beneficial interest may reduce the held asset value, this will only arise where the delegate [11] has been provided with acceptable evidence of the contribution made by a party other than the legal owner. General and unsubstantiated statements by the legal owner of intent to transfer legal title to a party, are not sufficient to determine that beneficial interest arises. Where evidence of a party's contribution is not available, the asset value should remain with the pensioner based on his/her legal ownership of the property.

Example of beneficial interest calculation

A pensioner holds legal title to a real estate property that was purchased in 1990 for $200,000. There is acceptable evidence that the pensioner's son contributed $50,000 towards the purchase price. The property is now valued at $350,000. It is appropriate to determine that the son holds a 25% beneficial interest (now valued at $87,500) in the property. The asset value to be held in the pensioner's assessment will be $262,500.

Last amended 17 June 2009

Value of assets not readily accessible

If an asset is unrealisable the value of the asset can be assessed as being less than the face value. If financial hardship is involved, the hardship provisions may apply.     

Examples of assets not readily accessible

A person may have severely limited or no access to assets when:

• the asset(s) cannot be transferred from an overseas country,
• the asset(s) are with a company in liquidation, or

a non-active partner cannot access partnership assets following a relationship breakdown.

Asset-tested income streams

The value of an asset-tested income stream is determined using the income stream assessment rules.     

Last amended: 10 August 2012

Assessing the principal home

The value of any right or interest of a person, their partner [11] or both of them in the principal home [11] that gives security of tenure is a disregarded asset [11].     

Multiple residences

A person, including a person who is a member of a couple, may only have their right or interest in one residence disregarded for assets test purposes. Where members of a couple (including an illness-separated couple) reside in different homes, the full value of the residences other than the principal home are assessable. Generally, where residence is shared across more than one home, the home of greatest value is determined to be the exempt asset.

Curtilage

Curtilage [11] is the land adjacent to the exempt principal home. A certain amount of curtilage is disregarded for the assets test [11]. The amount of curtilage that is exempt depends on whether the private land use test [11] or the extended land use test [11] is satisfied. Under the private land use test, up to two hectares [11] on the same title as the principal home may be exempt. Under the extended land use test, all land on the same title as the principal home may be exempt.    

Home sale proceeds exemption

If the principal home is sold, the value of the proceeds is assessed as an asset, unless the proceeds are likely to be used to acquire a new principal home within 24 months.

The portion of home sale proceeds that the person intends to use in acquiring the new residence will be a disregarded asset. The proceeds can remain a disregarded asset when progressively used for the new home. For example, to purchase land on which they intend to build the new home or to make progress payments for construction of the new home. The asset exemption ceases at the earliest of:

• when the new principal home is acquired,
• when they no longer intend to acquire a new principal home with the proceeds, or
• 24 months from the home sale (unless an extension of up to additional 12 months applies, due to delays beyond the control of the pensioner).    More → [65]

Note: Home sale proceeds, including any portion considered a disregarded asset, remain subject to the deeming provisions under the income test. As of 1st January 2023, only the lower deeming rate will be applied to home sale proceeds intended for acquiring a new home during the exempt period. When a progress payment is made for the construction of the new home, the deductible asset amount and the financial asset value should be reduced accordingly to ensure the correct deeming calculation. The deposit and any progress payments, at the time of being put towards the construction of the new principal home, acquire exempt principal home status.    

Delayed occupancy

If the person has acquired their new principal home but is prevented from immediately occupying it, the exemption may continue for a reasonable period. For example, occupancy may be delayed by an existing lease, or if the vendor needs to remain in residence for a period. If the continued exemption period would exceed 24 months from the date the former home was sold, please seek advice from Policy Advisings Income Support [67],

Assessment where home sold and another purchased on terms

If a person sells their principal home on terms and purchases another residence on terms, only the balance due from the sale that is to be applied to the purchase of the new residence is an exempt asset. The exemption applies for the duration of the terms under respective agreements. Neither the standard 24 month exemption period, nor the extension applies to these cases.

Compensation and insurance payments for a lost or damaged principal home

Compensation and insurance payments received by a person for loss of, or damage to the principal home's buildings, plant or personal effects [11] are a disregarded asset for 12 months from the date that the payment was received. Compensation and insurance payments can be regarded as including payments received outside a formal contract of insurance (for example, to include government grants or public donations) provided these additional payments are intended to compensate the person for loss of or damage to buildings. The exemption applies to any payments of compensation or insurance received, and is not limited to the value of the loss or damage incurred. Compensation and insurance payments received for loss or damage to the principal home's building, plant or personal effects are exempt from assessment for 12 months., regardless of whether those payments are subsequently applied towards the rebu — ilding of the principal home.

If the person uses all or part of the payments received to repair/rebuild their old home or acquire a new home the total value of this payment can remain a disregarded asset even when progressively used to repair, rebuild, buy or build the home, such as for land or buildings. The value of the repair/rebuild, plus the value of the land that is part of the principal home and any previous structure already on that land, is disregarded under the assets test until the earliest of:

• when the home is repaired, rebuilt, renovated or acquired,
• when they no longer intend to acquire a principal home with the proceeds, or
• 12 months from receipt of the compensation or insurance payment (unless an extension of an additional 12 months applies, due to delays beyond the control of the pensioner).     More → [70]

The exemption provision concerning received amounts of insurance or compensation is independent of the exemption provision concerning repairing/rebuilding or acquiring a new home. In the event that there are residual amounts after rebuilding/buying and 12 months has not elapsed, those residual amounts of compensation and insurance payments remain exempt until the end of the 12 month exemption period.

Note: Compensation and insurance payments for a lost or damaged principal home while considered a disregarded asset, are also exempted from the deeming provisions under the income test.    

This approach also applies to compensation and insurance payments for lost or damaged real estate property.     

Assessing life interests

The value of any life interest of a person is a disregarded asset unless it was created:

• by the person,
• by the person's partner, or
• on the death of the person's partner.

When the life interest [11] is in a person's principal home [11], the value of the interest is a disregarded asset.

Assessing contingent, remainder or reversionary interests

The value of any contingent, remainder or reversionary interest is a disregarded asset unless it was created by:

• the person,
• the person's partner, or
• both the person and their partner.

Assessing granny flat interests

A person's granny flat [11] interest in their principal home is a disregarded asset if the interest was acquired:

• before 22 August 1990 and gives the person security of tenure in the home, or
• on or after 22 August 1990 and the entry contribution was more than the extra allowable amount [11].     More ? [103]

Sale leaseback interest

A person's right or interest in a sale leaseback home is a disregarded asset (i.e. the person is taken to be a home owner) if the:

• person is the sale leaseback resident, and
• value of the person's remaining interest in the home is more than the extra allowable amount.     More ? [105]

Actuarial valuations

Actuarial valuations are required for the following:

• a life interest [11] created by the person, the person's partner, or on the death of the person's partner (other than a life interest in their principal home [11]), or
• a life interest surrendered for disposal purposes, or
• a contingent interest [11], remainder interest [11], or reversionary interest [11] created by a person or acquired for valuable consideration [11].

Last amended: 27 June 2012

Assessing assets relating to deceased estates

Any asset a person inherits from a deceased estate which has not been received and is not able to be received for any reason is an exempt asset [11].

This exemption also applies to contingent, remainder or reversionary interests which are inherited, with the exemption continuing until such time as the contingent, remainder or reversionary interest is able to be received. A contingent, remainder or reversionary interest is only immediately assessable if it was created by the person or their partner.     

Deceased estates creating a life interest

A contingent, remainder or reversionary interest may arise where a person other than the legal owner has a life interest. A life interest can be created without recourse to a formal or legal written agreement such as a will. For example, if a disabled or elderly relative who may or may not be a part owner of a house, has a long term attachment to it, and an understanding exists that this person is to have possession of the house until death or choosing to move out, then a beneficial life interest exists and can be recognised. This means that the property cannot be counted as an asset in the assessment of a DVA pension recipient who has legal title. This exemption continues until the life interest ceases, for example on vacating the property.

Cemetery plot

A cemetery plot is a single plot in which it is intended to bury a person or their partner. A cemetery plot acquired by a person for themselves or their partner is an exempt asset. For couples, each member of the couple can have the value of a plot as an exempt asset.

Prepaid funeral

The amount of an advance payment made by a person for funeral services in respect of the person or their partner (a prepaid funeral [11]) is an exempt asset. Factors that might be taken into account in deciding if a person has a prepaid funeral for themselves or their partner include:

• whether there is a contract,
• that nothing further needs to be done for funeral services to be provided in accordance with the contract, and
• the prepayment cannot be refunded, unless the person moves outside the designated funeral service area.

There is no limit applied to the amount that a person may invest in a prepaid funeral. However, if a person has a prepaid funeral, their funeral bonds cannot be exempt assets.

Funeral bond

A funeral investment is usually called a funeral bond. A funeral bond is an investment offered by a friendly society or life insurance company to allow a person to set aside money to cover funeral costs of themselves or their partner. The bond provides benefits only upon the death of the nominated person and cannot be accessed earlier.

Depending on whether the requirements to be exempt are met, a funeral bond is assessed as either:

• an exempt funeral bond, which is disregarded from the assets and income tests, or
• a non-exempt funeral bond, which is counted under the assets and income tests as a managed investment [11] at current value using the deemed income rules.     More ? [119]

Exempt funeral bond

Up to two funeral bonds per person's funeral may be treated as exempt assets if the combined amount invested does not exceed the funeral bond threshold [11]. The following table describes the other conditions that must also be met for the exemption to apply.

If the above conditions for exemption are met, the exempt funeral bond is disregarded from the income and assets tests, and any return from the exempt funeral bond is also disregarded.    

Note: The “amount invested” in a funeral bond refers to the total capital invested in the funeral bond and does not include any fees charged or increases in the value of the investment over time.

Assessment of funeral bonds that are terminated before maturity

If funeral bonds are held in a company that is wound up, the initial receipt of proceeds from the termination of the funeral bond are not counted as income, as they are considered to be a return of the individual's own capital. However, depending on how the person uses the funds, the return will be taken into account under the income and assets test.

If the funds are transferred to another funeral bond and the value of the new bond is less than the allowable funeral investment threshold, it will remain exempt from assessment under the income and assets test.     

If the funds are invested, they are assessable as a financial asset and are subject to deeming.

If the funds are used to purchase an asset, such as a car, then the value of the asset will be assessable.

Multiple funeral bonds

If the amount invested in two bonds exceeds the funeral bond threshold, or the person has more than two bonds, a beneficial decision is made about which combination of up to two exempt funeral bonds provides the best pension outcome. The value of the non-exempt bond will then be included in the pension assessment. This can only occur where the value of each of the bonds individually, is lower than the funeral bond threshold.

Where the combined amount invested in multiple bonds exceeds the funeral bond threshold, or the person has more than two funeral bonds, the current value of the funeral bonds is assessable. That is, the value of the funeral bond investment, plus any return on the investment.

For example, the combined amount invested in two bonds exceeds the funeral bond threshold and a choice must be made about which bond to exempt. The old funeral bond has an amount invested of $5,000 but a significantly higher current value of $11,000. The new bond has an amount invested of $9,000 and a current value of $9,500. Because the old bond has a higher current value, it is more beneficial for the old funeral bond to be assessed as exempt and the new bond as non-exempt.

Joint funeral bonds

For exemption purposes, the total amount invested in a joint funeral bond counts towards the funeral bond threshold of each party to the bond and is not halved. Each member of a couple may have up to two funeral bonds exempted if the sum of the amount invested in each member's bonds does not exceed the funeral bond threshold.

Example of joint bond exemption assessment

A couple have invested $5,000 in a joint funeral bond. One partner has also invested $4,000 in an individual bond and the other partner has invested $3,000 in an individual bond. Their assessment for exemption is:

• partner A has invested $5,000 + $4,000 = $9,000 towards his funeral
• partner B has invested $5,000 + $3,000 = $8,000 towards her funeral

Each member of the couple is considered to have two bonds (the joint bond plus their individual bond).

Prepaid funeral involves a funeral bond

Some funeral providers advise clients to purchase a funeral bond from an insurance company or friendly society in payment for the prepaid funeral. The following table describes how to determine the ownership of the funeral bond for this arrangement.

Assignment of a funeral bond to a funeral director

Assignment to transfer ownership of the funeral bond to the funeral director requires the following factors to be met:

• the funeral director is nominated on the funeral bond investment form, and
• there is a contract for a funeral between the pensioner and the funeral director, and
• the funeral bond cannot be refunded, but may be reassigned to another funeral director.

Assessing refunded nursing home accommodation bonds

A person entering a nursing home between 1 October and 5 November 1997 may have paid an accommodation bond. From 6 November 1997 nursing home accommodation bonds were replaced by accommodation charges.

Accommodation bonds paid for entry to a nursing home may be exempt if:

• a pensioner paid the bond between 1 October and 5 November 1997 and the bond was subsequently refunded, or
• on or before 5 November 1997 a pensioner sold their principal home [11] in order to be able to pay an accommodation bond.

Assessment of refunded bond

The value of the refunded accommodation bond is disregarded depending on how the person funded the accommodation bond. The following table explains the exemption provisions for these accommodation bonds.

The net proceeds from the sale of the principal home are calculated by:

• adding together any costs incurred in the course of the sale and the amount of any debt the person or their partner owed immediately before the sale, so far as the debt was secured by the home at that time; and
• subtracting that figure from the gross proceeds of the sale.

Amount of refunded bond remains constant

The amount of the accommodation bond which is disregarded under the assets test will remain constant in all circumstances. Situations may arise where a person has less assessable assets than the amount to be disregarded. In this circumstance the person would be assessed as having nil assets. Should the person's assets later increase to the extent that their assessable assets exceed the amount to be disregarded, the full amount to be disregarded will be subtracted from their assessable assets.

Assessment of refunded bond for members of a couple

Where a person who is a member of a couple is entitled to the assets test exemption of a refunded bond, 50% of the amount to be disregarded will be applied to the person and the other 50% to their partner. Should one member of the couple die, however, 100% of the amount to be disregarded will be applied to the surviving member.

Assessing refunded nursing home accommodation charges

It was not intended that the accommodation charge for nursing home residents which was introduced on 6 November 1997 would be paid by any pre 1 October 1997 residents. However the enabling legislation did not protect a pre 1 October 1997 resident who moved to a different nursing home after 1 October 1997 from liability for the charge. As a result, the legislation was amended in 1999 to exempt such residents from the charge and to provide for a refund of the amounts already paid.

Amount of refund to be disregarded

The value of the refunded accommodation charge is disregarded under the assets test. The exemption will apply whether the person has retained the funds or not. A deduction equivalent to the amount refunded is to be deducted from the person's total assets.

Asset-test exempt income streams

Superannuation funds and approved deposit funds

The value of a person's investment in a superannuation fund or an approved deposit fund is a disregarded asset until the person:

• reaches pension age [11] (or qualifying age [11] for income support supplement recipients); or
• commences to receive a pension or annuity from the fund.    More → [143]

Assessing decoration awards for valour

Provided it is not used for the purposes of investment or as a hobby, the value of any medal or other decoration awarded for valour that is owned by a person is a disregarded asset. This includes medals and other decoration awarded to someone else beside the owner.

Assessing aids for disabled

• any of the person's personal property that is designed for use by a disabled person,
• any part of the person's personal property that is attributable to modifications made to that property to enable it to be used by disabled persons, and
• modifications to a car for use by a disabled person, but not the vehicle itself.

If DVA [11] provided the person with a motor vehicle under the Vehicle Assistance Scheme, the value of that vehicle is also a disregarded asset.    More → [146]

Amounts paid under a home equity conversion agreement

An amount received by a pensioner within the preceding 90 days which is paid to or on behalf of that person or their partner under a home equity conversion agreement is a disregarded asset to the extent that the total amount owed by the person or by the person and their partner under home equity conversion agreements from time to time does not exceed $40,000.     More → [150]

Payments made in respect of prisoners of war during World War II

The 2001 Australian Government Budget provided for a one-off payment of $25,000 to all Australian service personnel and civilians who were held captive by Japan during World War II or their widows or widowers who were alive on 1 January 2001.

This $25,000 one-off payment is disregarded under the assets test by allowing it as a deduction from the value of the person's total assets for life.     More → [152]

If the recipient of the payment remarries, the $25,000 continues to be disregarded and is deducted from the joint assets of the recipient and their partner, during the recipient's lifetime. The assets test exemption does not transfer to another person, including the widow/er, upon the death of the recipient of the payment.

The payment is regarded as an exempt lump sum under the income test.     More → [156]

The same does not apply to ex-gratia payments made:

• to British groups held prisoner by the Japanese during World War II or their surviving widows/widowers, or
• by a Commonwealth or allied country to those surviving Japanese internment or their surviving widows/widowers.

These payments are regarded as an exempt lump sum for income test purposes, but if the money received from these payments is invested, used to acquire assets or disposed of, then the subsequent investment, asset acquisition or disposal is assessed using the appropriate income and assets test rules.     More → [159]

National Disability Insurance Scheme amounts

NDIS amounts [11] held by, or on behalf of, an NDIS participant [11] to pay for future disability expenses under their NDIS plan [11] are an exempt asset.

The assets test exemption also applies to any actual returns earned, derived or received on NDIS amounts.

The calculation of the disregarded NDIS asset amount is –

• the sum of the NDIS amounts received, and any return on those amounts,

 LESS

•  those amounts spent in accordance with the person’s NDIS Plan.

Assets assessment of legally irrecoverable loan or debt

A loan or debt that is legally irrecoverable [11] is a disregarded asset [11], because it has no value.

Legally irrecoverable

A loan or debt is legally irrecoverable [11] solely if it has not been repaid in full or in part according to the terms of the loan agreement and within the time frame specified in the statute of limitations of the relevant State. A loan or debt is not legally irrecoverable solely because there is no documentation of the loan or debt agreement.

The fact that a debtor is unable to repay a loan or debt does not automatically mean the loan or debt is irrecoverable.

If a debtor is able to repay a loan or debt but is unwilling or refuses to do so, the loan or debt is still legally recoverable and continues to be assessed as an asset.    

Statute of limitations

The Statutes of Limitations specify the date after which the loan or debt is legally considered irrecoverable. The date at which the limitations apply varies, depending on how the loan or debt was to be repaid:

Debtor as an individual

The following table shows whether a loan is an assessable asset for individual debtors.    

Debtor as a trust

Last amended: 8 February 2013

Personal effects and household contents

The net market value [11] of the personal effects and household contents of a person or a couple is assessed as being $10,000 unless the person satisfies the Commission [11] that the value of the assets is less than $10,000.

A person is always required to declare if the net market value of personal effects and household contents exceeds $10,000.     

Value of vehicles

A person's estimate of the market value of their vehicle is accepted unless the valuation:

• is significantly over or understated, and
• would affect their payability or rate.

Vehicles include a motor vehicle, motor cycle, trailer, caravan (other than the principal home [11]), or boat (other than the principal home). Australian Government vehicles provided under the Vehicle Assistance Scheme however, are disregarded assets [11].    

Deposits on vehicles and other personal assets

A deposit placed by a pensioner on a vehicle or on other personal assets, in order to acquire the asset, represents the pensioner's interest in that asset, and should be recorded as a non-financial asset.  The deposit money is no longer accessible to the pensioner as available money, or as an accessible financial institution balance, and should no longer be deemed.  If the asset purchase does not proceed and the deposit money is refunded to the pensioner, the deposit amount is then restored as a financial asset at that time.

Value of Cash on hand

The person's estimate of the value of cash on hand other than that held to meet day-to-day expenses is accepted.    

Bank, building society and credit union accounts

The credit balance held in any account with a bank, building society or credit union is an asset for pension purposes and is assessed at full face value.

For assessment purposes, a person's assertion as to the balance of an account is generally accepted. Account balances may also be verified by:

• checking passbooks or account statements provided by the person, or
• approaching the financial institution if:

• it is difficult to obtain this information from the person, or
• there is a reason to believe that the person is providing false or misleading information.     More ? [196]

Fixed term deposits, bonds, debentures and securities

The following table explains how to assess the value of fixed term deposits, unlisted bonds, debentures and securities. An alternative value is accepted if a person provides supporting information.    

Listed bonds and securities and deferred or reversionary bonds and investments

The assets value is the last sale price quoted in the financial press.

If the sale price is not quoted in the financial press, the assets value is the:

• total accrued compound interest, plus
• face value of the bond or investment.     More ? [200]

Example of assets value of a deferred interest bond

A 12% deferred interest bond of $100 has a value of:

• $112 after 1 year ($100+$12), and
• $125.44 after 2 years ($112+$13.44).

Commercial bills

The assets value for commercial bills is the:

• amount paid for the bill, plus
• interest owing at the end of the fixed term.     More ? [201]

Dingo bonds, digger bonds, and zero coupon bonds

The value of dingo bonds, digger bonds and zero coupon bonds can be obtained from the merchant bank or financial institution that issued them.    

Types of managed investments

Managed investments [11] include:

• public unit trusts (including property, equity, bond, cash management and mortgage trusts, and common funds) offered by unit trust managers,
• insurance bonds (including investment bonds, savings plans, insurance certificates and single premium insurance policies) offered by insurance companies,
• friendly society bonds,
• superannuation fund investments (including public superannuation funds, approved deposit funds, retirement savings accounts and self managed superannuation funds) offered by a range of institutions,
• certain asset-tested lifetime income streams,
• non-exempt funeral bonds [11].

Assets value 

The assets value of a managed investment is the current market value.

Managed investments can be unit based or account based.

Note: The deeming provisions under the income test applies to managed investments.    

Unit-based managed investments

Unit buy-back prices are obtained each month for unit based managed investments from fund managers and stored on the DVA Managed Investment Database. Unit buy-back prices are updated in the middle of each month and reflect the last sale price for the last working day of the preceding calendar month. They are only applied to assessments:

• at automatic bulk updates of pension statutory increases in March and September each year for all persons holding unit based managed investments, or     More ? [212]
• when a person asks for a re-assessment, or
• when a change is notified for any managed investment or public company share.

Account-based managed investments

The value of account based managed investments is only updated when the person notifies of a change in the value or the Department undertakes a revaluation. Pensioners are required to advise DVA if the value of their account based investments varies by more than $1,000.

Lifetime income streams

Asset-tested lifetime income streams purchased on or after 1 July 2019 which were purchased with non-superannuation monies, are considered managed investments before the assessment day [213] (prior to payments commencing or the owner reaching pension age).  The value is the purchase amount.  If more than one amount has been paid, the purchase amount is the sum of those amounts, compounded using the ‘above threshold deeming rate’, less commuted amounts. More – see “Purchase Amount” in the Glossary.

After the assessment day, it is no longer considered a managed investment and other rules apply, see 10.5.4 Means Test Assessment of Lifetime Income Streams.

Non-exempt funeral bonds

If a funeral bond does not meet the requirements to be an exempt asset [11], then the whole funeral bond is counted as an asset at its current value. Non-exempt funeral bonds are assessed as account-based managed investments.    

Last amended: 25 October 2006

Public company shares

The assets value of public company shares is the current market value. Public company shares can be listed on the Australian Stock Exchange or be unlisted.

New claims

When determining a new claim for pension, the assets value of public company shares is the current market value as at the veteran's provisional commencement day [11] (where payability commences from this date). Where payability does not occur from the veteran's provisional commencement day, the current market value of shares should be concurrent with the date of grant. The updated share price, as available from the DVA Share Database and immediately preceding the date of grant, should be applied.

Existing claims

Last sale prices are obtained for every second Wednesday before pension payday for public company shares listed on the Australian Stock Exchange. Updated last sale prices are only applied to assessments:

• at automatic bulk updates of pension statutory increases in March and September each year for all persons holding listed shares,     More ? [225]
• when a person asks for a re-assessment, or
• when a change is notified for any public company share or managed investment.     More ? [226]

Note: The values of unlisted shares, overseas shares and company issued options are only updated when the person notifies of a change in the value or the department undertakes a revaluation.

Overseas public company shares

The assets value of overseas public company shares is the current market value. Overseas public company shares can be listed on a variety of international stock exchanges or be unlisted.

Company issued options

The assets value of company issued options is the current market value. The assets value is worked out by multiplying the number of options by the last sale price of the option as quoted in the Australian Financial Review.

The value of a person's interest in any property or real estate is assessable unless it is an interest in their principal home [11].    

Real estate valuations

Real estate is valued using the person's estimate of the market value [11], unless:

• the person's pension is assessed under the assets test [11],
• the pension is assessed under the income test [11] and the total value of the person's assets falls within $10,000 of the assets value limit [11], or
• there is evidence that the person is intentionally underestimating the value of the real estate and a more realistic value could affect payment.

Note: If the person's estimate of the market value is not used for the above reasons, DVA engages a qualified valuation service provider to provide an official property valuation. This valuation is obtained at no cost to the person.

Assessing a leasehold

If a person holds a lease over a property, the unexpired period of the leasehold may have a market value. A leasehold with a market value is an assessable asset [11]. If it appears that pension payability [11] or the rate of pension may be affected by the value of the leasehold, DVA can obtain a valuation from a valuation service provider.

Assessing timeshare arrangements

Where a person owns a timeshare in property (for example in holiday apartments), the current market value of the timeshare is assessable. This is regardless of whether the person owns a fractional share of the property, or has purchased the timeshare by entering into a contract which provides them with the right to use the property on a regular basis. A delegate must be reasonably satisfied as to the current market value of the timeshare. Therefore, if the person has purchased the timeshare within the last  12 months, then the amount that the person paid for the timeshare may be accepted as the current market value. If the timeshare was purchased more than 12 months ago, then the client may need to provide details of the current sale price. This would then be the amount that is held in the pension assessment.

A valuation from a valuation service provider of the timeshare arrangement may be required, if:

• there are doubts about the current market value, or
• the person's pension is assessed under the assets test, or
• the pension is assessed under the income test and the total value of the person's assets falls within $10,000 of the assets value limit, or
• there is evidence that the person may be intentionally underestimating the value of the real estate and a more realistic value could affect payment.

Sale of property or real estate

When a person enters into a valid and legally binding contract for the sale of property or real estate, the property or real estate is no longer an assessable asset. Ownership is transferred to the purchaser as soon as:

• the legal owner enters into a legally binding and unconditional agreement for the sale of the real estate or property, or
• all conditions are met, if the agreement is subject to preconditions.

Note: The property or real estate remains a person's asset until the contract is legally binding or all preconditions have been met.

Legal proof of the transfer of ownership

The legal proof required to confirm the transfer of ownership is:

• a signed and dated contract of sale, and
• any other relevant documents, such as receipts or bank statements relating to the deposit or purchase price and solicitor's statements.

Property sales between family members

Sales between family members need to be examined in more detail to ensure that ownership of the property has been transferred to the purchaser. If the contract is not legally binding, the property or real estate is the person's asset. If the sale is for an amount less than market value, the deprivation provisions [11] may apply.    

Proceeds of sale of property

The value of any cash proceeds received by a person from the sale of a property or real estate is assessed as a cash asset. The value of any debt owing to the person is assessable. If the sale price of the property or real estate is below market value, deprivation provisions may apply.    

Water rights

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

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 is 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".

Historically, most states and territories bundled land property titles and associated water entitlements together. Under the National Water Initiative, water entitlements can be traded independently of land. This separation, known as unbundling, has been completed in many jurisdictions. This means that water rights are unbundled from each other, as well as being unbundled from land. Where a water right is sold separately to land title, it represents the sale of an asset, with the assessment being determined on what has happened to the proceeds of the sale.

Assessing entry contributions to retirement villages and for a granny flat interest

If a special resident's entry contribution to a retirement village, or in acquiring a granny flat interest, exceeds the extra allowable amount, they are regarded as a homeowner. The entry contribution amount will be disregarded under the assets test, they will be subject to the lower assets value limit and will be ineligible for rent assistance.

If a special resident's entry contribution to a retirement village or in acquiring a granny flat interest is less than or equal to the extra allowable amount, they are assessed as a non-homeowner. The entry contribution will be assessable under the asset test, they will be subject to the higher assets value limit, and they may receive rent assistance, if otherwise eligible.     

Refund of entry contributions on leaving a retirement village

When a person decides to leave a retirement village [11], they may be entitled to a full or partial refund of their entry contribution [11].

The value of the refund owed to the person is:

• assessed under the special residence basic assessment rules while the person continues to live in the retirement village    More → [237]
• an assessable asset after the person leaves the retirement village and has received the refund.

Delayed refund of entry contribution on leaving retirement village

Refund of the entry contribution may be delayed when a person leaves a retirement village. The delay may typically extend until the vacated unit is sold, or for the time period specified in the Residential Agreement (commonly  12 months), whichever is the shorter period. However, there are some instances where a Residential Agreement stipulates that the refund will be delayed, sometimes for a matter of years.

Where the entry contribution is not refunded for a period of time following departure from the retirement village, for the resident who is a 'homeowner' according to the special residence assessment rules, the entry contribution amount continues to be exempt until such time as it is received. Subject to the 2 year exemption limit when a person enters care, the un-refunded entry contribution amount continues to represent the person's right to live in the retirement village, and so retains the exempt status of a right or interest in a principal home providing reasonable security of tenure.

If there is a long delay in the person actually receiving the refund, then the amount may be regarded as either a loan or a sale agreement.

Example: On entering the retirement village and paying an entry contribution, a person signs a contract stating that they will not receive the refund due to them immediately. Instead, under the terms of the contract, the refund must be invested in a trust account managed by the retirement village for a period of 8 years. In this case, the outstanding amount will be regar — ded as either a loan, or a sale agreement, depending on the terms specified in the contract.     

Assessment  of entry contribution refund where one member remains a special resident

A refund of entry contribution may still arise where one member of a couple remains in the retirement village. This may occur where the residential contract provides for a full or partial refund where one person leaves. An example is where one person leaves to enter aged care.

The refunded amount may not necessarily be half of the amount originally held as the couple's entry contribution. This may occur, for example, where the individual residence contribution of each member of the couple on entering the retirement village was different. A reassessment of the entry contribution amount for the person remaining in the retirement village may be required.    

Assessment of insurance and compensation payments for loss or damage to property other than the principal home

Compensation and insurance payments received by a person for loss of, or damage to buildings, plant or personal effects are a disregarded asset for 12 months from the date that the payment was received.

Insurance or compensation payments can include:

• funds received due to a loss or damage to a building, plant or personal effects,
• payments that have been applied to build another building to replace the building that was lost, or
• payments that have been applied to rebuild, repair or renovate the building or plant if the building was damaged.

Last amended: 10 August 2007

Loans made by the pensioner

Money loaned by a person is an assessable asset. The assessable value is the amount still owed to the person. If the loan was made by the person before 22 May 1986 it is assessed in the same way as a loan made after this date. Loans are financial assets and are deemed.

Loans represent a contractual agreement between the parties, involving an offer, acceptance, agreed consideration, and shared intent regarding the conditions of the loan. If misrepresentation occurs in the making of the loan agreement, or if a party does not have a clear understanding of the terms of the agreement they are signing, the agreement may be challenged at law. Where legal action is being taken (for example, by a client's agent with power of attorney) to annul a loan agreement which was misrepresented to the client, or where the client was not competent to sign the agreement, the loan amount may be excluded from the pension assessment.

Loans made by a partnership

A loan made by a business partnership is assessed as an asset of the partnership. The value of the person's asset is assessed in the same proportion as the value of their share in the partnership.

Failed loans and loans that no longer exist

If a failed loan still exists, the loan can be:

•       a disregarded asset if the hardship provisions are satisfied, and
•       exempted from deemed income rules if the deeming exemption provisions are satisfied.

When a loan has been repaid the loan no longer exists. In some circumstances a loan no longer exists even though it has not been repaid. When a loan no longer exists the assessable value is no longer the amount owed. However there may be some other type of asset, for example a debt. The assessable value of a debt is the recoverable value.    

Guarantor arrangements

A person does not dispose of assets merely by agreeing to be guarantor for a loan. However, if the borrower defaults on the loan, the guarantor becomes liable to repay the loan. The deprivation rules apply to the amount the person (guarantor) has repaid, from the date the guarantor repaid the loan (or had an asset sold to repay the loan).

The amount the person repaid is treated as a debt owing to the person. This means it is assessed as an asset of the person. The assessable value is the recoverable value. The deeming rules do not      apply to debts as they are not financial investments [11].

If the person takes legal action against the borrower to recover the amount they repaid on the borrower's behalf, the deprivation rules do not apply.

Last amended: 7 November 2007

Assessing failed loans

The assessable asset value of an existing loan is the amount still owed to the person but does not include any interest payable on the loan. This applies whether or not the loan is performing to the terms of the loan agreement.

Loans may be secured against assets such as property. The value of the asset the loan is secured against does not affect the asset value of the loan.

If a failed loan still exists, the loan can be:

•       a disregarded asset if the hardship provisions are satisfied, and
•       exempted from deemed income rules if the deeming exemption provisions are satisfied.

Special rules to assist people with failed loans

Whether a person can be assisted by the hardship rules or by a deeming exemption will depend on their particular circumstances.

The hardship rules may be used to disregard the value of an unrealisable asset such as a non-performing loan where the person has their rate of payment assessed under the assets test. A reduced assessable asset value can be applied to a loan when a company under administration is put into liquidation, or placed under a deed of company arrangement. Loans to the company are regarded as ceasing to exist from the commencement of administration, as long as this date is not more than 6 months before the person applies to access the financial hardship rules.

The reduced assessable asset value can be determined once a creditors' meeting has decided on liquidation of the deed. Income support payments can be reassessed and any arrears paid, backdated to the date when the company was place in administration.

A loan being disregarded under the hardship rules is still deemed to earn income. A deeming exemption should be applied for if this deemed income affects the rate of payment.

For a loan to be considered an unrealisable asset under the hardship rules the lender must have started to take the necessary action to have interest paid and/or to get back their capital. A loan can be treated as unrealisable even if at some future date the lender may be able to get some or all of their capital back.

Where the person has their rate of payment assessed under the income test they may be able to have the loan exempted from deeming. A loan exempted from deeming is not deemed to be receiving income. A deeming exemption does not change the asset value of the loan.     

When a loan no longer exists legally

Legally, a loan ceases to exist at the time it is repaid, or when the debtor is formally released from the loan contract under a bankruptcy, or where the loan is forgiven, or if the loan is legally irrecoverable.    

For income support purposes, there are some other situations where a loan is also treated as no longer existing. Although there is no longer a loan there may be another type of asset, such as a debt.

Loans which still exist are assessed using the amount still owed, whereas debts are assessed using the recoverable value.    

When a loan no longer exists for income support purposes

A loan no longer exists for income support purposes when:

• it is repaid, 
• the borrower is bankrupt,
• the borrower enters a debt agreement under Part 9 or 10 of the Bankruptcy Act 1966 (Cwlth),
• the lender forgives the loan, usually via a deed or gift of release (the deprivation provisions will apply in these cases),
• the lender takes a loan contract to court to have it enforced and obtains a court order to allow collection of the money (the loan becomes a debt because the debtor is required to pay because of the court order rather than the loan contract),
• the lender takes a loan contract to court to have it enforced and is unsuccessful in court (the amount is no longer owing),
• litigation is considered but is not pursued based on the evidence showing insufficient assets to satisfy a court order,
• the lender seizes the asset against which the loan is secured (the property becomes the asset of the lender: however, if the lender has the right to enforce the loan contract against an individual or the directors of a company on a personal basis, the loan will still exist),
• property against which the loan is secured is sold and the proceeds used to repay some or all of the loan,
• a creditors' meeting decides that the company that borrowed the money is to be wound up or placed under a deed of company arrangement (the deprivation rules may apply if the lender could have taken action to pursue recovery of the loan but chose not to do so), or
• the period specified in the Statute of Limitations has elapsed since the date of the loan, or last repayment, or demand to repay (whichever is the later) so the loan is not legally able to be recovered (the deprivation rules may apply if the lender could have taken action before the period specified in the Statute of Limitations but chose not to do so).

Under the hardship provisions, loans to a failed company can be regarded as ceasing to exist from the date the company was placed in administration, as long as this date is not more than 6 months before the person applies to access the financial hardship rules.

Effectively Failed Loans - Director's Loans

In limited circumstances, where a loan does not fulfil the above criteria, it may still be able to be considered a failed loan if it can be shown that the loan is effectively irrecoverable.

Assessing an asset as effectively irrecoverable does not require, for example, that the company to which the Director’s loan was given must be officially bankrupt or wound up, but it will mean something more than the company being in financial trouble. 

For example, where the finances of the company are in such a condition as to make the short-term future of the company untenable, it is more likely that we can consider the Director’s Loan failed.

However, the presumption should always be that if the company is still in existence and aspires to continue to do business as an ongoing concern, that the asset is still hypothetically realisable and therefore the loan should be continued to be held in assessment.

Fraudulent investment schemes

A pensioner may consider they have made a particular sort of investment, including lending money to a company or individual for a specific purpose. In some instances where fraud is involved this arrangement may be a sham. The money may not have been invested but taken for personal use.

Some fraudulent arrangements are complex and involve forged documents or moving money through a number of companies. In the initial stages some fraudulent schemes pay interest to investors so it may be some time before the real nature of the scheme is identified.

Until legal processes have established that fraud has definitely occurred the pensioner may be able to be assisted by a deeming exemption or the hardship rules. Once it has been established that the money has been misappropriated and no investment exists, no asset value is maintained.

Some defrauded investors may be able to take action for compensation for some or all of their loss of capital. The possibility that they may qualify for this type of assistance is not an asset.

Definition of life insurance policies

The following are assessed as life insurance policies:

• conventional life insurance policies,
• whole of life insurance policies,
• endowment insurance policies, and
• pure endowment insurance policies.

These products have an investment component and may have a surrender value. Whereas, products such as term insurance, trauma insurance, total and permanent disablement insurance, income protection insurance and business insurance cover do not have an investment component or surrender value.

Assessing a life insurance policy

A life insurance policy is an assessable asset of a person if the person:

• owns the policy,
• is the policy holder, or
• has access to the value of the policy, even if it is for the benefit of their partner [11] or children.    More → [268]

During the term of the policy, a life insurance policy is an asset (but not a financial asset at this stage) and is prima facie assessable only under the assets test. It remains an asset until such point as it is withdrawn (via surrender or maturity). At this point the difference between the surrender/maturity value and the sum of the purchase price and the premiums paid over the life of the policy would be held as income over 12 months.

Where a life insurance policy is transferred to a third party (commonly a child), the life insurance policy will become a deprived asset, and, subsequently, a financial asset (per the definition in s5J(1) of the VEA). It would then be deemed appropriately.

Assessable value of a life insurance policy

The assessable value of a person's life assurance or insurance policy is the surrender value of the policy UNLESS:

• the person became the owner of the policy after 30 June 2019, AND
• the person became the owner of the policy after the person reached pension age, AND
• the sum of the amounts paid for the policy in any 12 month period exceeds 15 per cent of the maximum death benefit that would be payable if the person died on the day of assessment.

In this situation, the value of the life insurance policy is the higher of:

• the surrender value of the policy, OR
• the sum of the amounts paid to purchase the policy, less any commuted amounts.

VEA: section 52CB.

If the person or their insurance company cannot provide the value of the policy, the following formula is used to estimate the surrender value of the policy.

Assessable value = number of years that the person has had the policy X annual premiums paid.

If the estimated surrender value will affect or is likely to affect the person's rate of payment, the person must obtain the actual surrender value from their friendly society or insurance company.     

Last amended: 29 April 2009

Assessment of deceased estates

Generally, the beneficiary of a will does not automatically obtain an interest in any asset [11] forming part of the deceased estate. In the majority of cases, the beneficiary will only obtain an interest in assets in a deceased estate as a result of the administration of the estate, usually by the executor.

If a person notifies DVA [11] that they may have an interest in a deceased estate the decision maker should obtain the following information from the person:

• the extent and nature of the interest; and
• expected distribution date.     More ? [275]

Receiving interest from a deceased's estate

Any share in a deceased's estate is not an assessable asset until it is transferred into the name of the beneficiary. It is only when the executor of the estate has arranged to transfer a particular asset into the name of the beneficiary that the beneficiary gains any interest in that asset for the purposes of the assets test. Each case needs to be assessed on its facts to determine the date at which each individual asset was transferred into the name of the beneficiary.

If the estate has not been distributed twelve months after the death of the testator and DVA is aware that a person may have an interest in the estate, the case should be investigated to determine:

• what is preventing the estate being finalised; and
• whether the reasons are within the person's control.

Situations where interest cannot be received

Section 52(1) (h) [50] VEA

Last amended: 11 November 2008

How long home equity conversion loan is a disregarded asset?

The first $40,000 of an unspent home equity conversion [11] loan is a disregarded asset for ninety days only. If after ninety days a person has not spent the loan, the amount is an assessable asset [11].    

Example of a loan spent within ninety days

A person gets a home equity conversion loan of $40,000. They spend the loan in forty five days. The loan is disregarded for the full forty five days.

Example of a loan not spent within ninety days

A person gets a home equity conversion loan of $70,000. They do not spend the loan within ninety days. Therefore:

• $40,000 is disregarded for ninety days.
• $30,000 is assessable immediately.

After ninety days the total loan amount is assessable under the assets test.

Lines of credit

Where the lending institution provides home equity conversion loans through a line of credit, the ninety day assets test exemption applies to the first $40,000 only and a subsequent drawing down on the line of credit does not receive a further ninety day exemption.

eg. a home equity loan provides for an initial lump sum amount of $40,000 to be used within ninety days, with further funds then accessible through an approved line of credit. The further funds accessed do not receive a ninety day exemption.

Assessment of private annuities

Private annuities [11] do not satisfy the definition of an income stream [11] as they do not meet the requirements for prudential regulation. Private annuities [11] are an assessable asset [11]. Each private annuity is a unique contract that must be assessed on its particular merits and an actuarial value is required in all cases.   

Actuarial value required for private annuity

An actuarial valuation of a person's private annuity is required to determine:

• the assessable asset value; and
• whether or not the person received adequate financial consideration for the purchase price, and
• whether or not the deprivation provision apply.

Actuarial valuations are required because private annuities are usually family arrangements which are not determined by financial markets.

Initial actuarial valuation required

An initial actuarial valuation of a person's private annuity is required when the:

• annuity is first established, or
• an income support pension is claimed.

Additional actuarial valuations required

Additional actuarial valuations of a person's private annuity are required when the:

• number of annuitants (those receiving payments) changes,
• terms and conditions of the annuity change,
• amount paid by the annuity changes, or
• annuity is wholly or partly commuted.

Private annuity - obtaining an actuarial value

The Australian Government Actuary can supply an actuarial value. The Actuary must be supplied with all the relevant details of the annuity including:

• the purchase price,
• the commencement date,
• the term,
• the payment rate,
• the indexation rate (if any),
• the date of birth of each annuitant,
• the ability to commute the annuity (if any), and
• a copy of the contract.

Additional requirements when obtaining an actuarial value

The following table shows additional information requirements.    

Reassessing the value of the annuity

The assets value of the private annuity should be re-assessed on each anniversary of the initial payment. For DVA purposes the reduction in the annuity's value is made in arrears by the amount of the annual payments.

Private annuity payments forgone

If a person forgoes a payment, the value of the annuity is still reduced. Income deprivation provisions may also apply.    

Annuity surrendered

Generally when a person disposes of an income producing asset without adequate consideration [11], the assets value is maintained and deemed. It would be 'double-dipping' to also assess the forgone income as income deprivation. Therefore assets deprivation provisions only are applied if a person:

• surrenders their interest in a private annuity, or
• otherwise disposes of their rights under the contract and does not receive adequate consideration.

Assessment of overseas annuities

Overseas annuities do not satisfy the definition of an income stream [11] as they do not meet the requirements for prudential regulation.  Overseas annuities are an assessable asset.   

Assessable value of an overseas annuity

The initial asset value of an overseas annuity is the purchase price.  The purchase price should be re-assessed on each anniversary of the initial payment. For DVA purposes the reduction in the annuity's value is made in arrears by the amount of the annual payments.

Annuity surrendered

Generally when a person disposes of an income producing asset without adequate consideration [11], the assets value is maintained and deemed. It would be 'double-dipping' to also assess the forgone income as income deprivation. Therefore assets deprivation provisions are only applied if a person:

• surrenders their interest in a private annuity, or
• otherwise disposes of their rights under the contract and does not receive adequate consideration.