Apart from the application of section 45A, cancellation of subsidy is the most severe measure available under the Subsidy Scheme. Any decision to cancel subsidy must not be made lightly.

Delegates must remember that cancelling subsidy is a discretionary provision within the legislation, and any decision to cancel should be made with full knowledge of all the facts.

Generally, the policy is to cancel subsidy in all cases where any of the circumstances specified in the legislation apply, except where such circumstances can be corrected without the need to cancel.

Subsidy can only be cancelled if it is being paid on behalf of a borrower at the time the notice of cancellation is issued.

6.2.2.1 Deceased Estates.  Subsection 27A(1) provides for the cancellation of subsidy where the eligible person has died and there is no surviving spouse or de facto partner.  Cancellation may occur after three months have elapsed from the date of death of the last surviving member of a couple.  Subparagraph 27A(1)(d) further provides that cancellation may occur where the Secretary considers it appropriate to do so.  As a matter of policy, cancellation of subsidy in deceased estate cases where there is no surviving spouse or de facto partner is to occur in every case unless there are special circumstances which would warrant the continuation of subsidy.  Special circumstances may be considered to exist where the deceased is survived by dependants who were dependent upon the deceased for their housing needs at the time of death.  The dependants might be minors or handicapped adult children, and it would be inappropriate to subject them to the additional costs inherent in discharging the existing mortgage and/or borrowing at commercial rates of interest.

6.2.2.2 Failure to Substitute Security.  Sub-clause 11.15(a)(vii) of the Agreement provides for the termination/suspension and/or recovery of subsidy where a borrower is discovered to have sold a 'holding' or 'retirement village accommodation' to which subsidy relates and has not acquired another 'holding' or 'retirement village accommodation' as a substituted security within six months in accordance with Sub-clause 11.2A of the Agreement.

Certain situations may arise due to a misunderstanding of the provisions of the legislation by either the Bank or the borrower. In these cases the Bank and/or the borrower must be given every opportunity to remedy the situation before a decision to cancel subsidy is made.

It is general policy to give both the Bank and the borrower at least one month's notice of the intention to cancel subsidy (longer for deceased estates having regard to GO 6.2.2.1), regardless of the circumstances surrounding cancellation, even though this is not specified in the legislation. This is because:

• the decision to cancel is a reviewable decision and the person therefore has appeal rights;
• it allows the Bank to make arrangements with the person regarding repayment of the outstanding debt; and
• it allows the Bank to put its systems into place so that no further subsidy is claimed from the Commonwealth.
• cancellation of subsidy does not in itself alter the eligibility status of an eligible person nor affect that person's right to apply for a further subsidised advance under the portability provisions.