SOCIAL SECURITY AMENDMENT (DISPOSAL OF ASSETS) BILL 1999 Explanatory Memorandum

Commonwealth of Australia Explanatory Memoranda

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SOCIAL SECURITY AMENDMENT (DISPOSAL OF ASSETS) BILL 1999

1998-99

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

HOUSE OF REPRESENTATIVES

_____________________________________________________________________

SOCIAL SECURITY AMENDMENT (DISPOSAL OF ASSETS) BILL 1999
_____________________________________________________________________

EXPLANATORY MEMORANDUM

(Circulated by authority of the Minister for Family and Community Services,
Senator the Hon Jocelyn Newman)

ISBN: 0642 405867

SOCIAL SECURITY AMENDMENT (DISPOSAL OF ASSETS) BILL 1999

OUTLINE AND FINANCIAL IMPACT STATEMENT

This Bill revises from $10,000 per annum to $5,000 per annum, the “free area” that a person or a couple may gift before that gift begins to impact on the level of assistance provided to them under the Social Security Act 1991.

The annual $10,000 “free area” is overly generous. As an illustration, the current $10,000 limit is greater than the maximum single pension rate – some $9,400 per annum. The result is that under the current rules an income support recipient can give away more than that person is entitled to receive by way of assistance without having any impact on their income support payment. The current $10,000 “free area” presents an opportunity being increasingly exploited by individuals to maximise their entitlement to income support.

To address this, the Bill provides for the following:

1. A reduction in the annual “free area” from $10,000 to $5,000, with effect from 1 July 1999. Provisions relating to this concession are repeated in several areas of the Act and the proposed amendments deal with each of these.

• The existing rules will continue to operate in relation to amounts disposed of before 1 July 1999.

• Provision is made in the Bill to ensure that any income support paid before the Royal Assent of the Bill is given is protected from being recovered from the income support recipient insofar as these amendments are concerned.

2. The opportunity is taken to change the basis of the concession from “pension year” to the more widely understood “financial year”.

• The current provisions operate on the basis of a “pension year”, being the anniversary of the day the income support recipient commenced receiving payment; the change to financial year will be less confusing to customers.

The financial impact of these measures is:

1999-2000 $0.766m (program savings)
2000-2001 $1.942m (program savings)
2001-2002 $3.157m (program savings)
2002-2003 $4.405m (program savings)

SOCIAL SECURITY AMENDMENT (DISPOSAL OF ASSETS) BILL 1999

NOTES ON CLAUSES

Clause 1 of Social Security Amendment (Disposal of Assets) Bill 1999 sets out how the Act is to be cited.

Clause 2 provides for the commencement of the Act on 1 July 1999.

Clause 3 provides that the Social Security Act 1991 is amended as set out in Schedule 1.

Schedule 1 – amendments to the Social Security Act 1991

OVERVIEW OF AMENDMENTS

Financial year – definition of “income year”

For the purposes of providing that the new provisions operate by reference to the financial year, a definition of income year is inserted into the Social Security Act 1991 as having the same meaning as in the Income Tax Assessment Act 1997.

Reducing the $10,000 “free area” to $5,000

The $10,000 “free area” is integrated into several areas of the current provisions of the Act. These are:

Part 2.2A – Pension Bonus Scheme

The pension bonus scheme provides for a pension bonus for those persons who choose to work past retiring age. Persons who register for the scheme are enabled, by postponing their retirement, to receive a one-off cash payment. Among other things these provisions contain limits on amounts that the person may dispose of during the postponement period. As with other similar provisions in the Act, these provisions contain a $10,000 “free-area”, and are drafted by reference to a “designated year” (which equates to a “pension year” in this context).

The amendments will substitute a $5,000 “free area” for this purpose, and will provide that the provisions operate by reference to an income year, operative from 1 July 1999.

• Clause 3 of the Schedule makes the amendments relating to the pension bonus scheme.

Part 2.5 – Carer Payment

Carer payment is a pension provided to the carer of certain persons with a disability (care receivers) who require constant care, such as a ‘disabled adult’ or a ‘profoundly disabled child’. Among other things these provisions contain limits on amounts that certain care receivers may dispose of without affecting the carer’s entitlement to carer payment. As with other similar provisions in the Act, these provisions contain a $10,000 “free-area”, and are drafted by reference to a “pension year”.

The amendments will substitute a $5,000 “free area” for this purpose, and will provide that the provisions operate by reference to an income year, operative from 1 July 1999.

• Clauses 4 to 13 (inclusive) of the Schedule make the amendments relating to carer payment.

Part 3.12 – Assets Test

The assets test contained in Part 3.12 of the Act is provided for general application in relation to the payments provided by the Act (other than those specified above). Among other things the assets test contains limits on amounts that a person may dispose of without affecting that person’s payment. These provisions contain a $10,000 “free-area”, and are drafted by reference to a “pension year”.

The amendments will substitute a $5,000 “free area” for this purpose, and will provide that the provisions operate by reference to an income year, operative from 1 July 1999.

• Clauses 14 to 19 (inclusive) of the Schedule make the amendments relating to the assets test.

EXPLANATION OF KEY PROVISIONS

New section 1126A deals with the post-1 July 1999 disposal of assets by an individual.

New section 1126B deals with the post-1 July 1999 rules relating to the disposal of assets by people who are members of a couple, including the situation where those people cease to be members of that couple (by death or otherwise).

Essentially, new section 1126B continues the existing arrangements in relation to individuals; ie assets disposed of by the members of the couple are allocated to each member on a 50/50 basis, so that for the purposes of applying the assets test the members of the couple are in effect regarded as a unit, with one $5,000 “free area” common to both.

New section 1126C alleviates some undesired results of this approach, so that where prior to becoming a couple the individuals had disposed of amounts which did not exceed the individual’s own $5,000 “free area”, the individuals are not to be taken to have exceeded the common $5,000 “free area” by reason only of having become a couple - new subsection 1126C(2).

However, if an individual had exceeded the individual’s own $5,000 “free area” prior to becoming a member of a couple, then the excess is carried forward and held against the common $5,000 “free area” common to the couple - new subsection 1126C(3).

Continuation of the existing rules in relation to amounts disposed of before 1 July 1999.

This is best illustrated by way of example:

Under the current rules, Fred, whose pension year starts on 15 March (being the anniversary of the day he first became qualified for his pension) may dispose of $10,000 for each pension year commencing on 15 March. If Fred disposes of amounts greater than $10,000 during a pension year, the excess operates to reduce his pension, for a period of 5 years after disposal of the amount.

From 1 July 1999 the new rules will come into operation. On and after that date, Fred will be able to dispose of $5,000 each financial year. If Fred disposes of amounts greater than $5,000 during a financial year, the excess operates to reduce his pension, for a period of 5 years after disposal of the amount.

Importantly, Fred’s final pension “year” will be the period 15 March 1999 until 30 June 1999 (after which the new rules come into operation on 1 July 1999). Fred will be able to dispose of up to $10,000 during this final pension “year” before his benefit is affected on that account.

Given the 1 July 1999 commencement for the new $5,000 “free area”, what happens if the Act doesn’t receive the Royal Assent before that date?

Clause 20 in the Schedule inserts a new Item 127 into Schedule 1A of the Social Security Act 1991. New Item 127 provides that, where this Act commences on or after 1 July 1999, amounts paid prior to the Royal Assent under the existing disposal rules are protected from recovery insofar as the provisions of this Act are concerned.

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