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2022
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
SOCIAL SERVICES AND OTHER LEGISLATION AMENDMENT (INCENTIVISING
PENSIONERS TO DOWNSIZE) BILL 2022
EXPLANATORY MEMORANDUM
(Circulated by the authority of the
Minister for Social Services, the Hon Amanda Rishworth MP)
SOCIAL SERVICES AND OTHER LEGISLATION AMENDMENT (INCENTIVISING
PENSIONERS TO DOWNSIZE) BILL 2022
OUTLINE
This Bill amends the Social Security Act 1991 and the Veterans' Entitlements Act 1986 to better
support pensioners (or other eligible income support recipients) during the sale and purchase
of a new principal home, by:
• extending the existing assets test exemption for principal home sale proceeds which a
person intends to use to purchase a new principal home from 12 months to 24 months;
and
• applying only the lower below threshold deeming rate to these asset test exempt
principal home sale proceeds when calculating deemed income.
These changes reduce the impact of selling and buying a new principal home on an income
support recipient's rate of payment.
Schedule 1 - Amendments
Extending assets test exemption from 12 to 24 months
The amendments in Schedule 1 (items 7 and 8, and 15 and 16) will extend the assets test
exemption for principal home sale proceeds intended for the purchase of a new principal home
from 12 to 24 months (or up to 36 months by determination of the Secretary) under the Social
Security Act 1991 and the Veterans' Entitlements Act 1986.
Applying below threshold deeming rate to principal home sale proceeds
The amendments in Schedule 1 (items 1 to 6, and 9 to 14) will assess the deemed income on
proceeds from the sale of the principal home at the below threshold deeming rate, during the
period when the sale proceeds are exempt from the assets test.
Financial impact statement
MEASURE FINANCIAL IMPACT OVER THE FORWARD
ESTIMATES
Schedule 1 - Amendments $61.4 million
The measures in this Bill implement an election commitment of the Government to support
pensioners (and other eligible income support recipients) to downsize their principal home.
STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS
The statement of compatibility with human rights appears at the end of this explanatory
memorandum.
SOCIAL SERVICES AND OTHER LEGISLATION AMENDMENT (INCENTIVISING
PENSIONERS TO DOWNSIZE) BILL 2022
NOTES ON CLAUSES
Abbreviations used in this explanatory memorandum
• Social Security Act means the Social Security Act 1991;
• Veterans' Entitlements Act means the Veterans' Entitlements Act 1986;
Clause 1 sets out how the amending Act is to be cited - that is, as the Social Services and
Other Legislation Amendment (Incentivising Pensioners to Downsize) Act 2022.
Clause 2 provides a table setting out the commencement date of the various sections in, and
Schedules to, the amending Act. The whole of the Act will commence on the later of
1 January 2023 or the end of the period of one month beginning on the day the Act receives
the Royal Assent.
Clause 3 provides that each Act that is specified in a Schedule is amended or repealed as set
out in that Schedule, and any other item in a Schedule to the Act has effect according to its
terms.
Schedule 1 - Amendments
Summary
This Schedule amends the Social Security Act and the Veterans' Entitlements Act to better
support pensioners (or other eligible income support recipients) during the sale and purchase
of a new principal home, by:
• extending the existing assets test exemption for principal home sale proceeds which a
person intends to use to purchase a new principal home from 12 months to 24 months;
and
• applying only the below threshold deeming rate to principal home sale proceeds when
calculating deemed income for the period during which the proceeds are exempt from
the assets test.
These changes reduce the impact of selling and buying a new principal home on an income
support recipient's rate of payment.
Background
Under Australia's income support system, the rate of income support payable depends on a
person's income and assets tests, and is calculated under both tests. The test that results in
the lower (or nil) rate is the one that applies.
The assets test includes the value of real estate (not including a person's principal home or
place of residence) and financial investments.
Currently, when a pensioner (or other eligible income support recipient) intends to use the
proceeds from selling their principal home to purchase or build another home, those proceeds
are exempt from the assets test for up to 12 months. An additional 12 month extension can be
granted in specific circumstances. This prevents the sale proceeds affecting an income support
recipient's payment rate through the assets test. However, income is still deemed from the
value of the sale proceeds and can affect payment rates through the income test.
The income test is based on a person's (and their partner's) annual rate of ordinary income,
and includes income deemed to be generated by financial assets such as financial
investments. A financial investment includes bank accounts, cash, deeming or term deposit
accounts, managed investments or shares and securities. To determine how much income a
financial asset produces, deeming provisions are applied. Deeming assumes that a financial
asset earns a set rate of income, regardless of the actual rate of income generated.
The deeming rates are different depending upon the total value of the person's and their
partner's financial assets. An individual's financial assets are added together to generate a
total value. The proportion of that value below a threshold is deemed at the below threshold
rate, set by legislative instrument made under the Social Security Act, and under section 46J
of the Veterans Act, and is subject to change. The value of the person's financial assets at or
above the threshold is deemed at the above threshold rate. The above threshold rate is a
higher rate, and generates more deemed income, than the below threshold rate.
Couples where one or both of the members are receiving a social security pension, a services
pension, income support supplement or a veteran payment are known as a pensioner couple.
The financial assets of members of such a couple are pooled, and treated as joint. The financial
assets of a person who is a member of a couple that is not a pensioner couple (for example,
receiving jobseeker allowance) are treated individually.
The threshold is currently $56,400 for a single pensioner, and $93,600 for a pensioner couple.
The threshold is $46,800 for a person who is a member of a non-pensioner couple. The sale
value of a home will generally exceed these thresholds, and currently income would be deemed
at the above threshold rate. The above threshold rate is currently 2.25%, and the below
threshold rate 0.25%.
These amendments will treat assets test exempt principal home sale proceeds as a separate
pool to the individual's or couple's other financial assets for the purpose of calculating deemed
income. Only the below threshold rate will be applied to these proceeds for the duration of the
assets test exemption. These amendments also extend the assets test exemption period from
up to 12 months to up to 24 months. A further 12 month extension will continue to be available
on a case-by-case basis in extenuating circumstances.
Explanation of the changes
Social Security Act
Section 1076 provides the method for deeming income from financial assets for persons other
than members of couples.
Item 1 inserts new subsection 1076(3B) after subsection 1076(3A).
New subsection 1076(3B) relates to financial assets that are proceeds from the sale of the
person's principal home, where subsection 1118(2) applies. If a person either intends to apply
the whole or part of the proceeds of the sale to build, rebuild, repair or renovate another
residence, or to purchase another residence that is to be their principal home, then the intended
whole or part of the assets is to be disregarded for the purposes of working out the person's
ordinary income under subsection 1076(3) or (3A).
Under subsection 1076(3) or 1076(3A), a person's financial assets are combined together to
generate a total value. The proportion of that value below a threshold is deemed at the below
threshold rate. The value of the person's financial assets at or above the threshold is deemed
at the above threshold rate.
New subsection 1076(3B) carves out the asset test exempt principal sale proceeds from the
combined pool. The ordinary income the person is taken to receive per year on the financial
assets from these proceeds of sale is the amount worked out by multiplying the value of those
assets by the below threshold rate.
This will remain the situation for the same period the financial assets will otherwise be excluded
from the application of the assets test to the person. The exclusion will apply to the whole or a
part of the proceeds of the sale which the person intends to use to build, rebuild, repair or
renovate another residence, or to purchase another residence that is to be the person's
principal home. The proceeds of sale deemed at the below threshold rate can only remain
separate from their other financial assets for a period of 2 years (as a result of the amendments
made at item 7 below) or in particular circumstances, up to a period of 3 years (under item 8
below).
Item 2 amends subsection 1076(4) to calculate a person's weekly amount of deemed ordinary
income on financial assets under section 1076 by adding the amount calculated under existing
subsection 1076(3) or (3A) and the amount (if any) calculated under new paragraph
1076(3B)(d), and taking one fifty-second of this total.
Section 1077 provides the method for deeming income from financial assets for members of
pensioner couples.
Item 3 inserts new subsection 1077(3B) after subsection 1077(3A) to give a similar effect to
the amendments to section 1076 above. New subsection 1077(3B) relates to members of
pensioner couples, where subsection 1118(2) applies. The financial asset, resulting from the
part of the proceeds of sale of the couple's former principal home which is intended to be used
to purchase a new principal home, is treated separately from their remaining pool of financial
assets. Instead, income on these proceeds is deemed at the below threshold rate only. The
operation of the existing deeming provisions on the remainder of the pool and this separate
deeming are then combined to give the total deemed annual ordinary income of the couple.
This will remain the situation for the same period the financial assets will otherwise be excluded
from the application of the assets test to the couple. The exclusion will apply while one or other
member of the couple intends to apply the relevant whole or a part of the proceeds of the sale
to build, rebuild, repair or renovate another residence, or to purchase another residence that is
to be the couple's principal home. The proceeds of sale deemed at the below threshold rate
can only remain separate from their other financial assets for a period of 2 years (as a result
of the amendments made at item 7 below) or in particular circumstances, up to a period of 3
years (under item 8 below).
Item 4 repeals and substitutes the formula in subsection 1077(4) to calculate each member of
the couple's weekly amount of joint deemed ordinary income on financial assets under section
1077 by adding the amount calculated under existing subsection 1077(3) or (3A) and the
amount (if any) calculated under new paragraph 1077(3B)(d), taking one fifty-second of this
total, and dividing this by 2, to apply to each member of the pensioner couple.
Section 1078 provides the method for deeming income from financial assets for members of
non-pensioner couples.
Item 5 inserts subsection 1078(3B) after subsection 1078(3A) to give a similar effect to the
amendments to section 1076 above. New subsection 1078(3B) relates to members of non-
pensioner couples, where subsection 1118(2) applies. Each member of the couple is treated
separately in relation to their financial assets. To the extent that the financial assets are
proceeds from the sale of the person's principal home, and subject to the same conditions
applying to an individual under section 1076, the assets will be treated separately from the
remaining financial assets of the person, and income from the asset will be deemed at the
below threshold rate only.
This will apply for as long as the proceeds are exempt from the assets test and, under item 6,
the calculation of weekly deemed income the same.
Section 1118 provides for certain assets to be disregarded in calculating the value of a person's
assets, and the period for which they may be disregarded, including for assets that are the
proceeds of sale of a person's principal home.
Item 7 amends paragraph 1118(1B)(c) by extending the period that proceeds from the sale of
a person's principal home will be disregarded in calculating the value of a person's assets, from
a maximum of 12 to a maximum of 24 months.
Item 8 amends subsection 1118(2B) by providing an additional period of extension of the
period under subsection 1118(1B) in particular circumstances. That is, where the Secretary
may determine that proceeds from the sale of a person's principal home will be disregarded in
calculating the value of a person's assets, this period has been extended from a maximum of
24 to a maximum of 36 months.
Veterans' Entitlements Act 1986
• Amendments to section 46D
Section 46D provides the method for calculating deeming income from financial assets for
persons other than members of couples.
Item 9 repeals the example under subsection 46D(3) and substitutes an amended example
that takes into account the operation of new subsection 46D(3A) (refer to Item 10 below). The
new example provides how deemed income of a person who is not a member of a couple is
worked out per year for the person's financial assets, excluding the financial assets described
in new subsection 46D(3A).
Item 10 New subsection 46D(3A) relates to financial assets that are proceeds from the sale of
the person's principal home, where subsection 52(2) applies. If a person either intends to apply
the whole or part of the proceeds of the sale to build, rebuild, repair or renovate another
residence, or to purchase another residence that is to be their principal home, then the intended
whole or part of the assets is to be disregarded for the purposes of working out the person's
ordinary income under subsection 46D(3).
Under subsection 46D(3), a person's financial assets are combined together to generate a total
value. The proportion of that value below a threshold is deemed at the below threshold rate.
The value of the person's financial assets at or above the threshold is deemed at the above
threshold rate.
New subsection 46D(3A) carves out the asset test exempt principal sale proceeds from the
combined pool. The ordinary income the person is taken to receive per year on the financial
assets from the proceeds of sale is the amount worked out by multiplying the value of those
assets by the below threshold rate.
This will remain the situation for the same period the financial assets will otherwise be excluded
from the application of the assets test to the person. The exclusion will apply while the person
intends to apply the relevant whole or part of the proceeds of the sale to build, rebuild, repair
or renovate another residence, or to purchase another residence that is to be the person's
principal home. The proceeds of sale deemed at the below threshold rate can only remain
separate from their other financial assets for a period of 2 years (as a result of the amendments
made at item 15 below) or in particular circumstances, up to a period of 3 years (under item 16
below).
Item 11 amends subsection 46D(4) to calculate a person's weekly amount of deemed ordinary
income on financial assets under section 46D by adding the amount calculated under existing
subsection 46D(3) and the amount (if any) calculated under new paragraph 46D(3A)(d), and
taking one fifty-second of this total.
• Amendments to section 46E
Section 46E provides the method for deeming income from financial assets for members of a
couple.
Item 12 repeals the example under subsection 46E(3) and substitutes an amended example
that takes into account the operation of new subsection 46E(3A) (refer to Item 13 below). The
new example provides how deemed income of a person who is a member of a couple is worked
per year for the person's financial assets, excluding the financial assets described in new
subsection 46E(3A).
Item 13 inserts new subsection 46E(3A) after subsection 46E(3) to give a similar effect to the
amendments to section 46D above. New subsection 46E(3A) relates to members of pensioner
couples, where subsection 52(2) applies. The financial asset, resulting from the part of the
proceeds of sale of the couple's former principal home which is intended to be used for the
purchase of a new principal home, is treated separately from their remaining pool of financial
assets. Instead, income on these proceeds is deemed at the below threshold rate only. The
operation of the existing deeming provisions on the remainder of the pool and this separate
deeming are then combined to give the total deemed annual ordinary income of the couple.
This will remain the situation for the same period the financial assets will otherwise be excluded
from the application of the assets test to the couple. The exclusion will apply while one or other
member of the couple intends to apply the relevant whole or part of the proceeds of the sale of
the couple's principal home to build, rebuild, repair or renovate another residence that is to be
the couple's principal home, or to purchase another residence that is to be the couple's
principal home. The proceeds of sale deemed at the below threshold rate can only remain
separate from their other financial assets for a period of 2 years (as a result of the amendments
made at item 15 below) or in particular circumstances, up to a period of 3 years (under item 16
below).
Item 14 repeals and substitutes the formula in subsection 46E(4) to calculate each member of
the couple's weekly amount of joint deemed ordinary income on financial assets under section
46D by adding the amount calculated under existing subsection 46E(3) and the amount (if any)
calculated under new paragraph 46E(3A)(d), taking one fifty-second of this total, and dividing
this by 2, to apply to each member of the pensioner couple.
• Amendments to section 52
Section 52 provides for certain assets to be disregarded in calculating the value of a person's
assets (including a couple), and the period for which they may be disregarded, for the purposes
of the Act, including assets that are the proceeds of sale of a person's principal home.
Item 15 amends paragraph 52(1E)(c) by extending the period that proceeds from the sale of a
person's principal home will be disregarded in calculating the value of a person's assets, from
a maximum of 12 to a maximum of 24 months, if one or more of the circumstances described
in subparagraphs (i) to (iii) apply.
Item 16 amends subsection 52(2A) by providing an additional period of extension of the period
mentioned under subsection 52(1E), in particular circumstances. That is, where the
Commission may determine that proceeds from the sale of a person's principal home will be
disregarded in calculating the value of a person's assets, this period has been extended from
a maximum of 24 months to a maximum of 36 months.
Item 17 provides that the amendments in Schedule 1 apply in relation to working out a person's
ordinary income on or after the commencement of the Schedule.
STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS
Prepared in accordance with Part 3 of the
Human Rights (Parliamentary Scrutiny) Act 2011
SOCIAL SERVICES AND OTHER LEGISLATION AMENDMENT (INCENTIVISING
PENSIONERS TO DOWNSIZE) BILL 2022
This Bill is compatible with the human rights and freedoms recognised or declared in the
international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act
2011.
Overview of the Bill
This Bill reduces the impact of selling and purchasing a new principal home on a pensioner or
other income support recipient's rate of payment by:
• extending the assets test exemption for principal home sale proceeds from up to 12
months to up to 24 months; and
• applying only the below threshold deeming rate to principal home sale proceeds when
calculating deemed income for the period during which the proceeds are exempt from
the assets test.
Human rights implications
The amendments support the right to social security by increasing the flexibility of an existing
social security benefit. Schedule 1 of the Bill engages the right of everyone to social security
in Article 9 of the International Covenant on Economic, Social and Cultural Rights (ICESCR).
The right to social security requires that a system be established under domestic law, and that
public authorities must take responsibility for the effective administration of the system.
The amendments will operate beneficially by providing more flexible options for pensioners (or
other eligible income support recipients) during the process of selling and purchasing a new
principal home. The effect of the amendments will be to reduce the impact of selling and
purchasing a home on a pensioner or other income support recipient's rate of social security
payment.
This is in a situation where they sell their principal home and make reasonable attempts over
a 24 month period (extendable to 36 months in certain circumstances) to purchase, build, repair
or renovate another residence that will better suit their needs.
Conclusion
The amendments in the Schedule are compatible with human rights because they improve a
person's access to social security.
[Circulated by the authority of the Minister for Social Services, the Hon Amanda
Rishworth MP]