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VETERANS' ENTITLEMENTS AMENDMENT (DIRECT DEDUCTIONS AND OTHER MEASURES) BILL 2004

2002-2003-2004

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

HOUSE OF REPRESENTATIVES

EXPLANATORY MEMORANDUM

(Circulated by authority of the Minister for Veterans’ Affairs,
The Honourable Danna Vale MP)

Table of Contents

Outline and Financial Impact ............................................................. ii


1 Short Title .......................................................................................... viii
2 Commencement ................................................................................. viii
3 Schedule(s) ........................................................................................ viii


Schedule 1 – Amendment of the Veterans’ Entitlements Act 1986 ............... 1

Part 1 – Direct deduction arrangements ........................................................ 1
Part 2 – Victoria Cross allowance ................................................................. 4
Part 3 – Automatic grant of income support supplement to age pensioners
and wife pensioners ......................................................................... 7
Part 4 – Calculation of disability pension arrears ......................................... 10
Part 5 – Partner service pension for Norfolk Island residents ...................... 12
Part 6 – Calculation of rent assistance .......................................................... 14
Part 7 – Reduction in pension arrears resulting from partner’s receipt of
service pension ................................................................................. 16
Part 8 – Value of financial assets for purposes of deeming rules ................. 18
Part 9 – Deemed income and actual income from accrued returns ............... 20
Part 10 – Means test exemption of certain superannuation assets ................ 22
Part 11 – Income and assets test treatment of ATO small superannuation
accounts and private rental income ................................................ 25
Part 12 – Ceiling rate service pension ........................................................... 28
Part 13 – Offences ......................................................................................... 30
Part 14 – Disposal of income and assets ....................................................... 31
Part 15 – Compensation recovery provisions ................................................34
Part 16 – Minor and technical amendments .................................................. 37

OUTLINE AND FINANCIAL IMPACT

Schedule 1 – Part 1 – Direct deduction arrangements

Schedule 1 – Part 2 – Victoria Cross allowance

Schedule 1 – Part 3 – Automatic grant of income support supplement to age and wife pensioners

Schedule 1 – Part 4 – Calculation of disability pension arrears

Schedule 1 – Part 5 – Partner service pension for Norfolk Island residents

Schedule 1 – Part 6 – Calculation of rent assistance

Schedule 1 – Part 7 – Reduction in pension arrears resulting from partner’s receipt of service pension

Schedule 1 – Part 8 – Value of financial assets for purposes of deeming rules

Schedule 1 – Part 9 – Deemed income and actual income from accrued returns

Schedule 1 – Part 10 – Means test exemption of certain superannuation assets

Schedule 1 – Part 11 – Income and assets test treatment of ATO small superannuation accounts and private rental income

Schedule 1 – Part 12 – Ceiling rate service pension

Schedule 1 – Part 13 – Offences

Schedule 1 – Part 14 – Disposal of income and assets

Schedule 1 – Part 15 – Amendments concerning the compensation recovery provisions

Schedule 1 – Part 16 – Minor and technical amendments

CLAUSES

Schedule 1 – Amendment of the Veterans’ Entitlements Act 1986

Part 1 – Direct deduction arrangements

Overview

These amendments to the VEA will extend direct deduction arrangements to pensions paid under Parts II or IV, certain allowances paid under Part VI and certain other pecuniary benefits paid under the VEA.

Background

Currently, direct deduction arrangements are limited to persons receiving service pension or income support supplement. These recipients may request the Repatriation Commission to make deductions from instalments of service pension or income support supplement for the purpose of making payments included in a class of payments approved by the Minister. Payments of rent to State Housing Authorities are an example.

Under section 58H of the VEA, service pension and income support supplement recipients may also, at their request, have deductions made from their instalments of pension and paid to the Commissioner of Taxation.

Direct deduction arrangements may only be implemented if requested by the pension recipient.

These same arrangements are not currently available to persons receiving a disability pension or war widow/ers pension paid under Parts II or IV, certain allowances paid under Part VI of the VEA or other pecuniary benefits paid under the VEA.

Explanation of the Changes

These changes will extend the direct deduction arrangements currently available to persons receiving service pension or income support supplement to persons receiving disability pension, war widow/ers pension, certain allowances paid under Part VI of the VEA and certain other pecuniary benefits paid under the VEA.

Explanation of the Items

Item 1 amends the definition of pension in subsection 5Q(1) to include a reference to new section 122B.

Item 2 repeals sections 58G and 58H. Subsection 58G may be repealed because section 125 of the VEA provides for the inalienability of a pension, allowance or other pecuniary benefit paid under the VEA. This provision provides adequate protection for service pensions and income support supplement.

The provisions of 58G are incorporated in new section 122B that provides for the extended direct deduction arrangements.



Item 3 repeals section 58JA. The provisions of 58JA are incorporated in new section 122B that provides for the extended direct deduction arrangements.

Item 4 inserts new section 122B after section 122A.

New subsection 122B(1) provides that the section applies if a person is receiving a pension, or an allowance or other pecuniary benefit that is in a class approved by the Commission for the purposes of the section.

New subsection 122B(2) provides that a person may request the Commission to make deductions from instalments of the person’s pension, allowance or other pecuniary benefit. The deductions may be made for the purpose of making payments to the Commission of Taxation or for making payments that are in a class approved by the Commission for the purposes of this section.

New subsection 122B(3) provides that a request for a direct deduction must be in a form approved by the Commission for such a purpose. The Commission may require the request to be in writing or transmitted electronically.

New subsection 122B(4) means that if a person requests the Commission to make deductions from instalments of their pension or allowance, then the Commission may make the requested deductions, and where the Commission does so, the Commission must pay the amount deducted in accordance with the request.

New subsection 122B(5) provides that for the purposes of the new section, the Commission may approve classes of pensions from which deductions may be made. The Commission may also approve classes of allowances under Part VI from which deductions may be made. Furthermore, the Commission may approve classes of pecuniary benefits from which deductions may be made. Finally, the Commission may approve classes of payments to which deductions may be paid. Each approval must be in writing.

New subsection 122B(6) provides that an approval under subsection (5) is a disallowable instrument for the purposes of section 46A of the Acts Interpretation Act 1901.

Subitem 5(1) gives definitions for the terms amended Act and commencement time for the purposes of item 5.

Subitem 5(2) means that for the purposes of the VEA, as amended by this Act, the Commission is taken to have approved as a class of pensions under section 122B, pensions payable under Part III or Part IIIA of the VEA. The approval will have effect from the commencement time of the amendments contained in Part 1 of Schedule 1 of this Act. This will ensure that the current arrangements can continue.

Subitem 5(3) provides that if an approval of a class of payments under section 58JA of the VEA was in force just before the commencement time, the approval is taken, for the purposes of the VEA as amended by this Act, to be an approval of that class of payments by the Commission under section 122B. This will ensure that the current arrangements can continue.






Subitem 5(4) means that any request for direct deductions that was in force under section 58H or 58JA of the VEA just before the commencement time, is taken to be a request made under section 122B of the amended Act.

Collectively these amendments ensure that the existing direct deduction arrangements are not interrupted by the extension of the arrangements to additional types of payments.

Commencement

Subclause 2(1) provides that items 1 to 4 commence on Royal Assent.

Part 2 – Victoria Cross allowance

Overview

These amendments to the VEA will increase the amount of the Victoria Cross allowance and provide for it to be indexed annually in line with movements in the Consumer Price Index. The amendments will also make minor reforms to the provisions for decoration allowance.

Background

The amount of the Victoria Cross Allowance is prescribed in section 103 of the VEA. The rate is currently $2,808 per annum. The amount is paid annually in advance.

Explanation of the Changes

The amendments will increase the Victoria Cross allowance by 15% to $3,230 per annum and provide for the annual indexation of the allowance in line with movements in the Consumer Price Index.

The amendments will also make minor housekeeping changes to the decoration allowance provisions.

Explanation of the Items

Item 6 repeals subsection 102(2). Briefly, this subsection provided that where a person had been granted a decoration allowance and had also been paid a gratuity in respect of the same award, the decoration allowance is not payable until the amount of the gratuity has been equaled or exceeded. The subsection is now obsolete as gratuities are no longer paid in respect of awards.

Item 7 amends the definition of eligible decoration in subsection 102(5) by inserting new subparagraphs 102(5)(a)(xiv), (xv), (xvi), (xvii) and (xviii) after subparagraph 102(5)(a)(xiii).

New subparagraph 102(5)(a)(xiv) provides that the Medal of the Most Excellent Order of the British Empire (Military Division) (1919-1958) is an eligible decoration for the purposes of section 102.

New subparagraph 102(5)(a)(xv) provides that the Medal of the Most Excellent Order of the British Empire (Military Division) with Gallantry Emblem (1958-1974) is an eligible decoration for the purposes of section 102.

New subparagraph 102(5)(a)(xvi) provides that the Victoria Cross for Australia is an eligible decoration for the purposes of section 102.

New subparagraph 102(5)(a)(xvii) provides that the Star of Gallantry is an eligible decoration for the purposes of section 102.

New subparagraph 102(5)(a)(xviii) provides that the Medal for Gallantry is an eligible decoration for the purposes of section 102.

These awards had previously been prescribed.

Item 8 is a technical amendment to address drafting style.

Items 9 and 13 respectively repeal subsections 102(6) & 103(5). These provisions are no longer necessary.

Item 10 amends subsection 103(1) by inserting the words “or the Victoria Cross for Australia” after the words “the Victoria Cross”. This amended ensures that the Victoria Cross for Australia is recognised as an eligible decoration for the purposes of the section.

Item 11 amends subsection 103(4) by omitting “$2,808” and substituting “$3,230”, thus increasing the rate for the Victoria Cross allowance.

Item 12 inserts a Note after subsection 103(4). The note advises that the amount fixed by subsection 103(4) is indexed annually in line with CPI increases. It refers to new section 198FA.

Item 14 inserts new subsection 198FA after subsection 198F.

New subsection 198FA(1) defines the terms index number, relevant rate and year to which this section applies for the purposes of new section 198FA.

New subsections 198FA(2) and (3) allow for changes where the Australian Statistician alters an already published figure in respect of a quarter or varies the reference base of the Consumer Price Index (CPI). Where a quarterly CPI figure is revised, the first published figure is the one to be taken. Where the base for the CPI has been changed regard shall be given only to index numbers published in terms of the new reference base.

New subsection 198FA(4) and (5) provide that after 1 July 2005 the Victoria Cross allowance (the relevant rate) shall be adjusted on 20 September of each year in accordance with movements in the CPI over the prior 12 months ended on 30 June. The adjusted amount is to be rounded up to the nearest dollar. If the CPI should fall, the allowance will not be decreased.

New subsection 198FA(6) provides that indexation of the Victoria Cross allowance shall occur annually on 20 September and shall have effect on every instalment of Victoria Cross allowance that falls due on or after that day.

Item 15 sets out the application provisions for the items in Part 2 of Schedule 1.

Subitem 15(1) provides that the amendment made by item 6 applies to decoration allowance payable after the commencement of this item.

Subitem 15(2) provides that the amendments made by items 7,8 and 9 apply to decorations awarded after the commencement of this item.

Subitem 15(3) provides that the amendment made by items 10 and 13 apply to Victoria Cross allowance payable after the commencement of this item.

Commencement

Subclause 2(1) provides that items 6 to 10 commence on Royal Assent and items 11 and 12 commence on 1 July 2004.

Part 3 – Automatic grant of income support supplement to age pensioners and wife pensioners

Overview

These amendments to the Veterans’ Entitlements Act 1986 (VEA) will extend the automatic grant of income support supplement to eligible former age pension and wife pension recipients under the social security law whose age pension and wife pension payments are administered by the Department of Veterans’ Affairs (DVA).

Background

With effect from 1 July 1997, veterans receiving a disability pension under Part II or IV of the VEA and age pension under Part 2.2 of Social Security Act 1991 have the choice of having their age pension payments administered by either Centrelink or DVA. Eligible partners of these veterans may also choose to have their age pension or wife pension paid under Part 2.4 Social Security Act 1991 administered by either Centrelink or DVA. At present, Centrelink administers aspects of age pension and wife pension on behalf of the Department of Family & Community Services.

The payments by DVA are made pursuant to a current Memorandum of Understanding (the arrangement) between DVA and the Department of Family & Community Services. Under this arrangement, it has been agreed that DVA will administer the age pension and wife pension on behalf of the Department of Family and Community Services for veterans entitled to both the disability pension under the VEA and the age pension under the Social Security Act 1991 and their partners.

The legislation to enable the payment of age pension and wife pension by DVA is contained in section 53 of the Social Security (Administration) Act 1999 - "Payment of instalments where pension received under other legislation".

Income support supplement is an income support pension paid to eligible war widows and war widowers. The Veterans’ Affairs (1994-95 Budget Measures) Legislation Amendment Act 1994 inserted Part IIIA VEA as part of amendments that introduced the new legislative basis for payment and eligibility of income support supplement. These changes enabled war widows and war widowers to receive their income support payments as well as their compensation payments from one department.

Section 45N VEA, which was inserted as part of the 1994 amendments, deals with categories of pensioners who are not required to lodge a formal claim for income support supplement unless requested to by the Repatriation Commission.

Under subsection 45N(1), the following categories of pensioners are eligible to receive income support supplement without lodging a formal claim:

• a war widow/er who was receiving a social security pension immediately before the commencement of Part IIIA and who elected not to continue to receive the social security pension;



• a war widow/er whose claim for social security pension was subject to review immediately before the commencement of Part IIIA who elected not to receive the social security pension if it were granted;
• a war widow/er who was receiving a partner service pension immediately before the person’s grant of war widow/er’s pension.

However, eligible age and wife pensioners whose pensions are administered by DVA are unable to have income support supplement automatically granted to them upon the death of their veteran partner and they have to lodge a proper claim under section 45I.

A wife pensioner does not necessarily satisfy the age requirement for income support supplement. It is intended that those wife pensioners who do satisfy the age requirement are to be able to have income support supplement automatically granted to them.

Explanation of the Changes

The amendments to the VEA will extend automatic grant of income support supplement to eligible age and wife pensioners administered by DVA, upon the death of their veteran partner if the veteran was receiving or entitled to certain specified disability pensions paid under Part II or IV VEA.

Explanation of the Items

Item 16 inserts new paragraphs 45N(1)(ba) and 45N(1)(bb).

New paragraph 45N(1)(ba) provides that age pensioners at DVA are not required to lodge a formal claim for income support supplement unless required to do so by the Repatriation Commission.

New subparagraphs 45N(1)(ba)(i) and (ii) apply to a war widower or war widow who was receiving an age pension from DVA under the arrangement between DVA and the Department of Family & Community Services immediately before the person’s grant of war widow or war widower pension, where the grant of the pension is made on or after the commencement of this Part.

New paragraph 45N(1)(bb) provides that wife pensioners of eligible age at DVA are not required to lodge a formal claim for income support supplement unless required to do so by the Repatriation Commission.

New subparagraphs 45N(1)(bb)(i) and (ii) apply to a war widow who was receiving a wife pension from DVA under the arrangement between DVA and the Department of Family & Community Services immediately before the person’s grant of war widow pension, where the grant of the pension is made on or after the commencement of this Part.

New subparagraph 45N(1)(bb)(iii) provides that the war widow must have reached qualifying age to be eligible to receive income support supplement.





Item 17 inserts new subsection 45N(1A) which provides that for the purposes of new subparagraph 45N(1)(bb)(iii) qualifying age has the same meaning as it does in subsection 45A(2).

Item 18 amends subsection 45N(3) by inserting after the word “If ” the words “this section applies to the person other than because of paragraph (1)(ba) or (bb) and”. This amendment ensures that subsection 45N(3) only applies to persons who are eligible under paragraphs 45N(1)(a), (b) and (c) as this subsection deems the grant of income support supplement to be from the commencement of Part IIIA VEA.

Item 19 inserts new subsection 45N(4). Subsection 45N(4) ensures that these amendments only apply to persons granted a war widow or war widower pension after the commencement of this Part.

Commencement

Subclause 2(1) provides that items 16 to 19 commence on Royal Assent.

Part 4 – Calculation of disability pension arrears

Overview

These amendments to the Veterans’ Entitlements Act 1986 (VEA) will correct the definition of arrears period in section 27A to allow for the calculation of arrears of disability pension where the adjustment decision is made beyond the disability pension decision date.

Background

New grants of disability pension and increases in the rate of disability pension are almost always retrospective. Sections 20 and 21 VEA provide that the date of the claim/application is the key factor in determining the date from which payments of disability pension should commence or increase, that being no more than three months prior to the date of claim. Most grants or increases involve the assessment and payment of arrears of disability pension.

Many disability pensioners and their partners receive an income support payment other than a service pension. Any disability pension is included as income under the income test for social security pensions and benefits and income support supplement. Disability pension is also included in the assessment of rent assistance payability for service pensioners.

The payment of arrears of disability pension will also therefore require reassessment of some income support payments and allowances received by the disability pensioner or their partner for the same period.

Section 27A provides for the calculation of arrears of pension following a retrospective grant or increase of disability pension and deals with adjustments for pension received by the partner. Accordingly, if a veteran has a partner who has been receiving a social security pension, section 27A provides for the calculation of arrears and the recovery of the amount of income support that has been overpaid to the veteran’s partner.

However, section 27A restricts the arrears period to the period between the operative date and the decision date.

Subsection 27A(1) specifically defines the arrears period as between the operative date and the decision date, that is, between the dates when the new rate of disability pension becomes payable and the date the decision to grant or increase disability pension was made. However, it is actually the date that the payment is processed that determines the end of the arrears period, which may not be the date of the decision. The decision date may not be the end of the arrears period because of payment cycles and processing arrangements.

Explanation of the Changes

These amendments to the VEA will correct the definition of arrears period for the purposes of section 27A and will allow for the calculation of arrears of disability pension where the adjustment is made beyond the disability pension decision date.





The amendments will provide that for the purposes of the definition of arrears period, the end of the arrears period should be immediately before the first pension period in which the pension payment is paid or is paid at the increased rate.

Explanation of the Items

Item 20 repeals and substitutes a new paragraph 27A(1)(b).

New paragraph 27A(1)(b) defines the arrears period as between the operative date and immediately before the first pension period during which an instalment of the pension is paid or is paid at the increased rate.

Item 21 is an application provision and provides that the changes made by item 20 apply only where the decision to grant the pension or increase the rate of pension is made after the commencement of that item.

Commencement

Subclause 2(1) provides that item 20 commences on Royal Assent.

Part 5 – Partner Service Pension for Norfolk Island residents

Overview

These amendments to the Veterans’ Entitlements Act 1986 (VEA) will extend eligibility for partner service pension to certain partners who are resident in Norfolk Island.

Background

Partner service pension is paid under Division 5 of Part III of the VEA and sections 38 to 38N deal with eligibility for and payability of this pension.

Paragraphs 38(1)(aa) and (e) were inserted by the Veterans’ Affairs (1995-96 Budget Measures) Legislation Amendment Act 1995. The intention of this amendment was to provide eligibility for an age pension equivalent under the VEA to people who were sufficiently older than their non pensioner veteran partner.

Paragraph 38(1)(aa) extends eligibility for partner service pension to include persons who qualify for an age pension under the Social Security Act 1991 and who are members of a couple with a veteran who has rendered qualifying service.

Paragraph 38(1)(e) extends eligibility along the same lines to widows and widowers of veterans who have rendered qualifying service.

The eligibility criteria for partner service pension contained in paragraphs 38(1)(aa) and (e) are linked to the qualification criteria for the age pension under the Social Security Act 1991.

An unintended anomaly has arisen in that Norfolk Island residents may be ineligible for partner service pension under paragraphs 38(1)(aa) and (e). This has arisen because the eligibility criteria for partner service pension under subparagraphs 38(1)(aa)(iii) and 38(1)(e)(ii) of the VEA require a person to be qualified for an age pension under the Social Security Act 1991.

In subsection 5Q(1) VEA the definition of Australia includes external territories such as Norfolk Island for the purposes of Part III of the VEA. However, residence on Norfolk Island is not regarded as residence in Australia for the purposes of social security law.

Under subsection 7(4) of the Social Security Act 1991 residence in an external Territory other than Norfolk Island is taken to be residence in Australia for the purposes of qualification for an age pension. Residence in Australia is not interrupted by periods of residence in Norfolk Island.

This social security law restriction means that age pension is not available to those who only have residency in Norfolk Island. As a result, those partners who wish to claim partner service pension under paragraphs 38(1)(aa) and (e) but who are resident on Norfolk Island without other residency periods in Australia are not eligible for this pension because they do not qualify for an age pension under the Social Security Act 1991.

Explanation of the Changes

The amendments to the VEA will deem residence of Norfolk Island to be residence of Australia for the purposes of partner service pension eligibility criteria.

This will mean that persons who would be eligible for an age pension under the Social Security Act 1991 if their residence in Norfolk Island counted will satisfy paragraphs 38(1)(aa) and (e) of the VEA and will therefore be eligible for partner service pension, provided they also satisfy other relevant criteria.

A requirement for qualification for a social security age pension is Australian residency. Section 7 of the Social Security Act 1991 defines this as 10 years or more residence in Australia. A provision has also been included that will ensure that residence in Norfolk Island, even if it occurred before the commencement of this Part will be deemed to qualify a person to receive a social security age pension for the purposes of paragraphs 38(1)(aa) and (e).

Explanation of the Items

Item 22 amends subparagraph 38(1)(aa)(iii) by adding the words “or would be so qualified if, in spite of subsection 7(4) of that Act, residence of a person in Norfolk Island was taken to be residence of the person in Australia”. This amendment extends eligibility to partners who reside in Norfolk Island.

Item 23 amends subparagraph 38(1)(e)(ii) by adding the words “or would be so qualified if, in spite of subsection 7(4) of that Act, residence of a person in Norfolk Island was taken to be residence of the person in Australia.” This amendment extends eligibility to widows and widowers who reside in Norfolk Island.

Item 24 is an application provision and operates to ensure that residence in Norfolk Island, even if it occurred before the commencement of this Part will be deemed to qualify a person to receive a social security age pension for the purposes of paragraphs 38(1)(aa) and (e). This will mean that the person is eligible to receive partner service pension at or after commencement of this Part but will not be able to retrospectively claim partner service pension under these particular provisions.

Commencement

Subclause 2(1) provides that items 22 to 24 commence on Royal Assent.

Part 6 – Calculation of rent assistance

Overview

These amendments will correct a flaw in the method statement to work out the effect of disability pension on the rate of rent assistance payable to a person.

Background

Module C of Schedule 6 of the VEA provides for the eligibility for and calculation of rent assistance. Rent assistance is an amount added to service pension or income support supplement to help cover the cost of rent. When calculating the amount of rent assistance payable to a service pensioner, disability pension paid under Parts II or IV of the VEA is counted as income and may reduce the amount of rent assistance payable. Because of the nature of joint means testing, disability pension is included in the assessment of rent assistance whether the disability pension is paid to the person or to the person’s partner. Points SCH6-C7 and SCH6-C12 provide that if a person or the person’s partner receives disability pension, the amount of rent assistance may be reduced. Points SCH6-C12 to SCH6-C14 provide for the calculation of rent assistance where the person or the person’s partner is receiving disability pension.

The Method statement at SCH6-C13 refers to “the person’s disability pension income” in the calculation of rent assistance. SCH6-C14 provides only for the circumstances where both members of a couple are in receipt of disability pension.

It is therefore not clear how the Method statement in point SCH6-C13 is applied to the partner of a veteran, where only the veteran is in receipt of disability pension.

Explanation of the Changes

These amendments to the VEA will ensure that the effect of disability pension on the rate of rent assistance payable is correctly assessed when determining the rate of rent assistance of members of a couple, where only one member of the couple is receiving disability pension.

Explanation of the Items

Item 25 repeals point SCH6-C14 and substitutes a new point SCH6-C14.

New point SCH6-C14 provides that, if a person is a member of a couple, the person’s disability pension income for the purposes of Module C is worked out in the following way:

• where each member of the couple receives either or both a disability pension and permanent impairment compensation, then the annual rates of disability pension and permanent impairment compensation are added together and the resultant amount divided by two;

• where only one member of the couple receives both disability pension and permanent impairment compensation, then the member’s annual rates of disability pension and permanent impairment compensation are added together and the resultant amount divided by two;

• where only one member of the couple is receiving only disability pension or only permanent impairment compensation, then the annual amount of disability pension or permanent impairment compensation is divided by two.

Note 1 at the end of the point advises that disability pension is defined in section 5Q.

Note 2 advises that permanent impairment compensation is defined in point SCH6-C16.

Item 26 is an application provision and provides that the amendments made by this Part 6 of Schedule 1 apply in relation to instalments of service pension for pension periods that start after the commencement of this item.

Commencement

Subclause 2(1) provides that this Part commences immediately after the commencement of Part 4 of Schedule 1 to the Military Rehabilitation and Compensation (Consequential and Transitional Provisions) Act 2004.

Part 7 – Reduction in pension arrears resulting from partner’s receipt of service pension

Overview

These changes to the VEA will enable the recovery of an overpayment of rent assistance to the partner of the veteran, where the veteran received an arrears payment of disability pension and where the partner was receiving service pension.

Background

An overpayment of rent assistance to a person receiving service pension can occur when the person’s veteran partner receives a retrospective grant or increase of disability pension. New grants of, or increases in, disability pension can be paid retrospectively for up to three months before the date of the claim.

Disability pension is counted as income for the person and the person’s partner for the purposes of calculating the rate of rent assistance. Rent assistance is calculated and added to the person’s rate of service pension as per Module C, Part 2 of Schedule 6 of the VEA. Module C sets out the eligibility criteria and the rates and thresholds applicable to the calculation of rent assistance. Points SCH6-C12 – SCH6-C15 provide the method for calculating the effect of disability pension on the rate of rent assistance.

When a retrospective grant or increase is made to the rate of disability pension, it can create an overpayment of rent assistance. That is, an amount of rent assistance is overpaid if it would not have been payable during the period, had the new or increased rate of disability pension been in payment.

There is currently no provision to recover an amount of rent assistance overpaid to a partner of a veteran, where the partner is receiving service pension.

Section 27A provides for any calculation of arrears of disability pension to be reduced by any overpaid social security pension or benefit or income support supplement paid to the partner of the veteran receiving the arrears payment.

Explanation of the Changes

These amendments to the VEA will enable the recovery of an overpayment of rent assistance to the partner of the veteran, where the veteran received an arrears payment of disability pension and where the partner was receiving service pension. The recovery of the overpaid monies will occur through a reduction in the disability pension arrears payment to the veteran.

Explanation of the Items

Item 27 inserts new subparagraph 27A(1)(c)(ia) after subparagraph 27A(1)(c)(i).

New subparagraph 27A(1)(c)(ia) provides that the section applies if the veteran’s partner was receiving service pension and the other requirements of the section are met.

Item 28 amends paragraph 27A(1)(d) by inserting “, service pension” after the word “benefit”.

Item 29 amends step 4 of the method statement in subsection 27A(2) by inserting “, service pension” after the word “benefit”.

Item 30 amends step 5 of the method statement in subsection 27A(2) by inserting “, service pension” after the word “benefit”.

Item 31 is an application provision and provides that the changes made by Part 7 apply only where the decision to grant the disability pension or increase the rate of disability pension referred to in paragraph 27A(1)(a) is made after the commencement of this item.

Commencement

Subclause 2(1) provides that Part 7 commences on Royal Assent.

Part 8 – Value of financial assets for the purposes of the deeming rules

Overview

These amendments to the VEA provide that only for the purposes of the assets test is the value of a person’s financial investments to be reduced by the value of any encumbrance secured against those investments. For the purposes of assessing deemed income the whole value of the financial asset will continue to be used.

Background

The assets test component of the means testing of pensions was reintroduced by the changes included in the Social Security and Repatriation (Budget Measures and Assets Test) Act 1984. The assets test component of the means test had been removed from the Repatriation Act 1920 by amendments made by the Repatriation Acts Amendment Act (No. 2) 1976.

The absence of an assets test had provided greater opportunities for the circumvention of the income test with avoidance schemes being widely available.

The amendments made in 1984 to the means test provisions of the Social Security Act 1947 (which were applicable to the calculation of the rate of a service pension under the Repatriation Act 1920) provided that for the purposes of the assets test that the value of an asset over which a charge or encumbrance exists was to be reduced by the amount of the charge or encumbrance.

The current VEA equivalent of the original provision to reduce the value of the asset by the amount of the charge or encumbrance over the asset is found in section 52C.

In addition to the reintroduction of the assets test a series of legislative amendments relating to the income testing of financial investments held by service pensioners were made to the VEA during the period from 1983 to 1994.

Included in that series of amendments were amendments made by the Veterans’ Affairs Legislation Amendment Act 1990 for the inclusion of the deeming provisions for the income-testing of financial investments. Income was assessed on cash and money on deposit at 10% of the balance, or the actual interest rate earned, whichever was the higher.

Major changes to the way investment income was income tested were made by the Social Security and Veterans’ Affairs Legislation Amendment Act 1995 with the introduction of “extended deeming”. That act defined a range of investments to include deposits, managed investments, listed and unlisted securities and loans as being financial investments for the purposes of the deeming provisions.

Under the income test the deemed rate of interest is to be calculated on the gross value of a financial asset. There are no provisions to exempt encumbrances from the assessment of the value of a financial asset.





A recent decision of the Administrative Appeals Tribunal (AAT) held that in working out a person’s deemed income from financial assets that the value of the person’s financial investments is to be reduced by the value of any encumbrance secured against those investments. The AAT held that the provisions of section 52C were applicable in determining the value of a financial asset for the purposes of the deeming provisions.

Section 52C was applied even though it is located in Division 11 of Part IIIB of the VEA. The title of Division 11 is “General provisions relating to the assets test”.

Explanation of the Changes

The amendment made to section 52C will explicitly exclude the application of the provision to the deeming provisions in Division 3. The amendment will remove any ambiguity that may exist in the legislation.

The amendment is similar to that which is proposed for section 1121 of the Social Security Act 1991.

Explanation of the Items

Item 1 amends subsection 52C by including a reference to Division 3 in a listing of those sections of the VEA to which the section is not applicable.

Section 52C outlines for the purposes of the assets test the effect of a charge or encumbrance on the value of an asset.

Item 2 is an application provision stating that the amendment is to effectively apply to instalments of service pension and income support supplement for pension periods which start at or after the commencement of the item.

Commencement

Subclause 2(1) provides that this Part commences on Royal Assent.

Part 9 – Deemed income and actual income from accrued returns

Overview

These amendments to the VEA provide for amendments to clarify the income test treatment of accrued returns on financial assets.

Background

A series of legislative amendments relating to the income testing of financial investments held by service pensioners was made to the Repatriation Act 1920 and to the VEA during the period from 1983 to 1994.

Included in that series of amendments were amendments made by the Veterans’ Affairs Legislation Amendment Act 1990 for the inclusion of the deeming provisions for the income-testing of financial investments. Income was assessed on cash and money on deposit at 10% of the balance, or the actual interest rate earned, whichever was the higher.

Major changes to the way investment income was income tested were made by the Social Security and Veterans’ Affairs Legislation Amendment Act 1995 with the introduction of “extended deeming”. That act defined a range of investments including deposits, managed investments, listed and unlisted securities and loans as being financial investments for the purposes of the deeming provisions.

The deeming provisions provide that financial assets will be deemed as having earned “ordinary income” based on the value of the assets held.

The 1996 amendments took effect from 1 July 1996 and included new section 46K to provide for the treatment of any actual return from a financial asset. Section 46K provides that the actual return is to be disregarded if income is deemed to be received on that asset under sections 46D or 46E.

Section 46K also provides that the actual return will be included in the income test for those financial assets that the Minister has determined that are to be disregarded for the purposes of deeming and for any unrealisable assets.

Subsection 5H(1) defines “ordinary income” as being “income that is not maintenance income or an exempt lump sum”. The definition of “income” in subsection 5H(1) refers to it being an “amount earned, derived or received by the person”. That expression has generally been interpreted as meaning that:

• income is “earned” when the income-generating activity occurs;
• income is “derived” when the person has a legal entitlement to receive the income; and
• income is “received” when it comes into a person’s possession or control.






Subsection 46K(1) refers to the return on a financial asset that a person “actually receives”. The possible effect of subsection 46K(1) is that any return on a financial asset that has accrued but has not been paid may not be excluded from the income test.

The reference to the actual receipt of the return has the potential effect of double-counting the income from a financial asset for the purposes of the income test. A person with a financial asset that is accruing income in the form of interest may have deemed income included in the income test under sections 46D or 46E and may also be regarded as receiving ordinary income while the interest is accruing prior to it being paid.

Explanation of the Changes

The amendments to section 46K provide that any return on a financial investment that is earned, derived or received is not to be regarded as the ordinary income of a person if income has been deemed to have been received from that investment.

Explanation of the Items

Item 54J amends subsection 46K(1) by omitting the reference to income a person actually “receives” and substituting a reference to income a person actually “earns, derives or receives”.

Item 54K amends subsection 46K(2) by omitting the reference to income a person actually “receives” and substituting a reference to income a person actually “earns, derives or receives”.

Commencement

Subclause 2(1) provides that this Part commences on Royal Assent.

Part 10 – Means Test Exemption of certain superannuation assets

Overview

These amendments to the VEA provide for the exemption of certain superannuation assets from the means test.

Background

Before the passing of the Social Security Legislation Amendment (Further Budget and Other Measures) Act 1996 the VEA and the Social Security Act 1991 (SSA) had mirrored provisions in respect of the treatment of superannuation funds held by persons who had not reached pension age.

The amendments made by that act took effect from 20 September 1997 and provided that superannuation assets held by social security customers were assessable under the income and assets test if a person below pension age, had been in receipt of income support for a period of 39 weeks after reaching the age of 55. The amendments were announced as part of the 1996-97 Budget with the purpose of the amendments being to provide disincentives to income support recipients who had not accessed their superannuation funds. Similar amendments were not made to the VEA.

It was subsequently revealed that some recipients of income support would be financially disadvantaged by an early withdrawal from their superannuation funds. An example was given of the holders of some superannuation policies who would lose substantial bonuses payable only on the maturity of the policy on retirement.

For those that may have been adversely affected by the amendments some relief was available under provisions of section 1084 of the SSA. That section provides for the Minister for Family and Community Services to exempt a superannuation asset from the deemed income provisions applicable under the income test.

No similar provision existed to give the Minister the power to exempt a superannuation asset from the assets test which meant that even where relief from the deeming provisions of the income test was available the superannuation assets held by the income support recipients were subject to the assets test.

The anomaly was rectified by amendments that were made by the Social Security and Veterans’ Affairs Legislation Amendment (Family and Other Measures) Act 1997 by the insertion of new section 1118B into the SSA. Section 1118B provides that the Minister for Family and Community Services has the power to exempt superannuation and similar assets from the assets test.

The penalties applicable to the superannuation assets held by income support recipients aged over 55 were reversed by amendments made by the Family and Community Services and Veterans’ Affairs Legislation Amendment (Further Assistance for Older Australians) Act 2001. That act amended the SSA to provide for the exemption of superannuation assets from the social security means test for people aged between 55 and age pension age.



The amendments also provided for an exemption from the income test provisions that are applicable to early withdrawals from superannuation funds for persons under pension age who are aged 55 years or over.

The rules applicable under both the VEA and the SSA to the early access of superannuation assets held by a person in the circumstances where the person was aged less than 55 years were later repealed by amendments included in the Family Law Legislation Amendment (Superannuation) (Consequential Provisions) Act 2002. The repeal of the relevant provisions was a consequence of the changes to the Family Law Act 1975 that allow for the splitting of superannuation assets.

None of the 2001 and 2002 amendments relating to the changes in policy made any changes to section 1118B of the SSA. The discretion provided for by that section was retained because of the continuing need to exempt superannuation assets in certain circumstances.

Some of those circumstances are provided in the given example of a female age pensioner under the age of 65 who continues to work for more than 10 hours per week. In such circumstances she may be unable to access her superannuation for either contractual reasons relating to contracts entered into before 20 August 1996 when the 1996-97 Budget was handed down or because she is unable to satisfy one of the “conditions of release” required under Schedule 1 of the Superannuation Industry (Supervision) Regulations 1994.

Under the VEA the amount held by a person in a superannuation fund is not subject to the income and assets tests until a person reaches “pension age” as defined under the VEA. The relevant provisions are paragraph 5H(8)(i) and paragraph 52(1)(f). The “pension age” of a male veteran is defined in subsection 5QA(1) as being 60 years.

The effect of those provisions is that a veteran who is less than 65 years of age and in receipt of an age service pension while continuing to work for more than 10 hours per week may be disadvantaged by the inclusion of superannuation assets in the VEA means test. While relief from the deemed income provisions of the income test may be provided by Ministerial determination under section 46L (the VEA equivalent of section 1084) the VEA has never included the equivalent of section 1118B.

A veteran in those circumstances unable to access his or her superannuation for either contractual reasons relating to the contract or because he or she is unable to satisfy one of the “conditions of release” will be placed at a considerable disadvantage compared to a social security pensioner in the same circumstances.

Explanation of the Changes

The amendments to VEA will align the Act with the SSA, by providing for in new section 52AA a general discretion similar to that provided for in section 1118B of the Social Security Act 1991 to exclude superannuation investments from the application of the assets test.

Explanation of the Items

Item 30 amends paragraph 52(1)(f) by inserting a Note that provides that some investments in superannuation and similar funds may be disregarded for the purposes of calculating the value of a person’s assets.

Item 31 inserts new section 52AA. New section 52AA provides that if a determination has been made by the Minister, the value of a person’s investment in a superannuation fund, an approved deposit fund, a deferred annuity or an ATO small superannuation fund may be disregarded for the purposes of calculating the value of a person’s assets.

There are exceptions that relate to the disposal of assets provisions in sections 52FA, 52G, 52GA, 52H, 52ZA and 52ZCA.

The determination must be in writing and will take effect on either the day that it is made or on an earlier or later day as specified in the determination.

Commencement

Subclause 2(1) provides that this Part commences on Royal Assent.

Part 11 –Income and assets test treatment of ATO small superannuation accounts and private rental income

Overview

These amendments to the VEA will align the income and assets tests treatment of ATO small superannuation accounts and private rental income with the treatment that applies under the Social Security Act 1991.

Background

ATO Small Superannuation accounts

The Superannuation Laws Amendment (Small Accounts and Other Measures) Act 1995 provided for a series of amendments to the Social Security Act 1991 which were required as a consequence of the changes made to the administration of small superannuation accounts by the Small Superannuation Accounts Act 1995.

That act provided that such accounts would be held in the Superannuation Holding Accounts Reserve and administered by the Australian Taxation Office.

The amendments to social security law came into effect from 1 July 1995 and provided that small superannuation accounts under the new scheme would receive the same income and assets test treatment as superannuation funds, deferred annuities and approved deposit funds.

Amendments to the VEA to mirror those made to the social security law were included in Part 1 of Schedule 3 of the Veterans’ Affairs Legislation Amendment (Further Budget 2000 and Other Measures) Act 2002.

The 2002 amendments did not include an amendment to the paragraph 5H(8)(i) listing of superannuation and similar funds that are exempt from the income test. An amendment to the SSA equivalent, paragraph 8(8)(b) had been included in the 1995 amendments and the inclusion of a similar amendment to paragraph 5H(8)(i) was overlooked when drafting the amendments to the VEA.

The amendments made in 2002 also did not include an amendment to the paragraph 52(1)(f) listing of superannuation and similar funds that are exempt from the assets test. An amendment to the SSA equivalent, paragraph 1118(1)(f) had been included in the 1995 amendments and the inclusion of a similar amendment to paragraph 52(1)(f) was also overlooked in drafting the amendments to the VEA.

Permissible reductions in private rental income

The VEA has no specific provisions to govern the assessment of private rental income. While section 46C does refer to permissible reductions of business income with regard to deductions that are allowable under the Income Tax Assessment Acts there is a difficulty in characterising rental income from private investments in rental properties as business income.




Until now rental income has been treated as business income under section 46C. A set percentage had been applied as a deduction in those cases where the rental property schedule from a person’s tax return was not available.

The SSA equivalent, section 1075 was amended to clarify the situation as one of the measures included in the Family and Community Services (Simplification and Other Measures) Act 2001.

The amendments to the VEA to implement the measures contained in that bill were included in the Veterans’ Affairs Legislation Amendment (Further Budget 2000 and Other Measures) Act 2002. However, that Act did not include the amendments to clarify the treatment of allowable deductions relating to a private rental property.

Explanation of the Changes

The amendments align the relative provisions of the VEA applying to the treatment of ATO small superannuation accounts with those that apply under the SSA.

Paragraph 5H(8)(i) has been amended to include a reference to any return on a person’s investment in an “ATO small superannuation account” being an excluded amount of income for the purposes of the VEA.

A reference to the term “ATO small superannuation account” being defined in subsection 5J(1) has been included in Note 2 to paragraph 5H(8)(i).

Paragraph 52(1)(f) has also been amended to include a reference to a person's investment in "an ATO small superannuation account" being disregarded in the calculation of the value of a person's assets.

The amendments section 46C will align the VEA with section 1075 of the SSA as amended by the Family and Community Services (Simplification and Other Measures) Act 2001.

Section 46C has been amended to provide that where a person’s ordinary income includes rental income that is not business income , the person’s ordinary income from that property is to be reduced by losses and outgoings that relate to the property.

The amended section also provides that if the amount of the allowable deductions relating to a property for a period under either section 51 of the Income Tax Assessment Act 1936 or section 8-1 of the Income Tax Assessment Act 1997 exceed the amount of the rental income from the property for that period, the amount of the ordinary income from the property, for that period will be taken to be nil.

Explanation of the Items

Items 32 to 34 amend paragraph 5H(8)(i) by inserting new subparagraph 5H(8)(i)(iiia) referring to the return on an “ATO small superannuation account” as being excluded income and including a reference to the definition of “ATO small superannuation account” being in subsection 5J(1).






Item 35 inserts new subsections 46C(3) and (4) referring to the treatment of rental income that is not regarded as being business income. Section 46C provides for permissible reductions of business income for the purposes of determining ordinary income.

Item 36 amend paragraph 52(1)(f) by inserting new subparagraph 52(1)(f)(iiia) referring to the value of an “ATO small superannuation account” as being excluded from the calculation of the value of a person’s assets.

Commencement

Subclause 2(1) provides that items 32 to 34 and 36 commence on 1 July 1995 and that item 35 commences on Royal Assent.

Part 12 – Ceiling rate service pension

Overview

These changes to the VEA will enable ceiling rate service pension to be adjusted if the person is a war widow/er whose pension under Part II or IV is compensation reduced.

Background

A person on a war widow/er’s pension may receive income support payments under the VEA through either the payment of an income support supplement under Part IIIA of the VEA or through the payment of a service pension, under Part III, if the widow/er is also a veteran in their own right. The rate of income support supplement or service pension paid to a war widow/er is restricted by a ceiling rate in accordance with points SCH6-A4 – SCH6-A5A. The current rate is $3,395.60 per annum.

Under the VEA, an adjustment may be made to the ceiling rate of income support supplement payable to a war widow/er, where the person’s war widow/er pension is compensation reduced, in accordance with points SCH6-A6 – SCH6-A9.

A pension under Part II or IV is compensation reduced if that pension has been reduced as a result of a payment of:
• a similar pension by another country or by a State; or
• any other periodic payment or lump sum compensation payment for the same cause of death of the veteran.

The adjusted ceiling rate is the sum of:

• the ceiling rate; and
• the amount of the reduction in the Part II or Part IV pension.

This ability to adjust the ceiling rate does not currently apply where the war widow/er is a veteran with qualifying service in his or her own right and is therefore in receipt of ceiling rate service pension.

This means that a war widow/er who is also a veteran with qualifying service may be treated less favourably than a war widow/er who is not a veteran.

Explanation of the Changes

These changes will apply the same provisions that enable the adjustment of ceiling rate income support supplement where the person’s war widow/ers pension is compensation reduced, to ceiling rate service pension. This will mean that war widow/ers receiving ceiling rate service pension will have that rate increased by the amount of the compensation reduction in the war widow/ers pension.

Explanation of the Items

Item 43 amends subparagraph (a)(i) of point SCH6-A6 of the VEA by inserting the words “or service pension” after the word “supplement”.

Commencement

Subclause 2(1) provides that this Part commences on Royal Assent.

Part 13 - Offences

Overview

These amendments will enhance the offence provisions of the VEA.

Background

Section 208 of the VEA provides for what constitutes an offence under the VEA. The provisions currently only apply to circumstances where a pension, allowance or other pecuniary benefit or an instalment of a pension, allowance or other pecuniary benefit is not payable. The current provision does not cater for the situation where part of a pension, allowance or other pecuniary benefit, or part of an instalment of a pension, allowance or other pecuniary benefit. is not payable.

The equivalent provision in the Social Security Administration Act 1999 extends the coverage of offences to include obtaining a payment where a payment is only payable in part.

Explanation of the Changes

These amendments will make it clear that it is an offence to obtain a payment of a pension, allowance or other pecuniary benefit under the VEA or an instalment of a pension, allowance or other pecuniary benefit under the VEA where the payment or instalment is only payable in part.

Explanation of the Items

Items 44 and 46 are technical amendments to address drafting style.

Item 45 amends paragraph 208(1)(b) of the VEA by repealing the paragraph and substituting a new paragraph. The new paragraph provides that it is an offence to obtain a payment of a pension, allowance or other pecuniary benefit under the VEA or an instalment of a pension, allowance or other pecuniary benefit under the VEA where the payment or instalment is only payable in part.

Commencement

Subclause 2(1) provides that this Part commences on Royal Assent.

Part 14 –Disposal of income and assets

Overview

These amendments to the VEA provide that the disposal of an income producing asset will not result in the potential double counting of both deemed income and disposed income from the deprived asset.

Background

The asset test component of the means testing of pensions was reintroduced by the changes included in the Social Security and Repatriation (Budget Measures and Assets Test) Act 1984. The assets test component of the means test had previously been removed from the Repatriation Act 1920 by amendments made by the Repatriation Acts Amendment Act (No. 2) 1976.

The absence of an assets test during that period had provided greater opportunities for the circumvention of the income test with avoidance schemes being widely available.

The 1984 amendments also provided for special rules to apply to the disposal of income or property. The new rules replaced those that had previously dealt with the disposal of income. The rules were to apply where a person had disposed of income or property other than for adequate consideration or where the dominant purpose of the disposal was that a pension , higher rate of pension or a fringe benefit would result from the disposal.

A threshold applied so that disposals of property valued at less than the threshold value were not subject to the special rules. The rules applied so that the person was regarded for the purposes of the means test as having retained the income or the property.

The amendments made in 1984 to the means test provisions of the Social Security Act 1947 (which were applicable to the calculation of the rate of service pension payable under the Repatriation Act 1920) provided that the thresholds that applied to the disposal of property also applied where that disposal also constituted a disposal of income.

The relevant means test provisions of the Social Security Act 1947 were incorporated into the VEA when it was introduced in 1986. The current VEA equivalent of the original provision applicable to a transaction that constitutes both a disposal of ordinary income and a disposal of assets is section 48D.

Section 48D is applicable to disposals made during the period from on or after 1 July 1984 to 30 June 2002 and provides that where the value of the disposed asset is less than the disposal limit, then the ordinary income produced by the disposed of asset is ignored.

The section also provides that where the value of a disposed asset has been included in the value of the person’s assets by the operation of any of sections 52FA, 52G, 52GA or 52H a determination is to be made as to the ordinary income produced by that amount of the assets that exceeds the disposal limit.





In addition to the reintroduction of the assets test a series of legislative amendments relating to the income testing of financial investments held by service pensioners were made to the Repatriation Act 1920 and the VEA during the period from 1983 to 1994.

Included in that series of amendments were amendments made by the Veterans’ Affairs Legislation Amendment Act 1990 for the inclusion of the deeming provisions for the income-testing of financial investments. Income was assessed on cash and money on deposit at 10% of the balance, or the actual interest rate earned, whichever was the higher.

Major changes to the way investment income was income tested were made by the Social Security and Veterans’ Affairs Legislation Amendment Act 1995 with the introduction of “extended deeming”. That act defined a range of investments including deposits, managed investments, listed and unlisted securities and loans as being financial investments for the purposes of the deeming provisions. The deeming provisions provide that financial assets will be deemed as having earned ordinary income based on the value of the assets held.

The amendments defined a “financial asset” as being either a “financial investment” or a “deprived asset”. An asset is defined as being a “deprived asset” if a person has disposed of the asset and the value of the asset has been included in the value of the person’s assets by section 52FA, 52G, 52GA or 52H.

Sections 52FA, 52G, 52GA and 52H provide that the amount by which the disposal of an asset exceeds the disposal limit is to be included in the value of a person’s assets for a period of 5 years.

The 1996 amendments that applied the “extended deeming” arrangements to financial assets included as “financial assets” those assets the amendments defined as being “deprived assets” and therefore made them subject to the new deeming provisions, sections 46D and 46E. Previously assets now defined as being “deprived assets” had been subject to section 48D.

The 1996 amendments took effect from 1 July 1996. Section 48D applied to transactions that occurred on or after 1 June 1984 that constituted both a disposal of ordinary income and a disposal of assets. The effect of the 1996 amendments was that there was the potential for the double counting of income from “deprived assets” relating to a disposal that was made on or after 1 July 1996.

A number of changes were made to the provisions of the VEA regarding the disposal of assets by amendments made by the Social Security and Veterans’ Entitlements Legislation Amendment (Disposal of Assets—Integrity of Means Testing) Act 2002. Those changes applied from 1 July 2002 and as a consequence section 48D was incorrectly amended so that it was to be applicable to those disposals made between 1 June 1984 and 30 June 2002.
As section 48D was not applicable to disposals made on or after 1 July 1996 it is no longer needed and should be repealed.

Explanation of the Changes

Section 48D has been repealed to ensure that the VEA does not retain the potential for the double counting of income from “deprived assets”.

Notes to some of the related sections have been amended to remove references to section 48D.

Explanation of the Items

Item 47 amends section 48 by repealing Notes 1 and 2 and substituting a new note referring the reader to section 48A for the determination of the amount of disposition referred to in the section.

Section 48 defines for purposes of the VEA what constitutes a disposal of income.

Item 48 amends subsection 48C(1) by repealing Note 3 which refers to section 48D.

Section 48C sets out the treatment of a disposal of income by a member of a couple for both members of the couple.

Item 49 repeals section 48D. Section 48D had set out the treatment of transactions that constituted both a disposal of income and a disposal of assets.

Item 50 amends section 52FA by repealing Notes 3 and 4 and substituting in new Note 3 the reference previously found in Note 4 to the application of 52G to a person to whom section 52FA previously referred.

Section 52FA sets out the treatment of a disposal of assets in the years prior to a person making a claim for the payment of a pension.

Item 51 amends section 52GA by repealing Notes 3 and 4 and substituting in new Note 3 the reference previously found in Note 4 to the application of 52H to a person to whom section 52GA previously referred.

Section 52H sets out the treatment of a disposal of assets during a pension year by a member of a couple for both members of the couple.

Item 52 amends subsection 52H(1) by repealing Note 3 which refers to section 48D.

Section 52H sets out the treatment of a disposal of assets during a pension year by a member of a couple for both members of the couple.

Commencement

Subclause 2(1) provides that this Part commences on Royal Assent.

Part 15 – Compensation recovery provisions

Overview

These amendments to the VEA will align the compensation recovery provisions with those that apply under the Social Security Act 1991

Background

Amendments to the VEA made as part of the Veterans’ Affairs (1994-95 Budget Measures) Legislation Amendment Act (No. 2) 1994 aligned the VEA with the Social Security Act 1991 in relation to the way in which compensation payments received by service pensioners were treated.

The VEA had previously provided that periodic payments of compensation were treated as income for the purposes of the ordinary income test while lump sum compensation payments were held as an asset of the person.

The 1994 amendments inserted new Part IIIC into the VEA containing the compensation recovery provisions. The Part IIIC provisions refer only to “compensation” of the type defined in subsection 5NB(2) as being “made wholly or partly in respect of lost earnings or lost capacity to earn”. The compensation may be paid as either a lump sum or in the form of a series of periodic payments.

Section 59M provides that the Part IIIC provisions will apply only to persons who are under pension age and in receipt of a “compensation affected pension” which is defined in subsection 5NB(1) as being an invalidity service pension, partner service pension or income support supplement. The use of this term and the age limit are unique to the VEA.

Periodic payments of compensation

Sections 59T and 59TA in Division 3 of Part IIIC provide that where a person or the person’s partner receives periodic compensation payments, and the person receives a compensation affected pension, then the amount of the pension is to be directly reduced by the amount of the compensation payments.

Section 59W provides that a person will be liable to repay the Commonwealth for the amount of compensation affected pension received by the person where the person has been paid both periodic compensation payments and payments of compensation affected pension during the periodic payments period. The provision takes effect in the circumstances where the pension payments have not been reduced under section 59T.

Section 59X provides that in the circumstances where the rate of a person’s pension has been reduced under section 59T because of the receipt of periodic compensation payments, the periodic compensation payments are not to be regarded as ordinary income for the purposes of the income test.

Both sections 59W and 59X continue to refer to the receipt of “a series of periodic compensation payments”.

Amendments to the SSA included in the Family and Community Services Legislation (Simplification and Other Measures) Act 2001 removed any reference to the receipt of “a series of periodic payments” from the Part 3.14 compensation recovery provisions. The amended provisions refer only to the receipt of “periodic compensation payments”.

Similar amendments were made to the definitions of “periodic payments period” and “compensation” in section 17 of the SSA.

Those amendments resulted from the identification of an anomaly that arose in the circumstances where only a single “periodic payment” was made in relation to a period.

Subsequent amendments to the VEA have removed references to a “series of” periodic payments. The references were removed from sections 59T and 59TA of the VEA when section 59T was repealed and the new sections substituted as part of the amendments included in the Veterans’ Affairs Legislation Amendment (Further Budget 2000 and Other Measures) Bill 2002.

Extend the application of the recovery provisions of section 59W

The provisions of section 59W do not apply in the circumstances where a compensation recipient has had their pension reduced under section 59T but subsequently has the compensation payment retrospectively increased.

The amendments included in the Family and Community Services Legislation (Simplification and Other Measures) Act 2001 provided for the rewrite of Part 3.14 of the SSA, the equivalent of Part IIIC of the VEA.

The rewritten section 1180, the equivalent of section 59W of the VEA, provides at paragraph 1180(1)(d) that a person receiving both periodic compensation payments and pension payments will be liable to repay the Commonwealth the recoverable amount (as defined in section 1181) if the payments have not been reduced to nil as a result of the operation of section 1173 (the SSA equivalent of section 59T).

Section 59W provides that a person will not be liable to repay the Commonwealth if the pension payments have been reduced as a result of the operation of section 59T.

Explanation of the Changes

The amendments remove references to the receipt of “a series” of periodic compensation payments so that the relevant provisions refer only to the receipt of periodic compensation payments.

The definitions of “periodic payments period” in subsections 5NB(1) and 30D(10) have been repealed and a new definition substituted, similar to that inserted into subsection 17(1) of the SSA.

Section 59W has been amended to align the VEA with the provisions of the SSA that apply in the circumstances where both periodic compensation payments and payments of a compensation affected pension have been received.

Explanation of the Items

Items 53, 55, 57, 59 and 61 amend Note 2 to the definition of “ordinary income” in subsection 5H(1), subsections 5NB(2) and 59M(4), paragraph 59W(1)(a) and section 59X to remove the references to “a series of” periodic payments.

Items 54 and 56 repeal and substitute the definitions of “periodic payments period” in subsections 5NB(1) and 30D(10). The amended definitions include references to the receipt of either a “periodic compensation payment” or a “series of periodic compensation payments”.

Item 58 omits a reference to the “period for which payments are received” and substitutes the term “periodic payments period” from subsection 59M(4).

Section 59M outlines the general effect of the compensation recovery provisions of Part IIIC on a person receiving payments of a compensation affected pension.

Item 60 omits a reference to payments of compensation affected pension not being reduced “under” section 59T and substitutes a reference to the payments not having been reduced “to nil as a result of the operation of” section 59T.

Commencement

Subclause 2(1) provides that this Part commences on Royal Assent.

Part 16 – Minor and technical amendments

Overview

These amendments to the VEA make a number of minor and technical amendments.

Explanation of the Items

Item 62 amends paragraph (a) of the definition of liquid assets in subsection 5JA(7) by inserting the words “within the meaning of the Corporations Act 2001” after the words “public company”.

The amendment provides further clarification for the definition of a “public company”.

Item 63 amends subsection 5MC(4) by omitting the words “couple’s assets deeming provisions and substituting “provisions in point SCH6-F2”.

Item 64 repeals subsection 5MC(5). These amendments remove redundant references to dependent children. Child related payments are administered under the social security law.

Items 65 and 66 amend subparagraphs 5NB(7)(a)(ii) & (b)(iii) by omitting references to the date
“9 February 1988”. These dates related to compensation settlements made since
9 February 1988 and are no longer relevant.

Item 67 amends subsections 36B(2) and 37B(2) by omitting all the words and paragraphs after paragraph (d) and substituting “then the veteran’s provisions commencement day is the day on which the initial claim was lodged”.

Section 68 amends subsection 38B(2) by omitting all the words and paragraphs after paragraph (d) and substituting “then the person’s provisional commencement day is the day on which the initial claim was lodged”.

These provisions should have been amended when the concept of a “provisional commencement day” was introduced in the Veterans’ Affairs Legislation Amendment Act, No. 78 of 1994.

Item 69 amends subsection 45S(1) by omitting “, subject to subsection (2),”.

Item 70 repeals subsection 45S(2). Subsection 45S(2) became redundant when SCH6-B2 was repealed by the Veterans’ Affairs Legislation Amendment (2002 Budget Measures) Act 2002.

Items 71 to 84 repeal obsolete provisions in relation to the disposal of assets and make consequential amendments in relation to the repeal of the obsolete provisions.

Subsections 52FA(2), 52G(2), 52GA(2) and 52H(2) relate to the disposal of assets prior to
1 March 1991.

Under the disposal of asset provisions, the value of disposed assets that exceed the allowable limits are held in a person’s pension assessment for five years from the date of disposal. The pre-1 March 1991 subsections are now redundant.

Items 85 and 86 respectively amend paragraphs 56C(2)(a) and (b).

Item 85 amends paragraph 56C(2)(a) by repealing the paragraph and substituting a new paragraph.

The effect of new paragraph 56C(2)(a) means that where either:

• a service pension or income support supplement has not been, or is not being, paid to a person because the rate of the pension was determined to be nil; or

• a service pension or income support supplement has not been, or is not being, paid to a person because the rate of the pension or supplement was reduced to nil under section 56 or 56A,

then the Commission may determine that the rate is to be increased.

Previously the provision did not enable the increase of a service pension or income support supplement that has been reduced to nil by an automatic provision.

Item 86 inserts the word “supplement” after the word “pension” in subparagraph 56C(2)(b).

Item 87 amends subsection 56EC(1) by repealing the subsection and substituting a new subsection.

The effect of new subsection 56EC(1) means that where either a service pension or income support supplement is not payable to a person because the rate of pension or supplement:

• has been determined to be nil; or

• has been reduced to nil under section 56 or 56A,

then the Commission may determine that the pension or supplement is to be cancelled.

Previously the provision did not enable the cancellation of a service pension or income support supplement that has been reduced to nil by an automatic provision.

Item 88 amends paragraph 59N(e) by repealing the paragraph and substituting a new paragraph.

New paragraph 59N(e) ensures that the provisions of section 59N apply to a person if the person received any instalments of lump sum compensation.

Commencement

Subclause 2(1) provides that this Part commences on Royal Assent.

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