EXPLANATORY STATEMENT
Social Security (Asset-test Exempt Income Stream (Market-linked) – Payment Factors) (FaCS) Principles 2005
Summary
The Social Security (Asset-test Exempt Income Stream (Market-linked) – Payment Factors) (FaCS) Principles 2005 (the Principles) are made under subsection 9BA(5) of the Social Security Act 1991 (the Act).
The purpose of these Principles is to specify the payment factor (PF), which is the denominator used in the formula in subsection 9BA(5).
Subsection 9BA(13) of the Act provides that the Principles constitute a disallowable instrument for the purposes of section 46A of the Acts Interpretation Act 1901. This means that the Principles are a legislative instrument in accordance with paragraph 6(d) of the Legislative Instruments Act 2003.
Background
A market-linked income stream that meets the requirements of section 9BA of the Act will be classified as an “asset-test exempt income stream” for the purposes of the social security law.
To meet the definition of an “asset-test exempt income stream” in section 9BA of the Act, an income stream must pay an amount of income in each year that is equal to the amount worked out by the formula in subsection 9BA(5). The PF is the denominator in that formula.
Explanation of the Provisions
Clause 1 of the Principles states the name of the Principles and clause 2 sets out that the Principles are taken to have commenced on 20 September 2004.
Clause 3 provides definitions of terms used in the Principles.
Clause 4 provides various rules in regard to working out the appropriate PF for each year of the income stream’s term. The table at the end of clause 4 provides the relevant payment factors in regard to the number of whole years remaining in the term of the income stream. The PF is worked out in regard to the number of whole years remaining in the term of the income stream on 1 July of each financial year, except in the first year of the income stream’s term, where this is done on the day the income stream commences.
For the purposes of working out the number of whole years remaining in the term of the income stream and thereby ascertaining the correct PF to be applied in any given year, where an income stream commenced in the period 1 July to 31 December in any year, the remaining term of the income stream is rounded up to the nearest whole number. Where an income stream commenced in the period 1 January to 30 June in any year, the remaining term of the income stream is rounded down to the nearest whole number.
Clause 4 also provides that for the purposes of the Act, the figure calculated by using the formula in subsection 9BA(5) should be rounded to the nearest $10, or multiple of $10.
Consultation
Consultation regarding this instrument was undertaken with the Department of Veterans’ Affairs as that Department administers legislation which incorporates similar rules relating to the treatment of income streams as that provided by the Act. The Department of Employment and Workplace Relations and the Department of Education, Science and Training were also consulted to ensure a co-ordinated approach in respect of payments under the Act for which they now have responsibility.
Consultation was also undertaken with the Department of the Treasury, the Australian Prudential Regulatory Authority, the Association of Superannuation Funds of Australia, and the Investment and Financial Services Association
Retrospectivity
This instrument applies retrospectively from 20 September 2004 and is beneficial to customers.
Overview
The Social Security (Asset-test Exempt Income Stream (Market-linked) – Payment Factors) (FaCS) Principles 2005 were enacted to specify the payment factor for calculating the annual income of a market-linked income stream, which qualifies as an "asset-test exempt income stream" under the Social Security Act 1991. This instrument was created to address the need for a consistent and standardised formula for determining the payment factor that is used in calculating the annual income of these income streams, thereby ensuring that they meet the requirements of the social security law. These Principles were made under subsection 9BA(5) of the Social Security Act 1991 and are a disallowable instrument under section 46A of the Acts Interpretation Act 1901, meaning they are a legislative instrument in accordance with the Legislative Instruments Act 2003. The primary objective of these Principles is to provide clarity and consistency in the calculation of the payment factor for market-linked income streams that are subject to social security asset tests.
Scope and Application
The Social Security (Asset-test Exempt Income Stream (Market-linked) – Payment Factors) (FaCS) Principles 2005 apply to market-linked income streams that are intended to be classified as "asset-test exempt income streams" under the Social Security Act 1991. This classification exempts these income streams from asset tests for the purposes of determining eligibility for social security payments. The Principles specify the payment factor (PF), which is a crucial element in the formula used to determine the annual income payment that qualifies an income stream for exemption. This legislative instrument is applicable to all entities and individuals who have or seek to establish a market-linked income stream that aims to be recognised as asset-test exempt. The Principles are designed to provide clarity and consistency in applying the PF calculation, ensuring that the income stream's annual payment aligns with the statutory requirements for exemption from asset tests.
These Principles have a Commonwealth reach, being made under the Social Security Act 1991, which is federal legislation. The instrument is not limited by geographic boundaries within Australia but applies nationally. There are no stated exclusions or exemptions within the Principles themselves; however, the application of these Principles is contingent upon the income stream meeting the specific criteria outlined in section 9BA of the Act. The Act may extend or restrict application through subordinate instruments, and the Principles are considered a disallowable instrument for the purposes of section 46A of the Acts Interpretation Act 1901, indicating they are a legislative instrument in accordance with the Legislative Instruments Act 2003.
Key Provisions
The Social Security (Asset-test Exempt Income Stream (Market-linked) – Payment Factors) (FaCS) Principles 2005 (the Principles) establish the specific payment factors (PF) required for calculating asset-test exempt income streams under the Social Security Act 1991 (the Act). These PFs are crucial as they serve as the denominator in the formula defined in subsection 9BA(5) of the Act. The Principles, as stated in subsection 9BA(13) of the Act, are considered a disallowable instrument under section 46A of the Acts Interpretation Act 1901, thereby making them a legislative instrument in accordance with paragraph 6(d) of the Legislative Instruments Act 2003.
Under the Act, a market-linked income stream is designated as an "asset-test exempt income stream" if it meets the criteria outlined in section 9BA. To qualify, the income stream must annually pay an amount calculated using the formula in subsection 9BA(5), where the PF is a key component of the calculation. Clause 4 of the Principles outlines the method for determining the appropriate PF for each year of the income stream's duration, taking into account the number of whole years remaining in the term on 1 July of each financial year. For the initial year, the PF is determined on the commencement date of the income stream.
The Principles impose several obligations on the parties involved. They require that the PF be accurately calculated based on the remaining term of the income stream, rounded appropriately depending on the commencement date. The PF must be applied in conjunction with the formula to ensure the correct annual payment is calculated, which must then be rounded to the nearest $10 or multiple of $10. These calculations are essential to maintain the integrity of the income stream's classification under the Act.
Failure to comply with the requirements set forth in the Principles can lead to significant consequences. Although the Explanatory Statement does not explicitly detail specific offences or penalties, non-compliance with legislative instruments such as these Principles can potentially result in administrative actions, financial penalties, or other legal repercussions under the relevant Acts. The precise nature and severity of these consequences would depend on the specific circumstances of non-compliance and the provisions of the Social Security Act 1991 and other applicable laws.