Social Security (Attribution of Assets) Principles 2001

Administered by Department of Social Services

Legislation au F2007B00365 Not in force Legislative Instrument

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EXPLANATORY STATEMENT

Social Security (Attribution of Assets) Principles 2001

Summary

Section 1209E of the Social Security Act 1991 (the Social Security Act) provides that the Secretary may formulate principles to be complied with by him or her when making decisions under a number of provisions of the Social Security Act, including subsections 1208E(2), 1208G(6) and 1208H(1).

The purpose of this instrument is to set out decision-making principles that the Secretary must comply with in making determinations under sections 1208E, 1208G and 1208H of the Social Security Act. These determinations relate to modifying the way in which Part 3.18 of the Social Security Act would otherwise maintain the assets and liabilities of a company or trust against a social security customer.

Background

The Social Security and Veterans’ Entitlements Legislation Amendment (Private Trusts and Private Companies – Integrity of Means Testing) Act 2000 amended the Social Security Act to give effect to a measure in the Government's 2000-2001 Budget to revise the means test treatment of private companies and private trusts. The measure aims to ensure that customers who hold their assets in private companies or private trusts receive comparable treatment under the means test to those customers who hold their assets directly. The assets and income of the structure will be attributed to the person or persons who control the company or trust, or to the person or persons who were the source of the capital or corpus of the company or trust.

Sections 1208E, 1208G and 1208H of the Social Security Act set out various rules relating to the way in which the assets and liabilities of a company or trust will be maintained against a customer as a result of the trusts and companies measure. These decision-making principles will assist the Secretary in modifying the application of those general rules, where this is necessary.

Explanation of the provisions

Part 1

Section 1 of the Principles states the name of the disallowable instrument and section 2 states that the Principles commence on gazettal. Section 3 contains interpretation provisions. Section 4 sets out the purpose of the instrument.

Part 2

Section 5 sets out the purpose of Part 2 of the instrument. This is to provide decision-making principles that can be used in making a determination, under subsection 1208E(2), that a particular asset of a company or trust should be excluded from being maintained against attributable stakeholders of that company or trust for social security purposes.

Section 6 provides, in effect, that where an individual, who is not an attributable stakeholder of a particular company or trust, has made a genuine transfer of capital to the company or trust, then the Secretary must consider the extent to which part of this capital should be an excluded asset in relation to the attributable stakeholders of the company or trust. In so doing, the Secretary needs to have regard to the value of the capital transferred, the value of the shares or units received by the individual in return and the extent to which the value of the capital is not expressly required to be disregarded. A genuine transfer of capital occurs where an individual over 18 transfers capital to a company or trust and receives fair consideration of shares or units in the company or trust in return as well as obtaining a legal or equitable right to dividends or distributions as well as a share of the capital of the trust or company if it were to be wound up.

Part 3

Section 7 sets out the purpose of Part 3 of the instrument. This is to provide decision-making principles that can be used in making a determination, under subsection 1208G(6), that a charge or encumbrance, that exists in relation to assets of a company or trust, should not be allowed, or only allowed in part, to reduce the value of the company’s or trust’s assets for social security purposes.

Section 8 provides that in determining whether a charge or encumbrance, that exists in relation to assets of a company or trust, should not be allowed, or only allowed in part, to reduce the value of the company’s or trust’s assets for social security purposes, the Secretary should look at whether the transaction that resulted in the creation of the charge or encumbrance was an ‘arms length transaction’ and the other matters listed at section 10.

Section 9 sets out criteria that the Secretary can use in determining whether a particular transaction, that gave rise to a charge or encumbrance over assets of a company or trust, was an ‘arms length transaction’ for the purposes of section 8. These criteria include whether the transaction was for the purposes of the business activities of the company or trust, whether the transaction was in writing, signed by all parties and witnessed by an independent person, whether each party to the transaction was at least 18 years old or at least 16 years old and either in a full-time occupation or in receipt of a social security entitlement, and finally, whether the transaction is made for an arm’s length amount (as defined in section 1207A). These criteria, together with the matters listed at section 10, are aimed at helping the Secretary to determine whether a loan is genuine, rather than a part of a contrived family arrangement.

Section 10 provides other matters that the Secretary needs to take into account in deciding whether a charge or encumbrance, that exists in relation to assets of a company or trust, should not be allowed, or only allowed in part, to reduce the value of the company’s or trust’s assets for social security purposes. These matters include whether the individual, and his or her spouse, is or are the only attributable stakeholder/s of the company or trust, the relationships between the parties to the transaction and the nature and circumstances of the transaction.


Part 4

Section 11 sets out the purpose of Part 4 of the instrument. This is to provide decision-making principles that can be used in making a determination, under subsection 1208H(1), that where a company or trust has borrowed money, without there being a charge or encumbrance over any assets of the company or trust, then the value of a specified asset of the company or trust can be reduced by all, or a part of, the value of the loan for social security purposes.

Section 12 provides that in determining whether the value of a loan, that is not secured over assets of the company or trust, should be allowed, or allowed in part, to reduce the value of an asset of the company or trust, for social security purposes, the Secretary must take into account whether the loan transaction was an ‘arms length transaction’ and the other matters listed at section 14.

Section 13 sets out criteria that the Secretary can use in determining whether a particular loan transaction, was an ‘arms length transaction’ for the purposes of section 12. These criteria include whether the transaction was for the purposes of the business activities of the company or trust, whether the transaction was in writing, signed by all parties and witnessed by an independent person, whether each party to the transaction was at least 18 years old or at least 16 years old and either in a full-time occupation or in receipt of a social security entitlement, and finally, whether the transaction is made for an arm’s length amount (as defined in section 1207A). These criteria, together with the matters listed at section 14 are aimed at helping the Secretary to determine whether a loan is genuine, rather than a part of a contrived family arrangement.

Section 14 provides other matters that the Secretary needs to take into account in deciding whether the value of a loan, that is not secured over assets of the company or trust, should be allowed, or allowed in part, to reduce the value of an asset of the company or trust, for social security purposes. These matters include whether the individual, and his or her spouse, is or are the only attributable stakeholder/s of the company or trust, the relationships between the parties to the transaction, the nature and circumstances of the transaction and also whether the loan is secured over an asset that is not owned by the company or trust.

 

Overview

The Social Security (Attribution of Assets) Principles 2001 were enacted to provide decision-making principles that the Secretary must comply with when determining the assets and liabilities of a company or trust for social security purposes, as outlined in sections 1208E, 1208G, and 1208H of the Social Security Act 1991. These principles were formulated in response to the amendments made by the Social Security and Veterans’ Entitlements Legislation Amendment (Private Trusts and Private Companies – Integrity of Means Testing) Act 2000, which aimed to revise the means test treatment of private companies and trusts to ensure comparable treatment for social security customers. The enactment of these principles is a measure to address the integrity of the means test by attributing the assets and income of companies and trusts to those who control them or who provided the capital, thereby ensuring that social security customers holding assets in such structures are treated similarly to those who hold their assets directly. The principles are intended to guide the Secretary in modifying the application of the general rules set out in the Social Security Act, ensuring that genuine transfers of capital and loans are properly distinguished from contrived family arrangements. This involves considerations such as whether transactions were conducted at arm's length, the nature of the relationships between the parties involved, and the circumstances surrounding the creation of charges or encumbrances. These provisions aim to maintain the integrity of the social security system by preventing the misuse of company and trust structures to circumvent means testing.

Scope and Application

The Social Security (Attribution of Assets) Principles 2001 applies to the Secretary of the Department of Social Services and governs the decision-making process under certain provisions of the Social Security Act 1991, specifically sections 1208E, 1208G and 1208H. These provisions deal with the attribution of assets and liabilities of companies and trusts for social security purposes, ensuring that individuals who hold their assets in such entities receive comparable treatment under the means test to those holding their assets directly. The instrument applies to any company or trust where the Secretary is required to make a determination in accordance with these sections, thereby impacting the social security entitlements of attributable stakeholders of these entities. The legislation operates on a national level, as it is formulated under the Commonwealth's authority. The instrument does not explicitly state any exclusions or exemptions, but it provides detailed decision-making principles that the Secretary must follow, potentially limiting certain claims or applications based on the criteria outlined. Subordinate instruments may further extend or specify application details, though the explanatory statement does not explicitly mention any such instruments.

Key Provisions

The Social Security (Attribution of Assets) Principles 2001 (the Principles) provide decision-making guidelines for the Secretary when making determinations under sections 1208E, 1208G, and 1208H of the Social Security Act 1991 (the Social Security Act). These sections relate to the treatment of assets and liabilities of companies or trusts in the context of social security means testing. The main provisions (sections 5, 8, 9, 10, 12, and 13) provide principles for determining whether specific assets should be excluded from being maintained against stakeholders of a company or trust, whether charges or encumbrances should be allowed to reduce asset values, and whether loans should reduce asset values for social security purposes. Section 6 requires the Secretary to consider the exclusion of capital transferred genuinely to a company or trust by individuals not attributable stakeholders, taking into account the value of the capital and shares or units received in return. Section 8 and the criteria in section 9 assist the Secretary in determining whether a charge or encumbrance should be allowed to reduce asset values, focusing on whether the transaction was at arm's length and other specified criteria. Section 12 and the criteria in section 13 guide the Secretary in deciding whether a loan should reduce asset values, again focusing on whether the loan transaction was at arm's length and other specified criteria. The obligations imposed by the Principles on the Secretary include making decisions in accordance with the principles outlined in sections 5, 8, 9, 10, 12, and 13. The Secretary must consider various factors, such as the nature of capital transfers, the arm's length nature of transactions, and the relationships between parties, to determine the appropriate treatment of assets and liabilities of companies or trusts in social security assessments. These obligations ensure that the Secretary's decisions are consistent with the legislative intent to provide fair and comparable treatment for social security customers who hold their assets in companies or trusts. There are no specific offences, penalties, or civil/criminal consequences outlined in the Principles for breach. The Principles themselves do not create new offences or penalties; rather, they provide a framework for the Secretary to make determinations that comply with the requirements of the Social Security Act. However, any breach of the Social Security Act or non-compliance with the Principles could potentially lead to administrative penalties or other legal consequences as outlined in the Social Security Act. The exact nature and extent of these consequences would depend on the specific circumstances and the provisions of the Social Security Act that are applicable.

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Sourced from the Federal Register of Legislation at 26 August 2026. For the latest information on Australian Government law please go to https://www.legislation.gov.au.