EXPLANATORY STATEMENT
Social Security (Deeming Threshold Rates) (DEEWR) Determination 2008 (No. 2)
Summary
The Social Security Act 1991 prescribes rules for calculating income from financial investments. Because these rules deem a person to have received a certain rate of return on their financial investments, the rules are generally known as deeming rules. Under these rules the value of a customer's financial assets are added together and income is deemed on these assets using a “below threshold rate” and an “above threshold rate”. The first $41,000 of a single person’s financial assets ($68,200 for pensioner couples and $34,100 for allowee couples) is deemed to earn the below threshold rate, and the balance over this amount is deemed to earn the above threshold rate.
Background
Under section 1082 of the Social Security Act 1991 the Minister for Education, Employment and Workplace Relations determines the below threshold and above threshold rates. Between 20 March 2008 and 17 November 2008 the below threshold rate was 4 per cent and the above threshold rate was 6 per cent.
The Minister for Education, Employment and Workplace Relations has determined that the deeming rates will be decreased from 17 November 2008. The below threshold rate will be decreased to 3.5 per cent and the above threshold rate will also be decreased to 5 per cent.
The Determination sets out the below and above threshold rates at 3.5 per cent and 5 per cent, respectively, from 17 November 2008.
The reduction in the below and above threshold rates is being done so that the deeming rates reflect lower market returns following movements in financial markets since the deeming rates were last adjusted in March 2008.
Explanation of Provisions
Section 1 states that the name of the Determination is the Social Security (Deeming Threshold Rates) (DEEWR) Determination 2008 (No.2).
Section 2 states that the Determination commences on 17 November 2008.
Section 3 revokes the Social Security (Deeming Threshold Rates) (DEEWR) Determination 2008.
Section 4 contains a definition of the term “Act”.
Section 5 sets out the below threshold rate of 3 per cent for the purposes of subsection 1082 (1) of the Act.
Section 6 sets out the above threshold rate of 5 per cent for the purposes of subsection 1082 (2) of the Act.
Consultation
The Department of Families, Housing, Community Services and Indigenous
Affairs was consulted during the preparation of this determination. This was done to ensure a co-ordinated and consistent approach for calculating income from financial investments under income tests for social security payments.
Public consultation was seen as unnecessary as the instrument is beneficial to social security recipients. It reduces the income that social security recipients are deemed to receive from their financial investments, thereby lowering their incomes for the purposes of income tests for social security payments.
Regulatory Impact Analysis and Business Cost Calculator
This instrument does not require a Regulatory Impact Statement (RIS) and/or a Business Cost Calculator Figure. This instrument is not regulatory in nature and will not have any direct impact on business activity and does not directly or indirectly affect competition.
Overview
The Social Security (Deeming Threshold Rates) (DEEWR) Determination 2008 (No. 2) was enacted to address the need for adjusting the rates at which income from financial investments is deemed for the purposes of calculating social security payments under the Social Security Act 1991. This legislative instrument was introduced to respond to changes in market conditions since the previous rates were set. The Minister for Education, Employment and Workplace Relations, under the authority conferred by section 1082 of the Act, determined that the deeming rates should be adjusted to reflect the lower returns on financial investments following recent movements in financial markets. The determination sets the below threshold rate at 3.5 per cent and the above threshold rate at 5 per cent, effective from 17 November 2008. The policy objective behind this adjustment is to ensure that the deemed income from financial investments accurately reflects current market conditions, thereby maintaining the integrity and fairness of social security income tests. This adjustment is intended to benefit social security recipients by potentially increasing their eligibility for social security payments.
Scope and Application
The Social Security (Deeming Threshold Rates) (DEEWR) Determination 2008 (No. 2) applies to individuals and couples who are recipients of social security payments and have financial assets, thereby impacting their eligibility and the amount of benefits they receive. The Act sets the rates at which income is deemed to be earned on financial assets for the purpose of calculating social security payments, with a distinction between below and above threshold rates based on the value of the assets. The Act applies nationally across Australia as it is a Commonwealth instrument, with the rates effective from 17 November 2008. The Determination revokes the previous rates and introduces new rates of 3.5 per cent for assets below the threshold and 5 per cent for assets above the threshold. These rates reflect lower market returns and are intended to ensure the deeming rates remain reflective of actual financial market conditions. The instrument does not require a Regulatory Impact Statement or a Business Cost Calculator as it is not considered regulatory and does not affect business activities or competition.
Key Provisions
The main operative sections of the Social Security (Deeming Threshold Rates) (DEEWR) Determination 2008 (No. 2) are sections 5 and 6, which set out the new below and above threshold rates respectively (ss 5 and 6). Section 5 specifies a below threshold rate of 3.5 per cent, which applies to the first $41,000 of a single person’s financial assets, $68,200 for pensioner couples, and $34,100 for allowee couples (s 5). Section 6 specifies an above threshold rate of 5 per cent, which applies to any amount over these thresholds (s 6). These sections establish the rates that will be used to calculate income from financial investments under the deeming rules.
The obligations and requirements imposed by this Determination on the parties it governs are largely related to the calculation of income for the purposes of social security payments. Financial institutions, social security recipients, and the Department of Families, Housing, Community Services and Indigenous Affairs are primarily affected. Financial institutions must use the specified rates to calculate the income from financial investments for their clients who receive social security payments. Recipients must provide accurate information about their financial assets to ensure that their income is correctly assessed. The Department must ensure that the rates are correctly applied in the calculation of income for social security payments.
The Determination does not specify any offences, penalties, or consequences for breach. However, the Social Security Act 1991, under which this Determination operates, may impose penalties or consequences for non-compliance with its provisions. For instance, section 1163 of the Act provides that a person who makes a false or misleading statement in connection with a social security payment is liable to a penalty. The penalty for an individual is up to 20 penalty units, which is currently $3,300, and for a body corporate, up to 100 penalty units, which is currently $16,500 (s 1163). These penalties are in addition to any other civil or criminal penalties that may apply.
In summary, the Social Security (Deeming Threshold Rates) (DEEWR) Determination 2008 (No. 2) sets out the below and above threshold rates for the calculation of income from financial investments under the deeming rules. It imposes obligations on financial institutions, social security recipients, and the Department to ensure that the correct rates are used in the calculation of income. While the Determination itself does not specify penalties for non-compliance, the Social Security Act 1991 provides for penalties for making false or misleading statements in connection with social security payments.