EXPLANATORY STATEMENT
Social Security (Deeming Threshold Rates) Determination (DEWR) 2007
Summary
The Social Security Act 1991 prescribes rules for calculating income from financial investments called deeming. Under these rules the value of a recipient’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 $38 400 of a single person’s financial assets, $63 800 for pensioner couples and $31 900 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 Employment and Workplace Relations determines these rates in respect of the social security payments administered under the Employment and Workplace Relations portfolio. Before 20 March 2007, the below threshold rate was 3 per cent and the above threshold rate was 5 per cent.
The Minister for Employment and Workplace Relations, the Minister for Families, Community Services and Indigenous Affairs and the Minister for Education, Science and Training have determined that the deeming rates would be increased from 20 March 2007. The ‘below threshold’ rate would be increased to 3.5 per cent and the ‘above threshold’ rate would also be increased to 5.5 per cent.
The attached determination sets out the below and above threshold rates at 3.5 per cent and 5.5 per cent respectively, from 20 March 2007.
Explanation of Provisions
Section 1 of the instrument states the name of the instrument.
Section 2 states that the instrument commences on 20 March 2007.
Section 3 contains a definition of the term “Act”.
Section 4 revokes the Social Security (Threshold Rates) Determination 2004 (No. 1).
Section 5 sets out the below threshold rate of 3.5%.
Section 6 sets out the above threshold rate of 5.5%.
Consultation
The Department of Families, Community Services and Indigenous Affairs and the Department of Education, Science and Training were 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 the income test.
Regulatory Impact Analysis and Business Cost Calculator
The Office of Best Practice Regulation has confirmed that a Regulatory Impact Statement and a Business Cost Calculator are not required as the proposal does not have a significant impact on business or individuals, nor on the economy. The proposal also does not restrict competition. The Office of Best Practice Regulation Regulatory Impact Statement identification number is 9031.
Overview
The Social Security (Deeming Threshold Rates) Determination (DEWR) 2007 was introduced to address the need for updating 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 determination was enacted by the Minister for Employment and Workplace Relations, in consultation with the Minister for Families, Community Services and Indigenous Affairs and the Minister for Education, Science and Training, to ensure a coordinated approach in the application of deeming rates across various social security payments. The primary policy objective was to adjust the deeming rates to reflect changes in the economic environment and to maintain the integrity of the income test for social security recipients. This change aimed to ensure that the financial assets of recipients are fairly assessed to determine their eligibility and level of social security support.
Scope and Application
The Social Security (Deeming Threshold Rates) Determination (DEWR) 2007 applies to financial assets held by individuals who are recipients of social security payments under the Social Security Act 1991. The deeming rates affect the calculation of income from financial investments for the purpose of determining eligibility for social security benefits. The Act applies to individuals across Australia, as it is a Commonwealth instrument. It sets out specific rates for deeming income on financial assets, distinguishing between a 'below threshold' rate and an 'above threshold' rate for different categories of individuals such as single persons, pensioner couples, and allowee couples. The Determination revokes the previous Social Security (Threshold Rates) Determination 2004 (No. 1), replacing the deeming rates with new rates effective from 20 March 2007. There are no stated exclusions or thresholds beyond those specified in the Act itself, and the application of the rates is not extended or restricted by any subordinate instruments.
Key Provisions
The Social Security (Deeming Threshold Rates) Determination (DEWR) 2007, which commenced on 20 March 2007, adjusts the rates at which income is deemed for financial assets under the Social Security Act 1991. Section 5 of the Determination sets the below threshold rate at 3.5%, applicable to the first $38,400 of a single person’s financial assets, $63,800 for pensioner couples, and $31,900 for allowee couples. Section 6, on the other hand, sets the above threshold rate at 5.5%, applicable to any financial assets exceeding these amounts. This essentially means that any income derived from financial assets above these specified amounts will be deemed at the higher rate of 5.5%.
The Determination imposes specific obligations on entities and individuals subject to the deeming provisions of the Social Security Act 1991. These obligations include accurately calculating the income from financial assets using the prescribed rates. The Act requires that the first specified amount of financial assets be deemed at the below threshold rate, while any amount exceeding this specified amount be deemed at the above threshold rate. This ensures that the income derived from financial assets is accurately assessed for the purpose of determining social security payments.
Failure to comply with the provisions of this Determination can result in various consequences. Although the Determination itself does not explicitly state the penalties for non-compliance, breaches of the Social Security Act 1991 may lead to civil or criminal penalties. Under the Social Security Act 1991, penalties for providing false or misleading information can include fines of up to $22,200 for individuals and $111,000 for corporations, in addition to potential imprisonment. These penalties underscore the importance of adhering to the deeming rates and the accurate calculation of income from financial assets as prescribed by the Act.