EXPLANATORY STATEMENT
Social Security (Threshold Rates) Determination 2007 (No. 1)
Summary
The Social Security Act 1991 prescribes rules for calculating income from financial investments. These 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 $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 Families, Community Services and Indigenous Affairs determines the below threshold and above threshold rates in respect of the social security payments administered under the Families, Community Services and Indigenous Affairs portfolio. Until 20 March 2007 the below threshold rate is 3% and the above threshold rate is 5%.
The Minister for Families, Community Services and Indigenous Affairs has determined that the deeming rates will be increased from 20 March 2007. The below threshold rate will be increased to 3.5% and the above threshold rate will also be increased to 5.5%.
The attached determination sets out the below and above threshold rates at 3.5% and 5.5%, 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 Employment and Workplace Relations 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.
Public consultation was unnecessary.
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 (Threshold Rates) Determination 2007 (No. 1) was enacted to address the need for updating the deeming rates for financial assets under the Social Security Act 1991. This determination was introduced by the Minister for Families, Community Services and Indigenous Affairs to ensure that the deeming rates, which are used to calculate the income from financial investments for the purposes of social security payments, remain current and reflective of the economic environment. The policy objective of this determination is to maintain the integrity of the social security system by adjusting the rates at which financial assets are deemed to earn income, thereby ensuring that the income test for social security eligibility remains fair and effective.
The Social Security (Threshold Rates) Determination 2007 (No. 1) was enacted by the Parliament of Australia and it came into effect on 20 March 2007. This determination increased the below threshold rate from 3% to 3.5% and the above threshold rate from 5% to 5.5%. This change was necessary to align the deeming rates with the economic conditions at the time and to ensure that the social security system continues to operate efficiently and equitably. The determination also revoked the previous Social Security (Threshold Rates) Determination 2004 (No. 1) to reflect the updated rates. The determination was prepared in consultation with relevant departments, and it was determined that there was no significant impact on business or individuals, thus no Regulatory Impact Statement or Business Cost Calculator was required.
Scope and Application
The Social Security (Threshold Rates) Determination 2007 (No. 1) pertains to the deeming rules established under the Social Security Act 1991, which govern the calculation of income derived from financial investments for the purposes of social security payments. This determination specifically applies to individuals and couples who are recipients of social security payments and whose financial assets exceed certain thresholds, where income is imputed on these assets using specified rates. The below threshold rate of 3.5% applies to the first $38,400 of a single person’s financial assets, $63,800 for pensioner couples, and $31,900 for allowee couples, while any balance over these amounts is deemed to earn the above threshold rate of 5.5%. This instrument commenced on 20 March 2007 and revoked the previous Social Security (Threshold Rates) Determination 2004 (No. 1). While the application of the determination is national, the rates themselves are prescribed by the Minister for Families, Community Services and Indigenous Affairs. The proposal did not require extensive consultation or a Regulatory Impact Statement due to its minimal impact on businesses, individuals, and the economy.
Key Provisions
The Social Security (Threshold Rates) Determination 2007 (No. 1) provides the rates at which income from financial investments is deemed for the purposes of calculating social security payments. Specifically, section 5 (1) states that the below threshold rate is 3.5% and section 6 (1) specifies that the above threshold rate is 5.5%. These rates apply to the financial assets of individuals receiving social security payments, with the first $38,400 of a single person's financial assets deemed to earn the below threshold rate, and any amount over this threshold deemed to earn the above threshold rate. For pensioner couples and allowee couples, the threshold amounts are $63,800 and $31,900 respectively. This deeming is a key mechanism under the Social Security Act 1991 (section 1082) for determining the eligibility of individuals for social security benefits based on their financial investments.
The determination imposes obligations on the parties governed by it, primarily those receiving social security payments. These individuals are required to accurately report their financial assets to the relevant authorities, which will then apply the specified rates to determine the income deemed from these assets. This calculation is crucial for assessing the individual's eligibility for benefits and the amount of any payment they may receive. The obligation to provide accurate and complete information about financial assets is essential to ensure that the deeming rules are applied correctly and that the benefits are distributed in accordance with the provisions of the Social Security Act 1991.
Breaches of the obligations imposed by the Social Security (Threshold Rates) Determination 2007 (No. 1) may result in civil or criminal consequences. While specific penalties are not outlined in the determination itself, general penalties for breaches of the Social Security Act 1991 can include fines and, in some cases, imprisonment. The severity of the penalty depends on the nature and extent of the breach, with more serious or repeated breaches likely to incur higher penalties. The determination is designed to ensure that the income test for social security payments is applied consistently and fairly, thereby maintaining the integrity of the social security system.