EXPLANATORY STATEMENT
Social Security (Exempt Lump Sum) (Commonwealth Bank Officers Superannuation Corporation Pty Limited – OSF DB Rectification Project Payment) (DEEWR) Determination 2012
Summary
Paragraph 8(11)(d) of the Social Security Act 1991 (the Act) allows the Secretary of the Department of Education, Employment and Workplace Relations (DEEWR) to determine that an amount received by a person is an exempt lump sum for the purposes of the social security law.
The effect of this Determination is that, for the purpose of social security payments for which the Minister for Employment and Workplace Relations, Financial Services and Superannuation is responsible, a payment made under the OSF DB Rectification Project administered by Commonwealth Bank Officers Superannuation Corporation Pty Limited (CBOSC) as the trustee of the Officers’ Superannuation Fund is an ‘exempt lump sum’ under paragraph 8(11)(d) of the Act. OSF DB means Officers’ Superannuation Fund Defined Benefit.
By determining that a payment made under the OSF DB Rectification Project is an exempt lump sum for the purposes of the social security law, the amount of the payment under the OSF DB Rectification Project will not be considered as income when assessing a person’s qualification for, and the payability of, a social security payment.
Any payment made under the OSF DB Rectification Project is intended to meet any shortfall in social security payments, or repayments of debts to the Department of Human Services (DHS) for overpayments of social security payments, made as a result of reliance by DHS on an incorrect tax free component calculation or because no tax free component calculation has been provided to DHS for some members of the OSF DB schemes.
Background
The Commonwealth Government introduced, with effect from 1 July 2007, legislative reforms to the taxation of superannuation benefits. These reforms included:
- a revised method of calculating the tax free component for defined benefit superannuation income streams which commenced on or after 1 July 2007;
- different calculations to determine the tax free component for pensions commencing on or after 1 July 1994 and before 1 July 2007 according to whether the recipient of the pension was over or under the age of 60 years as at 30 July 2007; and
- changes to the definition of ‘deductible amount’ in section 9 of the Act for the purpose of determining whether a person’s social security payment is payable. The social security definition of deductible amount refers to the sum of tax free components worked out under the Income Tax Assessment Act 1997 which is used to determine assessable income for defined benefit income streams. Under the social security income test, assessable income is determined by reducing the gross annual income by the deductible amount. The effect of any increase in the tax free component under the tax amendments resulted in a potentially higher social security payment for certain pensioners, depending on the social security recipient’s assets and other income.
Following a review by CBOSC it became apparent that some pensioners who have an OSF DB income stream may not have claimed or may have incorrectly received a reduced rate of their social security payment. Partners or financial dependents of pensioners with one of these income streams, who are also social security recipients, may have also incorrectly received a reduced rate of their social security payment.
These underpayments of social security arose either:
- solely as a result of reliance by DHS on an incorrect tax free component calculation provided by CBOSC on or after 1 July 2007 in respect of the relevant OSF DB income stream, where the OSF DB pensioner has provided DHS with all such information provided by CBOSC; or
- because no tax free component calculation has been provided to DHS or the pensioner in respect of an OSF DB income stream, and this is solely due to CBOSC’s implementation of the 2007 legislative reforms.
Also, in some circumstances, certain people were overpaid social security payments after 1 July 2007, solely as a result of reliance by DHS on an incorrect tax free component calculation provided by CBOSC on or after that date. These people include current or former (including those now deceased) OSF DB pensioners, together with partners and/or financial dependents (where applicable, including those now deceased) of OSF DB pensioners who were in receipt of an OSF DB income stream at 1 July 2007 (or whose OSF DB pension commenced after that date).
CBOSC formally established the OSF DB Rectification Project to review and arrange, in conjunction with relevant Government agencies, rectification of both underpaid and overpaid social security payments relating to affected OSF DB pensioners, their partners and financial dependents (where applicable, including those now deceased). CBOSC proposes to offer those whose social security payments have been underpaid in these circumstance an ex gratia lump sum through the OSF DB Rectification Project in respect of lost social security payments.
Further, the Commonwealth Bank of Australia (CBA) proposes to offer through the OSF DB Rectification Project ex gratia lump sum payments to, or on behalf of those who have been overpaid social security payments after 1 July 2007 in the form of a lump sum payment of the debt raised by DHS in respect of the overpayment of social security payments.
Under the social security law, money earned, derived or received for a person’s own use or benefit, is generally assessable as income. However, some amounts, that would otherwise be income, are specifically exempted from the social security income test. Paragraph 8(11)(d) of the Act allows the Secretary to determine that an amount, or class of amounts, is an exempt lump sum for the purposes of the Act. An exempt lump sum is excluded from the definition of ‘ordinary income’ under subsection 8(1) of the Act. As a result, any such amount is not to be taken into account under social security income tests.
The effect of this instrument is that a payment made to, or on behalf of, OSF DB pensioners, their partners or dependents (where applicable, including those who are deceased), under the OSF DB Rectification Project, will not be assessed as income under the social security law in respect of social security payments for which the Minister for Employment and Workplace Relations, Financial Services and Superannuation, is responsible.
The Secretary of the Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA) will make a complementary Determination in relation to social security payments that the Minister for Families, Community Services and Indigenous Affairs and the Minister for Disability Reform have responsibility for under the Administrative Arrangements Order. This will ensure that a payment made under the OSF DB Rectification Project received by a recipient of a social security payment administered by FaHCSIA will also be an exempt lump sum for the purposes of the Act.
The Secretary of the Department of Industry, Innovation, Science, Research and Tertiary Education (DIISRTE) will make a complementary Determination in relation to social security payments that the Minister for Tertiary Education, Skills, Science and Research has responsibility for under the Administrative Arrangements Order. This will ensure that a payment made under the OSF DB Rectification Project received by a recipient of a social security payment administered by DIISRTE will also be an exempt lump sum for the purposes of the Act.
The Secretary of the Department of Veterans Affairs (DVA) will make a complementary Determination in relation to income support payments that the Minister for Veterans Affairs has responsibility for under the Administrative Arrangements Order. This will ensure that a payment made under the OSF DB Rectification Project received by a recipient of a DVA-administered income support payment will also be an exempt lump sum for the purposes of the Veterans’ Entitlement Act 1986 (the Veterans’ Act).
This Determination is a legislative instrument.
Explanation of Provisions
Section 1 of the Determination states the name of the Determination.
Section 2 states that the Determination commences on the day after it is registered.
Section 3 contains interpretation provisions, including a definition of OSF DB Rectification Project Payment.
Subsection 4(1) states that paragraph 8(11)(d) of the Act allows the Secretary to determine that an amount, or class of amounts, received by a person is an exempt lump sum.
Subsection 4(2) provides that if an OSF DB Rectification Project Payment, as defined in section 3, is made, then any amount of such a payment is an exempt lump sum.
Consultation
The Department has consulted with FaHCSIA and DIISRTE regarding this exemption. FaHCSIA has also consulted with DVA regarding this exemption. Such consultation was done to ensure a co-ordinated and consistent approach to the income test treatment of this one-off payment for all social security payments under the Act and income support payments under the Veterans’ Act.
FaHCSIA and DIISRTE have confirmed that they will exempt this one-off lump sum payment from the income test for the purpose of assessment of qualification for social security payments.
DVA has confirmed that it will exempt this one-off lump sum payment from the Veteran’s Entitlements income test for the purpose of assessment of eligibility for veterans’ benefit.
Regulatory Impact Analysis
The Determination is not regulatory in nature, will not impact on business activity and will have no, or minimal, compliance costs or competition impact.
Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
The Determination is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview of the Legislative Instrument
The Determination is a class determination under paragraph 8(11)(d) of the Social Security Act 1991 (the Act) to assist in the effective rectification of incorrect social security income support payments made by DHS, as a result of incorrect calculations by CBOSC, or where no tax free component calculation was provided to DHS for some members of the bank’s OSF DB schemes. The Determination will ensure that ex gratia OSF DB Rectification Project Payments made in relation to those incorrect social security income support payments will not be assessed as income for social security purposes thereby ensuring that recipients retain the full value of the ex gratia payments.
Human rights implications
The Determination engages the following human right:
Right to social security
Paragraph 8(11)(d) of the Act allows the Secretary of DEEWR to determine that an amount received by or paid on behalf of a person is an exempt lump sum for the purposes of the social security law for payments for which the Minister for Employment and Workplace Relations, Financial Services and Superannuation is responsible.
Conclusion
The Determination under paragraph 8(11)(d) of the Act ensures affected OSF DB pensioners receive their correct entitlements under the social security law and are not penalised for issues beyond their control. The Determination supports their human right to social security.