Explanatory Statement
Social Security Exempt Lump Sum (Dependant Pension Lump Sum Payment and Closure) (FaHCSIA) Determination 2009
Summary
Paragraph 8(11)(d) of the Social Security Act 1991 (the Act) allows the Secretary of the Department of Families, Housing, Community Services and Indigenous Affairs to determine that an amount received by a person is an exempt lump sum for the purposes of the social security income test. The effect of this Determination is that, for a person or a person’s partner who is in receipt of the dependant pension, the receipt of a one-off lump sum payment made as a result of the cancellation of ongoing payment of the said pension is an exempt lump sum.
Background
Under the social security law, all income 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 the social security income test.
The dependant pension is a form of pension paid under the Repatriation Act 1920 which, prior to 6 June 1985, was granted to the wife or dependent child of a veteran to compensate those dependents for the possible effects of the veteran’s war-caused disablement.
Upon the introduction of the Veterans’ Entitlements Act 1986, the transitional provisions allowed those in receipt of the dependant pension to voluntarily cease receiving their pension and receive a lump sum equivalent to three years of payment. This was not taken up by all recipients. There have been no new grants of the dependant pension since 6 June 1985. Those dependents who were in receipt of payment on 5 June 1985 had their rate of payment frozen at the rate payable on that date for so long as they continued to be entitled to the pension. This allowance has little value in today’s economy and so a lump sum payment is being made in lieu of ceasing the ongoing fortnightly payment.
The effect of the attached instrument is that people who are in receipt of dependant pension will not have any social security payment reduced because of receiving a one-off lump sum payment as a result of the cancellation of ongoing fortnightly payment of their dependant pension. This is because the lump sum payment will not be regarded as income for the purposes of the income test under the Act. The one–off lump sum payment will equal the total amount of dependant pension the client would have received over the next three years, to be paid on 24 September 2009.
Explanation of Provisions
Part 1
Section 1 of the Determination states the name of the Determination and shows how it is to be cited.
Section 2 states that the Determination commences on the 24 September 2009.
Section 3 contains definition provisions.
Part 2
Section 4 provides that where a person who receives a one-off dependant pension lump sum payment, in consideration of cancelling their fortnightly dependant pension payments, then this one-off lump sum will be an exempt lump sum in respect of that person for the purposes of the Act.
Consultation
The Department has consulted with the Department of Veterans’ Affairs (DVA) regarding this exemption. DVA has confirmed that it will exempt this one-off lump sum payment from the Veterans’ Entitlements income test as a result of the cancellation of ongoing fortnightly payment of the dependant pension paid by DVA. We have also consulted with the Department of Education Employment Workplace Relations with respect to this payment.
Regulatory Impact Analysis
This Determination does not require a Regulatory Impact Statement or Business Cost Calculator Figure. The Determination is not regulatory in nature, will not impact on business activity and will have no, or minimal, compliance costs or competition impact.
Overview
The Social Security Exempt Lump Sum (Dependant Pension Lump Sum Payment and Closure) (FaHCSIA) Determination 2009 was introduced to address the issue of how to handle one-off lump sum payments to recipients of the dependant pension, who are no longer receiving ongoing fortnightly payments. This Determination was enacted by the Secretary of the Department of Families, Housing, Community Services and Indigenous Affairs under paragraph 8(11)(d) of the Social Security Act 1991, with the policy objective of ensuring that these lump sum payments are not treated as income for the purposes of the social security income test. This allows recipients to receive a lump sum payment equivalent to three years of their pension without incurring a reduction in their social security payments. The legislation was developed in consultation with relevant departments, including the Department of Veterans’ Affairs and the Department of Education, Employment and Workplace Relations, and it is not considered to have a significant regulatory, business, or competition impact.
Scope and Application
The Social Security Exempt Lump Sum (Dependant Pension Lump Sum Payment and Closure) (FaHCSIA) Determination 2009 applies to individuals who are currently receiving the dependant pension under the Repatriation Act 1920, which was historically granted to the wives or dependent children of veterans to compensate for the effects of a veteran's war-caused disablement. This Determination, enacted under the authority of paragraph 8(11)(d) of the Social Security Act 1991, specifies that a one-off lump sum payment made to a dependant pension recipient in lieu of the cancellation of ongoing fortnightly payments will be considered an exempt lump sum for the purposes of the social security income test. This means that such a lump sum will not be treated as income and will not affect the recipient's social security payment. The Determination is applicable nationally within the Commonwealth of Australia and does not include any specific exclusions or exemptions beyond its stated purpose of exempting the lump sum payment from the social security income test. The Determination came into effect on 24 September 2009, and it is not intended to have a regulatory impact, impose compliance costs, or affect business activities.
Key Provisions
The key provisions of the Social Security Exempt Lump Sum (Dependant Pension Lump Sum Payment and Closure) (FaHCSIA) Determination 2009 centre on the exemption of certain lump sum payments from the social security income test. Section 1 of the Determination provides the name and citation details, while Section 2 establishes the commencement date of 24 September 2009. Section 3 includes definitions necessary for understanding the scope and application of the Determination. The primary operative section, Section 4, specifies that a one-off lump sum payment received by a person in lieu of their ongoing fortnightly dependant pension payments will be considered an exempt lump sum for the purposes of the Social Security Act 1991 (the Act). This means such payments will not be regarded as income when determining eligibility for social security benefits.
The Determination imposes specific obligations on the relevant parties. It requires that the one-off lump sum payment, equivalent to three years of pension payments, be made to individuals who are in receipt of a dependant pension and choose to cease their ongoing fortnightly payments. The payment is designed to provide a financial alternative to the ongoing pension, ensuring that the recipient does not face a reduction in social security payments due to the lump sum. The Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA) and the Department of Veterans’ Affairs (DVA) have both been consulted regarding the exemption of this lump sum from the income test.
Failure to comply with the provisions of the Determination may result in legal consequences. While the Determination itself does not outline specific offences or penalties, breaches of the Social Security Act 1991 could lead to civil or criminal penalties. Under the Act, penalties for providing false or misleading information can include fines of up to $22,200 for individuals and $111,000 for corporations. Additionally, individuals who are found to have intentionally provided false information could face imprisonment for up to two years. The Determination, being non-regulatory, does not introduce new compliance costs or competition impacts, but it does provide clarity and legal certainty regarding the treatment of these lump sum payments under social security law.