EXPLANATORY STATEMENT
Social Security Act 1991
Social Security (Exempt Lump Sum) Determination 2018
Purpose
Under the social security law all income earned, derived or received for a person’s own use or benefit, is counted as income. The only exceptions to this are items specifically exempted under the social security law. Paragraph 8(11)(d) of the Social Security Act 1991 (the Act) allows the Secretary of the Department of Social Services (DSS) to determine that an amount, or class of amounts, received by a person is an exempt lump sum for the purposes of the Act. An exempt lump sum is not included in the definition of ‘ordinary income’ under subsection 8(1) of the Act, so any such amount will not be taken into account under the social security income test.
A home equity conversion (HEC) agreement is a mechanism that allows a homeowner to convert all or part of the equity locked up in their home into cash or a stream of income. A key feature of a HEC agreement is that the loan (including interest) is generally not repayable until the homeowner moves out or dies.
The first $40,000 of a HEC loan is exempt income under subsections 8(4) and 8(5) of the Act. This Determination provides that payments from a HEC agreement in excess of $40,000 are an exempt lump sum for the purpose of paragraph 8(11)(d) of the Act.
The effect of this Determination is that such a payment will not be taken to be income under the Act, so that if a social security recipient receives such a payment, it will be exempt from the social security income test on receipt.
The exemption of the HEC agreement amount from the income test on receipt does not alter the fact that any ongoing income generated by the lump sum is counted under the income test. Also, apart from the first $40,000 of the HEC agreement amount which is specifically exempt from the social security assets test for 90 days under section 1118 of the Act, any assessable asset produced from the lump sum is counted under the social security assets test. This is consistent with the treatment of other lump sum payments exempted under paragraph 8(11)(d) of the Act.
This Determination will commence on 1 October 2018 following the cessation of the Social Security Exempt Lump Sum Determination No. 4 of 1999 (1999 Determination) on that date. The 1999 Determination ceases operation on 1 October 2018 due to the sunsetting provisions in the Legislation Act 2003. This Determination is substantially in the same terms as the 1999 Determination.
This instrument is a legislative instrument for the purposes of the Legislation Act 2003.
Commencement
This Determination commences on 1 October 2018.
Consultation
The Department of Veterans’ Affairs and the Department of Agriculture and Water Resources were consulted.
This Determination will be beneficial to persons affected as it exempts payments from a HEC agreement in excess of $40,000 from the social security income test. As a result, public consultation was considered unnecessary.
Regulatory Impact Statement
The Determination does not require a Regulatory Impact Statement. The Determination is not regulatory in nature, will not impact on business activity and will have no, or minimal, compliance costs or competition impact.
Explanation of Provisions
Section 1 states the name of the instrument as the Social Security (Exempt Lump Sum) Determination 2018 (the Determination).
Section 2 states that the instrument commences on 1 October 2018. This means that the instrument will have effect on and from that date.
Section 3 states that the authority for making this Determination is paragraph 8(11)(d) of the Act.
Section 4 contains the definition of the term Act and HEC agreement as it is used in the instrument. Act means the Social Security Act 1991 and HEC agreement means a home equity conversion agreement as defined under subsection 8(1) of the Act.
Section 5 specifies that payments from a HEC agreement in excess of $40,000 are an exempt lump sum for the purpose of paragraph 8(11)(d) of the Act.
Such an amount will be regarded as an exempt lump sum from the date the payment is received by the person.
Section 6 sets out that the exempt lump sums described in paragraphs 5(2) and (3) of the Determination paid to a person or the person’s partner under a HEC agreement is an exempt lump sum for the purposes of paragraph 8(11)(d) of the Act from the date that the amount is paid.
Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
Social Security Act 1991
Social Security (Exempt Lump Sum) Determination 2018
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
Under the social security law all income earned, derived or received for a person’s own use or benefit, is counted as income. The only exceptions to this are items specifically exempted under the social security law. Paragraph 8(11)(d) of the Social Security Act 1991 (the Act) allows the Secretary of the Department of Social Services (DSS) to determine that an amount, or class of amounts, received by a person is an exempt lump sum for the purposes of the Act. An exempt lump sum is not included in the definition of ‘ordinary income’ under subsection 8(1) of the Act, so any such amount will not be taken into account under the social security income test.
A home equity conversion (HEC) agreement is a mechanism that allows a homeowner to convert all or part of the equity locked up in their home into cash or a stream of income. A key feature of a HEC agreement is that the loan (including interest) is generally not repayable until the homeowner moves out or dies.
The first $40,000 of a HEC loan is exempt income under subsections 8(4) and 8(5) of the Act. This Determination provides that payments from a HEC agreement in excess of $40,000 are an exempt lump sum for the purpose of paragraph 8(11)(d) of the Act.
The effect of this Determination is that such a payment will not be taken to be income under the Act, so that if a social security recipient receives such a payment, it will be exempt from the social security income test on receipt.
The exemption of the HEC agreement amount from the income test on receipt does not alter the fact that any ongoing income generated by the lump sum is counted under the income test. Also, apart from the first $40,000 of the HEC amount which is specifically exempt from the social security assets test for 90 days under section 1118 of the Act, any assessable asset produced from the lump sum is counted under the social security assets test. This is consistent with the treatment of other lump sum payments exempted under paragraph 8(11)(d) of the Act.
This Determination will commence on 1 October 2018 following the cessation of the Social Security Exempt Lump Sum Determination No. 4 of 1999 (1999 Determination) on that date. The 1999 Determination ceases operation on 1 October 2018 due to the sunsetting provisions in the Legislation Act 2003. This Determination is substantially in the same terms as the 1999 Determination.
This instrument is a legislative instrument for the purposes of the Legislation Act 2003.
Human rights implications
If HEC loan amounts were not exempted under the social security income test a person’s access to social security could be affected. This Determination therefore supports a person’s human right to social security.
Conclusion
The Determination is compatible with human rights.