EXPLANATORY STATEMENT
Social Security Act 1991
Social Security (Exempt Lump Sum – Settlement of Per- and Poly-fluoroalkyl Class Action) Determination 2021
Purpose
Paragraph 8(11)(d) of the Social Security Act 1991 (the Act) allows the Secretary of the Department of Social Services (department) to determine, by legislative instrument, that an amount, or class of amounts, received by a person is an exempt lump sum for the purposes of the Act.
The Secretary of the department has delegated the power to determine an exempt lump sum, or class of exempt lump sums, to senior officers of the department, including the Branch Manager of the Older Australians Branch.
The Social Security (Exempt Lump Sum – Settlement of Per- and Poly-fluoroalkyl Class Action) Determination 2021 (the Determination) ensures that an amount paid by, or on behalf of, the Commonwealth as compensation for property value diminution as part of the settlement is an exempt lump sum under paragraph 8(11)(d) of the Act.
Background
Under the social security law, an income test is used to determine a person’s entitlement to a social security payment, and if they are qualified, the rate of a social security payment that is payable. An income amount 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.
Paragraph 8(11)(d) of the Act allows the Secretary of the department 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, meaning the lump sum amount is not taken into account under the social security income test.
The exemption of a payment from the income test on receipt does not alter the fact that any ongoing income generated by the lump sum is not exempt from the income test, and 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 under paragraph 8(11)(d) of the Act.
Settlement of Per- and Poly-fluoroalkyl Class Action
The Class Action alleged that the Department of Defence negligently allowed toxic chemicals known as per- and poly-fluoroalkyl ‘PFAS’ to escape from defence bases, and contaminate local environments. These contaminants have negatively impacted properties, land values and the livelihoods of surrounding communities.
The action sought compensation for property owners for economic loss, including the diminution in value of their land. An in-principle agreement with the Department of Defence was reached in early 2020, with a final settlement agreed on 5 June 2020. The settlement will be divided among impacted landowners, with the details of the distribution scheme now approved by the Court.
This Determination will exempt the economic loss component of the compensation in respect of property value diminution. As the property value diminution element of the settlement compensates for the loss of value of an asset, it is appropriate that this is not assessed as income.
Other economic loss components of the compensation payments, including compensation for loss of business income, will be assessable income for the purposes of the social security income test. Net business income is assessable for social security purposes, so it is appropriate that compensation paid for lost business income is also assessable.
The non-economic loss component of the compensation payments i.e. for inconvenience, distress and vexation, is already exempted from the social security income test by the Social Security (Exempt Lump Sums—Payments Compensatory in Nature for Non-Economic Loss) Determination 2017.
Commencement
The Determination commences on the day after this instrument is registered on the Federal Register of Legislation.
Consultation
Consultation has been undertaken with Services Australia who will implement the change effected by the Determination.
Dentons Lawyers and Shine Lawyers both represented the plaintiffs in the matter and were consulted during the preparation and drafting of this instrument.
The Department of Veterans’ Affairs and the Department of Agriculture, Water and the Environment were consulted on the intention to make this instrument.
Regulation Impact Statement (RIS)
The Office of Best Practice Regulation (OBPR) was consulted on 9 April 2021 and confirmed that the Determination does not require a Regulatory Impact Statement (OBPR Reference 43980). This Determination will operate in a beneficial manner. It is not regulatory in nature, will not impact business activity and will have no, or minimal, compliance cost or competition impact.
Explanation of the provisions
Section 1 provides that the Determination is to be cited as the Social Security (Exempt Lump Sum – Settlement of Per- and Poly-fluoroalkyl Class Action) Determination 2021.
Section 2 provides that the Determination commences on the day after the instrument is registered on the Federal Register of Legislation.
Section 3 provides that the authority for making the Determination is paragraph 8(11)(d) of the Act.
Section 4 contains definitions of certain terms used in the Determination.
Act means the Social Security Act 1991.
Group Member has the meaning given by the Settlement Deed dated 5 June 2020 approved by the Federal Court on 5 June 2020 in Smith v Commonwealth of Australia (No.2) [2020] FCA 837.
A ‘Settlement Payment’ means a payment to or for the benefit of a Group Member pursuant to the class action settlement approved by the Federal Court on 5 June 2020 in Smith v Commonwealth of Australia (No.2) [2020] FCA 837 relating to alleged damage in part in relation to property value diminution.
Section 5 specifies that, if a Group Member receives a Settlement Payment, the amount of the payment that is compensation for property value diminution is an exempt lump sum.
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 – Settlement of Per- and Poly-fluoroalkyl Class Action) Determination 2021
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 effect of the Determination is that an individual who receives compensation for property value diminution under the per- and poly-fluoroalkyl substances (PFAS) class action will not have that payment assessed as income under the social security law.
Human rights implications
The Determination engages the right to social security under Article 9 of the International Covenant on Economic, Social and Cultural Rights (ICESCR). The right to social security requires that a system be established under domestic law, and that public authorities must take responsibility for the effective administration of the system. The social security scheme must provide a minimum essential level of benefits to all individuals and families that will enable them to acquire at least essential health care, basic shelter and housing, water and sanitation, foodstuffs, and the most basic forms of education.
The Determination will operate beneficially as compensation in recognition of property value diminution as a result of the PFAS class action will not be taken into account when assessing a person’s eligibility or rate of social security entitlements under the social security income test. If compensation in recognition of property value diminution as a result of the PFAS class action is not exempted, a person in receipt of that payment may not be eligible for a social security payment or, if they are eligible, their rate of payment might be reduced. The Determination is therefore consistent with the promotion of the right to social security.
The exemption of compensation in recognition of property value diminution as a result of the PFAS class action from the income test on receipt does not alter the fact that any ongoing income generated by the lump sum is not exempt from the income test, and 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 under paragraph 8(11)(d) of the Act.
Conclusion
The Determination is compatible with human rights as it supports a person’s right to social security.
Caitlin Delaney, Branch Manager, Older Australians, as Delegate of the Secretary of the Department of Social Services