EXPLANATORY STATEMENT
Issued by the authority of the Secretary of the Department of Social Services
Social Security Act 1991
Social Security (Family Law Affected Income Streams) Amendment (Military Invalidity Pension Income Streams) Principles 2024
Purpose
The Social Security (Family Law Affected Income Streams) Amendment (Military Invalidity Pension Income Streams) Principles 2024 (the Amending Principles) amend the Social Security (Family Law Affected Income Streams) Principles 2022 (the Principles) to prescribe decision-making principles for determining the annual rate of ordinary income a person is taken to receive from a “military invalidity pension income stream” that is also a “family law affected income stream”.
Background
The Social Services and Other Legislation Amendment (Military Invalidity Payments Means Testing) Bill 2024 (the Bill) was introduced into Parliament on 15 February 2024. The Bill proposes to amend the Social Security Act 1991 (Social Security Act) to confirm the treatment of certain military invalidity payments affected by the Full Federal Court decision in Commissioner of Taxation v Douglas [2020] FCAFC 220 (Douglas) in means testing arrangements for income support payments.
A consequence of the findings in Douglas was that the affected military payments could no longer be classified or means tested for income support purposes under the Social Security Act in the same way as they had historically been treated. The Bill seeks to resolve this by inserting a new income stream classification and assessment regime into the Social Security Act for these payments. The Bill proposes to classify the affected payments as “military invalidity pension income streams” (see proposed new subsection 9(1G) and section 9BB of the Social Security Act at items 3 and 5 of the Bill).
The new provisions are designed to produce the same assessment of income as the historical assessments of the affected invalidity payments, and to ensure the invalidity payments continue to be treated as exempt from the assets test (see proposed new section 1099AAA and subparagraph 1118(1A)(a)(i) at items 12 and 17 of the Bill). These arrangements are intended to ensure veterans and their partners continue to receive a level of income support that is consistent with the intent of legislation and policy before the unexpected findings of the Douglas decision.
The affected military invalidity payments may also be family law affected income streams for the purposes of the Social Security Act (see the definition of “family law affected income streams” in section 9C of the Social Security Act). Subdivision C of Division 1C of Part 3.10 of the Social Security Act provides a framework for calculating income from family law affected income streams.
Part VIIIB of the Family Law Act 1975 allows superannuation interests, including income streams, to be split pursuant to either a family law property settlement between a person and their partner or former partner, or a court order requiring a particular split of the superannuation interest. Family law affected income streams arise from this split.
The original owner of the income stream (the member) may retain part of the income stream, and another person may acquire an interest in the income stream due to a family law settlement or court order (the non-member), or the income stream may become the asset of only the original non-member.
Section 1099DB of the Social Security Act enables the Secretary to determine the annual rate of ordinary income that a person is taken to receive from a family law affected income stream that is an asset-test exempt income stream. However, in determining these amounts, subsection 1099DB(2) of the Social Security Act requires the Secretary to comply with relevant decision-making principles that are prescribed under section 1099DD of the Social Security Act.
The Principles ensure that these income streams are assessed appropriately with other income and assets under the social security means test where a person owns and receives payments from a family law affected income stream, and is receiving or seeks to receive a social security payment that is subject to the means test.
The Bill proposes to amend sections 1099DB and 1099DD of the Social Security Act to ensure these provisions apply to military invalidity pension income streams that are also family law affected income streams.
Consequent to this, the Amending Principles amend the Principles made under section 1099DD of the Social Security Act. These amendments specify the decision‑making principles that the Secretary must comply with when determining the annual rate of ordinary income that a person is taken to receive from a military invalidity pension income stream that is also a family law affected income stream under section 1099DB. This ensures these income streams will continue to be subject to the same approach for this purpose, consistent with the position prior to the findings in Douglas.
Commencement
The Amending Principles will commence at the same time as the Social Services and Other Legislation Amendment (Military Invalidity Payments Means Testing) Act 2024 commences. However, if that Act does not commence, then the provisions in the Amending Principles will not commence at all.
Consultation
The Department of Social Services consulted with the Department of Veterans’ Affairs and Services Australia on the intention to make the Amending Principles.
Impact Analysis
An Impact Analysis is not required, as the Amending Principles are not regulatory in nature, will not impact on business activity and will have no, or minimal, compliance costs or competition impact (OIA23-05973).
Explanation of the provisions
Section 1 states that the name of the Amending Principles is the Social Security (Family Law Affected Income Streams) Amendment (Military Invalidity Pension Income Streams) Principles 2024.
Section 2 prescribes that the Amending Principles will commence immediately after the commencement of the Social Services and Other Legislation Amendment (Military Invalidity Payments Means Testing) Act 2024. However, the Amending Principles will not commence if that Act does not commence.
Section 3 provides that the Amending Principles are made under section 1099DD of the Social Security Act 1991.
Section 4 prescribes that each instrument that is specified in a Schedule to this instrument is amended or repealed as set out in the applicable items in the Schedule concerned, and any other item in a Schedule to this instrument has effect according to its terms. Section 4 gives effect to the amendments made by the Amending Principles to the Social Security (Family Law Affected Income Streams) Principles 2022.
Schedule 1 – Amendments
Item 1 inserts a new reference to “military invalidity pension income stream” into the list of expressions prescribed in the first note to section 4 of the Principles, which are expressions used in the instrument that are defined in the Social Security Act.
Item 2 inserts new paragraph 5(ba), which specifies that the Secretary must comply with the decision-making principles prescribed in the Principles when making decisions under proposed new paragraph 1099DB(1)(c) of the Social Security Act. This applies when the Secretary is determining the annual rate of ordinary income that a person is taken to receive in relation to a military invalidity pension income stream that is also a family law affected income stream.
Items 3 and 4 make amendments to the heading of section 8 and subsection 8(1), to clarify that section 8 does not apply to decision-making under proposed new paragraph 1099DB(1)(c) of the Social Security Act, regarding the annual rate of ordinary income that is taken to be received from a military invalidity pension income stream that is a family law affected income stream.
Item 5 inserts new section 9A, which prescribes the decision-making principles the Secretary must have regard to, for the purposes of proposed new paragraph 1099DD(ba) of the Social Security Act, when making decisions under proposed new paragraph 1099DB(1)(c) of that Act. New section 9A applies to making decisions about the annual rate of ordinary income that a person is taken to receive from a military invalidity pension income stream that is a family law affected income stream.
In these circumstances, subsection 9A(2) requires that the Secretary must have regard to the matters in items 1-12 and 14-23 of Schedule 1 to the Principles, and any other matter that the Secretary considers relevant in the circumstances. This is consistent with the decision‑making principles that the Secretary must have regard to in making similar income decisions about defined benefit income streams that are family law affected income streams, as provided in section 9 of the Principles. This is the same approach that has previously been applied in relation to income streams affected by the findings in Douglas, when they were treated as defined benefit income streams.
Subsection 9A(3) provides that if payments are being made from the income stream under more than one payment split, the Secretary must have regard to each matter mentioned in subsection 9A(2) that applies to each payment split.
Item 6 adds a reference to new paragraph 9A(2)(a), as inserted by item 5 above, into the list of provisions noted after the heading to Schedule 1, which clarifies the provisions to which Schedule 1 relates.
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 (Family Law Affected Income Streams) Amendment (Military Invalidity Pension Income Streams) Principles 2024
The Social Security (Family Law Affected Income Streams) Amendment (Military Invalidity Pension Income Streams) Principles 2024 (the Amending Principles) are 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 Amending Principles amend the Social Security (Family Law Affected Income Streams) Principles 2022 (the Principles) to prescribe decision-making principles for determining the annual rate of ordinary income a person is taken to receive from a “military invalidity pension income stream” that is also a “family law affected income stream”.
The amendments to the Principles anticipate proposed amendments to the Social Security Act 1991 contained in the Social Services and Other Legislation Amendment (Military Invalidity Payments Means Testing) Bill 2024 (the Bill). These amendments to the Social Security Act 1991 are intended to respond to the impact of the Full Federal Court decision in Commissioner of Taxation v Douglas [2020] FCAFC 220 (the Douglas decision) on the treatment of certain military invalidity superannuation benefits within the means test for income support payments.
Prior to the Douglas decision, the relevant principles for affected income streams were those that applied for defined benefit income streams in the Principles. This was consistent with the intent and interpretation of the law at the time.
After the Douglas decision, the affected income streams can no longer be treated as defined benefit income streams for means testing purposes. The Bill proposes to make amendments to the Social Security Act 1991 to introduce a new category of income stream, known as a ‘military invalidity pension income stream’, that will include these income streams.
Consequential amendments to the Principles are required to ensure these income streams, when subject to splitting under family law arrangements, can still be appropriately assessed for income support purposes.
Human rights implications
The Specification engages the right to social security contained in Article 9 of the International Covenant on Economic, Social and Cultural Rights (ICESCR), and the right to an adequate standard of living contained in Article 11 of the ICESCR.
Article 9 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 system must provide a minimum essential level of benefits to all individuals and families that will enable them to cover essential living costs.
Article 11 recognises the right of everyone to an adequate standard of living including adequate food, water and housing, and to the continuous improvement of living conditions.
Article 4 of the ICESCR provides that countries may limit the right to social security in a way determined by law only in so far as this may be compatible with the nature of the rights contained within the ICESCR and solely for the purpose of promoting general welfare in a democratic society. Such a limitation must be proportionate to the objective to be achieved.
The Social Security Act 1991 provides access to income support payments through equity measures based on meeting specified criteria, including income and assets tests. The amendments to the Principles ensures Douglas-affected veterans and former partners can continue to receive appropriate social security benefits to support an adequate standard of living, consistent with their means of self-support.
Conclusion
The Amending Principles are compatible with human rights as they promote and support the right to social security and the right to an adequate standard of living. To the extent a human rights obligation is engaged or limited, the impact is for a legitimate objective and is necessary and proportionate.
Gillian Beer, Branch Manager, Payment Structures and Seniors Branch, delegate of the Secretary of the Department of Social Services