EXPLANATORY STATEMENT
Social Security (Means Test Treatment of Private Companies – Excluded Companies) (DEEWR) Declaration 2008
Summary
Subsection 1207N(5) of the Social Security Act 1991 (the Act) provides that the Secretary may, by writing, declare that each company in a specified class of companies is an excluded company for the purposes of section 1207N.
The Social Security (Means Test Treatment of Private Companies – Excluded Companies) (DEEWR) Declaration 2008 specifies a class of companies for the purposes of subsection 1207N(5).
The effect of a company being an excluded company is that the assets and income of such a company will not be attributed to an individual for the purposes of ascertaining the person's assets or income for means testing purposes under Part 3.18 of the Act.
Background
In 2000 the means test treatment of private companies and private trusts was revised and the Act and the Veterans’ Entitlements Act 1986 were amended by the Social Security and Veterans’ Entitlements Legislation Amendment (Private Trusts and Private Companies – Integrity of Means Testing) Act 2000. As a result, the Secretary of the Department can declare that a Private Company is an excluded company for the purposes of means tests under the Act.
The measure aims to ensure that clients who hold their assets in private companies or private trusts receive comparable treatment under the means test to those clients who hold their assets directly. The assets and income of the structure will be attributed to the person or persons who control the company or trust, or to the person or persons who were the source of the capital or corpus of the company or trust.
One of the conditions for attributing an asset or the income of a company to an individual under the Act is that the company is a ‘designated private company’. Subsection 1207N(1) provides that a company is a designated private company if certain criteria are satisfied. One of these criteria is that ‘the company is not an excluded company’. In short, a designated private company cannot be an excluded company.
The Declaration, therefore, excludes a class of companies from the definition of designated private company with the result that the assets and income of such an excluded company will not be attributed, under Part 3.18 of the Act, to an individual for means testing purposes.
The Declaration maintains the exclusions currently set out in the Social Security (Means Test Treatment of Private Companies – Excluded Companies) Declaration 2001 (‘the 2001 Declaration’) by the Secretary of the Department of Family and Community Services.
Explanation of Provisions
Part 1
Section 1 of the instrument states the name of the Declaration.
Section 2 states that the Declaration commences on the day after it is registered.
Section 3 provides definitions for the purposes of the Declaration.
community purpose means a purpose that is intended to benefit primarily the members of a particular community or group.
government body includes a department or agency of the Commonwealth; a department or agency of a State or Territory; a municipal corporation or other local government body; or a body corporate in which the Commonwealth, a State or a Territory body holds a controlling interest.
income has the same meaning as in subsection 1207P(7) of the Act. Subsection 1207P(7) of the Act defines income to have the ordinary meaning of that expression.
indigenous-held land has the same meaning as in section 4B of the Aboriginal and Torres Strait Islander Act 2005. Indigenous-held land is defined in that Act to be indigenous-held land if an interest in the land is held by an Aboriginal or Torres Strait Islander corporation, or an interest in the land is held by an Aboriginal person or Torres Strait Islander. Subsections 4B(2) to 4B(4) provide exceptions to this definition. The Aboriginal and Torres Strait Islander Act 2005 contains the same definition as the Aboriginal and Torres Straight Island Commission Act 1989 which was repealed in 2005.
Part 2
Section 4 specifies that each company that meets the requirements of subsection 4(2) is an excluded company. Where the sole or dominant purpose of a company is to receive, manage and distribute property transferred to it, directly or indirectly, by a government body (as defined in section 3), for a community purpose, then the company is an excluded company. A company will also be an excluded company if it holds, manages or disposes of indigenous-held land for a community purpose.
Paragraph 4(2)(c) provides that where the sole or dominant purpose of a company is to receive, manage and distribute income generated from the use of indigenous-held land, for a community purpose, then, that company is an excluded company. This will include situations where a company’s sole or dominant purpose is to receive, manage or distribute income which can include mining royalties generated from the use of indigenous-held land for a community purpose.
Part 3
Section 5 amends the 2001 Declaration to insert an application clause which identifies that the 2001 Declaration does not apply to matters which are the responsibility of the Minister for Education, Minister for Employment and Workplace Relations. This is because this Declaration will be effective for those matters. However, the 2001 Declaration will still apply to matters of relevance to the Department of Families, Housing, Community Services and Indigenous Affairs.
Consultation
As the Declaration maintains the exclusions currently set out in the 2001 Declaration, no public consultation on the instrument was undertaken. The making of this Declaration reflects the changes in responsibilities under the Social Security Act 1991 in the Administrative Arrangements Order and that the Department of Education, Science and Training and the Department of Employment and Workplace Relations have been merged as a result of Machinery of Government changes to form the Department of Education, Employment and Workplace Relations.
Business Cost Calculator Figure
This exemption does not require a Regulatory Impact Statement (RIS) and/or a Business Cost Calculator Figure. This exemption is not regulatory in nature, will not impact on business activity and will have no, or minimal, compliance costs or competition impact. It is not expected that any compliance costs will be incurred by business as a result of this exemption.