EXPLANATORY STATEMENT
Issued by the authority of the Minister for Social Services
Social Security Act 1991
Social Security (Modification of Asset Deprivation Rules) Principles 2017
Summary
The Social Security (Modification of Asset Deprivation Rules) Principles 2017 (the Principles) are formulated under section 1209E of the Social Security Act 1991 (the Act).
The purpose of these Principles is to set out decision making principles with which the Secretary must comply for the purposes of making a determination under subsection 1208K(1) or 1208L(3).
The Principles commence on 1 April 2017 following the cessation of the Social Security (Modification of Asset Deprivation Rules) Principles 2002 on that date.
The Social Security (Modification of Asset Deprivation Rules) Principles 2002 cease operation on 1 April 2017 due to the sunsetting provisions in the Legislation Act 2003.
Background
Part 3.18 of the Act specifies the means test treatment of private companies and private trusts. The provisions in Part 3.18 aim to ensure that people who hold their assets in private companies or private trusts receive comparable treatment under the means test to those 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.
Sections 1208K and 1208L of the Act define the way in which the ‘asset disposal provisions’ in the Act will operate in relation to an individual affected by this measure. The ‘asset disposal provisions’ appear at Division 2 of Part 3.12, section 93U, section 93UA and sections 198F to 198MA of the Act, These decision-making principles will assist the Secretary in modifying the application of the disposal provisions, where this is necessary.
Commencement
This instrument commences on 1 April 2017.
Consultation
Consultation regarding this instrument was undertaken with the Department of Human Services.
Regulation Impact Statement (RIS)
This instrument is not regulatory in nature and will have no regulatory impact on individuals, business, activity or competition.
Explanation of the provisions
Part 1
Section 1 of the Principles states the name of the instrument and section 2 states that the Principles commence on 1 April 2017. Section 3 contains interpretation provisions. Section 4 sets out the purpose of the instrument.
Part 2
Section 5 sets out the purpose of Part 2 of the Principles which is to set out decision making principles with which the Secretary must comply in making a determination for subsection 1208K(1) of the Act.
Section 6 sets out definitions of ‘individual’, ‘member of a couple’ and ‘transfer of property’ for the purposes of Part 2 of the Principles.
Section 7 applies to an individual who is not a member of a couple. This section provides that in making determinations under subsection 1208K(1) of the Act the Secretary must take into account whether the individual was the only attributable stakeholder of a company or trust, either before or after the transfer.
Section 8 applies to an individual who is a member of a couple. This section provides that, in making determinations under subsection 1208K(1) of the Act the Secretary must take into account whether:
(a) the individual was the only attributable stakeholder of the company or trust, before or after the transfer; or
(b) both members of the couple were the only attributable stakeholders of the company or trust, before or after the transfer.
Section 9 applies if, in relation to a transfer of property to a company or a trust:
(a) the transfer is made by an attributable stakeholder of the company or trust; and
(b) before the transfer, there were 2 or more attributable stakeholders of the company or trust.
Section 9 also applies if, in relation to a transfer of property to a company or a trust:
(a) the transfer is made by an attributable stakeholder of the company or trust; and
(b) after the transfer, there were 2 or more attributable stakeholders of the company or trust.
Under subsection 9(3) the Secretary must take into account the asset attribution percentage of each attributable stakeholder of the company or trust, before and after the transfer of the property.
Section 10 applies if, in relation to a transfer of property to a company or a trust:
(a) the transfer is made by an individual who is not an attributable stakeholder of the company or trust; and
(b) as a result of the transfer, the individual is an attributable stakeholder.
Under subsection 10(2) the Secretary must take into account the asset attribution percentage of each attributable stakeholder of the company or trust, before and after the transfer of the property.
Part 3
Section 11 sets out the purpose of Part 3 of the Principles which is to set out decision making principles with which the Secretary must comply in making a determination for subsection 1208L(3) of the Act.
Section 12 applies if:
(a) a company pays a dividend to an individual who is an attributable stakeholder of the company; and
(b) the asset disposal provisions apply, and are taken to have applied, as if the individual had disposed of an asset of the individual.
Section 12 also applies if:
(a) a trust makes a distribution to an individual who is an attributable stakeholder of the trust; and
(b) the asset disposal provisions apply, and are taken to have applied, as if the individual had disposed of an asset of the individual.
Under subsection 12(3) the Secretary must consider whether the amount of the dividend or the value of the distribution is reasonable, having regard to the individual’s asset attribution percentage, in relation to the company or trust, before and after the disposal of the asset.
Section 13 applies in two situations.
Under subsection 13(1) section 13 applies if:
(a) during a derivation period of a company, the company pays a dividend to an individual who is not an attributable stakeholder of the company; and
(b) the individual has, before or during the derivation period, made a genuine transfer of capital to the company.
Under subsection 13(2) section 13 also applies if:
(a) during a derivation period of a trust, the trust makes a distribution to an individual who is not an attributable stakeholder of the trust; and
(b) the individual has, before or during the derivation period, made a genuine transfer of capital to the trust.
Subsection 13(3) provides that for subsections 13(1) and 13(2), a transfer of capital is a genuine transfer of capital if:
(a) the individual receives, as consideration for the transfer, shares in the company, or units in the trust, of a value that is equivalent to the value of the capital transferred; and
(b) the individual has a legal or equitable right to a share of the capital on the winding up of the company or trust; and
(c) the individual has a legal or equitable right to receive dividends or distributions in accordance with the constituent documents of the company or under the terms of the trust; and
(d) the individual is over 18 years.
Subsection 13(4) then provides that, in making a determination under subsection 1208L(3), the Secretary must consider whether the amount of the dividend or the value of the distribution is reasonable, having regard to the proportion of the value of the capital transferred by the individual to the total value of the assets owned by the company or trust at the time of the transfer.
Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
Social Security (Modification of Asset Deprivation Rules) Principles 2017
The Principes 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
Sections 1208K and 1208L of the Social Security Act 1991 (the Act) allow the Secretary to determine that certain assets are excluded from the rules that apply to disposal of assets without adequate consideration.
This instrument specifies the principles that the Secretary must comply with when deciding to exclude an amount from the disposal of assets rules.
A determination under section 1208K or 1208L of the Act ensures a person’s assets are not double-counted, by preventing the same amount from being treated as both a disposed asset and an attributed asset under the trusts and companies rules.
Human rights implications
The Principles engage 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 Principles are compatible with human rights as they ensure a person’s current resources are appropriately assessed for the purposes of ascertaining the person’s assessable assets for means testing purposes under Part 3.18 of the Act.
Conclusion
The Principles are compatible with human rights as they do not raise any human rights issues.
Finn Pratt AO PSM
Secretary
Department of Social Services