EXPLANATORY STATEMENT
Issued by the authority of the Minister for Social Services
Social Security Act 1991
Social Security (Modification of Income Deprivation Rules) Principles 2017
Summary
Section 1209E of the Social Security Act 1991 (the Social Security Act) provides that the Secretary may formulate principles to be complied with by him or her when making decisions under a number of provisions of the Social Security Act, including subsections 1208Q(1) and 1208R(3).
The purpose of this instrument is to set out decision-making principles that the Secretary must comply with in making determinations under sections 1208Q and 1208R of the Social Security Act. These determinations relate to modifying the way in which the standard ‘disposal of income’ rules would affect an individual.
The Principles commence on 1 April 2017 following the cessation of the Social Security (Modification of Income Deprivation Rules) Principles 2002 on that date.
The Social Security (Modification of Income 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 Social Security 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 1208Q and 1208R of the Social Security Act define the way in which the ‘disposal of ordinary income’ rules in the Act, which appear at Division 3 of Part 3.10, will operate in relation to an individual affected by this measure. These decision-making principles will assist the Secretary in modifying the application of those disposal rules, where this is necessary.
Commencement
This instrument commences on 1 April 2017.
Consultation
The Department of Human Services has been consulted in the preparation of this instrument.
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 instrument, which is to provide decision-making principles that can be used in making a determination, under paragraph 1208Q(1)(e) or (f), that where an individual disposes of ordinary income to a trust or company on or after 1 January 2002, and is an attributable stakeholder of that trust or company, or becomes one as a result of the transfer, then the amount of the disposal for the purposes Division 3 of Part 3.10 can be taken to be nil, or an amount less than the amount of the original disposal, as the Secretary determines.
Section 6 provides definitions that are used in this part of the instrument.
Section 7 states that in the case of an individual, who is not a member of a couple, the Secretary must take into account whether at the time of, or as a result of, the disposal to the company or trust, the individual was the sole attributable stakeholder of the company or trust. Often, where this is the case, the individual will be attributed with the full value of the disposed income in any event, being the only attributable stakeholder of the company or trust which is holding the income, and therefore it would be unfair on the payment recipient to also hold the value of the disposal against them for income test purposes.
Section 8 states that in the case of an individual, who is a member of a couple, the Secretary must take into account whether at the time of, or as a result of, the disposal to the company or trust, one or both members of the couple were the sole attributable stakeholders of the company or trust. Often, in these circumstances, the members of the couple will be attributed with the full value of the disposed income in any event, being the only attributable stakeholders of the company or trust which is holding the income, and therefore it would be unfair on the payment recipients to also hold the value of the disposal against them for income test purposes.
Section 9 applies where an attributable stakeholder of a company or trust disposes of income to that entity and either before the time of the disposal there were two or more attributable stakeholders in regard to that entity or, as a result of the disposal, there were two or more attributable stakeholders. In this situation the Secretary must take into account the attribution percentage of all attributable stakeholders of the company or trust both prior to and as a result of the disposal.
Section 10 applies where an individual, who is not an attributable stakeholder of a company or trust, disposes of income to that entity and as a result of the disposal the individual became an attributable stakeholder of the company or trust. In this case the Secretary must take into account the attribution percentages of all attributable stakeholders prior to, and as a result of, the disposal. Where an individual disposes of income to a company or trust, but ends up with an income attribution percentage of less than 100% in relation to the company or trust, then the Secretary may decide only to reduce the amount of the original disposal by an amount equal to the percentage of the income that the individual now is being attributed with, as a result of being an attributable stakeholder of the company or trust.
Part 3
Section 11 sets out the purpose of Part 3 of the instrument, which is to provide decision-making principles that can be used in making a determination, under paragraph 1208R(3)(a) or (b). The effect of subsection 1208R(1) is that, where a company or trust, in regard to which the individual is an attributable stakeholder, disposes of income then, for the purposes of Division 3 of Part 3.10, it will taken as if the individual had disposed of income, or a percentage of the income equal to the individual’s income attribution percentage, that he or she had owned personally. Paragraphs 1208R(3)(a) and (b) allow the Secretary to exempt a disposal of specified income from the operation of subsection 1208R(1), or reduce the percentage of the income that the individual is taken to have disposed of.
Section 12 states that the Secretary must take into account whether a disposal of income, under this Part, is to a person who is an attributable stakeholder of the company or trust making the disposal.
Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
Social Security (Modification of Income Deprivation Rules) Principles 2017
The 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
Sections 1208Q and 1208R of the Social Security Act 1991 (the Act) allow the Secretary to determine that certain income is excluded from the rules that apply to disposal of income without adequate consideration.
This instrument specifies the principles that the Secretary must comply with when deciding to exclude an amount from the disposal of income rules.
A determination under section 1208Q of the Act or 1208R of the Act ensures a person’s income is not double-counted, by preventing the same amount from being treated as both disposed income and attributed income 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 income 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