Social Security (Modification of Income Deprivation Rules) Principles 2017

Administered by Department of Social Services

Legislation au F2017L00214 In force Legislative Instrument

Legislation content

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

Overview

The Social Security (Modification of Income Deprivation Rules) Principles 2017 were enacted to provide clear guidelines for the Secretary in making determinations under sections 1208Q and 1208R of the Social Security Act 1991, specifically concerning the disposal of income by individuals who are attributable stakeholders of private companies or trusts. These principles were introduced to address the issue of double counting of income in the assessment of social security benefits, ensuring that individuals are not unfairly penalised when they dispose of income to entities in which they hold a significant interest. The instrument was developed following consultations with the Department of Human Services and was enacted by the Minister for Social Services, as authorised by the Social Security Act. The policy objective of these principles is to ensure that the means test treatment of private companies and private trusts is fair and equitable, consistent with the human rights obligations under the International Covenant on Economic, Social and Cultural Rights.

Scope and Application

The Social Security (Modification of Income Deprivation Rules) Principles 2017, issued under section 1209E of the Social Security Act 1991, provide the Secretary with guidelines to follow when making decisions related to the modification of income deprivation rules for individuals. These principles apply to decisions made under sections 1208Q and 1208R of the Act, particularly in scenarios where an individual disposes of ordinary income to a trust or company. The principles are designed to ensure that the disposal of income does not result in double counting, thereby avoiding the same amount of income being treated both as disposed income and attributed income under the trusts and companies rules. These provisions apply to individuals who are attributable stakeholders of the entities in question, ensuring fairness in the assessment of their income for social security means testing purposes. The Principles commenced on 1 April 2017, replacing the previous Social Security (Modification of Income Deprivation Rules) Principles 2002, and are compatible with human rights as they facilitate the effective administration of the social security system without raising any human rights issues. The instrument further details specific decision-making principles that must be taken into account by the Secretary. For example, it mandates the Secretary to consider whether the individual was the sole attributable stakeholder at the time of or as a result of the disposal, as well as the attribution percentages of all stakeholders both before and after the disposal. These considerations are intended to prevent unfairness in attributing income for social security purposes, ensuring that individuals are not doubly penalised for income they have effectively disposed of. The principles also allow for exemptions or reductions in the percentage of income that an individual is taken to have disposed of, depending on specific circumstances. This legislative instrument thus ensures a balanced and fair approach in the application of social security rules to individuals who dispose of income to trusts or companies.

Key Provisions

The Social Security (Modification of Income Deprivation Rules) Principles 2017 (the Principles) provide the framework within which the Secretary of the Department of Social Services must operate when making decisions under sections 1208Q and 1208R of the Social Security Act 1991. These sections deal with the modification of the disposal of ordinary income rules, which are set out in Division 3 of Part 3.10 of the Act. The Principles are intended to prevent double counting of income by ensuring that the same income is not treated as both disposed income and attributed income under the rules concerning trusts and companies. Section 5 of the Principles sets out the criteria the Secretary must consider when determining whether an individual can be exempt from the disposal of income rules, particularly when they dispose of income to a trust or company they are associated with. This includes taking into account whether the individual is the sole attributable stakeholder of the company or trust at the time of or as a result of the disposal. The Principles impose specific obligations on the Secretary to consider various factors when making these determinations. For example, Section 7 requires the Secretary to consider whether an individual, not part of a couple, was the sole attributable stakeholder of the company or trust at the time of or as a result of the disposal. Similarly, Section 8 mandates consideration of whether one or both members of a couple are the sole attributable stakeholders. Section 9 requires the Secretary to account for the attribution percentages of all attributable stakeholders before and after the disposal, particularly when there are multiple stakeholders involved. Section 10, meanwhile, mandates that the Secretary take into account the attribution percentages before and after the disposal if an individual becomes an attributable stakeholder as a result of the disposal. Failure to comply with these decision-making principles could result in improper application of the income deprivation rules, potentially leading to incorrect social security payments. However, the Explanatory Statement explicitly states that this instrument is not regulatory in nature and does not impose penalties or specify any criminal or civil consequences for non-compliance. Instead, it serves as a guideline to ensure fair and consistent application of the means test provisions under the Social Security Act. The compatibility with human rights is also affirmed, ensuring that the Principles support the right to social security under international law by appropriately assessing an individual's current resources for means testing purposes.

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Sourced from the Federal Register of Legislation at 26 August 2026. For the latest information on Australian Government law please go to https://www.legislation.gov.au.