ATTACHMENT F
EXPLANATORY STATEMENT
Veterans’ Entitlements Act 1986
Determination under subsection 46L(1)
No. 11/2006
EMPOWERING PROVISION
Subsection 46L(1) of the Veterans’ Entitlements Act 1986.
PURPOSE
To specify financial investments that are not financial assets for the purposes of section 46D or 46E of the Veterans’ Entitlements Act 1986 (VEA) with the result that the owner of the assets is not regarded as deriving deemed income under sections 46D or 46E VEA from such assets for the purposes of the means-test for certain benefits.
The Instrument sets out dates from which the financial investments are not to be regarded as financial assets.
BACKGROUND
Subsection 46L(1) is commonly used where financial investments made by pensioners have failed, that is, specifically where:
- the financial investments (or a class of financial investments) are not operating to provide returns; and
- investors have no access at all to their investment capital (this includes cases where the investors have commenced all reasonable action to obtain access to the investment and the investment is currently inaccessible); and
- the cessation of returns and the inaccessibility of capital has been caused by either:
a legal impediment imposed by a third party (that is, other than the investor or the fund manager); or
conditions that were not reasonably foreseeable when the investor obtained the investment (this includes adverse economic conditions such as the 1987 sharemarket crash or the 1990/91 property downturn).
The poor performance of an investment is insufficient grounds for a determination under subsection 46L(1).
Subsection 46L(1) is also used where investments are made by pensioners in church or charitable investment funds, which are used for expenditure on eligible capital works within Australia, for the purchase of:
- land and the construction, extension or refurbishment of buildings, including the provision of integral fixtures and fittings, that are associated with the provision of community and welfare services, including churches, primary or secondary schools, hospitals and nursing homes; or
- capital equipment by non-profit rganizations for the purpose of assisting unemployed people and community groups establish income producing enterprises.
In the case of pooled church or charitable development funds, subsection 46L(1) is used only for those funds that:
Bruce Billson
- accept money for on-lending to various groups within their organisation, provided that at least 50% of those loans and deposits are used for expenditure on eligible capital works; or
- accept money for reinvestment to generate income to be applied for use within their organisation, provided that at least 50% of the net income is used for expenditure on eligible capital works; or
- use a combination of investment strategies provided that at least 50% of the deposits and loans and the income is used for expenditure on eligible capital works.
In the case of loans that are not paid into a pooled church or charitable development funds, then only that part of the loan which is used for capital expenditure on eligible capital works will be subject to a determination under subsection 46L(1).
In the case of failed financial investments, unless a determination under subsection 46L is made, the pensioner will be deemed by the income-deeming provisions in the VEA to receive an income from the investment because the investment may not yet have been valued by a liquidator as worthless and the deemed income will reduce the amount of pension otherwise payable to the person.
In the case of church and charitable investment funds, the pensioner's investment has not failed. Instead the charitable nature of the investment enables the pensioner to invest their money interest free, or for a lower or higher return than the deeming provisions would otherwise apply.
Unless a determination under subsection 46L is made for a church or charitable investment fund, the pensioner may be deemed by the income-deeming provisions in the VEA to receive an income from the investment at a higher rate than the actual return the pensioner earns, derives or receives.
By making a determination under subsection 46L for a church and charitable investment fund, the deemed (higher) rate of income will not apply where a pensioner chooses to invest their money interest free or at a lower rate than the deemed rate. In these cases, the actual return the pensioner earns, derives or receives from the investment will be used to determine the amount of a pensioner’s benefit under the VEA.
Where the pensioner chooses to earn, derive or receive a return which is higher than the deemed rate of income which would otherwise have been applied had a determination under subsection 46L not been made, then the higher actual return will be used to determine the amount of a pensioner’s benefit under the VEA.
SPECIFIC PURPOSE OF THE ATTACHED INSTRUMENT
The attached Instrument is only concerned with church and charitable investments.
The Instrument is intended to operate as follows:
By specifying that financial investments in the Interest Free Loans Church Land Purchase Fund, sponsored by The Stables Christian Care Centre Incorporated, are not regarded as financial assets for the purposes of the relevant provisions of the VEA, from 8 December 2004.
By specifying that financial investments in the Cash Management Account of the Redlands Christian Spiritual Centre, sponsored by the Redlands Christian Spiritual Centre, are not regarded as financial assets for the purposes of the relevant provisions of the VEA, from 24 December 2004.
By specifying that financial investments in the Toronto Baptist Church Building Fund, sponsored by the Toronto Baptist Church, are not regarded as financial assets for the purposes of the relevant provisions of the VEA, from 9 February 2005.
By specifying that financial investments in Holy Spirit Province Patrimony Fund, sponsored by the Trustees of The Christian Brothers (the Brothers), are not regarded as financial assets for the purposes of the relevant provisions of the VEA, from 18 January 2005. BB
By specifying that financial investments in the Collinsville Aged Assistance Association Inc Deeming Exemption Fund, sponsored by the Collinsville Aged Assistance Association Inc, are not regarded as financial assets for the purposes of the relevant provisions of the VEA, from 21 June 2005.
By specifying that financial investments in The Religious Institute Patrimony Fund, sponsored by the The Presentation Sisters (the Religious Institute), are not regarded as financial assets for the purposes of the relevant provisions of the VEA, from 6 September 2005.
By specifying that financial investments in The Religious Institute Patrimony/Trust Fund, sponsored by The Brigidine Sisters (the Religious Institute), are not regarded as financial assets for the purposes of the relevant provisions of the VEA, from 5 September 2005.
DATE OF MAKING
The date the attached Instrument was made by the Hon Bruce Billson, the Minister for Veterans' Affairs.
RETROSPECTIVITY
The attached instrument has retrospective effect. It applies to financial investments from a date before the date of registration of the instrument on the Federal Register of Legislative Instruments.
Subsection 12(2) of the Legislative Instruments Act 2003 (LIA) provides (as paraphrased) that those retrospective legislative instruments that negatively affect citizens are of no effect. The attached instrument does not fall within this prohibition because it is beneficial in nature and does not disadvantage any person or impose liabilities on any person (other than the Commonwealth).
CONSULTATION
None. As the instrument is beneficial in nature, no useful purpose would be served by consulting interested parties.
DOCUMENTS INCORPORATED BY REFERENCE
Subsection 4(1) LIA requires Explanatory Statements for legislative instruments to describe any document incorporated-by-reference into the Instrument and to indicate how the document may be obtained.
No documents are incorporated-by-reference into the Instrument.
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