EXPLANATORY STATEMENT
Veterans' Entitlements (Asset-test Exempt Income Stream (Market-linked) – Payment Factors) Principles 2005
Summary
The Veterans' Entitlements (Asset-test Exempt Income Stream (Market-linked) – Payment Factors) Principles 2005 (the Principles) are made under subsection 5JBA(5) of the Veterans' Entitlements Act 1986 (the VEA).
The purpose of these Principles is to specify the payment factor (PF), which is the denominator used in the formula in subsection 5JBA(5).
Subsection 5JBA(13) of the VEA provides that the Principles constitute a disallowable instrument for the purposes of section 46A of the Acts Interpretation Act 1901 (section 46A has since been repealed by the Legislative Instruments (Transitional Provisions and Consequential Amendments) Act 2003).
Paragraph 6(d) of the Legislative Instruments Act 2003 (LIA) deems an instrument that was a disallowable instrument before the commencement of the LIA to be a legislative instrument for the purposes of that Act.
Background
A market-linked income stream that meets the requirements of section 5JBA of the VEA will be classified as an “asset-test exempt income stream” for the purposes of the VEA.
To meet the definition of an “asset-test exempt income stream” in section 5JBA of the VEA, an income stream must pay an amount of income in each year that is equal to the amount worked out by the formula in subsection 5JBA(5). The PF is the denominator in that formula.
Explanation of the Provisions
Section 1 of the Principles states the name of the Principles and section 2 sets out that the Principles are taken to have commenced on 20 September 2004.
Section 3 provides definitions of terms used in the Principles.
Section 4 provides various rules in regard to working out the appropriate PF for each year of the income stream’s term. The table at the end of section 4 provides the relevant payment factors in regard to the number of whole years remaining in the term of the income stream. The PF is worked out in regard to the number of whole years remaining in the term of the income stream on 1 July of each financial year, except in the first year of the income stream’s term, where this is done on the day the income stream commences.
For the purposes of working out the number of whole years remaining in the term of the income stream and thereby ascertaining the correct PF to be applied in any given year, where an income stream commenced in the period 1 July to 31 December in any year, the remaining term of the income stream is rounded up to the nearest whole number. Where an income stream commenced in the period 1 January to 30 June in any year, the remaining term of the income stream is rounded down to the nearest whole number.
Section 4 also provides that for the purposes of the VEA, the figure calculated by using the formula in subsection 5JBA(5) should be rounded to the nearest $10, or multiple of $10.
Consultation
Consultation regarding a virtually identical Determination to the one attached was undertaken by the Department of Family and Community Services (FaCS) as that Department administers legislation which incorporates similar rules relating to the treatment of income streams as that provided by the VEA. FaCS consulted the Department of Employment and Workplace Relations and the Department of Education, Science and Training. The aim was to ensure a co-ordinated approach in respect of payments under the VEA for which these Departments now have responsibility.
FaCS also consulted the Department of Treasury, the Australian Prudential Regulatory Authority, the Association of Superannuation Funds of Australia, and the Investment and Financial Services Association.
The rule-maker (Repatriation Commission) considered that the consultation FaCS undertook in respect of its corresponding Determination was sufficient consultation for the purposes of the attached (virtually identical) Determination. The Repatriation Commission considered that consultation with individuals in respect of the attached Determination was not appropriate because the Determination was beneficial in nature and in any event, generally speaking, individuals affected by the Determination are aware of, and support, the proposal to partially exempt market-linked income streams from means testing.
Retrospectivity
The attached Determination is taken to have commenced on 20 September 2004 ie before it was registered on the Federal Register of Legislative Instruments. Subsection 12(2) of the Legislative Instruments Act 2003 provides (as paraphrased) that retrospective legislative instruments that negatively affect citizens are of no effect. The attached Determination 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).
Overview
The Veterans' Entitlements (Asset-test Exempt Income Stream (Market-linked) – Payment Factors) Principles 2005 was enacted to specify the payment factor used in the formula to determine the amount of income paid from a market-linked income stream that is exempt from asset testing under the Veterans' Entitlements Act 1986. This legislation was introduced to address the need for clear and consistent rules governing the calculation of such exempt income streams. The Principles were made under the authority of the Veterans' Entitlements Act and were subject to the oversight of the Parliament of Australia. The policy objective was to ensure that the income streams are calculated in a manner that is fair and consistent with the intent of the legislation, thereby providing clarity and certainty to those affected by the asset test provisions.
The Repatriation Commission, which is the body responsible for making these Principles, considered that the consultation process undertaken by the Department of Family and Community Services was sufficient. This consultation involved various government departments and industry associations to ensure a coordinated approach to the administration of veterans' entitlements. The consultation process was deemed appropriate given the nature of the Principles, which are beneficial and generally supported by those affected. The Principles came into effect on 20 September 2004, prior to their registration, and do not negatively impact citizens, thereby complying with the requirements of the Legislative Instruments Act 2003.
Scope and Application
The Veterans' Entitlements (Asset-test Exempt Income Stream (Market-linked) – Payment Factors) Principles 2005 apply to individuals who are recipients of veterans' entitlements under the Veterans' Entitlements Act 1986 and who have income streams that are market-linked. The Act is applicable nationally as it is a Commonwealth instrument. These Principles are designed to specify the payment factors used in the calculation of income for the purposes of determining the asset-test exemption for certain income streams, ensuring that these streams are appropriately assessed under the veterans' entitlement scheme. The Principles provide specific rules for calculating the payment factors, taking into account the remaining term of the income stream, and ensuring that the amounts calculated are rounded to the nearest $10. While the Act itself does not explicitly state exclusions or thresholds, the application of the payment factors is contingent upon the nature of the income stream being market-linked and meeting other criteria set out in the Veterans' Entitlements Act 1986. The Repatriation Commission, which made these Principles, considered adequate consultation had occurred with relevant departments and stakeholders, deeming further consultation with individual recipients unnecessary due to the beneficial nature of the Principles.
Key Provisions
The main operative sections of the Veterans' Entitlements (Asset-test Exempt Income Stream (Market-linked) – Payment Factors) Principles 2005 (the Principles) focus on determining the payment factor (PF) used in the formula to calculate the annual income amount for asset-test exempt income streams under the Veterans' Entitlements Act 1986 (VEA). Section 4, in particular, provides various rules for calculating the appropriate PF for each year of the income stream’s term, which is based on the number of whole years remaining in the term of the income stream as of 1 July of each financial year. The PF is specified in a table at the end of Section 4. In the first year of the income stream's term, the calculation is based on the day the income stream commences.
The Principles impose specific obligations and requirements on the entities that administer or benefit from market-linked income streams that are classified as asset-test exempt income streams. These include calculating the PF correctly based on the remaining term of the income stream and ensuring the annual income amount is rounded to the nearest $10 or a multiple of $10 as per the formula in subsection 5JBA(5) of the VEA. For example, if an income stream commences between 1 July and 31 December, the remaining term is rounded up, while if it commences between 1 January and 30 June, the remaining term is rounded down.
There are no explicit offences, penalties, or civil/criminal consequences for breach stated within the Principles themselves. However, the Principles are deemed a legislative instrument under the Legislative Instruments Act 2003, which means that any breach of the legislative requirements could potentially lead to legal consequences depending on the broader legislative framework and any relevant acts that the Principles are made under, such as the VEA. The focus of these Principles appears to be on ensuring the correct application of the PF to avoid any financial discrepancies or misclassification of income streams, rather than imposing penalties for non-compliance.