EXPLANATORY STATEMENT
Veterans' Entitlements (Attribution of Assets) Principles 2001
Summary
Section 52ZZZQ of the Veterans' Entitlements Act 1986 (the Veterans' Entitlements Act) provides that the Commission may formulate principles to be complied with by the Commission when making decisions under a number of sections of the Veterans' Entitlements Act, including sections 52ZZR(2), 52ZZT(6) and 52ZZU(1).
The purpose of this instrument is to set out decision-making principles that the Commission must comply with in making determinations under sections 52ZZR, 52ZZT and 52ZZU of the Veterans' Entitlements Act. These determinations relate to modifying the way in which Division 11A of Part IIIB of the Veterans' Entitlements Act would otherwise maintain the assets and liabilities of a company or trust against a Veterans' Entitlements income support pensioner.
Background
The Social Security and Veterans’ Entitlements Legislation Amendment (Private Trusts and Private Companies – Integrity of Means Testing) Act 2000 amended the Veterans' Entitlements Act (and the Social Security Act 1991) to give effect to a measure in the Government's 2000-2001 Budget to revise the means test treatment of private companies and private trusts. The measure aims to ensure that income support pensioners who hold their assets in private companies or private trusts receive comparable treatment under the means test to those income support pensioners 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 52ZZR, 52ZZT and 52ZZU of the Veterans' Entitlements Act set out various rules relating to the way in which the assets and liabilities of a company or trust will be maintained against an income support pensioner as a result of the trusts and companies measure. These decision-making principles will assist the Commission in modifying the application of those general rules, where this is necessary.
Explanation of the provisions
Part 1
Section 1 of the Principles states the name of the disallowable instrument and section 2 states that the Principles commence on gazettal. 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. This is to provide decision-making principles that can be used in making a determination, under subsection 52ZZR(2), that a particular asset of a company or trust should be excluded from being maintained against attributable stakeholders of that company or trust for Veterans' Entitlements purposes.
Section 6 provides, in effect, that where an individual, who is not an attributable stakeholder of a particular company or trust, has made a genuine transfer of capital to the company or trust, then the Commission must consider the extent to which part of this capital should be an excluded asset in relation to the attributable stakeholders of the company or trust. In so doing, the Commission needs to have regard to the value of the capital transferred and the value of the shares or units received by the individual in return and the extent to which the value of the capital is not expressly required to be disregarded. A genuine transfer of capital occurs where an individual over 18 transfers capital to a company or trust and receives fair consideration of shares or units in the company or trust in return as well as obtaining a legal or equitable right to dividends or distributions as well as a share of the capital of the trust or company if it were to be wound up.
Part 3
Section 7 sets out the purpose of Part 3 of the instrument. This is to provide decision-making principles that can be used in making a determination, under subsection 52ZZT(6), that a charge or encumbrance, that exists in relation to assets of a company or trust, should not be allowed, or only allowed in part, to reduce the value of the company’s or trust’s assets for Veterans' Entitlements purposes.
Section 8 provides that in determining whether a charge or encumbrance, that exists in relation to assets of a company or trust, should not be allowed, or only allowed in part, to reduce the value of the company’s or trust’s assets for Veterans' Entitlements purposes, the Commission should look at whether the transaction that resulted in the creation of the charge or encumbrance was an ‘arms length transaction’ and the other matters listed at section 10.
Section 9 sets out criteria that the Commission can use in determining whether a particular transaction, that gave rise to a charge or encumbrance over assets of a company or trust, was an ‘arms length transaction’ for the purposes of section 8. These criteria include whether the transaction was for the purposes of the business activities of the company or trust, whether the transaction was in writing, signed by all parties and witnessed by an independent person, whether each party to the transaction was at least 18 years old or at least 16 years old and either in a full-time occupation or in receipt of a social security entitlement, and finally, whether the transaction is made for an arm’s length amount (as defined in section 1207A). These criteria, together with the matters listed at section 10, are aimed at helping the Commission to determine whether a loan is genuine, rather than a part of a contrived family arrangement.
Section 10 provides other matters that the Commission needs to take into account in deciding whether a charge or encumbrance, that exists in relation to assets of a company or trust, should not be allowed, or only allowed in part, to reduce the value of the company’s or trust’s assets for Veterans' Entitlements purposes. These matters include whether the individual, and his or her spouse, is or are the only attributable stakeholder/s of the company or trust, the relationships between the parties to the transaction and the nature and circumstances of the transaction.
Part 4
Section 11 sets out the purpose of Part 4 of the instrument. This is to provide decision-making principles that can be used in making a determination, under subsection 52ZZU(1), that where a company or trust has borrowed money, without there being a charge or encumbrance over any assets of the company or trust, then the value of a specified asset of the company or trust can be reduced by all, or a part of, the value of the loan for Veterans' Entitlements purposes.
Section 12 provides that in determining whether the value of a loan, that is not secured over assets of the company or trust, should be allowed, or allowed in part, to reduce the value of an asset of the company or trust, for Veterans' Entitlements purposes, the Commission must take into account whether the loan transaction was an ‘arms length transaction’ and the other matters listed at section 14.
Section 13 sets out criteria that the Commission can use in determining whether a particular loan transaction, was an ‘arms length transaction’ for the purposes of section 12. These criteria include whether the transaction was for the purposes of the business activities of the company or trust, whether the transaction was in writing, signed by all parties and witnessed by an independent person, whether each party to the transaction was at least 18 years old or at least 16 years old and either in a full-time occupation or in receipt of a social security entitlement, and finally, whether the transaction is made for an arm’s length amount. (as defined in section 1207A). These criteria, together with the matters listed at section 14 are aimed at helping the Commission to determine whether a loan is genuine, rather than a part of a contrived family arrangement.
Section 14 provides other matters that the Commission needs to take into account in deciding whether the value of a loan, that is not secured over assets of the company or trust, should be allowed, or allowed in part, to reduce the value of an asset of the company or trust, for Veterans' Entitlements purposes. These matters include whether the individual, and his or her spouse, is or are the only attributable stakeholder/s of the company or trust, the relationships between the parties to the transaction, the nature and circumstances of the transaction and also whether the loan is secured over an asset that is not owned by the company or trust.