EXPLANATORY STATEMENT
Veterans' Entitlements (Modification of Asset Deprivation Rules) Principles 2002
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 it when making decisions under a number of provisions of the Veterans' Entitlements Act, including subsections 52ZZW(1), 52ZZX(3), 52ZZZ(1) and 52ZZZA(1).
The purpose of this instrument is to set out decision-making principles that the Commission must comply with in making determinations under sections 52ZZW, 52ZZX, 52ZZZ and 52ZZZA of the Veterans' Entitlements Act. These determinations relate to modifying the way in which the standard ‘disposal of asset’ rules would affect an individual.
Background
The Social Security and Veterans’ Entitlements Legislation Amendment (Private Trusts and Private Companies – Integrity of Means Testing) Act 2000 amended the Social Security Act 1991 and the Veterans' Entitlements Act 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 52ZZW, 52ZZX, 52ZZZ and 52ZZZA of the Veterans' Entitlements Act define the way in which the ‘disposal of assets rules’ in the Act, which appear at Subdivision B of Division 11 of Part IIIB and section 45UT, will operate in relation to an individual affected by this measure. These decision-making principles will assist the Commission in modifying the application of those disposal rules, where this is necessary.
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 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, which is to provide decision-making principles that can be used in making a determination, under paragraph 52ZZW(1)(d) or (e), that where an individual disposes of an asset 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 of Subdivision B of Division 11 of Part IIIB and section 45UT, of the Veterans' Entitlements Act, can be taken to be nil, or an amount less than the amount of the original disposal, as the Commission 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 Commission should 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 asset in any event, being the only attributable stakeholder of the company or trust, which is holding the asset, and therefore it would be unfair on the income support pensioner to also hold the value of the disposal against them for assets test purposes.
Section 8 states that in the case of an individual, who is a member of a couple, the Commission should 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 asset in any event, being the only attributable stakeholders of the company or trust which is holding the asset, and therefore it would be unfair on the income support pensioners to also hold the value of the disposal against them for assets test purposes.
Section 9 applies where an attributable stakeholder of a company or trust disposes of an asset 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 Commission 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 an asset 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 Commission 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 an asset to a company or trust, but ends up with an asset attribution percentage of less than 100% in relation to the company or trust, then the Commission may decide only to reduce the amount of the original disposal by an amount equal to the percentage of the asset 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 52ZZX(3)(a) or (b). The effect of subsection 52ZZX(1) is that where a company or trust, in regard to which the individual is an attributable stakeholder, disposes of an asset, then for the purposes of Subdivision B of Division 11 of Part IIIB and section 45UT, of the Veterans' Entitlements Act, it will be taken as if the individual had disposed of an asset, or percentage of the asset equal to the individual’s asset attribution percentage, that he or she had owned personally. Paragraphs 52ZZX(3)(a) and (b) allow the Commission to exempt a particular asset from the operation of subsection 52ZZX(1), or reduce the percentage of the asset that the individual is taken to have disposed of.
Section 12 applies where a company or trust pays a dividend or distribution to an individual, and subsection 52ZZX(1) applies as if the individual had disposed of a personal asset. In this case the Commission must consider whether the amount of the dividend or distribution was reasonable given the individual’s asset attribution percentage both prior to, and as a result of, the disposal. This section exists, in part, so that a person who withdraws their capital from a company or trust, and is consequently no longer an attributable stakeholder, or an attributable stakeholder to a lesser extent, will not be taken to have disposed of an asset, but then also have the value of the asset held against them as a personally owned asset, for assets test purposes.
Section 13 applies where a company or trust pays a dividend or distribution to an individual who is not an attributable stakeholder of the company or trust, but who has previously made a genuine transfer of capital to it. A genuine transfer occurs where the individual who makes the transfer receives in return shares or units in the company or trust, together with a right to receive distributions or dividends and to share in the capital if the company or trust is wound up. The individual must also be over 18 years of age. If this section applies, the Commission must consider whether the dividend or distribution made to the individual is reasonable, taking into account the value of the property transferred to the company or trust by the individual compared to the total value of the company or trust’s assets at the time of the investment. This section exists so that an attributable stakeholder of a company or trust that pays a distribution or dividend to a genuine investor, who has a right to the payment, will not be taken to have disposed of an asset.
Part 4
Section 14 sets out the purpose of Part 4 of the instrument, which is to provide decision-making principles that can be used in making a determination, under paragraph 52ZZZ(1)(e) or (f). The effect of subsection 52ZZZ(1) is, that where an individual disposes of an asset to a trust or company before 1 January 2002, and on 1 January 2002 he or she becomes an attributable stakeholder of that trust or company, then the 5-year disposal period that relates to that asset, which is mandated by Subdivision B of Division 11 of Part IIIB and section 45UT, of the Veterans' Entitlements Act, can be taken to cease, or only apply to the original asset’s value reduced by a percentage equal to the attributable stakeholder’s asset attribution percentage, or a higher percentage, as the Commission determines, on 1 January 2002.
Section 15 provides definitions that are used in this part of the instrument.
Section 16 will apply where an individual disposes of an asset to a company or trust prior to 1 January 2002 and on 1 January 2002 the asset is still owned by the company or trust that received it from the individual and the value of the asset is the same or more than it was on the date of the original disposal. If the section applies, then the Commission must consider whether taking all the circumstances into account it would be unfair or unreasonable to apply the asset deprivation rules to the individual.
Section 17 applies where an individual disposes of an asset to a company or trust prior to 1 January 2002 and on 1 January 2002 the asset is still owned by the company or trust that received it from the individual and the value of the asset has decreased from what it was on the date of the original disposal. The Commission must also be satisfied that the decrease is not due to any conduct undertaken to avoid or minimise the trust and companies rules at Division 11A of Part IIIB of the Veterans' Entitlements Act. If the section applies then the Commission must consider whether, taking all the circumstances into account, it would be unfair or unreasonable to apply the asset deprivation rules to the individual.
Section 18 will apply where an individual disposes of an asset to a company or trust that then transfers that asset to another party for an arms-length price, all prior to 1 January 2002, and on 1 January 2002 the company or trust has retained the sale price as a part of its assets. In this case, the Commission must consider whether, taking all the circumstances into account, it would be unfair or unreasonable to apply the asset deprivation rules to the individual.
Section 19 applies where an individual, who is a member of a couple, disposes of an asset to a company or trust prior to 1 January 2002 and on 1 January 2002 one, or both, members of the couple are the only attributable stakeholders of the company or trust. If this section applies, then the Commission must consider whether, taking all the circumstances into account, it would be unfair or unreasonable to apply the asset deprivation rules to the individual. Often, in these circumstances, the members of the couple will be attributed with the full value of the disposed asset in any event, being the only attributable stakeholders of the company or trust which is holding the asset, and therefore it would be unfair on the income support pensioners to continue to also hold the value of the disposal against them for assets test purposes
Part 5
Section 20 sets out the purpose of Part 5 of the instrument, which is to provide decision-making principles that can be used in making a determination, under paragraph 52ZZZA(1)(e) or (f). The effect of subsection 52ZZZA(1) is, that where an individual disposes of an asset to a trust or company, before 1 January 2002, and on 1 January 2002 his or her spouse becomes an attributable stakeholder of that trust or company then the 5-year disposal period that relates to that asset, which is mandated by Subdivision B of Division 11 of Part IIIB and section 45UT, of the Veterans' Entitlements Act, can be taken to cease, or only apply to the original asset’s value reduced by a percentage equal to the spouse’s asset attribution percentage, on 1 January 2002.
Section 21 provides definitions that are used in this part of the instrument.
Section 22 will apply where an individual disposes of an asset to a company or trust prior to 1 January 2002 and on 1 January 2002 the asset is still owned by the company or trust that received it from the individual and the value of the asset is the same or more than it was on the date of the original disposal. If this section applies, the Commission must consider whether, taking all the circumstances into account, including the fact that the individual’s spouse is an attributable stakeholder of the company or trust, it would be unfair or unreasonable to apply the asset deprivation rules to the individual.
Section 23 applies where an individual disposes of an asset to a company or trust prior to 1 January 2002 and on 1 January 2002 the asset is still owned by the company or trust that received it from the individual and the value of the asset decreased from what it was on the date of the original disposal. The Commission must also be satisfied that the decrease is not due to any conduct undertaken to avoid or minimise the trust and companies rules at Division 11A of Part IIIB of the Veterans' Entitlements Act. If the section applies, the Commission must consider whether, taking all the circumstances into account, including the fact that the individual’s spouse is an attributable stakeholder of the company or trust, it would be unfair or unreasonable to apply the asset deprivation rules to the individual.
Section 24 will apply where an individual disposes of an asset to a company or trust that then transfers that asset to another party for an arms-length price, all prior to 1 January 2002, and on 1 January 2002 the company or trust has retained the sale price as a part of its assets. In this case, the Commission must consider whether, taking all the circumstances into account, including the fact that the individual’s spouse is an attributable stakeholder of the company or trust, it would be unfair or unreasonable to apply the asset deprivation rules to the individual.