This Bill gives effect to a number of Budget 2000 and other measures relating to the Veterans’ Entitlements Act 1986 (VEA).

These amendments to the VEA will provide for a more generous treatment for the way in which periodic compensation payments will affect the pension payments received by partners of compensation recipients.

The amendments will also provide for the direct recovery of certain compensation debts from compensation payers and insurers.

20 September 2001

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These amendments to the VEA will provide that where a financial asset is regarded as unrealisable for the purposes of the assets test hardship provisions it will also not be regarded as a financial asset for the purposes of the income test deeming provisions.

The amendments will provide that the actual return on the unrealisable asset will be counted as ordinary income rather than the deemed rate of return.

20 September 2001

No financial impact

These amendments are consequential to the enactment of the Small Superannuation Accounts Act 1995 and mirror amendments made to the Social Security Act 1991 at that time.

1 July 1995

No financial impact

These amendments to the VEA will streamline the operation of the income streams rules and limit the abuse of those rules. The amendments mirror those that were made to the Social Security law by the Family and Community Services Legislation (Simplification and Other Measures) Act 2001 (No. 71 of 2001).

20 September 2001

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These amendments to the VEA are intended to align the Department’s rounding rules with those of the Social Security (Administration) Act 1999.

20 September 2001

No financial impact

Clause 1 sets out how the Act is to be cited.

Clause 2 sets out various commencement dates of the provisions in the Act. These are explained in more detail in each topic.

Clause 3 provides that the Act specified in a Schedule to this Act is amended as set out in the items of that Schedule.

These amendments to the VEA will provide for a more generous treatment for the way in which periodic compensation payments will affect the pension payments received by partners of compensation recipients.

The amendments will also provide for the direct recovery of certain compensation debts from compensation payers and insurers.

Payments to partners of compensation recipients

Where a person, or a person’s partner, receives a series of periodic compensation payments, and the person receives a compensation affected pension, then the amount of the pension is directly reduced by the amount of the periodic compensation payments.

A compensation affected pension is an invalidity service pension, a partner service pension or an income support supplement paid to a person who is under pension age.

The direct deduction applies to both the compensation recipient and to the partner. The proposed change will provide that the compensation received will be applied first to the rate of pension of the compensation recipient. Any excess compensation will be regarded as the partner’s ordinary income and the partner’s pension will be assessed according to the usual ordinary income test rules including free area and taper rates.

Recovery of debts

Where a person under pension age receives compensation for an event that occurred before the person began to receive an income support payment, the existing provisions (in Part IIIC of the VEA) provide for the recovery of the resulting overpayment of income support payments directly from the compensation payer or insurer.

Where the existing provisions do not apply, such as where the compensable event occurred after the person began to receive an income support payment, or where the person is of pension age, the compensation may cause an overpayment which the pensioner needs to repay.

This repayment of the debt causes a person inconvenience. In some cases, where the person has disposed of the compensation received before the debt is repaid, the process can cause a person hardship and distress.

The proposed changes will allow the Repatriation Commission to seek repayment of these debts directly from the compensation payer and insurer, in the same way that it does for other compensation debts.

Item 1 repeals the Note to the definition of periodic payments period in subsection 5NB(1). The amendment is required as a consequence of the amendment to section 59T and the insertion of new section 59TA.

Item 2 inserts a reference in subsection 5NB(2) to new subsection (6A) in a listing of the payments that are to be excluded from the definition of payments considered to be compensation for the purposes of Part IIIC. This new subsection is being inserted by Item 4.

Item 3 replaces paragraph 5NB(4)(b) with a new paragraph. Subsection 5NB(4) provides that a payment will not be compensation for the purposes of Part IIIC in certain circumstances. The circumstances include those where the recipient has made a contribution toward the payment and those where the agreement provides for a reduction in payments where the contributor is eligible for or receives a compensation affected pension.

The amended paragraph clarifies the position where the agreement provides for a reduction, but the payments have been calculated without reference to that provision in the agreement. In these cases the payment will not be regarded as compensation.

Item 4 inserts new subsections 5NB(6A) and (6B). Subsection 5NB(6A) provides that a payment under a Commonwealth, State or Territory law that provides for the payment of compensation for a criminal injury will not be regarded as compensation for the purposes of the VEA.

Subsection 5NB(6B) defines a criminal injury as being a reference to a personal injury suffered, or a disease or condition contracted as a result of the commission of a criminal offence.

Item 5 makes a technical amendment to subsection 5NB(7) so that it is clear that it will operate subject to subsection 5NB(8). Subsection 5NB(7) determines, for the purposes of Part IIIC, the method of calculating the amount of the compensation part of a lump sum compensation payment.

Subsection 5NB(8) provides for a determination of the amount of the lump sum compensation payment in circumstances where both periodic compensation payments and a lump sum compensation payment are received from which the amount of periodic compensation payments are to be repaid.

Item 6 is a technical amendment to paragraph 5NB(7)(c) which provides the Commission with the discretion to determine the amount of the compensation part of a lump sum compensation payment representing lost earnings or lost capacity to earn. The discretion applies in the circumstances where the provisions of paragraphs 5NB(7)(a) and (b) do not apply.

Paragraph 5NB(7)(c) has been amended so that the Commission has the discretion to determine that an amount of compensation represents both lost earnings and a lost capacity to earn.

Items 7 and 8 amend subsection 59N. Section 59N provides that certain lump sum payments of periodic compensation will be treated as though they were received as periodic payments.

Paragraph 59N(d) provides that a series of these lump sum payments will only be regarded as periodic payments where they are paid to the person in 2 or more instalments. This is not always the case. The requirement for there to be 2 or more instalments is to be removed with paragraph 59N(d) being repealed. The repeal of paragraph (d) will result in a consequential amendment to paragraph 59N(c).

Items 9, 10, 11 and 12 make a technical amendment to subsections 59Q(1) and 59Q(2A) and paragraphs 59Q(2)(d) and (e) by inserting a reference to the non-payment of a compensation affected pension for “any day or days in” the lump sum preclusion period. The amended reference is a consequence of previous amendments providing for pensions to be paid at a daily rate.

Item 13 replaces paragraph 59Q(3)(a) which provided that where a person has received both periodic compensation payments and a lump sum, that the lump sum preclusion period commenced after the last day of the periodic payments period. To remove any ambiguity, new paragraph 59Q(3)(a) provides that where there is more than one periodic payments period the lump sum preclusion period will begin on the day after the last day of the last periodic payments period.

Item 14 repeals the section 59Q example of how a lump sum preclusion period is worked out. The formula in the repealed example was amended by the Veterans’ Affairs Legislation Amendment Act (No. 1) 2000 (No. 141 of 2000).

Items 15 and 16 make a technical amendment to paragraphs 59R(1)(b) and 59R(5)(b) by inserting a reference to the non-payment of a compensation affected pension for “any day or days in” the lump sum preclusion period. The amended reference is a consequence of previous amendments providing for pensions to be paid at a daily rate.

Item 17 repeals the section 59R example of how the lump sum recoverable amount is worked out. The example refers to the example in section 59Q repealed by Item 14 which uses the formula amended by the Veterans’ Affairs Legislation Amendment Act (No. 1) 2000 (No. 141 of 2000).

Item 18 omits the words “per fortnight of pension” from section 59S and substitutes the words “of compensation affected pension”. The amendment is a consequence of the change to pensions being payable at a daily rate.

Item 19 repeals section 59T and substitutes new sections 59T and 59TA.

Section 59T previously provided for a reduction in the amounts of compensation affected pension payable to a person or the person’s partner where either person was in receipt of a series of periodic compensation payments.

New section 59T maintains the existing policy, but only for the compensation recipient and provides for a reduction in the rate of a person’s compensation affected pension for those days of the periodic payments period for which the person is eligible for a compensation affected pension.

New subsection 59T(1) provides that the reduction is applicable only to those persons in receipt of periodic compensation payments who were not, at the time of the event that gave rise to the entitlement to compensation, in receipt of a compensation affected pension.

New subsection 59T(2) provides that the person’s daily rate of compensation affected pension is reduced by the amount of the person’s daily rate of periodic compensation. The person’s daily rate of periodic compensation is calculated in new subsection 59T(3).

New subsection 59T(4) is applicable to those persons who were in receipt of a compensation affected pension at the time of the event that gave rise to the entitlement of the person to compensation. The subsection provides that the periodic compensation payments will be treated as the person’s ordinary income for the purposes of the Act. This continues an existing policy.

New section 59TA is applicable only to the partner of a compensation recipient. Section 59TA provides that the amount by which a compensation recipient’s periodic compensation payment exceeds the rate of the compensation recipient’s compensation affected pension is to be regarded as the ordinary income of the compensation recipient’s partner.

The excess amount will only be regarded as the ordinary income of the compensation recipient’s partner for those days of the periodic payments period for which the compensation recipient’s partner is eligible for either a compensation affected pension or a compensation affected payment under the Social Security Act 1991.

Subsection 59TA(1) provides that the excess will be treated as ordinary income only in the circumstances where the person receiving periodic compensation payments was not, at the time of the event that gave rise to the entitlement to compensation, in receipt of a compensation affected pension.

Subsection 59TA(2) provides that the person’s daily rate of compensation affected pension is worked out by dividing the total amount of the periodic compensation payments by the number of days in the periodic payments period.

Item 20 amends section 59V which provides that the rate reductions in Part IIIC apply regardless of whether the rate of pension is determined by the income test or the assets test. The amendment repeals paragraph 59V(a) containing an obsolete reference to the “compensation affected component of a person’s pension”. The new paragraph refers only to the “rate of a person’s compensation affected pension” reduced under Part IIIC.

Item 21 amends the Note to subsection 59W(1) by replacing the inappropriate reference to “subsections 56H(7) and (8)” with a reference to the more appropriate “point SCH6-E4”.

Item 22 amends section 59W by repealing and replacing paragraph 59W(3)(d). Section 59W provides that a person is liable to pay the Commonwealth for the amount of compensation affected pension received by that person in circumstances where a person has been paid both periodic compensation payments and payments of a compensation affected pension during the periodic payments period.

Subsection 59W(1) provides that a person will not be liable where the payments of compensation affected pension have been reduced by the operation of section 59T. Subsection 59W(1) also provides that the section is applicable only to those persons in receipt of periodic compensation payments who were not, at the time of the event that gave rise to the entitlement to compensation, in receipt of a compensation affected pension.

Subsection 59W(2) provides that the recoverable amount is determined by the operation of subsections 59W(3) and (4).

Subsection 59W(3) applies to a person who is not a member of a couple or whose partner is not eligible for a compensation affected pension under the VEA or is not qualified for a compensation affected payment under the Social Security Act. Subsection 59W(3) provides that the recoverable amount is the smaller of, the sum of the periodic compensation payments as in paragraph 59W(3)(c), and the amount determined by the operation of new paragraph 59W(3)(d).

New paragraph 59W(3)(d) reduces the comparative amount to the difference between the sum of the payments of compensation affected pension made to the person for a day or days in the periodic payments period (which is the existing provision) and the sum of the payments of compensation affected pension that would have been made to the person had those payments been reduced as a result of the operation of section 59T.

Subsection 59W(4) applies to a person who is a member of a couple and whose partner is eligible for a compensation affected pension under the VEA or is qualified for a compensation affected payment under the Social Security Act. Subsection 59W(4) provides that the recoverable amount is equal to the smaller of the sum of the periodic compensation payments, as in paragraph 59W(4)(c) or the amount determined by the operation of paragraph 59W(4)(d) – this paragraph is affected by the operation of new section 59TA (Item 19).

Item 23 repeals and replaces paragraph 59W(4)(d). New paragraph 59W(4)(d) provides for an amount to be determined as the difference between the sum of the payments of compensation affected pension, and of compensation affected payments made under the Social Security Act, made to the person and the person’s partner for a day or days in the periodic payments period, and the sum of the payments of compensation affected pension, and of compensation affected payments under the Social Security Act, that would have been made to the person and the person’s partner had those payments been reduced as a result of the operation of sections 59T and 59TA.

Item 24 repeals the section 59W examples of how the recoverable amounts are worked out. The repealed examples are obsolete with the changes made to section 59T and the addition of new section 59TA.

Item 25 repeals and replaces section 59X. Section 59X had provided that where the rate of a person’s pension or compensation affected pension was reduced under section 59T because of the receipt of periodic compensation payments, the periodic compensation payments were not to be regarded as ordinary income for either the compensation recipient or the compensation recipient’s partner.

New section 59X maintains that provision in relation to a person whose rate of compensation affected pension has been reduced under section 59T because of the receipt of a series of periodic compensation payments but removes the reference to the person’s partner who benefits from the new provisions of section 59TA.

Item 26 repeals and replaces paragraph 59Y(1)(b). Section 59Y provides that the Commission may give written notice to a person’s potential compensation payer that the Commission may wish to recover an amount from the insurer. The notice may be issued in circumstances where a person has received or claimed a compensation affected pension for a period for which a person has sought compensation for lost earnings or lost capacity to earn.

New paragraph 59Y(1)(b) is a technical amendment to refer to the person receiving or claiming a compensation affected pension for “a day or days” in the period to which the compensation relates.

Item 27 amends paragraph 59ZA(1)(b). Section 59ZA provides that the Commission may give written notice to a person’s compensation payer in circumstances where a person has received or claimed a compensation affected pension for a period for which a person is to be paid compensation for a disease, injury or condition of the person.

The technical amendment to paragraph 59ZA(1)(b) refers to the person receiving or claiming a compensation affected pension for “any day or days” in the periodic payments period or the lump sum preclusion period.

Item 28 adds to subsection 59ZA(3), a reference to the new subsection 59ZA(5A), that is being inserted by Item 33.

Item 29 amends paragraph 59ZA(4)(b). Subsection 59ZA(4) applies to a person who is not a member of a couple or whose partner neither receives nor claims a compensation affected pension or a compensation affected payment under the Social Security Act, for the periodic payments period or the lump sum preclusion period.

A technical amendment to paragraph 59ZA(4)(b) has been made to refer to a person’s partner not receiving nor claiming a compensation affected pension or a compensation affected payment under the Social Security Act, for “any day or days in” the periodic payments period or the lump sum preclusion period.

Item 30 amends paragraph 59ZA(4)(c). Subsection 59ZA(4) provides that the recoverable amount will be equal to the smallest of, the amount determined by the operation of paragraph 59ZA(4)(c), the compensation part of the lump sum payment or the sum of the amounts of the periodic compensation payments (paragraph 59ZA(4)(d)), or the maximum amount that the compensation payer is liable to pay to the person at any time after receiving the preliminary notice under section 59Y or the recovery notice under section 59ZA (paragraph 59ZA(4)(e) refers).

New paragraph 59ZA(4)(c) reduces the amount to one that is the difference between the sum of the payments of compensation affected pension made to the person for a day or days in the periodic payments period or the lump sum preclusion period and the sum of the payments of compensation affected pension that would have been made to the person for any such day or days had those payments been reduced as a result of the operation of subsection 59T(1).

Item 31 makes a technical amendment to paragraph 59ZA(5)(b). Subsection 59ZA(5) applies to a person who is a member of a couple and whose partner receives or claims a compensation affected pension or a compensation affected payment under the Social Security Act, for the periodic payments period or the lump sum preclusion period.

Paragraph 59ZA(5)(b) has been amended to refer to a person’s partner receiving or claiming a compensation affected pension or a compensation affected payment under the Social Security Act for “any day or days in” the periodic payments period or the lump sum preclusion period.

Item 32 amends paragraph 59ZA(5)(c). Subsection 59ZA(5) provides that the recoverable amount will be equal to either, the amount determined by the operation of paragraph 59ZA(5)(c), the compensation part of the lump sum payment or the sum of the amounts of the periodic compensation payments (paragraph 59ZA(5)(d)), or the maximum amount that the compensation payer is liable to pay to the person at any time after receiving the preliminary notice under section 59Y or the recovery notice under section 59ZA (paragraph 59ZA(5)(e) refers).

New paragraph 59ZA(5)(c) reduces the amount to one that is the difference between the sum of the payments of compensation affected pension, and of compensation affected payments under the Social Security Act, made to the person and the person’s partner for a day or days in the periodic payments period or the lump sum preclusion period and the sum of the payments of compensation affected pension, and of compensation affected payments under the Social Security Act, that would have been made to the person and the person’s partner for any such day or days had those payments been reduced as a result of the operation of subsection 59T(1) and section 59TA.

Item 33 amends section 59ZA by inserting new subsection (5A). New subsection 59ZA(5A) will apply as a result of the operation of subsection 59T(4) and will enable the Commission to directly recover certain overpayments of compensation affected pension from compensation payers under the provisions of section 59ZA.

New subsection 59ZA(5A) applies where a person was in receipt of a compensation affected pension at the time of the event that gave rise to the entitlement of the person to compensation and the person or the person’s partner is eligible for compensation affected pension for a day or days in the periodic payments period. In such circumstances an arrears payment of periodic compensation payments will be treated as being ordinary income of the person or the person’s partner for the periodic payments period.

The recoverable amount will be the amount determined by the Commission to be the total amount by which the person’s, or the person’s partner’s, compensation affected pension for a day or days in the periodic payments period would have been reduced because of the operation of point SCH6-E4 (which provides for an arrears payment of periodic compensation to be treated as being ordinary income for the period represented by the payment), if a determination had been made under sections 56D, 56E, 56EA or 56EB.

Item 34 repeals and replaces paragraph 59ZE(1)(b). Section 59ZE provides that the Commission may give written notice to a person’s insurer that the Commission may wish to recover an amount from the insurer. The notice may be issued where a person has received or claimed a compensation affected pension for a period for which a person has sought compensation for lost earnings or lost capacity to earn.

A technical amendment to paragraph 59ZE(1)(b) refers to the person receiving or claiming a compensation affected pension “for a day or days” in the period to which the compensation relates.

Item 35 amends paragraph 59ZG(1)(b). Section 59ZG provides that the Commission may give written notice to a person’s insurer where a person has received or claimed a compensation affected pension for a period for which a person is to be paid compensation in respect of lost earnings or lost capacity to earn. A technical amendment to paragraph 59ZG(1)(b) refers to the person receiving or claiming a compensation affected pension for “a day or days” in the periodic payments period or the lump sum preclusion period.

Item 36 adds to subsection 59ZG(3), a reference to new subsection 59ZG(5A), that is being inserted by Item 41.

Item 37 amends paragraph 59ZG(4)(b). Subsection 59ZG(4) applies to a person who is not a member of a couple or whose partner neither receives nor claims a compensation affected pension or a compensation affected payment under the Social Security Act, for the periodic payments period or the lump sum preclusion period.

A technical amendment to paragraph 59ZG(4)(b) refers to a person’s partner not receiving nor claiming a compensation affected pension or a compensation affected payment under the Social Security Act, for “any day or days in” the periodic payments period or the lump sum preclusion period.

Item 38 amends paragraph 59ZG(4)(c). Subsection 59ZG(4) provides that the recoverable amount will be the smallest of, the amount determined by the operation of paragraph 59ZG(4)(c), or the compensation part of the lump sum payment or the sum of the amounts of the periodic compensation payments (paragraph 59ZG(4)(d)), or the maximum amount that the compensation payer is liable to pay to the person at any time after receiving the preliminary notice under section 59ZE or the recovery notice under section 59ZG (paragraph 59ZG(4)(e) refers).

New paragraph 59ZG(4)(c) reduces the amount to one that is the difference between the sum of the payments of compensation affected pension made to the person for a day or days in the periodic payments period or the lump sum preclusion period, and the sum of the payments of compensation affected pension that would have been made to the person for any such day or days had those payments been reduced as a result of the operation of subsection 59T(1).

Item 39 amends paragraph 59ZG(5)(b). Subsection 59ZG(5) applies to a person who is a member of a couple and whose partner receives or claims a compensation affected pension or a compensation affected payment under the Social Security Act, for the periodic payments period or the lump sum preclusion period.

A technical amendment to paragraph 59ZG(5)(b) refers to a person’s partner receiving or claiming a compensation affected pension or a compensation affected payment under the Social Security Act for “any day or days in” the periodic payments period or the lump sum preclusion period.

Item 40 amends paragraph 59ZG(5)(c). Subsection 59ZG(5) provides that the recoverable amount will be the smallest of, the amount determined by the operation of new paragraph 59ZG(5)(c), or the compensation part of the lump sum payment or the sum of the amounts of the periodic compensation payments (paragraph 59ZG(5)(d)), or the maximum amount that the compensation payer is liable to pay to the person at any time after receiving the preliminary notice under section 59ZE or the recovery notice under section 59ZG (59ZG(5)(e) refers).

New paragraph 59ZG(5)(c) reduces the amount to one that is the difference between the sum of the payments of compensation affected pension, and of compensation affected payments under the Social Security Act, made to the person and the person’s partner for a day or days in the periodic payments period or the lump sum preclusion period, and the sum of the payments of compensation affected pension, and of compensation affected payments under the Social Security Act, that would have been made to the person and the person’s partner for any such day or days had those payments been reduced as a result of the operation of subsection 59T(1) and section 59TA.

Item 41 amends section 59ZG by inserting new subsection (5A). New subsection 59ZA(5A) will apply as a result of the operation of subsection 59T(4) and will enable the Commission to directly recover certain overpayments of compensation affected pension from insurers under the provisions of section 59ZG.

New subsection 59ZG(5A) applies where a person was in receipt of a compensation affected pension at the time of the event that gave rise to the entitlement of the person to compensation and the person or the person’s partner is eligible for compensation affected pension for a day or days in the periodic payments period. In such circumstances an arrears payment of periodic compensation payments will be treated as being ordinary income of the person or the person’s partner for the periodic payments period.

The recoverable amount will be the amount determined by the Commission to be the total amount by which the person’s, or the person’s partner’s, compensation affected pension for a day or days in the periodic payments period would have been reduced because of the operation of point SCH6-E4 (which provides for an arrears payment of periodic compensation to be treated as being ordinary income for the period represented by the payment), if a determination had been made under sections 56D, 56E, 56EA or 56EB.

Item 42 amends point SCH6-E3 which provides that the ordinary/ adjusted income for each member of a couple is determined by adding both individual’s annual rates of ordinary/ adjusted income and dividing by 2. The amendment provides that the calculation should disregard any amount that has been taken to be the ordinary income of either partner because of the operation of either section 59TA or section 1174 of the Social Security Act 1991.

Item 43 inserts new point SCH6-E3A. New point SCH6-E3A provides for an additional amount of ordinary income to be added to the income of a person that has been derived under point SCH6-E3. The additional amount will be any amount that has been derived by the operation of either section 59TA or section 1174 of the Social Security Act 1991.

These amendments to the VEA will provide that where a financial asset is regarded as unrealisable for the purposes of the assets test hardship provisions it will also not be regarded as a financial asset for the purposes of the income test deeming provisions.

The amendments will provide that the actual return on the unrealisable asset will be counted as ordinary income rather than the deemed rate of return.

The financial hardship rules may apply where a person would suffer severe financial hardship because of the application of the assets test. Where a person holds an unrealisable asset, and the hardship rules are determined to apply, the value of the unrealisable asset is disregarded when working out the rate of the person’s service pension or income support supplement.

While the value of the unrealisable asset is disregarded for the purposes of determining the rate of service pension or income support supplement the amount of income will still be included in the income test by the application of the financial hardship rules. Subsection 52Z(3) provides that the “adjusted annual rate of ordinary income” will include, at paragraph (c), the greater amount of either the “annual rate of ordinary income” or the “notional annual rate of ordinary income” from the unrealisable asset.

If the asset is a financial investment the usual deeming provisions will apply. If the rate of pension was determined by the income test, a lower rate could be assessed by attaching a deemed income to the unrealisable asset.

These amendments will exclude the value of an unrealisable asset from a person’s financial assets where the hardship provisions apply.

Item 1 substitutes a new subsection 46K(2) in Division 3 of Part IIIB of the VEA. Section 46K prevents the double counting of income from financial assets by providing that the actual return on financial assets is not treated as a person’s ordinary income so that only the deemed income from financial assets is counted as ordinary income.

New subsection 46K(2) will continue to provide for an exception to that general deeming rule so that, in certain cases the actual income from a financial investment will be counted as ordinary income.

Any exception needs to be specified in a determination made under section 46L.

Item 2 inserts new subsection (1A) into section 46L. New subsection 46L(1A) provides that, where the Commission has made a determination under section 52Y, that a person has access to the financial hardship rules, any unrealisable asset of the person or the person’s partner will not be regarded as a financial asset for the purposes of the deeming provisions in section 46D or 46E.

These amendments are consequential to the enactment of the Small Superannuation Accounts Act 1995 and mirror amendments made to the Social Security Act 1991 at that time.

The Superannuation Laws Amendment (Small Accounts and Other Measures) Act 1995 (No. 53 of 1995) provided for a series of amendments to the Social Security Act 1991 which were required as a consequence of the changes made to the administration of small superannuation accounts by the Small Superannuation Accounts Act 1995. That Act provided that such accounts would be held in the Superannuation Holding Accounts Reserve and administered by the Australian Taxation Office.

The amendments to the SSA came into effect from 1 July 1995 and provided that small superannuation accounts under the new scheme would receive the same income and assets test treatment as superannuation funds, deferred annuities and approved deposit funds.

The Superannuation Laws Amendment (Small Accounts and Other Measures) Act 1995 (No. 53 of 1995) did not provide for any amendments to the equivalent provisions of the VEA.

These amendments to the VEA provide for the inclusion of small superannuation accounts in those definitions relating to assets such as superannuation and deferred annuities.

The inclusion of small superannuation accounts in such definitions will provide the accounts with the asset and income test exemptions that are extended to such assets.

Item 1 inserts a reference to the definition of “ATO small superannuation account” into the general index in section 5.

Item 2 amends the index listing of the definition of “investment” by adding a reference to new subsection “(6A)” (to be inserted by Item 11).

Item 3 inserts a reference to the definition of “investor” into the general index in section 5.

Item 4 inserts a definition for the term ATO small superannuation account into the financial assets and income streams definitions in subsection 5J(1). The term is defined to mean an account kept in the name of an individual under the Small Superannuation Accounts Act 1995.

Item 5 repeals and replaces the definition of investment in subsection 5J(1). The amended definition retains the current definition in subsection 5J(6) in relation to a superannuation fund, approved deposit fund or deferred annuity, and adds a new definition for an ATO small superannuation account as defined in new subsection 5J(6A) (to be inserted by Item 11).

Item 6 inserts a definition of the term investor into subsection 5J(1). The term is defined to mean the person in whose name an ATO small superannuation account is kept.

Item 7 repeals and replaces the definition of return in subsection 5J(1). The amended provision adds a definition relating to that part of the balance of an ATO small superannuation account that is attributable to interest. The existing provision, in relation to any other investment, to include any increase in the value or amount of the investment, whether of a capital or income nature and whether or not it is distributed, is continued.

Item 8 repeals and replaces the definition of superannuation benefit in subsection 5J(1). The amended definition retains the existing provisions of a benefit arising directly or indirectly from amount contributed (whether by the person or another person) to superannuation fund. The definition has been expanded to include a payment made under Part 7 of the Small Superannuation Accounts Act 1995, which deals with the withdrawal of account balances.

Item 9 amends subsection 5J(1B) by inserting new paragraph (g). Subsection 5J(1B) provides a list of investments regarded as being “managed investments” for the purposes of the VEA. New paragraph 5J(1B)(g) will include an investment in an ATO small superannuation account in that list. A note directs the reader to new paragraph 5J(1)(ca) which excludes the investment if a person has not reached pension age.

Item 10 amends subsection 5J(1C) by inserting new paragraph (ca). Subsection 5J(1C) provides a list of investments which are not regarded as being “managed investments” for the purposes of the VEA. New paragraph 5J(1C)(ca) will include an investment in an ATO small superannuation account, if the investor has not yet turned pension age, in that list. This ensures these investments are treated the same as other, similar funds held by those under pension age.

Item 11 amends section 5J by inserting new subsection (6A). New subsection 5J(6A) provides that for the purposes of the VEA, a person will have an “investment” equal to the balance of an ATO small superannuation account that is kept in their name. This ensures these investments are treated the same as other, similar funds.

Item 12 amends subsection 5J(7) by inserting new paragraph (b). Subsection 5J(7) defines for the purposes of the VEA the circumstances in which a person “realises an investment”. New paragraph (b) includes the circumstances where, for the purposes of the Small Superannuation Accounts Act 1995, the balance of an ATO small superannuation account has been taken to have been withdrawn.

These amendments to the VEA will streamline the operation of the income streams rules and limit the abuse of those rules. The amendments mirror those being made to Social Security law in the Family and Community Services Legislation (Simplification and Other Measures) Bill 2001.

Income streams are a regular series of payments, made for life or for a fixed term, and purchased with a capital sum or made directly from accumulated superannuation contributions.

The means test treatment of income streams was previously changed by amendments to the VEA contained in the Social Security and Veterans' Affairs Legislation Amendment (Budget and Other Measures) Act 1997 (No. 93 of 1998).

It was apparent that further amendments are now due to the development of new products and the identification of areas of the legislation which need clarification.

These amendments give effect to a number of minor simplification measures that were outlined in the 2000-2001 Budget. The simplification measures streamline and clarify the operation of the legislation applicable to income streams.

Included in measures are changes to the means test treatment of income streams to ensure the conditions that income streams must meet to gain favourable means test treatment are clear and unambiguous.

A number of measures to correct anomalies and unintended consequences of the earlier legislation have also been included in the amendments.

Item 13 is a technical amendment to the subsection 5J(1) definition of “income stream”. Paragraph (b) had referred to a “public sector scheme”, the definition has been corrected to refer to a “public sector superannuation scheme”.

Item 14 repeals subsection 5JA(1) and inserts subsections 5JA(1), (1A), (1B) and (1C). The repealed subsection 5JA(1) listed the requirements which must be met for a lifetime income stream to be regarded as being asset-test exempt for the purposes of the VEA.

New subsection 5JA(1) provides that an income stream will be asset-test exempt if the requirements of paragraphs 5JA(1)(a), (b) and (c) are met.

New paragraph 5JA(1)(a) provides, subject to subsection (4), that an income stream is asset-test exempt if it arises under a contract, or governing rules, that meet the requirements of subsection 5JA(2).

New paragraph 5JA(1)(b) provides, subject to subsections (1B) and (1C), that the Repatriation Commission (the Commission) must be satisfied that for certain classes of providers that there is in force a current actuarial certificate. The actuarial certificate must state that in the actuary’s opinion there is high probability that the provider of the income stream will be able to pay the income stream.

New paragraph 5JA(1)(c) provides that the Commission must be satisfied that the requirements of subsection 5JA(2) are being given effect from the commencement day of the income stream.

New subsection 5JA(1A) provides that an income stream will be asset-test exempt for the purposes of the VEA, if the Commission has made a determination under subsection 5JA(5). Subsection 5JA(5) provides that the Commission may determine, having regard to the guidelines determined under subsection (6), that an income stream that does not meet the requirements of subsection (2), is an asset-test exempt income stream for the purposes of the VEA.

New subsection 5JA(1B) provides for the issue of the guidelines required by the Commission for determining whether an actuarial certificate is in force for the purposes of paragraph 5JA(1)(b). The determination of the guidelines will be a disallowable instrument for the purposes of section 46A of the Acts Interpretation Act 1901.

New subsection 5JA(1C) provides for the requirements of paragraph 5JA(1)(b) not to apply during a period of not more than 26 weeks which begins immediately after an actuarial certificate ceases to be in force. The provision will allow a fund that is unable to meet the requirements for actuarial certification (for example, because of poor returns), a period of time to regain certification.

Item 15 repeals and replaces subparagraph 5JA(2)(h)(i). Subsection 5JA(2) lists the requirements that must be satisfied by a contract or by the governing rules for the provision of an income stream.

Paragraph 5JA(2)(h) lists the circumstances in which an income stream can be commuted. New subparagraph 5JA(2)(h)(i) allows for the commutation of a “non-commutation funded income stream” within six months of the commencement day of the income stream.

The new subparagraph allows only for the commutation of an income stream that was not funded from the commutation of an earlier income stream. The amended subparagraph removes the ability to misuse the commutation provisions.

Item 16 repeals subparagraph 5JA(2)(h)(iv). It is replaced by subparagraphs 5JA(2)(h)(iv) and (v). New subparagraph 5JA(2)(iv) allows for the commutation of an income stream to the extent necessary to cover the superannuation contributions surcharge that a person becomes liable for because of the purchase of the income stream.

New subparagraph 5JA(2)(h)(v) allows for the commutation of an income stream to the extent necessary to pay a “hardship amount” as defined (to be inserted by Item 19) in subsection 5JA(7).

Item 17 inserts Notes 1 and 2 into paragraph 5JA(2)(h) referring the reader to the definitions of “non-commutation funded income stream” and “hardship amounts” in subsection 5JA(7).

Item 18 repeals and replaces paragraph 5JA(2)(i). The new paragraph provides at subparagraph 5JA(2)(i)(i), that an income stream may only be transferred on the death of the primary beneficiary to a reversionary beneficiary.

Subparagraph 5JA(2)(i)(ii) provides that the income stream may, on the death of the reversionary beneficiary be transferred to another reversionary beneficiary.

Item 19 inserts new subsection 5JA(2A). New subsection 5JA(2A) provides for an exception to be made to the requirements of paragraph 5JA(2)(c). Paragraph 5JA(2)(c) provides that the total amount of payments of an income stream in any year other than the first year may not fall below or exceed the total amount of the payments made under the income stream in the immediately preceding year. Paragraph 5JA(2)(c) does make an allowance for increases due to indexation and for reductions due to certain allowable commutations.

The exception provided for in subsection 5JA(2A) will allow for a joint lifetime annuity which pays a single income stream into a joint account to retain its asset-test exempt status when the level of payments is reduced following the death of one of the partners.

Item 20 inserts new subsection 5JA(7). New subsection 5JA(7) defines for the purposes of subparagraph 5JA(2)(h)(iv) what is meant by a “hardship amount”. Definitions are also provided for the related terms “liquid assets”, “non-commutation funded income stream” and “unavoidable expenditure”.

A commutation from an “asset-test exempt income stream” will be a “hardship amount” where:

• the person has applied in writing to the Commission to be allowed to commute the whole or part of an income stream because of extreme financial hardship; and the Commission is satisfied that:
• the person’s circumstances are exceptional and could not be reasonably foreseen at the time the person purchased the income stream; and
• the person has insufficient “liquid assets” or other assets (excluding the person’s principal home) that could be realised to avoid the extreme financial hardship; and
• the amount commuted is required to meet “unavoidable expenditure”.

The term “liquid assets” is defined to mean the person’s cash and readily realisable assets and will include:

• the person’s shares or debentures in a public company; and
• managed investments; and
• insurance policies that may be surrendered for money; and
• amounts deposited with, or lent to, a bank or other financial institution by the person (whether or not the amount can be withdrawn or repaid immediately); and
• amounts due, and able to be paid, to the person by, or on behalf of, a former employer of the person.

The term “non-commutation funded income stream” is referred to in subparagraph 5JA(2)(h)(i) in relation to the type of income stream which may be commuted within six months of its commencement day and retain its asset-test exempt status. A “non-commutation funded income stream” is defined to mean an income stream that has not been purchased by transferring directly to the purchase of the income stream a payment resulting from the commutation of another asset-test exempt income stream.

The term “unavoidable expenditure” is referred to in the definition of “hardship amount” and is defined in relation to a person as being one or more of the following:

• essential medical expenses of the person, or the person’s partner, to the extent that the expenses are not covered by health insurance or other contracts or arrangements;

• the cost of replacing or repairing the person’s principal home to the extent that the cost of replacement or repairs is not covered by an insurance policy;
• expenditure to buy replacement essential household goods because of the loss of those goods to the extent that the cost of replacement is not covered by an insurance policy.

Item 21 repeals subsection 5JB(1) and inserts subsections 5JB(1), (1A), (1B), (1C) and (1D). The repealed subsection 5JB(1) listed the requirements which must be met for a life expectancy or 15 year minimum term income stream to be regarded as being asset-test exempt for the purposes of the VEA.

New subsection 5JB(1) provides that an income stream will be asset-test exempt if the person has reached pension age before or on the day that the income stream is purchased or acquired and either subsection 5JB(1A) or (1B) is applicable.

New subsection 5JB(1A) provides that an income stream will be asset-test exempt if the requirements of paragraphs 5JB(1A)(a), (b) and (c) are met.

New paragraph 5JB(1A)(a) provides, subject to subsection (3), that an income stream is asset-test exempt if it arises under a contract, or governing rules, that meet the requirements of subsection 5JB(2).

New paragraph 5JB(1A)(b) provides, subject to subsection (1D), that the Commission must be satisfied that for certain classes of providers that there is in force a current actuarial certificate.

New paragraph 5JB(1A)(c) provides that the Commission must be satisfied that the requirements of subsection 5JB(2) are being given effect from the commencement day of the income stream.

New subsection 5JB(1B) provides that an income stream will be asset-test exempt for the purposes of the VEA, if the Commission has made a determination under subsection 5JB(4). Subsection 5JB(4) provides that the Commission may determine, having regard to the guidelines determined under subsection (5), that an income stream that does not meet the requirements of subsection (2), is an asset-test exempt income stream for the purposes of the VEA.

New subsection 5JB(1C) provides for the issue of the guidelines required by the Commission for determining whether an actuarial certificate is in force for the purposes of paragraph 5JB(1A)(b). The determination of the guidelines will be a disallowable instrument for the purposes of section 46A of the Acts Interpretation Act 1901.

New subsection 5JB(1D) provides for the requirements of paragraph 5JB(1A)(b) not to apply during a period of not more than 26 weeks which begins immediately after an actuarial certificate ceases to be in force. The provision will allow a fund that is unable to meet the requirements for actuarial certification (for example, because of poor returns), a period of time to regain certification.

New subsection 5JB(1A) provides that an income stream will be asset-test exempt if the requirements of paragraphs 5JB(1A)(a), (b) and (c) are met.

New paragraph 5JB(1A)(a) provides, subject to subsection (3), that an income stream is asset-test exempt if it arises under a contract, or governing rules, that meet the requirements of subsection 5JB(2).

New paragraph 5JB(1A)(b) provides, subject to subsection (1D), that the Commission must be satisfied that for certain classes of providers that there is in force a current actuarial certificate.

Item 22 repeals and replaces paragraph 5JB(2)(a)(i). Subsection 5JB(2)(a) provides that a contract, or the governing rules, for the provision of an income stream must specify that the payments under the income stream are to be made at least annually.

New subparagraph 5JB(2)(a)(i) provides that the term of an income stream for a person with a life expectancy of less than 15 years, if the life expectancy does not consist of a whole number of years, may be rounded up to the next whole number of years.

Item 23 repeals and replaces subparagraph 5JB(2)(h)(i). Subsection 5JB(2) lists the requirements that must be satisfied by a contract or by the governing rules for the provision of an income stream.

Paragraph 5JB(2)(h) lists the circumstances in which an income stream can be commuted. New subparagraph 5JB(2)(h)(i) allows for the commutation of a “non-commutation funded income stream” within six months of the commencement day of the income stream.

The new subparagraph allows only for the commutation of an income stream that was not funded from the commutation of an earlier income stream. The amended subparagraph removes the ability to misuse the commutation provisions.

Item 24 repeals subparagraphs 5JB(2)(h)(iii) and (iv) and replaces them with subparagraphs 5JB(2)(h)(iii), (iv), (v) and (vi).

New subparagraph 5JB(2)(h)(iii) allows for the commutation of an income stream in the circumstances where the legal or equitable interest is transferred on the death of a person to the benefit of a reversionary beneficiary. The legal or equitable interest may also be transferred on the death of the reversionary beneficiary to the benefit of another reversionary beneficiary. If there is no other beneficiary the interest may be transferred to the estate of the reversionary beneficiary.

New subparagraph 5JB(2)(h)(iv) allows for the commutation of an income stream to provide for the transfer of the legal or equitable interest in the payment to the estate of person where there is no reversionary beneficiary.

New subparagraph 5JB(2)(v) allows for the commutation of an income stream to the extent necessary to cover the superannuation contributions surcharge that a person becomes liable for because of the purchase of the income stream.

New subparagraph 5JB(2)(h)(vi) allows for the commutation of an income stream to the extent necessary to pay a “hardship amount” as defined (to be inserted by Item 26) in subsection 5JB(7).

Item 25 inserts Notes 1 and 2 into paragraph 5JB(2)(h) referring the reader to the definitions of “non-commutation funded income stream” and “hardship amounts” in subsection 5JB(7).

Item 26 repeals and replaces paragraph 5JB(2)(i). The new paragraph provides at subparagraph 5JB(2)(i)(i), that an income stream may only be transferred on the death of the primary beneficiary to a reversionary beneficiary, or if there is no reversionary beneficiary, to the estate of the primary beneficiary.

Subparagraph 5JB(2)(i)(ii) provides that the income stream may, on the death of the reversionary beneficiary be transferred to another reversionary beneficiary, or if there is no other reversionary beneficiary, to the estate of the reversionary beneficiary.

Item 27 inserts new subsection 5JB(2A). New subsection 5JB(2A) provides for an exception to be made to the requirements of paragraph 5JB(2)(c). Paragraph 5JB(2)(c) provides that the total amount of payments of an income stream in any year other than the first year may not fall below or exceed the total amount of the payments made under the income stream in the immediately preceding year. Paragraph 5JB(2)(c) does make an allowance for increases due to indexation and for reductions due to certain allowable commutations.

The exception provided for in subsection 5JB(2A) will allow for a joint lifetime annuity which pays a single income stream into a joint account to retain its asset-test exempt status when the level of payments is reduced following the death of one of the partners.

Item 28 inserts new subsection 5JB(7). New subsection 5JB(7) defines for the purposes of subparagraph 5JB(2)(h)(vi) what is meant by a “hardship amount” and a “non-commutation funded income stream”. The definition of “hardship amount” refers to the definition provided in new subsection 5JA(7).

The term “non-commutation funded income stream” is referred to in subparagraph 5JB(2)(h)(i) in relation to the type of income stream which may be commuted within six months of its commencement day and retain its asset-test exempt status. A “non-commutation funded income stream” is defined to mean an income stream that has not been purchased by transferring directly to the purchase of the income stream a payment resulting from the commutation of another asset-test exempt income stream.

Item 29 inserts new section 52C(3A). Section 52C refers to the effect of a charge or encumbrance on the value of an asset. Subsection 52C(1) provides that in calculating the value of a person’s assets the value of any charge or encumbrance is to be used to reduce the value of the assets. New subsection 52C(3A) provides that subsection 52C(1) will not apply to an asset-tested income stream (long term).

The insertion of the exception will prevent the application of subsection 52C(1) to asset-tested income streams (long term) purchased using borrowed funds.

Item 30 inserts new section 52ZMA. New section 52ZMA provides for the calculation of the debt that arises from the overpayment of a service pension or income support supplement while a person is in receipt of an income stream. The overpayment arises from a commutation of an asset-test exempt income stream that is a contravention of the contract or the governing rules under which the income stream was provided.

Subsection 52ZMA(1) provides that in the circumstances where a person has been provided with an asset-test exempt income stream for a period; and:

• is paid an amount of service pension or income support supplement during the whole or any part of that period; and
• the whole or any part of the income stream is commuted contrary to the contract or governing rules under which the income stream was originally provided; and
• the amount of service pension or income support supplement that has been paid to the person for the period is more than the amount that would have been paid had the income stream not been an asset-test exempt income stream;

that an amount worked out under subsection 52ZMA(2) will be a debt due to the Commonwealth.

Subsection 52ZMA(2) provides that the debt due to the Commonwealth will be an amount equal to the difference between the amount of service pension or income support supplement that was paid to the person during the relevant period and the amount that would have been paid had the income stream not been asset-test exempt for that period. The relevant period is worked out in subsection 52ZMA(3).

Subsection 52ZMA(3) provides that the relevant period is the period beginning on:

• the day 5 years before the day the income stream was commuted; or
• either the commencement day of the income stream or 20 September 2001;

whichever occurs later.

Subsection 52ZMA(4) provides that in working out the asset value of the income stream as if it had not been asset-test exempt it should be assumed that the income stream was asset tested from the commencement day and that the asset value of the income stream is to be depleted in accordance with the formula in subsection 52A(4).

Subsection 52ZMA(5) provides that section 52ZMA is not applicable to income streams to which a determination under subsection 5JA(5) or 5JB(4) is in force.

Item 31 repeals and replaces the definition of binding arrangement in subclause 12(4) of Schedule 5. Clause 12 of Schedule 5 gives the Minister the power to exempt specified financial investments for particular individuals from amendments to the means test treatment of income streams. The exemption will only be granted in cases likely to cause severe detriment to a person who has entered into a binding arrangement prior to the commencement of the amendments made by Part 2 of Schedule 3 of the Social Security and Veterans’ Affairs Legislation Amendment (Budget and Other Measures) Act 1998 (No. 93 of 1998).

The definition has been amended so that it will be limited to the circumstances specified in the administrative guidelines where:

• the arrangement with the provider of the income stream product does not allow the person to commute the income stream; or
• the arrangement may only be terminated on terms that are, in the opinion of the Commission, likely to cause severe detriment to the person.

The amendment will limit applications to those that fit within the intended scope of the legislation.

These amendments to the VEA are intended to align the Department’s rounding rules with those of the Social Security (Administration) Act 1999.

The Social Security (Administration) Act 1999 introduced from 20 March 2000, a change to the rounding provisions for Age Pension payments. Payments of Age Pension are now rounded to the nearest cent instead of the nearest ten cents.

That Act provides in section 54 that for instalments of social security payments which are for more than one dollar, the amount of the instalment is to be “increased or decreased to the nearest whole cent”.

Part IIIB of the VEA contains the provisions applicable to the payment of service pension and income support supplement. Section 58A provides for the payment of pension and income support supplement payments in instalments.

Where an instalment is not a multiple of 10 cents, subsection 58A(5) provides that the amount of the instalment will be rounded to the nearest multiple of 10 cents. Subsection 58A(6) provides that instalments with a remainder of 5 cents will be rounded up to the next 10 cents.

A similar method is used to calculate advance payments of pension and income support supplement under Part IVA of the VEA.

These amendments to the VEA will replace the current provisions of section 58A which round instalments to the nearest ten cents and round up instalments with a remainder of five cents to the next ten cents with a single provision which will round the amount of the instalments to the nearest cent while rounding a half cent upwards.

Amendments have also been made to the provisions of Part IVA dealing with the calculation of an advance payment or the repayment of an advance of pension or income support supplement.

Item 1 repeals subsections 58A(5) and (6). The repealed provisions are replaced with new subsection 58A(5) which provides that the amount of an instalment of pension or income support supplement will be “rounded to the nearest cent (rounding up half a cent upwards)”.

Item 2 repeals subsections 79K(4) and (5). The repealed provisions are replaced with new subsection 79K(4) which provides that the amount of an advance payment of pension or income support supplement will be “rounded to the nearest cent (rounding up half a cent upwards)”.

Item 3 amends the example provided in section 79P of how the amount of the repayments of an advance of pension or income support supplement is worked out. The reference to the amount being rounded under section 79R to $34.60” is replaced with a reference to the amount being “rounded to the nearest cent under section 79R”.

Item 4 repeals and replaces section 79R. New section 79R provides that the amount of an advance payment deduction worked out under Division 6 of Part IVA is to be “rounded to the nearest cent (rounding half a cent upwards)”.

Items 5 to 7 amend some of the notes to the method statements contained in the Rate Calculators in Schedule 6 of the VEA. The relevant notes to subpoints SCH6-A1(2), SCH6-A1(3) and SCH6-A1(6) have been amended by replacing the reference to the rounding of the amount of a fortnightly instalment of income support to “the nearest multiple of 10 cents” with a reference to the rounding off of the amount “to the nearest cent”.