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Family and Community Services Legislation (Simplification and Other Measures) Bill 2001

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1998-1999-2000-2001

 

 

 

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

 

 

 

 

 

FAMILY AND COMMUNITY SERVICES LEGISLATION (SIMPLIFICATION AND OTHER MEASURES) BILL 2001

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

 

 

 

(Circulated by authority of the Minister for Family and Community Services,

Senator the Hon Amanda Vanstone)



FAMILY AND COMMUNITY SERVICES LEGISLATION (SIMPLIFICATION AND OTHER MEASURES) BILL 2001

 

 

OUTLINE AND FINANCIAL IMPACT STATEMENT

 

 

The Family and Community Services Legislation (Simplification and Other Measures) Bill 2001 forms a part of the measures being undertaken to give effect to the Government’s commitment to implement a simpler and more coherent social security system.

 

The Bill repeals Part 3.14 of the Social Security Act 1991 that deals with compensation recovery and substitutes a new Part 3.14.

 

The new Part is simpler than the current Part. It also implements the 2000-2001 Budget measures to:

 

·          remove the existing direct deduction rules for the partners of compensation recipients; and

·          recover debts arising from the payment of arrears of periodic compensation payments directly from compensation payers and insurers.

 

Under the new Part the existing income tests under the social security law will apply to partners of compensation recipients. This will provide more generous treatment for these partners.

 

When the compensation recipient’s rate of payment is reduced to nil because of the dollar for dollar deductions, the excess of the periodic compensation will reduce the partner’s rate under the ordinary income tests. Partners will have access to the applicable free areas and taper rates.

 

This initiative recognises the move in other areas of the social security law away from the concept of dependency based payments and towards entitlements for payment in a person’s own right.

 

Overall this measure will increase the amount of social security pensions and benefits paid to couples with low levels of income derived largely, or solely, from compensation payments.

 

The Bill also gives effect to a number of minor simplification measures that were outlined in the 2000-2001 Budget:

 

·          the current treatment of gross rental income will be clearly set out in the social security law;

 

·          the deeming exemption provisions are streamlined by providing an automatic exemption for financial investments that are unrealisable for the purpose of the assets test hardship provisions;

 

·          the means test treatment of income streams are amended to ensure the conditions that income streams must meet to gain favourable means test treatment are unambiguous and a number and anomalies and unintended consequences corrected;

 

·          amendments will allow “compensation arrears debts” that are treated as income to be recovered directly from compensation payers or insurers.

 

The Bill also contains an amendment that changes the taper rate for the income cut-out formula that is used in working out the preclusion period for recipients of lump sum compensation. Although retrospective, it is beneficial to customers.

 

The Bill also makes two minor technical amendments that relate to the A New Tax System package legislation.

 

 

Date of effect:

 

Schedule 1, other than item 15, commences on 20 September 2001.

 

Item 15 of Schedule 1 is taken to have commenced on 1 July 2000.

 

Schedule 2, other than items 1 and 25, commence on 20 September 2001.

 

Item 1 of Schedule 2 is taken to have commenced on 3 May 2000 immediately after the A New Tax System (Family Assistance and Related Measures) Act 2000 received the Royal Assent.

 

Item 25 of Schedule 2 is taken to have commenced on 1 July 1998 immediately after the commencement of item 10 of Schedule 5 to the Youth Allowance Consolidation Act 2000 .

 

 

Financial Impact:

 

The additional costs of the removal of the direct deduction rules for partners of compensation recipients are as follows:

 

 

 

2000-01

2001-02

2002-03

2003-04

Measure

Administered

Departmental

Total

0.000

0.269

0.269

2.298

1.515

3.813

3.113

0.980

4.093

3.272

0.984

4.256

 



The additional costs and savings of the simplification changes are as follows:

 

 

 

2000-01

2001-02

2002-03

2003-04

Measure

Administered

Departmental

Total

0.000

0.206

0.206

-0.978

0.792

-0.186

-0.797

0.097

-0.700

-1.092

0.098

-0.994

 

There are no financial implications for any other measures in the Bill.

 



FAMILY AND COMMUNITY SERVICES LEGISLATION (SIMPLIFICATION AND OTHER MEASURES) BILL 2001

 

 

NOTES ON CLAUSES

 

 

Clause 1—Short title

 

This clause specifies that the short title of the Bill, when enacted, will be the Family and Community Services Legislation (Simplification and Other Measures) Act 2001 .

 

 

Clause 2—Commencement

 

This clause specifies that:

 

·          clauses 1, 2 and 3 of the Bill commence on Royal Assent;

 

·          Schedule 1 (other than item 15) commences on 20 September 2001;

 

·          Item 15 of Schedule 1 is taken to have commenced on 1 July 2000;

 

·          Schedule 2 (other than item 1 and 25) commences on 20 September 2001;

 

·          Item 1 of Schedule 2 is taken to have commenced immediately after the A New Tax System (Family Assistance and Related Measures) Act 2000 received the Royal Assent; and

 

·          Item 25 of Schedule 2 is taken to have commenced on 1 July 1998 immediately after the commencement of item 10 of Schedule 5 to the Youth Allowance Consolidation Act 2000 .

 

The retrospective commencement to item 15 is beneficial because it brings the formula for calculating the income cut-out amount in subsection 17(8) into line with the 40% pension income taper introduced as part of the A New Tax System changes.  The change has the effect of reducing the length of the lump sum preclusion period.

 

Similarly, the retrospective commencement of items 1 and 25 of Schedule 2 are purely technical and will have no adverse impact on anyone.

 

 

Clause 3 Schedules

 

This clause gives effect to the Schedules to the Bill.

 

 



Schedule 1—Amendments relating to compensation recovery

 

Amendments of the Social Security Act 1991

 

 

Item 1 of Schedule 1 is a technical amendment that is consequential on the changes made in the new Part 3.14.

 

Item 2 makes a technical amendment to the definition of “former payment type” in subsection 17(1) in relation to jobsearch allowance.

 

Item 3 amends the definition of “former payment type” in subsection 17(1) so that the Minister can declare a payment under this Act to be a former payment type for the purposes of Part 3.14.

 

Item 4 repeals the definition of “income cut-out amount” in subsection 17(1) and substitutes a new definition that specifies the time for applying the formula in subsection 17(8).

 

Items 5 and 6 are technical amendments to the definitions of “lump sum preclusion period” and “periodic payments period” that are consequential on the changes made in the new Part 3.14.

 

Item 7 is a technical amendment to subsection 17(2) that is consequential on new subsection 17(2B) that is being inserted by item 10.

 

Item 8 makes a technical amendment to subsection 17(2) that is consequential on the changes made in the new Part 3.14.

 

Item 9 repeals paragraph 17(2A)(b) and substitutes a new paragraph (b) that contains new subparagraph (ii) that will exempt from the definition of compensation those payments which are made under an agreement where the agreement contains a right to allow the insurer to reduce the payment under the agreement by any income support payment payable, but where the insurer does not invoke that right

 

Item 10 inserts subsections 17(2B) and (2C) into section 17.  These provisions exclude a payment under a Commonwealth, State or Territory law that provides for the payment of compensation for a criminal injury from being compensation for the purposes of the Act.

 

Items 11, 12, 13 and 14 make technical amendments to section 17 that are consequential on the changes made in the new Part 3.14.

 

Item 15 amends the formula in subsection 17(8) so as to increase the income cut-out amount by changing “2” to “2.5”.  This beneficial measure will reduce the length of the lump sum preclusion period.

 

Item 16 amends section 17 by adding subsection (9) that makes a determination under paragraph (s) of the definition of former payment type a disallowable instrument and requires the determination to be in writing.

 

Items 17 and 18 of Schedule 1 are repeals that are consequential on the changes made in the new Part 3.14.

 

Item 19 repeals Part 3.14 and substitutes a new Part 3.14.

 

 

Part 3.14—Compensation Recovery

 

Proposed Division 1—General

 

Proposed section 1160 General effect of Part

 

Subsection (1) provides that Part 3.14 operates in certain specified circumstances to do one or more of the following:

 

·          reduce a person’s compensation affected payment;

 

·          render a person’s compensation affected payment not payable;

 

·          require the repayment of some or all of a person’s compensation affected payment;

 

because of the receipt of compensation by the person or the person’s partner.

 

Subsection (2) provides that Part 3.14 applies whether of not there is any connection between the circumstances that give rise to the person’s qualification for the compensation affected payment and the circumstances that give rise to the receipt of compensation by the person or the person’s partner.  For example, a person receives a lump sum compensation payment that includes an economic loss component, in respect of physical injuries sustained in a motor vehicle accident.  The person was in receipt of parenting payment at the time of the accident. This person would still be affected by Part 3.14 irrespective of the lack of causal link.

 

 

Proposed section 1161 Application of Part

 

Subsection (1) sets out the general rules in relation to the application of Part 3.14 in relation to compensation affected payments.

 

Subsection (1) is subject to subsections (2) to (7) that contains rules for particular payment types.

 

 

Proposed section 1162 Part to bind the Crown

 

Proposed section 1162 provides that Part 3.14 binds the Crown in right of the Commonwealth, of each of the States, of the Australian Capital Territory, of the Northern Territory and of Norfolk Island.

 

 



Proposed section 1163 Interpretation

 

Subsection (1) provides that a reference to the payment or receipt of periodic compensation includes a reference to arrears of periodic compensation.

 

Subsection (2) contains special interpretation provisions relating to periodic compensation payments.

 

Subsection (3) provides that a reference to a person’s partner receiving or claiming a compensation affected payment includes a reference to the partner receiving or claiming a compensation affected pension under the Veterans’ Entitlements Act.

 

 

Proposed section 1164 Certain lump sums to be treated as though they were received as periodic payments

 

This section deals with the situation where:

 

·          a person was entitled to periodic compensation payments under a law of a State or Territory;

 

·          the periodic payments were converted under the law of the State or Territory into an entitlement to a lump sum; and

 

·          the lump sum was calculated by reference to a period.

 

If this situation occurs the section applies so that the Part applies to the person as if the person had continued to receive periodic compensation payments for that period as set out in the subsection.

 

 

Proposed section 1165—Effect of certain State and Territory laws

 

This section operates to override State and Territory laws where:

 

·          a State or Territory law provides for the payment of compensation; and

 

·          the law includes a provision that a person’s compensation under that law is to be or may be reduced or cancelled if the person receives payments under the social security law or an Act that forms part of the social security law.

 

The purpose of the provision is to prevent one form of cost shifting from the States and Territories to the Commonwealth.

 

 



Proposed Division 2 Enforcement of compensation rights

 

Proposed section 1166—Secretary may require person to take action to obtain compensation

 

Proposed section 1166 is the equivalent of what is currently subsections 1164(2), (2A), (2B) and (3) in Division 2 of Part 3.14.

 

 

Proposed section 1167—Failure to comply with a requirement to take action to obtain compensation

 

Proposed section 1167 is the equivalent of what is currently subsections 1164(5) and (6) in Division 2 of Part 3.14.

 

 

Proposed Division 3 Receipt of compensation

 

Proposed section 1168 Application

 

This section makes it clear that the Division has effect regardless of whether a lump sum compensation payment was paid, or became payable, before or after the person received or claimed a compensation affected payment.

 

 

Proposed section 1169 Compensation affected payment not payable during lump sum preclusion period

 

This section contains the rules that set out when a compensation affected payment is not payable to a person during any day or days in the lump sum preclusion period.

 

 

Proposed section 1170 Lump sum preclusion period

 

This section sets out how to work out the lump sum preclusion period that applies to a person.

 

 

Proposed section 1171—Deemed lump sum payment arising from separate payments

 

This section is new and does the work of repealed section 17(2B) in relation to multiple lump sums.

 

 



Proposed section 1172 Lump sum compensation not counted as ordinary income

 

This section provides that if an amount of a compensation affected payment is not payable to a person under section 1169, the lump sum compensation payment is not to be regarded as ordinary income of the person or the person’s partner for the purposes of the Social Security Act 1991 , other than point 1071A-4 that relates to health care cards.

 

 

Proposed section 1173—Effect of periodic compensation payments on rate of person’s compensation affected payment

 

This section provides for the effect of periodic compensation payments on the rate of a person’s compensation affected payment.  A person’s daily rate of compensation affected payment is reduced “dollar for dollar” by the amount of the person’s daily rate of periodic compensation.

 

 

Proposed section 1174—Effect of periodic compensation payments on rate of partner’s compensation affected payment

 

This section provides for the effect of periodic compensation payments on the rate of a partner’s compensation payment.  The “dollar for dollar” reduction rule has been replaced by a new rule that provides that the amount by which the daily rate of periodic compensation payable to the person (ie the compensation recipient) exceeds the daily rate of the compensation affected payment payable to the person is to be treated as ordinary income of the person’s partner for the purposes of the Act.

 

 

Proposed section 1175—Rate reduction under both income/assets test and this Part

 

This section provides that a rate reduction under Part 3.14 applies to the person’s rate as reduced under the ordinary income test Module or the assets test Module of the relevant Rate Calculator.

 

 

Proposed section 1176—Periodic compensation not counted as ordinary income

 

This section provides that if an instalment of a compensation affected payment that is payable to a person is reduced under section 1173 because of the receipt of a series of periodic compensation payments then those payments are not to be regarded as ordinary income of the person for the purposes of the Social Security Act 1991 other than point 1071A-4 that relates to health care cards.

 

 



Proposed Division 4—Recoverable amounts

 

Proposed Subdivision A—Preliminary

 

Proposed section 1177—Interpretation

 

This proposed section defines a reference to the lump sum preclusion period and the periodic payments period.

 

 

Proposed Subdivision B—Recovery from recipient of compensation affected payment

 

Proposed section 1178—Repayment of amount where both lump sum and payments of compensation affected payment have been received

 

Subsection (1) provides that if a person:

 

·          receives a lump sum compensation payment; and

 

·          payments of a compensation affected payment in relation to a day or days in the lump sum preclusion period;

 

the Secretary may determine that the person is liable to pay to the Commonwealth the amount specified in a written notice to the person.

 

Subsection (2) provides that the amount to be specified in the notice under subsection (1) is the recoverable amount under section 1179.

 

 

Proposed section 1179—The section 1178 recoverable amount

 

This section sets out the recoverable amount for the purposes of section 1178.

 

 

Proposed section 1180—Repayment where both periodic compensation payments and payments of compensation affected payment have been received

 

Subsection (1) provides that if:

 

·          a person receives periodic compensation payments; and

 

·          the person was not, at the time of the event that gave rise to the entitlement to compensation, qualified for, and receiving, a compensation affected payment; and

 

·          the person receives payments of a compensation affected payment for all or part of the periodic payments period; and

 

·          the compensation affected payment received by the person have not been reduced to nil as a result of the operation of section 1173;

 

the Secretary may determine that person is liable to pay to the Commonwealth the amount specified in the written notice given to the person or their partner.

 

Subsection (2) provides that the amount to be specified in the notice to the person or their partner is the recoverable amount under section 1181.

 

 

Proposed section 1181—The section 1180 recoverable amount

 

This section sets out the recoverable amount for the purposes of section 1180.

 

 

Proposed Subdivision C—Recovery from compensation payers and insurers

 

Proposed section 1182—Secretary may send preliminary notice to potential compensation payer or insurer

 

Subsection (1) provides that if:

 

·          a person seeks compensation from a potential compensation payer; and

 

·          the person claims a compensation affected payment for all or any period to which the compensation relates;

 

the Secretary has the power to notify a potential compensation payer that the Secretary may wish to recover an amount from that payer.

 

Subsection (2) is a similar power to that dealt with in subsection (1) except that it deals with insurers.

 

 

Proposed section 1183—Potential compensation payer or insurer must notify Secretary of liability

 

This section provides for a potential compensation payer or an insurer who is given a notice under section 1183 to notify the Secretary within 7 days after the potential compensation payer becomes liable to pay compensation to a person or the insurer becomes liable to indemnify the potential compensation payer.

 

The penalty for a contravention of proposed subsection 1183(1) or (2) is imprisonment for 12 months.

 

 

Proposed section 1184—Secretary may send recovery notice to compensation payer or insurer

 

Subsection (1) allows the Secretary to send a notice to a compensation payer notifying the compensation payer that the Secretary proposes to recover the amount specified in the notice from the compensation payer.

 

Subsection (2) allows the Secretary to send a notice to an insurer notifying the insurer that the Secretary proposes to recover the amount specified in the notice from the insurer.

 

Subsection (3) provides that the compensation payer or insurer is liable to pay the Commonwealth the amount specified in the notice.

 

Subsection (4) provides that the specified amount is the recoverable amount under section 1184A.

 

Subsection (5) requires the notice to contain a statement of the effect of section 1184D so far as that section relates to a recovery notice.

 

Subsection (6) overrides any State or Territory laws that provide that the compensation is inalienable.

 

 

Proposed section 1184A—The section 1184 recoverable amount

 

This section sets out how to work out the recoverable amount.

 

The section includes a new provision (subsection 1184A(4)) announced in the 2000-2001 Budget that allows for a notice sent to a compensation payer or insurer to include a recoverable amount in respect of arrears of periodic compensation payments.

 

 

Proposed section 1184B—Preliminary notice or recovery notice suspends liability to pay compensation

 

Subsection (1) provides that if a compensation payer is given a notice under section 1182 or 1184, the compensation payer is not liable to pay that compensation while the notice has effect.

 

Subsection (2) provides that if an insurer is given a notice under section 1182 or 1184, the insurer is not liable to indemnify the compensation payer and the compensation payer is not liable to pay that compensation while the notice has effect.

 

 

Proposed section 1184C—Compensation payer’s or insurer’s payment to Commonwealth discharges liability to compensation recipient

 

Subsection (1) provides that payment to the Commonwealth of an amount that a compensation payer is liable to pay under section 1184 discharges the compensation payer’s liability to pay compensation to the person to the extent of the payment.

 

Subsection (2) provides that payment to the Commonwealth of an amount that an insurer is liable to pay under section 1184 discharges the insurer’s liability to the person to the person claiming compensation and the compensation payer’s liability to pay compensation to the person the extent of the payment.

 

 

Proposed section 1184D—Offence to make compensation payment after receiving preliminary notice or recovery notice

 

Subsection (1) creates an offence in relation to a potential compensation payer who has been given a notice under section 1182 or 1184 but makes a payment to the compensation recipient.  The penalty for a contravention of subsection (1) is imprisonment for 12 months.

 

Subsection (2) creates an offence in relation to an insurer who has been given a notice under section 1182 or 1184 but makes a payment to a compensation payer in relation to the insurer’s liability to indemnify the compensation payer.  The penalty for a contravention of subsection (2) is imprisonment for 12 months.

 

 

Proposed section 1184E—Liability of compensation payer or insurer to pay the Commonwealth if there is a contravention of section 1184D

 

This section provides that if compensation payer or insurer contravenes section 1184D, the compensation payer or insurer is also liable to pay the Commonwealth an additional amount.

 

 

Proposed Division 5—Recoverable debts

 

Proposed section 1184F—Debts resulting from notices under section 1178 or 1180

 

This section creates a debt to the Commonwealth where the Secretary gives a person a notice under section 1178 or 1180.

 

 

Proposed section 1184G—Debts resulting from notices under section 1184

 

This section creates a debt to the Commonwealth where the Secretary gives a person a notice under section 1184.

 

Proposed section 1184H—Debts arising from a contravention of section 1184D

 

Subsection (1) creates a debt to the Commonwealth in relation to an amount payable by a compensation payer under section 1184D.

 

Subsection (2) creates a debt to the Commonwealth in relation to an amount payable by an insurer under section 1184D.

 

 

Proposed section 1184I—Compensation arrears debts

 

This section creates a debt to the Commonwealth where an adverse determination is made in relation to a person because of an adverse determination being made under a rate calculator.

 

 

Proposed Division 6—Miscellaneous

 

Proposed section 1184J—Secretary may give recovery notice either to compensation payer or to insurer but not to both

 

This section prevents the Secretary from issuing a notice to both an insurer and a compensation payer.

 

 

Proposed section 1184K—Secretary may disregard some payments

 

Subsection (1) provides that for the purposes of Part 3.14 the Secretary may disregard some or all of a compensation payment if the Secretary thinks it is appropriate to do so in the special circumstances of the case.

 

Subsection (2) deals with what does not constitute special circumstances for the purposes of subsection (1).

 

 

Proposed section 1184L—Application to review compensation decision—disability support pension

 

This section requires the Secretary to take the necessary steps to satisfy himself or herself whether the person is qualified for the disability support pension or the disability wage supplement where an application is made for a review of certain decisions under Part 3.14 by the Social Security Appeals Tribunal.

 

 

Proposed section 1185—Special provision for certain recipients of dependency-based payments

 

Subsection (1) provides that the savings provision in subsection (2) applies if:

 

·          the person is a member of a couple;

 

·          the person’s partner was receiving a compensation affected payment immediately before 20 September 2001;

 

·          the person was receiving a dependency-based payment immediately before 20 September 2001; and

 

·          the person was born on or before 1 July 1955.

 

Subsection (2) operates so a dependency-based payment does not cease to be payable to the person only because the person’s partner receives periodic compensation payments.  Part 3.14 would treat the any excess amounts of periodic compensation payments as ordinary income of the person.

 

Subsection (3) defined dependency-based payment to mean:

 

·          wife pension;

 

·          mature age partner allowance; or

 

·          partner allowance.

 

Item 20 repeals sections 1225, 1226 and 1226A because equivalent provisions have been included in the new Part 3.14.

 

Items 21 to 28 are technical amendments that are consequential on the changes made in the new Part 3.14 and the repeal of sections 1225, 1226 and 1226A.

 

Item 29 inserts at the end of Schedule 1A new clause 134 that contains the transitional and saving provisions in relation to the substitution of Part 3.14 by the Bill.  Clause 134 will ensure a smooth transition from the applicable law under the repealed Part 3.14 to the new Part 3.14.

 

 

Amendments to the Social Security (Administration) Act 1999

 

 

Item 30 makes a technical amendment that is consequential on the changes made in the new Part 3.14.

 

 



Schedule 2—Other amendments

 

Amendments to A New Tax System (Family Assistance and Related Measures) Act 2000

 

 

Item 1 makes a minor technical amendment to a commencement provision in subsection 2(11) of the A New Tax System (Family Assistance and Related Measures) Act 2001 .

 

 

Amendments to the Social Security Act 1991

 

Item 2 is a technical amendment to paragraph (b) of the definition of income stream in subsection 9(1).

 

Item 3 repeals subsection 9A(1) and substitutes new subsections 9A(1), (1A), (1B) and (1C).

 

Proposed subsection 9A(1) provides that a lifetime income stream provided to a person is an asset-test exempt income stream for the purposes of the Social Security Act 1991 if three conditions are met:

 

·          that the income stream is an income stream arising under a contract, or governing rules, that meet the requirements of subsection 9A(2) and a determination has not been made under subsection 9A(4);

 

·          the Secretary is satisfied that in relation to the income stream there is in force a current actuarial certificate that states that in the actuary’s opinion there is a high probability that the provider of the income stream will be able to pay the income stream as required under the contract or governing rules; and

 

·          the Secretary is satisfied that the requirements of subsection 9A(2) are being given effect to from the day the income stream commences to be paid.

 

The effect of the new provision is that there will be ongoing obligations that must be met by an income stream if it is to remain an assets-test exempt income stream for the purposes of the social security law.

 

Proposed subsection 9A(1A) provides that an income stream provided to a person is an asset-test exempt income stream for the purposes of the Social Security Act 1991 if the Secretary has made a determination under subsection 9A(5).

 

Proposed subsection 9A(1B) deals with guidelines relating to actuarial certificates.

 

Proposed subsection 9A(1C) provides that paragraph 9A(1)(b) does not apply if an actuarial certificate lapses and is not subsequently renewed within 26 weeks.

 

Item 4 repeals subparagraph 9A(2)(h)(i) and substitutes a new paragraph (i) that limits the ability of a person to circumvent the requirement that cash commutations occur only within the first 6 months of an asset test exempt income stream’s life.  Circumvention occurs by commuting an asset test exempt income stream to another asset test exempt income stream and then commuting to cash within the six month period for the new income stream.

 

Item 5 in effect adds a new subparagraph 9A(2)(h)(v) that allows a person to commute an income stream to the extent necessary to pay a hardship amount.  “Hardship amount” is defined in new subsection 9A(7) that is added by item 9.

 

Item 6 repeals paragraph 9A(2)(i) and substitutes a new paragraph 9A(2)(i) that also allows the transfer of a lifetime income stream on the death of a reversionary beneficiary to another reversionary beneficiary.

 

Item 7 inserts new subsection 9A(2A) that allows asset test exemption to be retained by all jointly owned lifetime income streams when one of the owners dies.

 

Item 8 adds new subsection 9A(7) that contains definitions of “unavoidable expenditure”, “hardship amount” and “liquid assets” that relate to the power of a person to commute an income stream to the extent necessary to pay a hardship amount under new subparagraph 9A(2)(h)(v).  These provisions represent a recognition that there may be exceptional circumstances that necessitate the relaxation of the rule that a person cannot commute an asset-test exempt income stream.

 

Item 9 makes similar amendments to subsection 9B(1) that are made to subsection 9A(1) by item 3.

 

Item 10 amends subparagraph 9B(2)(a)(i) to allow the term of all life expectancy products to lie anywhere between a person’s actual life expectancy and actual life expectancy rounded up.

 

Item 11 repeals subparagraph 9B(2)(h)(i) and substitutes a new paragraph (i) that limits the ability of a person to circumvent the requirement that cash commutations occur only within the first 6 months of an asset test exempt income stream’s life.  Circumvention occurs by commuting an asset test exempt income stream to another asset test exempt income stream and then commuting to cash within the six month period for the new income stream.

 

Item 12 repeals subparagraphs 9B(2)(h)(iii) and (iv) and substitutes new subparagraphs (iii), (iv) and (v) that allow commutation for life expectancy products. Subparagraph (iii) has similar effect to paragraph 9A(2)(i) that is inserted by item 7 while subparagraph(v) has similar effect to new subparagraph 9A(2)(h)(v) (see item 6).

 

Item 13 repeals paragraph 9B(2)(i) and substitutes a new paragraph (i) that allows transfer of the income stream payments to the reversionary beneficiary’s estate.

 

Item 14 inserts new subsection 9B(2A) that allows asset test exemption to be retained by all jointly owned life expectancy income streams when one of the owners dies.

 

Item 15 adds new subsection 9B(6) that provides that “hardship amount” has the same meanings as in section 9A.

 

Item 16 makes a technical amendment to subsection 1072(1).

 

Item 17 adds new subsections 1075(3) and (4) that clarifies the treatment of allowable deductions relating to property for the purposes of working out a person’s ordinary income.

 

Item 18 repeals subsection 1083(2) and substitutes a new subsection (2) as consequence of new section 1084.

 

Item 19 repeals section 1084 and substitutes a new section 1084 that simplifies the treatment of certain financial investments as unrealisable assets for the purposes of section 1076, 1077 or 1078.

 

Item 20 prevents the reduction in the assessable asset value of an asset tested income stream (long term) by any charge or encumbrance on the income stream.

 

Item 21 allows for the recovery of a debt where an asset test exempt income stream is commuted contrary to the requirements for asset test exemption (subsections 9A(2) or 9B(2)) specified in the contract, trust deed or governing rules as at the commencement day.

 

Item 22 repeals the definition of “binding arrangement” in subclause 120A(4) of Schedule 1A and substitutes a new definition that only covers:

 

·          an arrangement that does not allow the person to commute an income stream;

 

·          or an arrangement that may only be terminated on terms that the Secretary thinks are likely to cause severe detriment to the person.

 

Item 23 is a savings provisions in relation to determinations in force under subsection 1084(1) of the Social Security Act 1991 .

 

 

Amendments to the Taxation Administration Act 1953

 

Item 24 reinserts into paragraph 8WA(1)(b) of the Taxation Administration Act 1953 a reference that was incorrectly deleted in an earlier amendment.

 

A reference to paragraph 202(ka) of the Income Tax Assessment Act 1936 was included in paragraph 8WA(1)(b) of the Taxation Administration Act 1953 as part of the Superannuation (Unclaimed Money and Lost Members) Consequentials and Transitional Act 1999 , which commenced on 2 June 1997.

 

However, item 10 of Schedule 5 to the Youth Allowance Consolidation Act 2000 repealed paragraph 8WA(1)(b) of the Taxation Administration Act 1953 and substituted a new paragraph.  The substituted wording unintentionally omitted the reference to paragraph 202(ka) of the Income Tax Assessment Act 1936 .  The repeal was retrospective to 1 July 1998.

 

This item will restore the reference to paragraph 202(ka) of the Income Tax Assessment Act 1936 into paragraph 8WA(1)(b) of the Taxation Administration Act 1953 , in accordance with the original intention of the Superannuation (Unclaimed Money and Lost Members) Consequentials and Transitional Act 1999 .