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Defence Home Ownership Assistance Scheme Bill 2008

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2008

 

 

 

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

 

DEFENCE HOME OWNERSHIP ASSISTANCE SCHEME BILL 2008

 

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

 

(Circulated by authority of the Minister for Defence Science and Personnel

the Honourable Warren Snowdon MP)

 

 

 

 

 

 

 



 

Defence Home Ownership Assistance Scheme Bill 2008

 

GENERAL OUTLINE

 

This Bill will provide a home ownership assistance scheme that will be available to eligible members of the Australian Defence Force (ADF) who are serving on or after 1 July 2008.  The Bill will establish a scheme to provide a subsidy on the home loan interest expense incurred in purchasing a home in which the member or their family will live.  The proposed scheme will provide progressively higher levels of benefits to members as an incentive to remain in active service.  Higher levels of assistance will become available on completion of 8 and 12 years service for Permanent ADF members and on completion of 12 and 16 years for Reserve Force members.

 

Members of the ADF have access to a range of housing and accommodation assistance while they serve, including rent allowance and Service housing.  This assistance is provided in response to the requirement for ADF members and their families to relocate frequently in order to meet Defence capability requirements. 

 

Home ownership assistance is made available to help those ADF members and their families who choose to purchase a home of their own to live in, rather than occupying rented or Service-provided accommodation.  It is provided in response to the additional difficulties that ADF members and their families have in purchasing a home as a result of the nature of their service.  While a member lives in a home for which the subsidy was paid, they do not access the other forms of assistance usually provided to members.

 

The assistance takes the form of a home loan interest subsidy because the Commonwealth can be reasonably assured that its outlays will be used by the beneficiaries toward the intended purpose, of providing a home for the ADF member and family, not an investment property.  The loan on which subsidy is payable must be used for the purchase, maintenance and development of the subsidised borrower’s home

 

The Bill also provides transitional eligibility for members under existing home loan subsidy schemes.  The Defence Home Ownership Assistance Scheme (Consequential Amendments) Bill 2008 proposes amendments consequential on the scheme proposed by this Bill.  The consequential changes close the scheme established under the Defence Force (Home Loans Assistance) Act 1990 to serving members who have not yet exercised their rights under that scheme.  In addition, serving members who are eligible under the Defence Service Homes Act 1918 may join the new scheme that the Bill will establish.  Serving members who choose to take up an entitlement under the scheme to be established by the Bill extinguish any entitlement they have under existing schemes.

 

Financial impact statement

 

This Bill will require funding for the scheme to be provided as an administered appropriation to the Department of Defence.  The 2008-09 Federal Budget approved funding of $988.965 million over the period 2008-09 to 2017-18.

 

The financial implications of the new home ownership assistance scheme are:

 

(a)        Defence will meet the ongoing monthly subsidy payments which will be payable to a subsidy recipient’s account held by a lending institution on the home loan provider panel contracted to provide home loans that attract subsidy;

 

(b)        Defence will meet administrative costs of the scheme, including assessing applications for entitlement and payment of subsidy.  This will be contracted to a third party scheme administrator, known as the “authorised Commonwealth contractor”;

 

(c)        Defence will pay Fringe Benefits Tax in relation to the subsidy, which is a reportable fringe benefit;

 

(d)       The loan providers will pay to the Commonwealth a premium of $169.87 million over 10 years.

 

The costs for (a), (b), (c) and the revenue for (d) will be dependant on the extent of take-up of subsidised loans. The figures in Table 1 provides the total of the estimated costs less revenues of the scheme, presented as annual net outlays over a 10-year period.

 

Table 1: Defence Outlays

Year

 2008-09

 2009-10

 2010-11

 2011-12

 2012-13

 2013-14

 2014-15

 2015-16

 2016-17

2017-18

 

 $m

 $m

 $m

 $m

 $m

 $m

 $m

 $m

 $m

$m

Net outlay

40.927

52.889

64.743

77.485

97.235

134.796

140.193

130.365

125.166

125.166

 

Net outlays will be dependant on the extent of take up of the assistance.  The figures provided are indicative and are based on projections of an annual increase in the take-up rate of 6%.  The initial year take-up rates are based on a historical average of access to the Defence first home purchase assistance scheme over 5 years.  The figures also make provision for members separating from the ADF but not accessing the scheme.

 

An implementation review of the scheme will be conducted in its fourth year of operation, allowing any significant changes to be assessed in the 2012-13 Budget. 

 

Regulation impact statement

A detailed regulation impact statement has been prepared for this scheme and has been cleared as meeting the adequacy requirements of the Office of Best Practice Regulation.  The following detail is drawn from that Regulation Impact Statement.

 

 

  • The panel of home loan providers are chosen through an open tender process.  Payment of the subsidy assistance will be limited to home loans taken out with members of the panel.  Initially, the panel members will be contracted for a period of five years.

 

  • The major benefits of establishing home ownership assistance using a restricted panel of providers are:

 

Ø   The opportunity to minimise Defence exposure to high administration costs;

Ø   Ability to provide a consistent process across all providers; and

Ø   The opportunity for the Commonwealth to receive revenue in the form of franchise fees arising from the restricted panel arrangement.  Foregoing this revenue would result in an increase in the costs of the scheme, with the potential to require a reduction in the level of assistance.

 

In addition to this information, it should be noted that the scheme will not distort competition within the larger housing finance market.  Australian Bureau of Statistics data indicates that in December 2007, there was in excess of $900 billion in outstanding housing credit in Australia.

 



 

NOTES ON CLAUSES

Part 1—Preliminary

Clause 1: Short Title

1.           This clause provides that the short title by which the Act may be cited will be the Defence Home Ownership Assistance Scheme Act 2008 .

Clause 2: Commencement

2.           This clause sets out a table outlining the time of commencement of provisions of the Act. The substantive provisions of the Act are to commence on 1 July 2008, or, if this is not possible, on Royal assent.

Clause 3: Definitions

3.           This clause sets out definitions of key terms used in the Bill.  Some of the key definitions are described below.

(a)      Compensable condition is defined to mean any condition, disease, illness or injury suffered by a member of the Defence Force which entitles them to compensation.  A member discharged as a result of a condition that is compensable due to its connection to the member’s service may receive special consideration under the scheme through the removal of the need to provide a “qualifying service period” and by extension of their “entitlement period” to reflect an average expected period of service.  This will ensure that the member is not disadvantaged under the scheme if they must stop serving earlier than expected.

(b)      Effective service sets out the mechanism by which service can be prescribed and counted towards a qualifying period, service credit, or loan limit under the scheme.  It has been necessary to allow this concept to be prescribed by regulation from time to time so as to keep pace with any changes in the way that service is rendered in the ADF and to ensure that members who move between the Permanent and Reserve Forces are able to count periods of combined service.  To ensure that the scheme is a meaningful incentive to retention, the regulations will set a minimum number of days of service that a Reserve member must perform each year in order to be eligible under the scheme.  The regulations will also allow members who are recruited from foreign service to count their former service toward the qualifying period for the scheme.

(c)      House for the purpose of the scheme includes a home or unit but does not include temporary or mobile accommodation, or that which is uninhabitable or in the process of compulsory acquisition.  This meets the purpose of the scheme because it ensures that a member must apply the subsidy to a permanent home.

(d)     Subsidy for the purposes of this scheme includes subsidy that has been paid under an existing home loan scheme.  This definition allows a period of subsidy previously used under the Defence Force Home Loans Assistance Act 1990 or the Defence Service Homes Act 1918 to be taken into account when working out the remaining period for which subsidy may be paid to a member who has accessed entitlements under an existing scheme prior to applying under the new scheme.



Clause 4: Meaning of deceased partner and surviving partner

4.           This clause provides definitions relevant to a member of the ADF who dies, in order to underpin special arrangements made available under the scheme for that member’s surviving partner. The special arrangements provide that the eligibility for benefits paid in relation to a couple’s home may move to the surviving partner instead of being extinguished on the death of the member.

Clause 5: When a person is a member of the Reserves

5.           This clause describes the circumstances in which a member serves as a member of the Reserves.  For the purposes of this scheme, the clause also sets out when a member is taken to stop serving as a member of the Reserves.  As serving members of the Reserves are required to perform a minimum period of ‘effective service’ each year, a member who fails to complete that period is taken to have stopped serving for the entire year of the failure although, technically, the member’s engagement in the Reserves has not ended. 

6.           The approved forms that a member of the Reserves must submit in an application under the scheme will provide clear information about the amount of service and the consequences of failing to provide the period of service that a Reserve generally agrees to serve in advance of the duty.

7.           The amount of service that is taken to be effective is to be prescribed in the Regulations and is to be set at 20 days per year , subject to any changes in the way that service is rendered in the ADF.  A member will be able to seek merit review of a decision about effective service made under the Regulations.  They will also be able to be deemed to have completed the effective service in the event that they are incapacitated or unable to serve for reasons beyond their control.  This means that the member’s continuity of entitlement to subsidy can be preserved in exceptional circumstances.

Clause 6: External Territories

8.           This clause provides that the Act extends to the external territories.

Part 2—Eligibility

Clause 7: Eligibility—who is eligible ?

9.           This clause identifies the classes of people who are eligible to apply for a subsidy certificate under the scheme.  The following clauses describe these classes in detail.

Clause 8: Eligibility—serving members

10.         This clause defines “serving member” as a person who is a member of the Defence Force and has completed a qualifying service period.   Subclause 8(2) sets out the standard qualifying service period a serving member must complete before they can accrue a service credit (as defined under clause 47) and be paid a subsidy.  The qualifying period for a member of the Permanent Forces is four years of effective service. The qualifying period for a member of the Reserves is eight years of effective service.   The qualifying period for a foreign service member is four years of effective service.  “Effective service” is defined in clause 3, which provides a power to prescribe other periods that can be counted for the purposes of the scheme.

Clause 9: Eligibility—incapacitated members

11.         This clause provides that a member who leaves the ADF after 1 July 2008 because of a compensable condition is taken to be eligible without the need to serve a qualifying period.  This ensures that such members are not disadvantaged by the end of their service before the time that they could reasonably have expected to otherwise have served.

Clause 10: Eligibility—rejoining incapacitated members

12.         This clause provides that a member who has left the ADF with an injury and returned fit for duty within a five-year period is eligible in the same way as any other serving member.  They are able to count prior service in the ADF toward the scheme so that they are not disadvantaged by their injury.

Clause 11: Eligibility—rejoining members

13.         This clause provides that a member who has left the ADF and then rejoined within five years is eligible and may count a period of prior qualifying service performed under the scheme.

Clause 12: Eligibility—separated members

14.         This clause provides limited eligibility for a person who leaves the ADF having accrued a service credit under the scheme.  The person has two years in which to apply for a subsidy certificate under the scheme.  Once they leave, the subsidy must be applied for within a limited time to ensure that it is directly connected to the member’s resettlement after the end of their service.

Clause 13: Eligibility—old scheme members

15.         This clause allows the making of regulations to prescribe eligibility conditions for persons who are eligible but unable to apply for an entitlement under the Defence Force (Home Loans Assistance) Act 1990 (DFHLA Act) before its finishing day, 30 June 2010.  It is anticipated that the regulations will provide a limited entitlement under the new scheme for the following classes:

a)           An “operational service member” as defined in section 3A of the DFHLA Act.

b)           An “incapacitated person” as defined in section 3 of the DFHLA Act who is not able to apply before the “finishing day” of DFHLA Act due to the compensable condition.

c)           The surviving partner of an “operational service member”.

d)           The surviving partner of an “incapacitated person” not able to use a certificate before the “finishing day” of DFHLA Act due to the compensable condition.

16.         The “loan limit” on which subsidy may be paid under the new scheme for the classes described above is to be capped at the amount they would have been entitled to under the DFHLA Act, $80,000.  This figure is expressly set in the provisions on loan limits, so as to cap the old scheme members’ entitlements at the level available under the DFHLA Act.  The purpose of allowing these members to move across is to ensure continuity of entitlement no longer accessible under the DFHLA Act; consequently they do not have access to the full retention element of the new scheme.



Part 3—Subsidy certificates

Division 1—Application for subsidy certificate

17.         This Part sets out the process by which an eligible person can apply for and be provided with a certificate that can be taken to a loan provider to as evidence of eligibility for subsidy under the scheme.

Clause 14: Application for subsidy certificate

18.         This clause provides that a person may apply for a subsidy certificate in the approved form.

Clause 15: Further information about application

19.         This clause empowers the Secretary to make a written request to an applicant for a subsidy certificate, seeking further information about their application.  It also provides a power for the Secretary to refuse to consider the application until the information requested has been provided.  

20.         An administrative note to clauses 14 and 15 provides that sections 137.1 and 137.2 of the Criminal Code Act 1995 create offences for providing false or misleading information or documents. In order for these offences to apply to applicants, the relevant approved forms will need to be drafted to provide clear information to applicants about the need to provide correct information and the possible consequences of providing false or misleading information.

Division 2—Decision to give subsidy certificate

Clause 16: Decision to give subsidy certificate—general

21.         This clause mandates the issue of a subsidy certificate if the Secretary is satisfied that the applicant meets specified conditions.  The following clauses describe these conditions in detail.  If the specified conditions do not apply, the Secretary must refuse to issue the certificate.

Clause 17: Decision to give subsidy certificate—eligible applicants

22.         Subclause 17(1) sets out threshold conditions that an applicant for a subsidy certificate must meet before the Secretary can issue the subsidy certificate, including eligibility under Part 2.  Paragraph 17(1)(b) assists in risk management and administration of the scheme by ensuring that a person may only have one subsidy certificate at a time. Paragraph 17(1)(c) relates to the portability provisions in the scheme which limit a person to the issue of one new subsidy certificate after leaving the Defence Force.  There is no limit on the number of certificates a person can apply for consecutively while serving as a member of the Defence Force.  This limit enhances the retention incentive of the scheme by encouraging members to enjoy the benefits of a home loan subsidy during service. It also provides an incentive for prompt resettlement on separation.

23.         Paragraph 17(2)(a) provides that a person who stopped being a member of the Defence Force because of a compensable condition will have a maximum period of two years from the day they stop being a member to apply for a subsidy certificate.  Paragraph 17(2)(b) gives the Secretary discretion to extend that two year limit, if satisfied that the compensable condition led to the applicant’s failure to make the application within the two year period.

24.         Subclause 17(3) limits the period in which former members of the Defence Force may apply for a subsidy certificate to a maximum of two years after the applicant stops being a member of the Defence Force.  The restriction encourages a member to use their remaining entitlement soon after leaving the Defence Force to assist with their resettlement into the community.

Clause 18: Decision to give subsidy certificate—surviving partners

25.         Clause 18 provides for the Secretary to issue a subsidy certificate to the surviving partner of a deceased partner.  This allows the surviving partner of an ADF member to enter the scheme, based on the eligibility that the deceased member had gained by their ADF service.

26.         Subclause 18(1) provides that this clause only applies where the deceased partner was eligible to apply for the scheme immediately before death.

27.         Subclause 18(2) allows the surviving partner of a deceased ADF member to apply for a subsidy certificate within two years of the deceased partner’s death or cessation of service in the ADF, whichever is earlier.  Essentially, this gives the surviving partner the same rights in respect to applying for a subsidy certificate that the deceased eligible person would have had if they had not died.

28.         Subclause 18(3) confers discretion on the Secretary to allow up to an extra year for the issue of a certificate to a separated member’s surviving partner, if satisfied that it was reasonable for the surviving partner not to have applied in the period specified in subclause 18(2).  This is intended to provide flexibility to deal with situations such as the extended illness of a member, after which the member dies, shortly before the end of the period during which a certificate issued to the member would otherwise have been used to obtain subsidy.

Clause 19: Decision to give subsidy certificate—loan discharged due to destruction or compulsory sale of house

29.         This clause sets out circumstances which are exceptions to the time limits imposed under clauses 17 and 18.  These circumstances are considered to be compelling reasons for a subsidised borrower to purchase another house when the person would not otherwise be able to obtain a subsidy certificate.  The exception is conditional upon the person applying for a new certificate within 12 months from the date the subsidised loan was discharged.

Clause 20: Decision to give subsidy certificate—loan discharged due to compensable condition

30.         This clause provides an exception to the time limit for issue of a subsidy certificate to an incapacitated member.  It requires the issue of a certificate to a former member of the Defence Force who was discharged for a compensable condition (as defined in clause 3) and who finds it necessary to move to another house because of factors directly attributable to the compensable condition which caused the former member to be discharged.  The Secretary must be satisfied that the sale or transfer of the member’s existing home is reasonably necessary because of the compensable condition.  This clause does not apply to surviving partners.



Clause 21: Form of subsidy certificate

31.         This clause provides that the subsidy certificate must be in the approved form determined and issued by the Secretary.  However, it also provides that a certificate that is not in the approved form is not automatically invalid.  This protects an eligible person’s entitlement in the event of administrative error.

Division 3—Effect of subsidy certificate

Clause 22: Period subsidy certificate in force

32.         This clause provides that a subsidy certificate is valid from the date specified on the certificate. The certificate remains valid until subsidy commences, the certificate is cancelled or 12 months after the certificate is issued, whichever is earliest time.

Clause 23: Subsidy certificate not a legislative instrument  

33.         The subsidy certificate is intended to serve as documentary evidence that a decision has been made that a person is eligible to apply for subsidy.  This means that loan providers do not need to repeat the process of assessment in relation to subsidy and can rely upon the evidence that the certificate contains.  Part 1 of Schedule 1 to the Legislative Instruments Regulations 2004 lists evidentiary certificates as exempt instruments for the purposes of the operation of the Legislative Instruments Act 2003 scheme.  In the event that certificates under this scheme were found not to be purely evidentiary in nature, this clause expressly states that certificates given to individuals for the purposes of showing their eligibility under this scheme will be taken not to be legislative instruments and so not subject to public registration, disallowance or sunsetting.  This exemption is appropriate given that the certificates contain personal information and are relevant only in dealings undertaken by the individual they are issued to, in relation to which payment of subsidy is sought.

Division 4—Variation and cancellation of subsidy certificates

Clause 24: Variation of subsidy certificate

34.         This clause provides for the Secretary to vary a subsidy certificate that contains an error or omission by revoking it and substituting a fresh certificate.  The clause requires the Secretary to give a written notice to the person to whom the certificate was issued so that they know the record has been corrected.  The substituted certificate is taken to be the same as original certificate, and to have commenced on the day the original commenced.  

Clause 25: Cancellation of subsidy certificate

35.         This clause provides that the Secretary may cancel a subsidy certificate if the certificate was issued as a result of the person deliberately providing false or misleading information or if it has been subsequently revealed that the person was not entitled to it.  If the Secretary decides to cancel a certificate, notice of that cancellation must be provided to the person in writing.  The decision to cancel is a reviewable decision for the purposes of the scheme and may be the subject of an application for merit review in the Administrative Appeals Tribunal.

Part 4—Subsidy

Division 1—Entitlement to subsidy

Subdivision A—General

Clause 26: Entitlement—form of subsidy

36.         This clause describes the two ways that subsidy may be paid under Part 4 (subject to conditions), as monthly payments and a lump sum payment.  Administrative note 1 sets out more detail about the lump sum payment.

Clause 27: Entitlement—authorisation by Secretary

37.         Subclause 27(1) provides the decision point for initial payment of subsidy.  It mandates the authorisation of payment of subsidy by the Secretary in relation to an eligible person who meets the criteria set out in clause 28.

38.         Paragraph 27(2)(a) requires the Secretary to refuse to authorise payment of subsidy if the criteria in subclause 28(1) are not met.

39.         Paragraph 27(2)(b) confers a discretion on the Secretary to refuse to authorise payment of subsidy if the person has previously failed to disclose a change in circumstances under clause 42, or has had subsidy payments revoked on the grounds set out in clause 44.  This is a reviewable decision for the purposes of the scheme, and is intended to reduce the risk of overpayment by providing that subsidy is not paid in circumstances where there is a high likelihood that the person is not entitled to the payment.

40.         Subclause 27(3) provides the decision point for continuing payment of subsidy.  It mandates the authorisation of monthly payments of subsidy by the Secretary in relation to an eligible person who meets the criteria set out in subclause 28(3).

41.         Subclause 27(4) provides that if an event mentioned in section 36 occurs, the Secretary must stop authorising payment of subsidy.  

Clause 28: Entitlement—criteria

42.         Subclause 28(1) sets out the general criteria that must be satisfied to trigger a person’s entitlement to subsidy payments.  It provides that the person’s loan must be made by a declared loan provider and secured by a mortgage over the land, and that the conditions specified in Subdivision B must be satisfied.

43.         Subclause 28(2) provides that once the conditions in subclause 28(1) have been met, subsidy is payable to the subsidised borrower from the start of the monthly authorisation period.  The monthly authorisation period is set out in more detail in subclause 57(3) and is required to ensure that the subsidy is paid for whole month periods and not part-months.

44.         Subclause 28(3) until it stops being paid in accordance with the conditions in clause 36.  The period in between those points in time is the person’s entitlement period.  Clause 36 sets out situations when subsidy stops being payable.

45.         Subsection 28(4) provides that subsidy is only payable on one loan at any one point in time.  It does not restrict payment of subsidy on another loan or house during different entitlement periods.  It also does not restrict two subsidised borrowers’ who are partners from using subsidy at the same time on separate loans.

Subdivision B—When subsidy becomes payable

Clause 29: When subsidy becomes payable—eligibility and service credits

46.         This clause provides that subsidy becomes payable to a person immediately following the time when the person held a valid subsidy certificate.  The person must also have a service credit calculated under clause 46 before subsidy can become payable.  

Clause 30: When subsidy becomes payable—use of subsidised loan

47.         Paragraph 30(1)(a) allows payment of subsidy if the person uses their subsidised loan to buy land with a house on it.  

48.         Paragraph 30(1)(b) allows payment of subsidy if the subsidised loan is used to buy land and then undertake building work on that land.  The building work may be to:

              (a)  build or complete a house on the purchased land;

              (b) enlarge, renovate or repair a house already on the purchased land; or

(c)  construct permanent improvements (including garages, fencing and permanent swimming pools) related to a house already build on that purchased land.

49.          Paragraph 30(1)(c) allows payment of subsidy if the loan is used to undertake any building work (of the kind outlined in paragraph 30(1)(b)) on land already owned by the eligible person.

50.         Paragraph 30(1)(d) allows payment of subsidy if the subsidised loan is to be used to discharge an existing loan which was taken out for the purposes described in paragraphs 30(1)(a) to 30(1)(c). This means that a person who already owns their home prior to becoming eligible is not precluded from taking up their benefit because they purchased their own home before they accrued a service credit.  The person must continue to occupy the house when subsidy commences.

51.         Subclause 30(2) allows payment of subsidy if the subsidised loan is used to buy an interest in a single unit held under a strata title system.  The loan may also be used to build, complete, renovate or repair a single unit held under a strata title system which is already owned and occupied by the eligible person.  It also allows the loan to be utilised to construct permanent improvements in relation to the unit.  This would include balconies, gazebos, pergolas, sheds, storerooms, utility rooms and similar improvements approved by the planning and land authority.  It does not cover building work on any common property.  This ensures that the subsidy is directed towards the member’s own home.

Clause 31: When subsidy becomes payable—ownership and location of land

52.         Paragraph 31(a) requires that a member hold, either alone or with their partner, a 50% or greater interest in the land.  This helps ensure that the eligible person has control over the land they hold as an owner or a mortgagee.  This requirement also ensures that the eligible person is able to occupy the land and has a substantial interest in it, rather than an investment type interest such as a share in a unit trust.

53.         Paragraph 31(b) expressly excludes trustee and beneficiary interests from the scope of the scheme.  These are expressly excluded because in the former, the interest is held for someone else and in the latter, the eligible person with the equitable interest may not control the occupancy and disposition of the interest.

54.         Paragraph 31(c) provides that subsidy is only payable to a person if the land is in Australia.

Clause 32: When subsidy becomes payable—occupation of house as a home (non-building loan)

55.         This clause provides that the house must be occupied by the subsidised borrower or their family in order for subsidy to become payable.  The clause, in combination with clause 39, places a minimum time period of one year on the occupancy.  The clause is intended to ensure that the home is the person’s main residence and not an investment property.  This also allows a member who is posted away from their dependants or deployed to access subsidy for a home that their family continues to live in.

Clause 33: When subsidy becomes payable—use of land

56.         This clause limits the scheme to domestic housing by providing that subsidy is only payable if the land is not used primarily for a business purpose.  The clause does not exclude payment of subsidy for a person if their subsidised loan is for a unit and an accompanying common property or other unit held under the same strata title (or similar) system is running a business.

Clause 34: When subsidy becomes payable—subsidy lump sum

57.         The clause provides an opportunity for serving members to convert their service credit into a lump sum payment in lieu of the monthly subsidy payment.  It sets out additional conditions that must be met before the subsidy lump sum can be paid.  Paragraph 34(1)(f) requires that the loan in relation to which the application for a lump sum is made must be for the first home that the member has purchased while a member of the ADF.  The lump sum is available only for a loan applied to purchase and not to home improvement or renovation alone.  These conditions make the lump sum a once-only benefit.

58.         Subclause 34(3) provides that the lump sum can also be accessed by the surviving partner of a deceased member of the ADF if the member had accrued sufficient service credit.  In order to access the lump sum, the surviving partner must be able to meet the relevant conditions relating to initial home purchase in their own right.

59.         The formula used to calculate the amount of a lump sum payment is in clause 54.

Subdivision C—When subsidy stops being payable

Clause 35: When subsidy stops being payable—scope

60.         This clause provides that this subdivision applies if the Secretary has authorised payment of subsidy under clause 27. 

Clause 36: When subsidy stops being payable—general

61.         This clause sets out a summary of the events that bring about the cessation of subsidy payments.  For each of the events, it prescribes a critical point in time.  If the event occurs, then the subsidy will cease to be payable from the start of the monthly authorisation period in which the point in time occurs.  The event that ends payment of subsidy may have a retrospective effect in that subsidy cannot be paid for the part month immediately before the event.  This is because subsidy is only paid for whole months.

62.         The table enables a person to see in one location the various circumstances that will result in the end of subsidy payments.  Many of the events listed occur if the Secretary is satisfied that a specified condition has not been met.  The following clauses describe these events and conditions in detail.

Clause 37: When subsidy stops being payable—completion of building work

63.         This clause provides that for subsidy to be payable, the building work on a house must be completed within 2 years after the day subsidy becomes payable.  This clause is intended to ensure the person occupies their home within 2 years.  If the condition in this clause is not met, subsidy stops being payable from the 2-year point.

Clause 38: When subsidy stops being payable—ownership of land

64.         This clause provides that for subsidy to be payable, the subsidised borrower must hold, either alone or with their partner, a 50% or greater interest in the land.  It also has the effect that subsidy stops if any interest in the land is held by a trustee or as a beneficiary of a trust.  The subsidy stops from the point where the interest in the land changes so that it ceases to meet the condition. 

Clause 39: When subsidy stops being payable—occupation of house as a home (non-building loan)

65.         This clause provides that payment of subsidy is conditional on a member or their dependants complying with a minimum period of occupancy, in circumstances where the eligible person’s loan is for the purpose of buying a house where no building work is required, or to discharge another loan for that purpose.

66.         The clause provides that the house must be occupied by the subsidised borrower or their dependants in order for payment of subsidy to continue.  The clause places a minimum time period of one year on the occupancy.  Subclause 39(3) provides flexibility as it allows the Secretary to approve a shorter period of occupation if satisfied that Service requirements or exceptional circumstances apply, for example, where a member must leave the home to perform duty on a deployment or posting at short notice.  This means that a member is not disadvantaged where they act as required by the Service, or where they can demonstrate an exceptional circumstance has prevented them from meeting the occupancy condition.

Clause 40: When subsidy stops being payable—occupation of house as a home (building loan)

67.         This clause sets out the condition for occupancy when the eligible person’s loan is for the purpose building work. Subclause 40 provides an exception to the general occupancy rule under clause 39, so that there is a 2-year period after the day subsidy is first paid (or a shorter period if the building is completed before 2 years expires) in which the year of occupancy must commence.

68.         Paragraph 40(3)(b) provides a similar flexibility to that set out in relation to the general rule.  It allows the Secretary to approve a shorter period of occupation for a person, if satisfied that Service requirements or exceptional circumstances apply.

Clause 41: When subsidy stops being payable—use of loan

69.         This clause limits the scope of the scheme to domestic housing.  It does this by making payment of subsidy conditional on the land not being used primarily for a business purpose.  This does not prevent a member being paid subsidy on a loan for a unit if an accompanying common property or other unit held under the same strata title (or similar) system is running a business.



Clause 42: When subsidy stops being payable—disclose of changes of circumstances

70.         This clause makes the payment of subsidy conditional upon a person notifying a change in their circumstances that is relevant to the assessment of their entitlement to subsidy.  The clause requires a person to notify the Secretary if they become aware that the information they have provided in their application is no longer correct.  The clause provides a detailed description of the situations that require the person to notify the Secretary.  In summary, they relate to changes that go to the conditions: the loan, service credit and service, the home itself, building activity, and ownership, occupancy and use of the land.  The notice allows prompt action to be taken to correct any errors and prevent underpayment or overpayment of subsidy.  The requirement takes account of the fact that in some cases, the change may not immediately be apparent to the subsidised borrower.  For this reason, the Secretary may extend the period for notification based on an assessment of the time at which it was reasonable for the borrower to have become aware of the change.  Although the time for notice may be subject to a subjective exercise of discretion, the circumstances are generally matters of fact that would in most situations be within the knowledge of the person required to provide the notification.

71.         Subclause 42(3) provides an approved form must be used to notify a change.  The form will assist subsidised borrowers to inform the Secretary of changes.  A failure to provide a notice required under this clause may be an event that stops the payment of subsidy and may be a reason for a refusal to pay subsidy on a future application.  Such a refusal would be a reviewable decision for the purpose of the scheme.

Clause 43: When subsidy stops being payable—on request by the subsidised borrower

72.         This clause allows a subsidised borrower to request the payment of the subsidy to stop.  It provides for notification to the subsidised borrower that the subsidy will stop and the date of effect, with a copy to the relevant loan provider.  There is discretion for the Secretary to stop subsidy at a day after the day requested.  This may be used to provide time for the administrative action to stop the subsidy to occur.

Subdivision D—Revocation and variation

Clause 44: Revocation of authorisation for the payment of subsidy

73.         This clause provides that if the Secretary is satisfied that a subsidised borrower is not entitled to their subsidy certificate, or that the certificate was given, or subsidy paid, because of a false or misleading statement, the Secretary can revoke the authorisation for the payment of subsidy.  Subclause 44(3) permits the Secretary to revoke the authorisation even after the payment of subsidy has stopped, and recover subsidy paid for the entitlement period. 

74.         Subclause 44(4) provides that a revocation has effect from when subsidy first started to be paid to the borrower based on the certificate or statement.  A monthly check process will be conducted on every subsidy entitlement by the authorised Commonwealth contractor, with the result that this power is anticipated to be used in relation to very short periods of entitlement.  The risk of revocation that is significantly retrospective and subsequent recovery action is minimised by the monthly check process, and by the requirement for persons to apply for a fresh subsidy certificate each time the loan amount, loan parties or land holders change in a way that is relevant to the subsidy entitlement period.

75.         Subclause 44(5) requires a copy of the revocation notice to be given to the loan provider who gave the loan.  This prevents accidental continuation of subsidy by the loan provider.

76.         Subclause 44(6) provides that a revocation notice may be provided to the legal personal representative of a subsidised borrower who has died.

77.         Subclause 44(7) modifies the application of the revocation provision for persons who receive a subsidy payment as a result of a transfer of the interest on death of the original subsidised borrower. It provides that the surviving partner of a deceased ADF member is not required to repay an amount of subsidy paid to the deceased member and subject to a revocation of the authority to pay.  This means that the surviving partner would not be liable to repay an amount wrongly claimed by a deceased member of the ADF. 

Clause 45: Variation of authorisation of payment of subsidy—when a person is not a member of the Reserves

78.         This clause provides that if the Secretary is satisfied that a subsidised borrower has not provided effective service in a year when they were a member of the Reserves, then the borrower's subsidy amount may be varied in circumstances where there is an alternative source for eligibility for subsidy.  This happens because when a member stops serving in the Reserves, they would generally become eligible as a separated member.  This may affect the loan limit that would apply to the member.  To reduce the likelihood of overpayment in this situation, the Secretary is provided with the power to vary the authorisation for the payment of subsidy.  The Secretary must notify the borrower and their loan provider in writing.  If the varied amount of subsidy is lower than the amount of subsidy previously paid to the member for the year, the member may be required to repay the difference as an overpayment.

Division 2—Service credits

Clause 46: Working out service credits

79.         This clause provides that subsidy is only payable if, and while, the borrower has a service credit.  A borrower’s service credit is the difference between the number of months the person has undertaken specified service at any particular time (their accrued subsidy period) and the number of months during which the person has already been entitled to subsidy, including any subsidy paid under the Defence Service Homes Act 1918 or the Defence Force (Home Loans Assistance) Act 1990.

Clause 47: Service credits—working out accrued subsidy periods

80.         This clause sets out the periods for which subsidy can be paid.  The clause provides a table which lists each class of persons eligible under the scheme and shows how to calculate their accrued subsidy period.  The maximum period of subsidy allowed under the scheme is 20 years, or 25 years if the person performed warlike service.  A borrower’s accrued subsidy period may change if their eligible status changes (for example, upon separating from the ADF as an incapacitated member).  An ADF member may ‘exchange’ up to 48 months of the service credit calculated under the table for a subsidy lump sum to purchase his or her first home while in service.  Persons eligible due to their status under the Defence Force (Home Loans Assistance) Act 1990 and Defence Service Homes Act 1918 are taken to hold a service credit that is reduced by any subsidy they have used under those schemes.

Clause 48: Service credits—additional allowance for warlike service

81.         This clause provides additional months of subsidy where a person performed warlike service.  Warlike service is service in the Defence Force of a kind determined for the purposes of the Veterans’ Entitlements Act 1986 .  Relying on this determination ensures that warlike service is consistently based on a single instrument for all purposes where it is relevant.  Warlike service (whenever undertaken) has the effect of increasing a borrower’s subsidy period in a graduated scale.  A person can receive a maximum of 60 months (5 years) of additional service credit to use for subsidy.

82.         Subclause 48(3) provides for the Secretary to deem a period of warlike service if an ADF member is sent home from warlike service because of a wound, injury or illness.  Subclause 48(4) provides the criteria for the deeming provision in subclause 48(3).  This ensures the person is not disadvantaged by an unexpectedly early return from a period of warlike service.

Division 3— Amount of subsidy

Subdivision A—Monthly subsidy

Clause 49: Working out monthly subsidy

83.         This clause sets out the main subsidy calculation and must be read with clauses 50 and 51, which provide some of the data on which the main subsidy calculation is based.  The clause sets out the method for calculating a subsidised borrower’s actual monthly subsidy payment.  The amount calculated is a prescribed portion of the person’s average monthly interest payment.

84.         The monthly subsidy payment will be calculated by reference to the subsidy rate and the average monthly interest.  The subsidy rate is the portion of average monthly interest that can be paid as subsidy.  It is expressly fixed in the formula under clause 49 at 37.5%.  This amount may be varied only by legislative amendment.

85.         The following table provides an example of how subsidy can be worked out for a member using the numbers derived from the formulae in each of clauses 49, 50 and 51.  Each stage in the calculations is set out separately to ensure that compound calculations can be worked through step by step.

 

Step

Action

1.

Find the set median interest rate (see clause 53).

2.

Add the number 1 and the median interest rate.

3.

Take the result from Step 2 and multiply it to the power of minus 300 (see subclause 50(2)).

4.

Take the number one and subtract the result of Step 3 from it. The answer will be another decimal number.

5.

Divide the median interest rate by the result of Step 4.

6.

Find the loan capital , it will be an amount in dollars.

 

It will be up to but not over the loan limit that has been set for the eligible person.

 

The amount is worked out in clause 51, on how much service the member has done and what the average house price is at the time they apply for subsidy.

7.

Multiply the amount in Step 6 by the number in Step 5.

 

The result of Step 7 is the monthly repayment .

8.

Take the monthly repayment amount from Step 7 and multiply it by 300.

 

This step gives the total amount to be repaid (principle and interest) on a loan equal to the loan capital.

9.

Take the result of Step 8 and subtract the maximum amount of loan from Step 6.

 

This step gives the total amount of interest to be repaid on a loan equal to the loan capital.

10.

Divide the result of Step 9 by 300.

 

The result of Step 10 is the average monthly interest amount (see subclause 50(1)).

11.

Find the subsidy rate. It is currently set under the scheme at 37.5% (see clause 49)).

12.

Take the average monthly interest amount from Step 10 and multiply it by the subsidy rate in Step 11 (see clause 49).

 

The result of Step 12 is the eligible member’s monthly subsidy entitlement.

Clause 50: Monthly subsidy— average monthly interest  

86.         Subclause 50(1) sets out the formula for calculating the average monthly interest amount that an eligible person is taken to pay on a home loan.  The table set out for clause 49 above shows how it is taken into account in calculating the end amount of subsidy.

87.         Subclause 50(2) sets out the formula for calculating the deemed monthly repayment on the subsidised portion of a home loan. 

Clause 51: Monthly subsidy— loan capital

88.         Subclause 51(1) describes how a loan capital amount is worked out for a subsidised borrower.  It is the lesser of the actual amount that is owed on the first day for which subsidy is authorised and the loan limit prescribed for the person, based on their eligibility status and the length of their effective service as a member of the ADF. 

89.         Subclause 51(2) explains the loan limit that applies to eligible persons under the scheme.  The loan limit is the maximum portion of a loaned amount for which a subsidy may be paid.  It is calculated by reference to the length of effective service that a member of the ADF provides.  At each of the critical career points, the loan limit increases.  The increase is shown in the table as a percentage of a prescribed average house price.  As the period of effective service can take into account service rendered before the new scheme commences, some members will be immediately able to access a higher loan limit under the scheme.

90.         The loan limit for a subsidised borrower is worked out on a graduated scale as a percentage of the amount that was the determined average house price at the time the subsidy first became payable on the borrower’s loan.  The percentage increases with the years of effective service completed by the borrower.  The scale applies differently depending on the borrower’s eligibility status - whether as a serving member of the Permanent Forces or of the Reserves, or as an incapacitated member or a separated member.  Persons who are ‘old scheme members’ eligible  due to their 30 June 2010 eligibility under the Defence Force (Home Loans Assistance Act) 1990   will be given a flat limit of $80,000, reflecting the loan limit in the 1990 scheme.

91.         Subclause 51(4) permits a couple who are both entitled to subsidy as individuals to combine their loan limit.  This is administratively convenient and ensures that each partner does not get a windfall if their individual loan limit is worth more than 50% of the combined loan limit.



Clause 52: Monthly subsidy— average house price  

92.         This clause confers power on the Minister to set a figure as the average house price under the scheme, by determination from time to time.  The determination will be a legislative instrument subject to the requirements of the Legislative Instruments Act 2003.

93.         Subclause 52(2) requires the Minister to have regard to the national average house price and regional weighting data for the purpose of the determination of an average house price for the scheme.  The national average house price is derived according to statistical data with regard to the period up to the end of the March quarter each year for each of the eight capital cities, from the unstratified median house prices for a capital city multiplied by the house price index weighting for that city. 

94.         Subclause 52(3) explains that the average house price is to be determined annually for a financial year, having regard to the previous year’s national weighted average house price data.  This will ensure that the scheme will be adjusted each year to take account of changes that have been observed in the housing market across Australia.

Clause 53: Monthly subsidy— median interest rate  

95.         Subclause 53(1) clause empowers the Minister to determine the median interest rate for the purpose of the subsidy calculation, or a formula from which it can be calculated, from time to time. The median interest rate to be determined (or the formula for calculating it) is derived from market interest rates.  The Department of Defence is currently using data available through Cannex to arrive at this value, however, the Minister may take into account other relevant indices as necessary. 

96.         The median interest rate is the rate of interest that is applied to a person’s loan capital to work out the total loan amount over a period of 25 years.  That total is then used to calculate monthly repayments on a loan of that amount.

97.         Subclause 53(2) explains that a maximum median interest rate is to be set by regulation.  It will be the cap for the whole scheme, and ensures that the growth of costs is controlled.  The median monthly interest rate may be varied by Ministerial determination up to but not over the cap.  Requiring regulations to be made to vary the cap will provide for Parliamentary scrutiny of action that could increase the costs of the scheme.

Subdivision B—Subsidy lump sum 

Clause 54: Subsidy lump sum payments

98.         This clause sets out the formula for calculating the amount of a subsidy lump sum.  The amount of a subsidy lump sum is the monthly subsidy that the borrower would otherwise be entitled to, multiplied by the number of months of service credit the borrower has elected to exchange for the lump sum.  A maximum of 48 months’ service credit may be exchanged for the lump sum.  The borrower’s loan limit for this purpose is fixed at the lowest limit available, reflecting the purpose of the incentive to purchase a first home in service.  Payment of a subsidy lump sum does not stop a borrower from continuing to be entitled to monthly subsidy (if they have service credits left over). 



Division 4—How subsidy is paid

Clause 55: How subsidy is paid—scope

99.         This clause sets out the application of Division 4. It applies if the Secretary makes a decision to authorise payment of subsidy.

Clause 56: How subsidy is paid—to loan provider for the benefit of subsidised borrower

100.       This clause authorises the payment of subsidy to the subsidised borrower’s loan provider for the benefit of the borrower, by way of payment into the subsidised borrower’s loan account.  This reflects the special nature of loan accounts.  The subsidy is payable on the basis of completed months. 

Clause 57: How subsidy is paid—monthly subsidy

101.       This clause provides that the subsidy is to be paid on a monthly basis.  The administrative arrangements for this to occur are contained in agreements between the Commonwealth and the authorised Commonwealth contractor  and loan providers.  In the event that no contract is available, the Minister is able to determine the details of the monthly payment process by determination.  The determination would be a legislative instrument and so subjected to the normal scrutiny arrangements that apply under the Legislative Instruments Act 2003.

Clause 58: How subsidy is paid—subsidy lump sum

102.       This clause provides that the subsidy is to be paid on a lump sum basis.  The administrative arrangements for this to occur are contained in agreements between the Commonwealth and the authorised Commonwealth contractor and loan providers.  In the event that no contract is available, the Minister is able to determine the details of the lump sum payment process by determination.  The determination would be a legislative instrument and so subjected to the normal scrutiny arrangements that apply under the Legislative Instruments Act 2003.

Division 5— Subsidy for surviving partners

Subdivision A—Surviving partners of subsidised borrower

Clause 59: Surviving partners of subsidised borrowers—scope

103.       This clause provides that subsidy may be made available to the surviving partner of a deceased member of the ADF (whether a former member or a serving member) in certain circumstances.



Clause 60: Surviving partners of subsidised borrowers—joint interests in land

104.       This clause provides for situations where the interest in the land was held by the deceased and the surviving partner as joint tenants.  The clause provides that subsidy will transfer to the surviving partner and continue to be payable to the surviving partner in the same way as it applied to the deceased partner.

Clause 61: Subsidy for surviving partners—interest in land inherited by surviving partner etc.

105.       This clause provides for situations where a surviving partner is not a joint tenant and so does not automatically take an interest in the land on which subsidy is payable. Instead, the person inherits an interest in the land from their partner.  Subsidy is suspended until the interest is transferred to the surviving partner in accordance with the will or intestacy law.  Subsidy can recommence from the date of transfer and is to be back-paid to the date of suspension.  This clause allows the subsidy to be passed between members of a couple who have chosen not to be joint title-holders in relation to the home for which subsidy is paid.

Clause 62: Subsidy for surviving partners—interest in land not inherited by surviving partner etc.

106.       This clause provides for situations where the surviving partner does not inherit interest in the land on which subsidy is payable.  It provides that subsidy payments are suspended at the time of the subsidised borrower’s death and then, at the time the interest in the land is transferred to someone other than the surviving partner, the subsidy is formally taken to have stopped being payable to the deceased partner at the time of death. 

Subdivision B—Surviving partners holding subsidy certificates

Clause 63: Subsidy for surviving partners—if they hold subsidy certificates

107.       This clause enables the surviving partner of a deceased partner to take a subsidised loan and access subsidy subject to the conditions that would have applied to the deceased partner, based on a subsidy certificate that the surviving partner has been given under clause 18.  The surviving partner is provided with eligibility according to the terms of the table in clause 64.

Subdivision C—Application of this Part

Clause 64: Subsidy for surviving partners—how this Part applies

108.        This clause sets out the eligibility class for the surviving partner of a deceased partner, subject to the conditions that would have applied to the deceased partner.  An example is provided to assist in working out how the deceased partner’s eligibility is to apply in relation to the surviving partner.

Clause 65: Subsidy for surviving partners—if surviving partner eligible in his or her own right etc.

109.       This clause provides that the Division does not detract from the surviving partner’s rights in respect to receiving subsidy if the surviving partner is eligible in their own right.

Division 6—Recovery of overpayments

Clause 66: Recovery of overpayments—scope

110.       This clause describes the application of the Division to circumstances where an overpayment of subsidy is recoverable.  It sets out the circumstances in which an amount of subsidy is directly recoverable by the Commonwealth from the person in respect of whom subsidy was overpaid.

Clause 67: Recovery of overpayments—amount payable

111.       This clause provides the formula to calculate the amount payable to the Commonwealth.  The due amount is the sum of the overpayment amount and the general interest charge rate worked out under section 8AAD of the Taxation Administration Act 1953 .  Interest is applied to overpayments to avoid the Commonwealth’s overpayment forming an interest-free loan to a person not entitled to the payment.

Clause 68: Recovery of overpayments—from subsidised loan account

112.       This clause allows the Secretary to recover a due amount from a subsidised borrower’s loan account.  Subclause 68(1) requires that the Secretary must notify the loan provider in writing of an amount that is to be deducted from a subsidised loan account for use in paying a debt due to overpayment.  The Secretary’s decision is a reviewable decision for the purposes of the scheme.

113.       Subclause 68(2) requires the loan provider to act in compliance with the notice.  If the debtor’s subsidised loan account does not contain enough money to pay the amount in the notice, the loan provider is only required to act in relation to the lower amount in the account.

114.       Subclause 68(3) provides that the amount that the loan provider pays out of the subsidised loan account to the Secretary is to be used to discharge the debt (or part of it).

115.       Subclause 68(4) provides that if there is not enough money in the subsidised loan account to pay the whole amount of the debt, the money that the loan provider pays to the Secretary is to be applied to the overpaid amount first.  This ensures that the debtor’s interest on the debt is minimised.

116.       The monthly checking process that will occur in relation to subsidy entitlements will have the effect of limiting the size and duration of any overpayment.  This will assist in reducing the risk that a person will be able to accrue a large debt.

Clause 69: Recovery of overpayments—from sale of interest in land

117.       This clause requires the loan provider to pay to the Commonwealth the due amount when they sell an interest in land by way of enforcing a mortgage securing the subsidised loan or another loan to the debtor.  The amount owing to the Commonwealth from the subsidised borrower is paid by the loan provider to the Secretary out of the amount that the loan provider would otherwise return to the subsidised borrower.

Clause 70: Recovery of overpayments—in a court

118.       This clause provides that any due amount which is not recovered from the borrower under the process described in this Division can be recovered by the Commonwealth in an appropriate court of law.  This clause provides a means for recovery of debts in the event that the person does not have sufficient funds in a subsidised loan account to use for this purpose.

Part 5—Review of decisions

Division 1—Internal review

Clause 71: Internal review— reviewable decisions

119.       This clause lists the decisions that are subject to review.  The list includes decisions relevant to initial entry to the scheme: refusal of an application for a subsidy certificate; a refusal to give a subsidy certificate; and a decision to vary or cancel a certificate.  It also includes decisions relevant to subsidy: to fix an end date for a period of warlike service to which service credit attaches; to refuse to authorise payment of subsidy; to stop authorising subsidy; to stop subsidy on a specified date after the date requested; to revoke authorisation for payment of subsidy.  Lastly, it includes decisions about the administration of the scheme relevant to individuals: decision to recover money; to refuse to reduce the amount recovered or to reduce it by a particular amount; and refusal to extend the time in which an application for review of a decision must be made.  Decisions made under the regulations that are expressly stated to be reviewable may also be reviewed under this Part.

Clause 72: Internal review—persons whose interests are affected

120.       This clause provides that a declared loan provider is not considered to be a person whose interests are affected by a decision under the scheme.  This is because the decisions subject to the administrative decisions review are those concerning individual beneficiaries under the scheme.  These rights are provided because the individuals do not have contracts with the loan providers under which they can take action relating to the payment of subsidy by the Commonwealth. 

121.       Loan providers are able to address any issues arising out of the scheme using the resolution processes set out in the deeds with the Commonwealth and this gives them the ability to address any issues that relate to classes of persons subject to the scheme.  The loan providers therefore do not have the same direct interest that an individual has in merit review of decisions to provide the individual with eligibility or subsidy under the scheme. 

Clause 73: Internal review—notice of reviewable decision and review rights

122.        This clause requires the Secretary to provide a written statement of reasons for a reviewable decision, including information about the affected person’s rights of review.  A failure to do so will not make a decision invalid, for example, where a subsidy certificate is varied in accordance with an applicant request and no statement of reasons and review rights is provided to the person with their substitute certificate.

Clause 74: Internal review—applications for review of reviewable decisions

123.       This clause sets out the process by which a person can seek internal review of a reviewable decision, and includes discretion for the Secretary to extend the 28-day application period.

Clause 75: Internal review—review of reviewable decisions

124.       This clause prescribes the class of persons who may act as decision-maker on the internal review of a reviewable decision.  It ensures that a decision-maker not involved in the original process is made available to consider the application for review.  Subclause 75(2) sets out the various types of decision available to a decision-maker.

Division 2—External review

Clause 76: External review—review by Administrative Appeals Tribunal of internal review decisions

125.       This clause provides for the external review by the Administrative Appeals Tribunal of internal review decisions.  It expressly excludes loan providers from applying for external review of internal review decisions, for the same reasons as they are excluded from the initial internal review under clause 72.

Part 6—Administration

Clause 77: Approval of forms

126.       This enables forms to be prescribed for the scheme and amended from time to time.  Given the importance of correct information being provided for the purpose of the financial benefit under the scheme, prescribed forms will ensure consistency in the administration of the scheme and will assist applicants by prompting provision of that information required for the effective administration of the scheme.

Clause 78: Declared loan providers

127.       A loan provider for the purpose of the scheme is selected by an open tender process for a panel of providers who will provide loans under the scheme, administer subsidy delivery and report on activity under the scheme to the authorised Commonwealth contractor.  This will ensure that the entities are selected from an open market and represent value for money for the Commonwealth.

128.       Clause 78 provides for the Commonwealth to declare the identity of any body corporate that has agreed with the Commonwealth to be a loan provider for the purpose of this Act.  The body corporate will be taken to be a loan provider for the purpose of the Act from the day a public declaration is made.  The means by which the declaration is to be made is not prescribed in the scheme and Gazettal is the intended means for this administrative process to occur.  The identity of the loan provider is to be Gazetted as a declarative statement, as opposed to being declared by legislative instrument.  This method of publication of the loan provider’s identity was chosen as the action occurs consequentially, following the exercise of the Commonwealth’s power to make an agreement with the loan provider.  The Gazettal simply declares an identity after an event that occurs outside the legislative process.  To ensure that the information is accessible, the identity of the loan providers will also be published from time to time on the Department of Defence Internet website, along with information about the scheme.

Clause 79: Disclosure of personal information

129.       Subclause 79(1) provides that the privacy arrangements to be authorised by the scheme may apply in relation to applicants, recipients of subsidy certificates, persons who are or have been subsidised borrowers, the partners and dependants of those persons. 

130.       Subclause 79(2) provides that this information may be used by, disclosed to and between entities listed in subclause 79(3) acting on the Commonwealth’s behalf in the administration and operation of the schemes, and loan providers under the schemes.  Such use and disclosure is taken to be authorised for the purposes of Commonwealth, State and Territory privacy laws.

131.       A report on privacy matters relevant to the scheme and compliance with Commonwealth privacy law has been prepared for the Commonwealth by the Australian Government Solicitor.  The report notes that the above arrangement appears only to require the sharing of personal information to the extent necessary for the scheme’s proper operation and for the protection of the public revenue.  In relation to personal information outside the scope of clause 79, the loan providers and the authorised Commonwealth contractor are all currently bound by the Information Privacy Principles set out in the Privacy Act 1988 in the conduct of the scheme, either under contract or as a Commonwealth agency.

Clause 80: Delegations of Minister’s power to make certain determinations

132.       Subclause 80(1) provides that the Minister may delegate the power to determine an average house price and the median interest rate (or formula) under this Act (sections 52 and 53, respectively) to an SES employee or acting SES employee in the Department of Defence.  This ensures that such decisions rest with senior employees, and will be exercised responsibly.

133.     Subclause 80(2) provides that, in exercising powers and functions delegated under subsection 80(1), the delegate must comply with any directions of the Minister.  This ensures that specific guidance can be given in relation to the exercise of the powers.

Clause 81: Delegation of Secretary’s powers and functions

122.       Subclause 81(1) provides that the Secretary of the Department may delegate any or all of his or her functions and powers under this Act or the regulations to an ADF officer with the rank of Brigadier (or equivalent) or higher, or to an SES employee or acting SES employee in the Department.  

123.       Subclause 81(2) provides that the Secretary of the Department may delegate to a senior employee of the body that has been tasked to administer the scheme any or all of his or her functions and powers under this Act or the regulations (other than the function or power relating to review of decisions, approval of forms and relief from liability of overpayment).  This ensures that the authorised Commonwealth contractor can exercise those decision-making powers necessary to day-to-day administration of the scheme, while reserving those powers relating to the legal and financial boundaries of the scheme for the Commonwealth Department responsible for the scheme.

124.       Subclause 81(3) provides a description of the type of agreement that a scheme administrator may have with the Commonwealth, depending on whether it is a part of the body politic or a body corporate.  The scheme administrator is known as the authorised Commonwealth contractor for the purposes of the Act.

125.       Subclause 81(4) provides that, in exercising powers and functions delegated under subsections 81(1) and 81(2), the delegate must comply with any directions made by the Secretary.  This ensures that delegates are able to have regard to expert guidance on matters relevant to their decisions before they make them, ensuring consistency of decision-making and accountability by individual decision-makers.

126.       Subclause 81(5) provides that employees of the authorised Commonwealth contractor  exercising functions and powers delegated under the Act are to be prohibited from unauthorised disclosure of information in the same way as Commonwealth officers are prohibited from the unauthorised disclosure of official information under section 70 of the Crimes Act 1914 .

127.       Subclause 81(6) defines a senior employee as an employee of the body contracted to administer the scheme whose skills and responsibilities are equivalent to those expected of an SES employee.  This helps to ensure a consistent approach to decision-making by highly trained decision-makers.

Clause 82: Alteration of rights

128.       This clause sets out the circumstances in which a right acquired under the scheme may be altered at a later date.  The effect of the provision is to qualify any statutory rights to property created under the scheme by declaring that a right granted under the Act is to be granted on the basis that it may be terminated, varied or otherwise changed either by the Act itself or by later legislation.

Clause 83: Receipt and custody of public money by contractor

129.       This clause authorises the receipt and custody of public money by a person who is not part of an Agency covered by the Financial Management and Accountability Act 1997.   This clause permits loan providers and the authorised Commonwealth contractor acting on behalf of the Commonwealth in the administration of the scheme, to deal with public money as required under their agreements with the Commonwealth, without breaching section 12 of that Act.  For example, each time either of these entities pays an amount of subsidy or deals with an overpayment, they are receiving or keeping public money.

Clause 84: Appropriation

130.       Subclause 84(1) provides for the appropriation of funds for the purposes of the Act, specifically for the payment of subsidy and any taxes payable in respect of payments of subsidy. 

Clause 85: Regulations

131.     This clause enables regulations to be made by the Governor-General which prescribe matters required or permitted by the Bill or which are necessary or convenient for giving effect to the Bill.  For example, regulations will be required for the definition of “effective service” in clause 3 and to set a cap on the median interest rate under clause 53.  The regulations must be consistent with the provisions of the Bill and will be subject to scrutiny.