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Wednesday, 4 May 1994
Page: 269

(Question No. 1244)


Senator Patterson asked the Minister representing the Minister for Social Security, upon notice, on 22 March 1994:

  (1) Is the department calculating rates of returns on investments in the Meridian Investment Trust for income testing purposes by using the list price of the trust rather than the last sale price on the first day of its issue; if so, what is the legislative basis for using this method of calculating rates of return on investments in the Meridian Investment Trust and what is the rationale for using the list price of the trust rather than the last sale price on the first day of issue.

  (2) In relation to which, if any, other listed securities, and listed managed investments does the department use the list price rather than the last sale price on the first day of issue.

  (3) In the current market in relation to property trusts, what would be the likely impact on pension entitlement of using the list price rather than the last sale price on the first day of issue.


Senator Crowley —The Minister for Social Security has provided the following answer to the honourable senator's question:

  (1) Yes.

  The Meridian Investment Trust (MIT) is treated as a managed investment. For social security income test purposes, managed investments acquired after 9 September 1988 (whether listed on the stock exchange or not) have income assessed at a rate of return based upon the performance of the investment over the previous 12 months, taking account of changes in capital value and any income distributions.

  MIT (formerly Estate Mortgage) listed on 16 December 1993. In the period leading up to listing, the Estate Mortgage trusts were suspended from trading. Hence, there was no past performance data at the date of listing.

  The listing of MIT involved the merger of the former Estate Mortgage trusts. The circumstances of the merger meant that the merged products were not new products for assessment purposes. However, as there was no performance data for the products for the previous 12 months, the net asset backing of a unit in the MIT ($1.00 per unit) was used as the start point for assessment purposes from 16 December 1993.

  The last sale price on the first day of listing was not used as the start point because the merged units were not considered to be a new investment product.

  (2) In general, the last sale price on the first day of listing is used for any new share or managed investment product. Where listing involves the continuation of an existing managed investment product, no new product is created and the calculation of the rate of return is not affected directly by the process of listing, except to the extent that it affects the current price of the listed product.

  (3) For new investments that have existed for less than 12 months, the impact on pension entitlement of using the list price rather than the sale price on the first day of listing for calculating the rate of return would depend on:

  the list price;

  the sale price on the first day of listing; and

  the sale price at the current point in time of assessment.

  Where the current sale price is higher than either the list price or the sale price on the first day of listing, the general impact would be:

  to increase the income assessed (and reduce pension entitlement) where the list price was lower than the price at the end of the first day of listing; and

  to decrease the income assessed (and increase pension entitlement) where the list price was higher than the price at the end of the first day of listing.