House of Representatives

Tax Laws Amendment (Simplified Superannuation) Bill 2006

Superannuation (Excess Concessional Contributions Tax) Bill 2006

Superannuation (Excess Concessional Contributions Tax) Act 2007

Superannuation (Excess Non-concessional Contributions Tax) Bill 2006

Superannuation (Excess Non-concessional Contributions Tax) Act 2007

Superannuation (Excess Untaxed Roll-over Amounts Tax) Bill 2006

Superannuation (Excess Untaxed Roll-over Amounts Tax) Act 2007

Superannuation (Departing Australia Superannuation Payments Tax) Bill 2006

Superannuation (Departing Australia Superannuation Payments Tax) Act 2007

Superannuation (Self Managed Superannuation Funds) Supervisory Levy Amendment Bill 2006

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello MP)

Chapter 5 - Social security arrangements

Outline of chapter

5.1 Schedules 8 and 9 to this Bill amend the Social Security Act 1991 and the Veterans' Entitlements Act 1986 respectively to implement changes to the assets-test to:

·
halve the pension assets-test taper rate from $3 to $1.50 per fortnight for every $1,000 of assets over the free area, with effect from 20 September 2007; and
·
remove the 50 per cent assets-test exemption for complying income streams purchased on or after 20 September 2007.

5.2 The Schedules also contain minor consequential amendments on income stream products to the Social Security Act 1991 and the Veterans' Entitlements Act 1986 .

Context of amendments

5.3 Currently, recipients of the age pension, disability support pension, carer payment, bereavement allowance, wife pension, widow B pension, service pension and income support supplement lose $3 per fortnight for every $1,000 of assets above the relevant threshold (currently $161,500 for single homeowners, and $229,000 for couple homeowners - for non-homeowners these amounts are $278,500 for singles and $346,000 for couples). The effect of the current assets-test taper rate means, for example, that retirees need to achieve a return of at least 7.8 per cent on their additional savings in order to overcome the effect of a reduction in their pension amount.

5.4 Lifetime, life expectancy and market-linked income streams under sections 9A, 9B and 9BA of the Social Security Act 1991 and sections 5JA, 5JB and 5JBA of the Veterans' Entitlements Act 1986 are currently 'assets-test exempt' for the purposes of the means test. This means that part or all of the asset value of the income stream is not taken into account when determining a person's eligibility for a social security payment.

Summary of new law

Halving of assets-test taper rate

5.5 The amendments in these Schedules halve the assets-test taper rate to $1.50 per fortnight with effect from 20 September 2007, resulting in an increase in the amount of assets a person can hold before being precluded from receiving the age pension, disability support pension, carer payment, bereavement allowance, wife pension, widow B pension, service pension and income support supplement.

5.6 The reduction in the assets-test taper rate will increase incentives to save and boost the retirement incomes of pensioners whose rate of payment is determined by the assets-test. It will also increase the number of people who are eligible for a part pension and the associated concessions.

Changes to the assets-test exemption for income streams

5.7 The amendments in both Schedules give effect to the removal of the assets-test exemption for complying income streams purchased on or after 20 September 2007.

5.8 Retaining the assets-test exemption for 'purchased' income streams alongside the reduced assets-test taper rate would create scope for wealthier individuals to access the pension. The assets-test treatment of income stream products purchased before 20 September 2007 will not change.

5.9 The Schedules also contain provisions for minor consequential amendments to the Social Security Act 1991 and Veterans' Entitlements Act 1986 affecting income stream products.

Transitional rules

5.10 Both Schedules contain transitional rules allowing backdating of pension claims made in the three months after the implementation of the assets-test changes on 20 September 2007. These claims can be granted from 20 September 2007 if all eligibility conditions were met from that date. This gives people newly eligible for a pension the safeguard that they have three months to make their claim and can still be paid from 20 September 2007. The purpose of these rules is to reduce the concentration of claims made on or soon after 20 September 2007 and the risk of claim processing delays.

Comparison of key features of new law and current law

New law Current law
Pension assets-test
Pension recipients only lose $1.50 per fortnight for every $1,000 of assets above the relevant threshold. Pension recipients lose $3 per fortnight for every $1,000 of assets above the relevant threshold.
Assets-test exemption
Complying income streams which are purchased before 20 September 2004 are eligible for a full assets-test exemption.
Complying income streams purchased from 20 September 2004 and before 20 September 2007 are eligible for a 50 per cent exemption.
No exemption from the assets-test for income stream products purchased from 20 September 2007.
Complying income streams which are purchased before 20 September 2004 are eligible for a full assets-test exemption.
Complying income streams purchased on or after this date are eligible for a 50 per cent exemption.

Detailed explanation of new law

Schedule 8 - Social Security Act 1991

5.11 Schedule 8 amends the Social Security Act 1991 .

Part 1 - Amendments commencing 20 September 2007

5.12 Item 1 amends section 9A so that income streams purchased or acquired on or after 20 September 2007 (other than defined benefit income streams) will no longer be assets-test exempt. [ Schedule 8, item 1 ]

5.13 Item 2 inserts new subsection 9A(1AA), which has the effect that defined benefit income streams will continue to attract the 100 per cent assets-test exemption, even if they were acquired on or after 20 September 2007. [ Schedule 8, item 2 ]

5.14 Item 3 removes part of subsection 9A(5), which currently gives the Secretary the power to determine that an income stream that does not meet the requirements of subsection 9A(2) is an assets-test exempt income stream. This amendment allows the Secretary to determine that a specific income stream is an assets-test exempt income stream even if it does not meet the requirements of subsection 9A(2). For example, a determination could be made that an existing lifetime assets-test exempt income stream which was created from the commutation and roll-over of an assets-test exempt income stream purchased or acquired before 20 September 2007, is also an assets-test exempt income stream provided it retains the features of the original income stream. In addition, another determination may be made that a defined benefit income stream that is acquired from 20 September 2007 is an assets-test exempt income stream. [ Schedule 8, item 3 ]

5.15 Item 4 inserts subsection 9A(5A) to make it clear that a determination made under subsection 9A(5) will apply to the income stream regardless of the commencement date of that income stream. [ Schedule 8, item 4 ]

5.16 Subsection 9A(5B) is inserted to assist readers, as the determination made under subsection 9A(5) is not a legislative instrument within the meaning of section 5 of the Legislative Instruments Act 2003 . A determination under subsection 9A(5) is not legislative in character and, accordingly, subsection 9A(5B) is merely declaratory of the law. [ Schedule 8, item 4 ]

5.17 Item 5 repeals subsection 9B(1) and inserts a replacement provision. This new subsection provides that income streams falling within section 9B will no longer be assets-test exempt if purchased or acquired on or after 20 September 2007 unless the Secretary makes a determination about the income stream. [ Schedule 8, item 5 ]

5.18 Item 6 removes part of subsection 9B(4), which currently gives the Secretary the power to determine that an income stream that does not meet the requirements of subsection 9B(2) is an assets-test exempt income stream. This amendment allows the Secretary to determine that a specific income stream is an assets-test exempt income stream even if it does meet the requirements of subsection 9B(2). For example, it would allow a determination that an income stream created on or after 20 September 2007 from the commutation and roll-over of an assets-test exempt life expectancy income stream purchased before 20 September 2007 will retain the assets-test exemption provided it retains the features of the original income stream. [ Schedule 8, item 6 ]

5.19 Item 7 inserts subsection 9B(4A) to make it clear that a determination made under subsection 9B(4) will apply to the income stream regardless of the commencement date of that income stream. [ Schedule 8, item 7 ]

5.20 Subsection 9B(4B) is inserted to assist readers, as the determination made under subsection 9B(4) is not a legislative instrument within the meaning of section 5 of the Legislative Instruments Act 2003 . A determination under subsection 9B(4) is not legislative in character and, accordingly, subsection 9B(4B) is merely declaratory of the law. [ Schedule 8, item 7 ]

5.21 Item 8 changes the date in subparagraph 9BA(1)(a)(i) so that a market-linked income stream must have been purchased between 20 September 2004 and 19 September 2007 inclusive if it is to receive a 50 per cent exemption under the assets-test. Income streams that arise on or after 20 September 2007 from the commutation and roll-over of a market-linked income stream will only retain the 50 per cent exemption if the Secretary makes a determination about the new income stream. [ Schedule 8, item 8 ]

5.22 Item 9 removes part of subsection 9BA(11), which currently gives the Secretary the power to determine that an income stream that does not meet the requirements of subsection 9BA(2) is an assets-test exempt income stream. This amendment allows the Secretary to determine that a specific income stream is an assets-test exempt income stream even if it does not meet the requirements of subsection 9BA(11). For example, it would allow a determination that an income stream created on or after 20 September 2007 from the commutation and roll-over of an assets-test exempt market-linked income stream purchased before 20 September 2007 will retain the assets-test exemption provided it retains the features of the original income stream. [ Schedule 8, item 9 ]

5.23 Item 10 inserts subsection 9BA(11A) to make it clear that a determination made under subsection 9BA(11) will apply to the income stream regardless of the commencement date of that income stream. [ Schedule 8, item 10 ]

5.24 Subsection 9BA(11B) is inserted to assist readers, as the determination made under subsection 9BA(11) is not a legislative instrument within the meaning of section 5 of the Legislative Instruments Act 2003 . A determination under subsection 9BA(11) is not legislative in character and, accordingly, subsection 9BA(11B) is merely declaratory of the law. [ Schedule 8, item 10 ]

5.25 Items 11 to 17 repeal the current formula for determining the assets-test taper rate of $3 per fortnight and substitute a formula which will have the effect of halving the taper rate to $1.50 per fortnight. [ Schedule 8, items 11 to 17 ]

5.26 Item 18 repeals the definition of 'partially assets-test exempt income stream' under subsection 1118(1A) and inserts a replacement provision. Paragraph (a) of the new definition in subsection 1118(1A) specifies that a partially assets - test exempt income stream is an assets-test exempt income stream that:

·
is a market-linked income stream (covered by subsection 9BA(1)) or an 'assets-test exempt income stream' (covered by subsection 9A(1) or 9B(1)) that is not in either case a defined benefit income stream;
·
commences between 20 September 2004 and 19 September 2007 inclusive; and
·
is not covered by principles that the Secretary has determined in relation to this issue.

[ Schedule 8, item 18 ]

5.27 The principles determined by the Secretary in relation to paragraph (a), and specified in a legislative instrument, will cover certain 100 per cent assets-test exempt income streams covered by subsections 9A(1), 9A(1A) and 9B(1) that were purchased or acquired before 20 September 2004, and that are commuted and rolled over to another income stream covered by those provisions. [ Schedule 8, item 18 ]

5.28 If the new income stream is created between 20 September 2004 and 19 September 2007 inclusive, and the income stream is covered by the Secretary's principles, the new income stream will retain the 100 per cent exemption that applied to the original income stream, provided it retains the features of the original income stream. The effect of not being covered by these principles is that these income streams will lose the 100 per cent exemption and only be entitled to a 50 per cent exemption, even if they retain the features of the original income stream. [ Schedule 8, item 18 ]

5.29 If the new income stream covered by subsections 9A(1), 9A(1A) and 9B(1) is subsequently commuted and rolled over to another new income stream covered by subsections 9A(1), 9A(1A) and 9B(1) on or after 20 September 2007, and this new income stream is covered by the Secretary's principles, the new income stream will retain the 100 per cent exemption that applied to the original income stream, provided it retains the features of the original income stream. The effect of not being covered by these principles is that the income streams will lose the 100 per cent exemption altogether, even if they retain the features of the original income stream. [ Schedule 8, item 18 ]

5.30 Paragraph (b) of the new definition in subsection 1118(1A) refers to an income stream that:

·
commences on or after 20 September 2007; and
·
is covered by principles that the Secretary has determined in relation to this issue.

[ Schedule 8, item 18 ]

5.31 The principles determined by the Secretary in relation to paragraph (b), and specified in a legislative instrument, will cover certain assets-test exempt income streams that do not arise from previously commuted assets-test exempt income streams. These income streams will have been purchased or acquired between 20 September 2004 and 19 September 2007 inclusive, then commuted and rolled over to purchase another income stream that satisfies the requirements of subsections 9A(1), 9A(1A), and 9B(1) and subsection 9BA(1). These income streams will be allowed to retain the 50 per cent exemption from the assets-test in certain circumstances specified in the legislative instrument. [ Schedule 8, item 18 ]

5.32 Item 19 amends the assets-test hardship rules. Currently these rules incorporate a reduction for assets that are not unrealisable based on the existing assets-test taper rate. Item 19 brings this reduction amount into line with the reduction in the assets-test taper rate. [ Schedule 8, item 19 ]

5.33 Item 20 provides transitional rules.

5.34 Subitem 20(1) provides that, where a person makes a claim for a relevant social security payment during the claim period (defined in subitem 20(3) as the period commencing on 20 September 2007 and ending on 20 December 2007), the person's start day is the earlier of either:

·
20 September 2007, or the day on which the relevant social security payment first becomes payable to the person (whichever is the later); and
·
the day worked out under the current start day rules in Schedule 2 to the Social Security (Administration) Act 1999 .

[ Schedule 8, item 20 ]

5.35 Subitem 20(2) inserts a special rule for a person who makes a claim for a relevant social security payment during the claim period (ie, from 20 September 2007 to 20 December 2007 inclusive) but, on the day on which the claim was made, either the person was not qualified for the relevant payment or the relevant payment was not payable. If the person was qualified for a relevant payment, and the relevant payment was payable, during a period that falls before the day on which the claim was made (the relevant period), which is within the claim period, then the Secretary may grant the claim. The person's start date in relation to the relevant social security payment is the earlier of the first day of the relevant period and the day worked out under the current start day rules in Schedule 2 to the Social Security Administration Act 1999 . [ Schedule 8, item 20 ]

5.36 Subitem 20(3) defines the term claim period to mean the period commencing on 20 September 2007 and ending on 20 December 2007 inclusive. The term relevant social security payment means an age pension, a disability support pension, a wife pension, a carer payment, a widow B pension or a bereavement allowance. [ Schedule 8, item 20 ]

Part 2 - Amendment commencing 1 July 2007

5.37 Part 2 contains an amendment to insert a new definition of 'deductible amount'. The amendment will commence on 1 July 2007.

5.38 Item 21 repeals and replaces the definition of 'deductible amount' at subsection 9(1). [ Schedule 8, item 21 ]

5.39 Under the social security legislation, the 'deductible amount' is used to determine assessable income for defined benefit income streams (as defined in subsection 9(1F) of the Social Security Act 1991 ) but not for 'purchased' income streams. The social security definition refers to the definition of 'deductible amount' in the Income Tax Assessment Act 1936 (ITAA 1936) which is used to determine assessable income for tax purposes. [ Schedule 8, item 21 ]

5.40 Defined benefit income streams are lifetime income streams where the payments are not fully determined in relation to a particular sum of money used to acquire the income stream but also by other factors, for example, completed years of service and the retiree's salary in the years immediately preceding retirement. Under the income test, assessable income for these income streams is determined by reducing their gross annual income by the deductible amount. Currently the value of the deductible amount remains constant throughout the life of the income stream. [ Schedule 8, item 21 ]

5.41 The amendments that will apply to the Income Tax Assessment Act 1997 (ITAA 1997) from 1 July 2007, will move the tax treatment of superannuation income stream benefits from an annual basis to a per payment basis. As a result, the annual deductible amount needs to be converted into a per benefit (ie, per payment) figure to maintain the existing tax treatment (see subsection 307-125(2) of the Income Tax (Transitional Provisions) Act 1997 ). [ Schedule 8, item 21 ]

5.42 This will be achieved by apportioning the annual deductible amount across each superannuation income stream according to the value of each of the superannuation income stream benefits received in the income year. The portion of the deductible amount applying to a particular superannuation income stream benefit will be the 'tax free component' for that superannuation income stream benefit (see subsection 307-125(2) of the Income Tax (Transitional Provisions) Act 1997 ). The 'tax free component' is paid 'tax free' to the recipient, and comprises several segments that are specified in this Bill. [ Schedule 8, item 21 ]

5.43 Under the new arrangements, the value of the 'tax free component' of a superannuation interest is worked out by reference to subsection 307-120(2) of the ITAA 1997. The proportion that the tax free component comprises of the superannuation interest is then calculated in accordance with section 307-125 of the ITAA 1997. This proportion is then applied to each benefit (ie, each payment) paid from the superannuation interest to determine the amount of the benefit that should be returned to the recipient as a tax free component. [ Schedule 8, item 21 ]

5.44 These changes to the ITAA 1997 require corresponding amendments to the social security definition of deductible amount. [ Schedule 8, item 21 ]

5.45 For defined benefit income streams created from 1 July 2007 (as well as those subject to an event under subsection 307-125(3) of the Income Tax (Transitional Provisions) Act 1997 ), the rules under section 307-120 of the ITAA 1997 will also apply in determining a deductible amount for social security purposes. Under these rules, the proportion of the superannuation interest that constitutes the tax free component will be applied to a benefit paid as an income stream payment to determine the tax free component, (ie, the deductible amount, for that benefit). [ Schedule 8, item 21 ]

5.46 For defined benefit income streams acquired before 1 July 2007, section 307-125 of the Income Tax (Transitional Provisions) Act 1997 will apply in determining the deductible amount for social security purposes. The effect of this section is that the deductible amount for the income year will continue to be worked out under section 27H of the ITAA 1936 (as in force before 1 July 2007) unless a specific trigger event occurs under subsection 307-125(3). As the deductible amount calculated under section 27H is an annual amount, subsection 307-125(2) allocates the deductible amount proportionately to each of the income stream benefits paid out in respect of the year to which the deductible amount applies. If a trigger event occurs, the deductible amount will be assessed under the new rules in section 307-120 of the ITAA 1997. [ Schedule 8, item 21 ]

5.47 These methods of calculation will be applied irrespective of whether or not the recipient of the income stream payments is below 60 years of age, or 60 years of age or above. Where the recipients of defined benefit income streams are 60 years of age or above, it will still be necessary for them, or their provider, to retain details of the proportion of their superannuation interest that would have constituted the tax free component to allow the determination of their deductible amount for social security purposes. [ Schedule 8, item 21 ]

5.48 Deductible amounts for defined benefit income streams acquired before 1 July 2007 will not change for the life of the income stream unless a trigger event occurs. [ Schedule 8, item 21 ]

5.49 Deductible amounts for defined benefit income streams that are acquired from 1 July 2007, that are based on a proportion of the total superannuation interest, will remain constant for as long as the value of the benefits paid to the recipient remains constant. However, if the value of the benefits paid to the recipient rises, for example, as a consequence of indexation of the income stream payments, then the deductible amount will increase in line with an increase in the indexed payments. [ Schedule 8, item 21 ]

Schedule 9 - Veterans' Entitlements Act 1986

5.50 This Schedule amends the Veterans' Entitlements Act 1986 .

Part 1 - Amendments commencing 20 September 2007

Removal of assets-test exemption for complying income streams and the retention of 100 per cent assets-test exemption for certain defined benefit income streams

5.51 Item 1 inserts new paragraph (aa) into subsection 5JA(1) of the Veterans' Entitlements Act 1986 . Subsection 5JA(1) sets out the general requirements to be met for a lifetime income stream to be regarded as an assets-test exempt income stream. New paragraph (aa) provides that subject to new subsection 5JA(1AA), the relevant assets-test exempt income stream must have a commencement date that is prior to 20 September 2007. [ Schedule 9, item 1 ]

5.52 Item 2 inserts new subsection (1AA) into section 5JA. New subsection 5JA(1AA) provides that paragraph 5JA(1)(aa) is not applicable if the income stream is a defined benefit income stream. Income streams that are defined benefit income streams will be assets-test exempt regardless of the commencement date. [ Schedule 9, item 2 ]

5.53 Item 3 amends subsection 5JA(5) by omitting the words 'that does not meet the requirements of subsection (2)'. Subsection 5JA(5) provides the Repatriation Commission with the power to determine that an income stream was an assets-test exempt income stream even though it did not meet the requirements set out in subsection 5JA(2). The amendment to subsection 5JA(5) provides that the Repatriation Commission has the power to make a determination that any income stream is an assets-test exempt income stream whether or not the income stream's commencement date is before 20 September 2007. [ Schedule 9, item 3 ]

5.54 Item 4 inserts new subsections 5JA(5A) and (5B). New subsection 5JA(5A) provides that to avoid doubt, a determination of the Repatriation Commission under subsection 5JA(5) that an income stream is an assets-test exempt income stream can be made regardless of the commencement date of the income stream. New subsection 5JA(5B) provides that a determination of the Repatriation Commission under subsection 5JA(5) is not a legislative instrument within the meaning of section 5 of the Legislative Instruments Act 2003 . [ Schedule 9, item 4 ]

5.55 Item 5 repeals and substitutes subsection 5JB(1). Section 5JB sets out the general requirements to be met for a life expectancy income stream to be regarded as an assets-test exempt income stream. New paragraph 5JB(1)(a) provides that a life expectancy income stream will be regarded as an assets-test exempt income stream for the purposes of the Veterans' Entitlements Act 1986 if the income stream has a commencement date before 20 September 2007 and subsection 5JB(1A) is applicable. [ Schedule 9, item 5 ]

5.56 Alternatively, new paragraph 5JB(1)(b) provides that the income stream will be an assets-test exempt income stream if subsection 5JB(1B) is applicable. Subsection 5JB(1B) is applicable in the circumstances where the Repatriation Commission has made a determination under subsection 5JB(4) that an income stream is an assets-test exempt income stream. [ Schedule 9, item 5 ]

5.57 Item 6 amends subsection 5JB(4) by omitting the words 'that does not meet the requirements of subsection (2)'. Subsection 5JB(4) provides the Repatriation Commission with the power to determine that an income stream is an assets-test exempt income stream even though it does not meet the requirements set out in subsection 5JB(2). The amendment to subsection 5JB(4) provides that the Repatriation Commission has the power to make a determination that any income stream is an assets-test exempt income stream whether or not the income stream's commencement date is before 20 September 2007. [ Schedule 9, item 6 ]

5.58 Item 7 inserts new subsections 5JB(4A) and (4B). New subsection 5JB(4A) provides that to avoid doubt, a determination of the Repatriation Commission under subsection 5JB(4) that an income stream is an assets-test exempt income stream can be made regardless of the commencement date of the income stream. New subsection 5JB(4B) provides that a determination of the Repatriation Commission under subsection 5JB(4) is not a legislative instrument. [ Schedule 9, item 7 ]

5.59 Item 8 amends subparagraph 5JBA(1)(a)(i) by omitting the words 'on or after 20 September 2004' and substituting the words 'during the period from 20 September 2004 to 19 September 2007 (both dates inclusive)'. Subsection 5JBA(1) sets out the general requirements to be met for a market-linked income stream to be regarded as an assets-test exempt income stream. The amendment to subparagraph 5JBA(1)(a)(i) provides that the relevant assets-test exempt income stream must have a commencement day that is during the period from 20 September 2004 to 19 September 2007. [ Schedule 9, item 8 ]

5.60 Item 9 amends subsection 5JBA(11) by omitting the words 'that does not meet the requirements of subsection (2)'. Subsection 5JBA(11) provides the Repatriation Commission with the power to determine that an income stream is an assets-test exempt income stream even though it did not meet the requirements set out in subsection 5JBA(2). The amendment to subsection 5JBA(11) provides that the Repatriation Commission has the power to make a determination that any income stream is an assets-test exempt income stream whether or not the income stream's commencement date is before 20 September 2007. [ Schedule 9, item 9 ]

5.61 Item 10 inserts new subsections 5JBA(11A) and (11B). New subsection 5JB(11A) provides that to avoid doubt, a determination of the Repatriation Commission under subsection 5JBA(1) that an income stream is an assets-test exempt income stream can be made regardless of the commencement date of the income stream. New subsection 5JB(11B) provides that a determination of the Repatriation Commission under subsection 5JBA(11) is not a legislative instrument within the meaning of section 5 of the Legislative Instruments Act 2003 . [ Schedule 9, item 10 ]

Amendment to the definition of ' partially assets-test exempt income stream'

5.62 Item 11 repeals and substitutes the definition of 'partially assets-test exempt income stream' in subsection 52(1AA). Section 52 lists certain assets that are to be disregarded in the calculation of the value of a person's assets for the purposes of the means test applicable to payments of service pension or income support supplement. Included at paragraph 52(1)(daa) is a reference to 'half of the value of any partially assets-test exempt income stream'. [ Schedule 9, item 11 ]

5.63 The new definition provides that a partially assets-test exempt income stream is an income stream other than a defined benefit income stream as covered by subsection 5JA(1) or (1A) or 5JB(1) or 5JBA(1) and is an income stream that has a commencement date during the period from 20 September 2004 to 19 September 2007. For income streams commencing on or after 20 September 2007 only those income streams that are covered by principles determined by the Repatriation Commission in a legislative instrument will be regarded as being partially assets-test exempt. [ Schedule 9, item 11 ]

5.64 Item 12 repeals subsection 52(1AB) and inserts new subsections 52(1AB) and (1AC). New subsections 52(1AB) and (1AC) provide that the Repatriation Commission may determine principles for the purpose of determining whether or not an income stream is a partially assets-test exempt income stream. [ Schedule 9, item 12 ]

Reduction in assets-test taper rate

5.65 Item 13 amends paragraph 52Z(3)(d) by replacing a reference to '$19.50' with a reference to '$9.75' in the determination of the 'adjusted annual rate of ordinary income' for the purposes of the hardship provisions. That determination is made when the financial hardship rules are applicable to the determination of the rate of service pension or income support supplement. The amendment to paragraph 52Z(3)(d) reflects the change in the taper rate. [ Schedule 9, item 13 ]

5.66 Item 14 amends subpoint SCH6-F4(1) of Schedule 6 to the Veterans' Entitlements Act 1986 . At the present time, the pension assets-test applies a taper rate that reduces a fortnightly service pension or income support supplement instalment by $3 for every $1,000 in assets above the relevant threshold. The taper rate is applied in the assets-test component of the Rate Calculators in Schedule 6 to the Veterans' Entitlements Act 1986 . The reduction for assets in excess of the limit is calculated using the formula set out in point SCH6-F4. The proposed amendment will halve the taper rate to reduce instalments by $1.50 for every $1,000 in assets above the threshold. [ Schedule 9, item 14 ]

5.67 The determination of the amount of the excess assets is based on multiples of $250 and the current reduction is $0.75 per $250, being one quarter of the $3 per $1,000 reduction. The formula in subpoint SCH6-F4(1) currently includes a reference to '$19.50' as that figure was derived by multiplying 0.75 by 26. The excess of assets test is applied fortnightly so an annual figure is required for the Rate Calculator in determining an annual rate of service pension or income support supplement. This amendment will replace the reference to '$19.50' with a reference to '$9.75'. [ Schedule 9, item 14 ]

5.68 Item 15 inserts a transitional provision that may be applicable in the circumstances where a claim for a service pension or income support supplement is made during the period from 20 September 2007 and 20 December 2007. [ Schedule 9, item 15 ]

5.69 Subclause 15(1) is applicable in the circumstances where a person is not receiving a service pension or income support supplement immediately before 20 September 2007 and subsequently makes a claim for a service pension or income support supplement during the 'claim period' which ends 20 December 2007. [ Schedule 9, item 15 ]

5.70 The effect of the provision is that service pension or income support supplement will only be payable from the later of 20 September 2007 or from the date of effect of the determination. [ Schedule 9, item 15 ]

5.71 Subclause 15(2) is also applicable in the circumstances where a person is not receiving a service pension or income support supplement immediately before 20 September 2007 and subsequently makes a claim for a service pension or income support supplement during the 'claim period'. [ Schedule 9, item 15 ]

5.72 The effect of the provision is that a person will be eligible for service pension or income support supplement in certain circumstances where service pension or income support supplement is not payable on the date of the claim. In those circumstances a service pension or an income support supplement will be payable if it would have been payable during a period that fell within the claim period and before the claim was made. [ Schedule 9, item 15 ]

Part 2 - Amendment commencing 1 July 2007

Amendment to the definition of ' deductible amount '

5.73 Item 16 repeals and substitutes the definition of 'deductible amount' in subsection 5J(1). The term 'deductible amount' is used in sections 46V and 46Y. Those sections concern the determination of the amount of income derived from the annual payments received from defined benefit income streams that are either assets-tested or assets-test exempt. [ Schedule 9, item 16 ]

5.74 This amendment to the definition of 'deductible amount' is a consequence of the amendments being made to the ITAA 1997 from 1 July 2007. The amended definition provides that for a defined benefit income stream the deductible amount is the sum of the amounts that are the tax free component of the payments received from the defined benefit income stream during the year. [ Schedule 9, item 16 ]

5.75 The tax free component of a payment will be determined under section 307-125 of the ITAA 1997 or if applicable, under section 307-125 of the Income Tax (Transitional Provisions) Act 1997 . [ Schedule 9, item 16 ]


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