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EXPLANATORY STATEMENT
Veterans' Entitlements (Asset-test Exempt Income Stream (Market-linked) –
Payment Factors) Principles 2005
Summary
The Veterans' Entitlements (Asset-test Exempt Income Stream (Market-linked) –
Payment Factors) Principles 2005 (the Principles) are made under subsection
5JBA(5) of the Veterans' Entitlements Act 1986 (the VEA).
The purpose of these Principles is to specify the payment factor (PF), which is the
denominator used in the formula in subsection 5JBA(5).
Subsection 5JBA(13) of the VEA provides that the Principles constitute a
disallowable instrument for the purposes of section 46A of the Acts Interpretation Act
1901 (section 46A has since been repealed by the Legislative Instruments
(Transitional Provisions and Consequential Amendments) Act 2003).
Paragraph 6(d) of the Legislative Instruments Act 2003 (LIA) deems an instrument
that was a disallowable instrument before the commencement of the LIA to be a
legislative instrument for the purposes of that Act.
Background
A market-linked income stream that meets the requirements of section 5JBA of the
VEA will be classified as an “asset-test exempt income stream” for the purposes of
the VEA.
To meet the definition of an “asset-test exempt income stream” in section 5JBA of the
VEA, an income stream must pay an amount of income in each year that is equal to
the amount worked out by the formula in subsection 5JBA(5). The PF is the
denominator in that formula.
Explanation of the Provisions
Section 1 of the Principles states the name of the Principles and section 2 sets out that
the Principles are taken to have commenced on 20 September 2004.
Section 3 provides definitions of terms used in the Principles.
Section 4 provides various rules in regard to working out the appropriate PF for each
year of the income stream’s term. The table at the end of section 4 provides the
relevant payment factors in regard to the number of whole years remaining in the term
of the income stream. The PF is worked out in regard to the number of whole years
remaining in the term of the income stream on 1 July of each financial year, except in
the first year of the income stream’s term, where this is done on the day the income
stream commences.
For the purposes of working out the number of whole years remaining in the term of
the income stream and thereby ascertaining the correct PF to be applied in any given
year, where an income stream commenced in the period 1 July to 31 December in any
year, the remaining term of the income stream is rounded up to the nearest whole
number. Where an income stream commenced in the period 1 January to 30 June in
any year, the remaining term of the income stream is rounded down to the nearest
whole number.
Section 4 also provides that for the purposes of the VEA, the figure calculated by
using the formula in subsection 5JBA(5) should be rounded to the nearest $10, or
multiple of $10.
Consultation
Consultation regarding a virtually identical Determination to the one attached was
undertaken by the Department of Family and Community Services (FaCS) as that
Department administers legislation which incorporates similar rules relating to the
treatment of income streams as that provided by the VEA. FaCS consulted the
Department of Employment and Workplace Relations and the Department of
Education, Science and Training. The aim was to ensure a co-ordinated approach in
respect of payments under the VEA for which these Departments now have
responsibility.
FaCS also consulted the Department of Treasury, the Australian Prudential
Regulatory Authority, the Association of Superannuation Funds of Australia, and the
Investment and Financial Services Association.
The rule-maker (Repatriation Commission) considered that the consultation FaCS
undertook in respect of its corresponding Determination was sufficient consultation
for the purposes of the attached (virtually identical) Determination. The Repatriation
Commission considered that consultation with individuals in respect of the attached
Determination was not appropriate because the Determination was beneficial in nature
and in any event, generally speaking, individuals affected by the Determination are
aware of, and support, the proposal to partially exempt market-linked income streams
from means testing.
Retrospectivity
The attached Determination is taken to have commenced on 20 September 2004 ie
before it was registered on the Federal Register of Legislative Instruments.
Subsection 12(2) of the Legislative Instruments Act 2003 provides (as paraphrased)
that retrospective legislative instruments that negatively affect citizens are of no
effect. The attached Determination does not fall within this prohibition because it is
beneficial in nature and does not disadvantage any person or impose liabilities on any
person (other than the Commonwealth).