Commonwealth Numbered Regulations - Explanatory Statements

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SOCIAL SECURITY (FAMILY ACTUAL MEANS TEST) REGULATIONS 1998 1998 NO. 159

Statutory Rules 1998 No. 159

Issued by the authority of the Minister for Social Security

Subject - Social Security Act 1991

Social Security (Family Actual Means Test) Regulations 1998

Part 2.11 of the Social Security Act 1991 (the Social Security Act) will, after commencement on 1 July 1998, provide the legislative authority for the new social security payment, youth allowance. Part 3.5 of the Social Security Act will provide for the calculation of the rate of youth allowance. Module G of the Youth Allowance Rate Calculator in section 1067G of Part 3.5 will provide for a family actual means test to form part of the rate calculation process. Points 1067G-G2, 1067G-02A, 1067G-G3, 1067G-G3A and 1067G-G4 of Module G will provide for regulations to be made to specify or identify certain matters with regard to the operation of the family actual means test.

These Regulations provide the details necessary for the operation of the youth allowance family actual means test. The test is essentially the same as the actual means test that currently applies in the AUSTUDY Regulations. The latter test will lapse on the repeal of AUSTUDY on 1 July 1998 (by the Social Security Legislation Amendment (Youth Allowance Consequential and Related Measures) Act 1998) and its replacement with the new social security payments, youth allowance and austudy payment.

The objects of the Regulations are:

*        to specify the kind of person to whom the family actual means test applies; and

*       to identify the appropriate tax year that forms the basis of the family actual means calculation; and

*       to specify how to work out the actual means of a person's family, the person's family actual means free area and the person's reduction from his or her rate of youth allowance for family actual means.

The Attachment contains more details about the Regulations.

The Regulations commence on 1 July 1998.

ATTACHMENT

DETAILS ABOUT THE SOCIAL SECURITY (FAMILY ACTUAL MEANS TEST) REGULATIONS 1998

Background

One of the elements of the rate calculation process for youth allowance under the Youth Allowance Rate Calculator in section 1067G of the Social Security Act 1991 (the Social Security Act) is the family actual means test. This test, which is currently applicable under the AUSTUDY Regulations, may apply to a youth allowance claimant or recipient who is not independent (within the meaning of section 1067A of the Social Security Act).

The effect of the family actual means test on a person's youth allowance rate is described at Steps 10, 11 and 13(c) and (d) of the overall rate calculation method statement in point 1067GAl. If the person is not independent and the family actual means test is applicable, the person's reduction for actual means is worked out under Module G and taken away from the maximum payment rate to give the actual means test reduced rate. If this rate should be nil, then youth allowance is not payable to the person. The person's youth allowance rate is assessed under both the family actual means test and the parental income test under Module F. Whichever of these would produce the lower youth allowance rate is the test that is applied to the person.

These Regulations provide the details necessary for the operation of the family actual means test. They are essentially the same in effect as the relevant AUSTUDY Regulations, although with certain changes necessary to reflect the new youth allowance structure and the drafting of the Social Security Act. For example, note that, for youth allowance, it is only if the young person has a designated parent (and not a designated spouse, nor if the young person is a designated person with a spouse, as under AUSTUDY) that the family actual means test may apply. This is because the youth allowance family actual means test applies only to a person who is not independent whereas having a spouse would generally make the person independent.

PART 1 - PRELIMINARY

Regulation 1 - Name of Regulations

This regulation provides for the name of the Regulations.

Regulation 2 - Commencement

This regulation provides for the Regulations to commence on 1 July 1998 when the whole youth allowance package commences. Therefore, the youth allowance rate calculation process will include a family actual means test component from the outset.

Regulation 3 - Objects

This regulation sets down the objects of the Regulations, drawing from the enabling provisions in Module G of the Youth Allowance Rate Calculator.

Regulation 4 - Definitions

This regulation sets down the range of definitions that are necessary for the operation, of these Regulations. These definitions are generally drawn from various parts of the AUSTUDY Regulations. A Note points out that, under paragraph 46(1)(a) of the Acts Interpretation Act 1901, some words and expressions used in the Regulations that are defined in the Social Security Act have the same meaning in these Regulations as they have in the Act. Some examples are given.

Regulation 5 - Meaning of designated parent

This definition of "designated parent" is necessary for regulation 8 which specifies to whom the family actual means test applies. (It applies if a person, who claims or receives youth allowance and is not independent, has a parent who is a designated parent.) A parent of a youth allowance customer is a designated parent if one of a number of circumstances applies. These circumstances are indicators that the parent might have financial means that should be taken into account in working out the young person's youth allowance entitlement. The circumstances are those that currently apply under AUSTUDY regulation 12K, eg, having an interest in assets outside Australia or in a company, deriving certain income from a source outside Australia, being able to claim a tax deduction for a business loss or being self-employed or a member of a partnership.

Regulation 6 - Meaning of income assistance

"Income assistance" is a term needed for regulation 15 in which certain amounts are excluded from a person's actual means. It mews a specified kind of income support, whether youth allowance, austudy payment, an untaxable social security or veterans' affairs payment, a payment under a Student Financial Supplement Scheme, ABSTUDY or AIC, a payment of the former AUSTUDY, a scholarship or a State or Territory education payment. The term is drawn from the similar definition in AUSTUDY subregulation 12F(2).

Regulation 7 - Meaning of savings

"Savings" are normally part of a person's actual means under regulation 14. This regulation makes it clear that savings include certain amounts, although they are not limited to these amounts. The amounts included are a person's share in any profit retained by a company or partnership of which the person is a director, shareholder or member (respectively) if the person has a substantial influence over the distribution of the profit that could potentially benefit the person or a member of the family. Similarly, savings includes any undistributed trust profit if the person is a trustee or beneficiary of the trust who has specified powers under the trust or substantial influence over the potentially beneficial distribution of the trust profit. This definition comes from AUSTUDY regulation 12FA.

PART 2 - APPLICATION

Regulation 8 - Kind of person affected

This regulation provides that, for point 1067G-G2 of the Social Security Act, the family actual means test applies to a person who claim or receives youth allowance, is not independent (as provided by section 1067A) and has a parent (as provided by paragraph (b) of the definition of "parent" in subsection 5(1)) who is a designated parent (as provided by regulation 5). AUSTUDY regulation 12J is the equivalent of this regulation which has been reworded to suit the new youth allowance terminology.

Regulation 9 - When family actual means test does not apply

This regulation modifies regulation 8 to exclude certain people from the application of the family actual means test. The test does not apply if a member of the person's family is receiving an exceptional circumstances relief payment under the Farm Household Support Act 1992. Nor does it apply for the remainder of the calendar year after the relief payment stops. In this regulation, "exceptional circumstances relief payment" includes the former drought relief payment. This rule comes from AUSTUDY regulation 12G, as recently amended.

PART 3 - FAMILY ACTUAL MEANS TEST

Division 3.1 - Identification of appropriate tax year

Regulation 10 - Meaning of appropriate tax year

The appropriate tax year is the period in respect of which a person's family actual means are calculated. The same period applies under the youth allowance parental income test in Module F of the Youth Allowance Rate Calculator. The appropriate tax year for a particular youth allowance payment period is generally the "base tax year". The latter term (defined in point 1067G-F5) is the tax year that ended on 30 June in the calendar year that came immediately before the calendar year in which the youth allowance payment period ends. However, if regulation 11 applies, the tax year determined under that regulation by the Secretary is the appropriate tax year.

Regulation 11 - Person may ask Secretary to determine appropriate tax year

Regulation 11 provides for a person to request a change to his or her appropriate tax year in certain circumstances. This is designed to allow a person the benefit of having a lower actual means figure taken into account if that lower figure would result from using the tax year following the base tax year as the basis for the assessment.

For this concession to be available, it must first be the case either that youth allowance would not be payable because of the rate being nil under the family actual means test or that the rate would be reduced under the test.

The person must give evidence or an estimate that his or her amount of family actual means is substantially less in the year following the base tax year than it was in the base tax year for one of three reasons - because of an event that is beyond the control of the person and family, because the person or a family member is undertaking full-time study in the tax year following the base tax year or because a designated parent has ceased to fall within one of the specified categories of the definition of "designated parent".

The person must give evidence of the reason mentioned above and, if the decrease in actual means is based on an estimate, give an agreement to have his or her rate of youth allowance recalculated if the actual means for the tax year ends up being more than the amount estimated.

The amount of family actual means must be unlikely to increase beyond that reduced evidenced or estimated level for 2 years following the specified date.

Lastly, the request must be made in accordance with an approved form.

If the Secretary receives a request under this regulation, he or she must determine the person's appropriate tax year to be the tax year following the base tax year for a youth allowance payment period specified.

It is also made clear that an expected decrease in the profitability of a business is not ordinarily to be taken to be an event that is beyond control, for the purposes of one of the acceptable reasons for the application of this regulation.

Regulation 12 - Appropriate tax year based on estimate

This regulation stipulates that an estimate provided as a basis for a request under regulation 11 may not lead to a determination by the Secretary to change the appropriate tax year unless the Secretary is satisfied that the estimate is current and reasonable.

Regulations 10, 11 and 12 are derived from AUSTUDY subregulations 12M(2) and (3) and regulation 12MA (the latter recently inserted). The rules have been substantially rewritten to reflect the Social Security Act approach to parental income testing. However, the result is the same as under the AUSTUDY Regulations.

Division 3.2 -Actual means of person's family

Regulation 13 - How to work out the actual means of person's family

This regulation explains the basic principle that a person's family actual means is worked out by first calculating, under this Division, the individual actual means of the person himself or herself and of each person who is a member of that person's family. (Having done that, the formula in regulation 19 provides for each individual amount of actual means to be added together to form part of the calculation of the person's family actual means.) Since this structure for calculating the family actual means is an initiative for the youth allowance family actual means test, there is no equivalent as such from the AUSTUDY Regulations.

Regulation 14 - Meaning of actual means

This regulation lays down the meaning of the "actual means" of a person (ie, a person who is either the youth allowance customer or a member of the customer's family). The actual means of a person for the appropriate tax year is the total amount of the spending and savings of the person in that tax year.

Furthermore, an amount of spending or savings is taken to have been spent or saved in the appropriate tax year if the Secretary considers that the amount should be so taken.

This rule comes from AUSTUDY subregulations 12M (1), (4) and (5).

Regulation 15 - Amounts not included in actual means of person

This regulation adds to the meaning of actual means laid down in regulation 14 by recording certain amounts that are not to be included in a person's actual means for the appropriate tax year (a person being either the youth allowance customer or a member of his or her family).

Not to be included are amounts such as spending or savings from any "income assistance" (see regulation 6) received in the appropriate tax year, maintenance payments, certain costs of boarding away from home a family member who is studying, money spent to assist with a disability, money spent from any arm's length loan received in that year, any loan repayments (or interest payments) on another kind of loan, spending or savings from certain liquidation proceeds or from a windfall gain that is not a gift, spending or savings of up to $6,000 from certain tax-exempt income and spending or savings from a tax-exempt part of a compensation payment.

Further, the amount of the income or resources of a business of the person that is tax deductible as an expense necessarily incurred in carrying on the business is not to be included in actual means. However, certain amounts are not drawn into this exemption - any business losses carried forward from a previous tax year and any superannuation contribution from the business that exceeds a specified level for an employee or for a person engaged other than as an employee.

Nor is the amount of any reduction in liquid assets held by the person at the beginning of the appropriate tax year and not already taken into account under subregulation 15(2) to be included in actual means.

Regulation 16 - Amounts not included in actual means of member of person's family

A further exclusion from the actual means for the appropriate tax year of a person who is a particular family member of a youth allowance customer (a family member described in three particular subparagraphs of the definition of "Family member" in subsection 23(15) of the Social Security Act) is spending or savings of up to $6,000 from any income of that family member from "independent employment" (defined in regulation 4).

All of the actual means exclusions dealt with in regulations 15 and 16 are translated directly from AUSTUDY subregulations 12N(1) and (1A).

Regulation 17 - After-tax income concession for secondary student

Regulation 17 is to specify what the term "after-tax income concession" for a secondary student means. This term is used in subparagraph 15(2)(d)(v) in calculating the amount of spending, in certain cases of boarding away from home a family member who is a secondary student, that is excluded from actual means. The concession is worked out under a formula that aims to identify the after-tax income of a notional family, having regard to: PI, being a certain level of combined parental income; T, being the sum of the tax payable by each parent in a particular notional circumstance; M, being the sum of the amounts of Medicare levy payable by each parent in the same notional circumstance and assuming that a specified child has no separate net income; FA, being the total family allowance payable; and FTI, being a percentage of the family tax assistance increased tax-free threshold calculated under the Income Tax Rates Act 1986.

This is a complex rule translated from AUSTUDY subregulation 12N(1B).

Regulation 18 - Powers of Secretary - fair market value

This regulation gives the Secretary a discretion to consider whether an amount of spending reported in this Division of the Regulations represents fair market value. If not so satisfied, the Secretary must assess the fair market value of the matter - the resulting amount is the amount that will be included in the person's actual means.

Further, the Secretary has the discretion to consider whether spending by someone else is spending for the benefit of the person whose actual means are being assessed ("the relevant person"). If so satisfied, the Secretary must assess the fair market value of the spending - the resulting amount will be included in the relevant person's actual means.

These rules come from AUSTUDY subregulations 12L(2) and (3).

Regulation 19 - Family actual means

Having worked out, under the preceding regulations, the individual actual means of the youth allowance customer and of each member of his or her family, regulation 19 provides the culminating rule of how to calculate the youth allowance customer's family actual means.

It is worked out using a formula which has regard to the following factors: AM, being the sum of the actual means of each person in the family; T, being the sum of the notional amounts of tax payable by each parent to achieve an after-tax income of half of AM; M, being the sum of the notional amounts of Medicare levy that would be payable by each parent in certain circumstances to achieve. an after-tax income of half of AM and assuming that a specified child has no separate net income; FTI, being a percentage of the family tax assistance increased taxfree threshold calculated under the Income Tax Rates Act 1986; and NPBL, being any "net passive business loss" (which takes its meaning from subpoint 1067G-F11(4) of the Social Security Act) of each parent.

This rule is translated from paragraph 87A(1)(b) of the AUSTUDY Regulations.

Division 3.3 - Family actual means free area

This Division is to identify the amount of family actual means a person may have without it affecting his or her youth allowance entitlement. It is currently AUSTUDY subregulation 88(1) that performs this function.

However, the way of working out this amount in these Regulations bears more similarity to the youth allowance parental income test than it does to AUSTUDY subregulation 88(1). The youth allowance parental income test differs from the AUSTUDY parental income test in that, for youth allowance (as for family allowance under the Social Security Act), the test is based on there being increases to the free area for other children in the family, whereas the AUSTUDY version is based on deductions from income for other children and therefore uses a standard free area in all cases. The result is the same. However, the youth allowance family actual means test must mirror the youth allowance parental income test in the method of calculating the free area

Accordingly, the following provisions are practically identical to the parental income test free area provisions in Module F of the Youth Allowance Rate Calculator.

Regulation 20 - When a child is not a dependent child

This regulation modifies the usual meaning of "dependent child" from section 5 of the Social Security Act for the purposes of working out the family actual means free area so that a child does not fall within this term if the parent pays maintenance for the Child.

Regulation 21 - Family actual means free area

This regulation provides that the youth allowance customer's family actual means free area is a basic $23,400 (or such indexed amount as is provided by regulation 24, mirroring the parental income test basic amount which is also indexed) plus my additional (unindexed) amounts under the following two regulations for any children (other than the youth allowance customer himself or herself) of a parent of the customer.

Regulation 22 - Additional amounts for children

This regulation specifies the amounts that are to be added to the basic free area for any children of the parent who meet the criteria given (as for the parental income test).

Regulation 23 - Additional amounts for certain tertiary students

This regulation provides for a specified higher amount to be added to the basic free area for a tertiary student in the family in the circumstances described (as for the parental income test).

Regulation 24 - Indexation

Since the basic free area laid down in paragraph 21(a) is not subject to indexation under the usual provisions in the Social Security Act as is the parental income test basic free area, this regulation sets up an indexation mechanism that mirrors those usual provisions so that the two basic free areas will always be the same.

Division 3.4 - Reduction for family actual means

Regulation 25 - Reduction for family actual means

This regulation provides for a youth allowance customer's rate of payment to be reduced for excess family actual means. The rule comes from AUSTUDY subregulation 88(2). However, as for the last Division, it is expressed here in identical terms to the youth allowance parental income test.

Accordingly, a person's "annual family actual means excess" (ie, the difference between the actual means of the person's family for the appropriate tax year and the free area) is divided by 4 and rounded down as described. The result is then converted to a fortnightly figure for the youth allowance rate calculation.

PART 4 - MISCELLANEOUS

Regulation 26 - Review of decisions

This regulation makes it clear that Chapter 6 of the Social Security Act, which deals with the review of decisions, applies to decisions under these Regulations just as if they were decisions under the Social Security Act. Similarly, decisions under the AUSTUDY actual means test provisions are currently reviewable under the general review provisions of the Student and Youth Assistance Act 1973.

Regulation 27 - Delegations

This regulation sets up a delegation regime that will allow the family actual means test to operate alongside the general youth allowance decision making regime.