4.1.1 General Provisions of Deprivation

Summary

Deprivation provisions apply to all payments subject to assets testing.

Explanation: Deprivation provisions are intended to limit the potential for recipients to avoid the assets and income tests.

This topic explains the key principles and concepts of deprivation. It discusses:

  • how a recipient disposes of an asset (1.1.D.210) or income (1.1.D.220),
  • the allowable disposal free areas for assets,
  • the assessment period for disposal of assets or income,
  • the provisions for non-farm disposal to a family member,
  • disposal of a life interest (1.1.I.185), and
  • disposal of an asset to a special disability trust.

Disposing of an asset or income

For deprivation provisions to apply it MUST be shown that a recipient has destroyed or diminished the value of an asset (1.1.A.290), income, or a source of income.

A recipient disposes of an asset or income when they:

Example: Signing a document transferring legal title to land and then giving it to another person to register the transfer is a course of conduct.

  • engage in a course of conduct that destroys, disposes of or diminishes the value of their assets or income, AND
  • do not receive adequate financial consideration (1.1.A.55) in exchange for the asset or income.

Exception 1: IF special or unusual circumstances necessitate the quick sale of an asset, deprivation has NOT occurred.

Exception 2: It is not considered that disposal of income has occurred IF a recipient:

  • becomes unemployed, OR
  • reduces their working hours and therefore their income, OR
  • does not derive income from an asset.

Act reference: SSAct section 8(1)-'income'

Disposed assets &/or income returned to the person

Where a person disposes of their assets and/or income, and the assets/income are returned to the person, it may be appropriate to re-apply the SSAct definition of disposal to determine if the disposal actually occurred in the first place.

Where a disposal of assets/income is determined to have occurred, and the assets/income are returned to the person, any deprived amount assessed in respect of the amount disposed assets/income ceases to be assessable from the date the assets/income are returned to the person.

Example: An age pensioner gifts $10,000 in excess of the allowable disposal limit to her daughter. Six months later, the daughter returns the money to the age pensioner. The deprived amount assessed in respect of the gift ceases to be assessable from the date the money is returned to the age pensioner.

Act reference: SSAct section 1106 Disposal of ordinary income, section 1123 Disposal of assets

Policy reference: SS Guide 1.2 Descriptions of Payments/Benefits

Allowable disposal free areas for assets disposed of on or after 1 July 2002

The allowable disposal free areas for assets are $10,000 per financial year (income year - see note), and $30,000 over any rolling 5 financial year period (4.1.10). These amounts apply to single recipients and couples (1.1.M.120).

Explanation: Only amounts disposed of in excess of the disposal free areas are assessable under the assets test. These amounts are called deprived assets.

Note: In the legislation the term 'income year' is defined as having the same meaning as in the Income Tax Assessment Act 1997. Accordingly, an income year aligns with the commonly understood financial year, i.e. from 1 July to 30 June.

Act reference: SSAct section 1126AA Disposal of assets in income year-individuals, section 1126AB Disposal of assets in 5 year period-individuals, section 1126AC Disposal of assets in income year-members of couples, section 1126AD Disposal of assets in 5 year period-members of couples

Assessable period for assets disposed of on or after 1 July 2002

The $10,000 single year disposal free area applies to ALL assets disposed of during a financial year. The $30,000 5 year disposal free area applies to all assets disposed of during the current financial year and the previous 4 financial years occurring after 30 June 2002. Deprived assets of recipients qualified or eligible to receive a pension, benefit or allowance are assessed for 5 years from the date of the relevant disposal.

Disposed of income is maintained indefinitely.

ALL disposed of assets and income MUST be recorded for a recipient.

Explanation: The amounts of several individually disposed assets may exceed the relevant free areas.

Act reference: SSAct section 1126AA Disposal of assets in income year-individuals, section 1126AB Disposal of assets in 5 year period-individuals, section 1126AC Disposal of assets in income year-members of couples, section 1126AD Disposal of assets in 5 year period-members of couples

Policy reference: SS Guide 4.1.2 Deprivation of Assets Before a Claim & Significant Dates

Allowable disposal free area for assets prior to 1 July 2002

The allowable disposal limit for assets is $10,000 per pension year or benefit year. This amount applies to single recipients and couples.

Explanation: Only amounts in excess of the disposal limit are assessable under the assets test.

Act reference: SSAct section 11(10) Pension year-disposal of assets

Assessable period for assets disposed of prior to 1 July 2002

The disposal limit applies to ALL assets disposed of during a pension year or the previous 5 pre-pension years. Assets disposed of by recipients qualified or eligible to receive a pension, benefit or allowance are assessed for the full 5 years.

Disposed of income is maintained indefinitely.

ALL disposed of assets and income MUST be recorded for a recipient.

Explanation: The amounts of several individually disposed assets (within a 5 year period of claiming) may exceed the limit.

Act reference: SSAct section 11(10A) Pre-pension year-disposal of assets, section 1127 Dispositions more than 5 years old to be disregarded

Policy reference: SS Guide 4.1.2 Deprivation of Assets Before a Claim & Significant Dates

Disposal of a non-farm asset to a family member

An asset IS disposed of IF a recipient:

  • transfers an asset to a family member, AND
  • does NOT receive adequate financial consideration in return.

Adequate financial consideration is NOT accepted when a recipient disposes of an asset or income to a family member:

  • for the promise of future accommodation, OR
  • in recognition of work done by the family member which is carried out as part of the 'natural love and affection' within a family, or is carried out merely as a moral obligation. Work carried out as part of a moral obligation is NOT consideration.

Example: Activities that would fall into these 2 categories would include the running of errands from time to time, or the occasional transport of a relative to shopping venues or to medical appointments.

Exception: Adequate financial consideration MAY be accepted IF a recipient:

  • transfers money or valuable consideration (1.1.V.25) for a granny flat, OR
  • transfers a farm to a close relative in recognition of past contributions, OR
  • pays a family member for a substantial amount of work, or a substantial one off task which is outside that which would be required by the family member's normal love and affection or moral obligation.

Example: A recipient pays their son $14,000 to paint their house inside and out. This is around the market price for this work.

Act reference: SSAct section 12A(3) A person is a granny flat resident if the person has a granny flat interest in the person's principal home

Policy reference: SS Guide 4.1.6 Deprivation Related to Home & Accommodation Transfers, 4.1.7 Deprivation Related to Farm Transfers, 4.6.4.50 Granny flats - features, rights & interests

Disposal of a life interest

If a recipient surrenders the value of a life interest the delegate MUST refer the case to the CAO in the area office, who will obtain a valuation from the AGA. The AGA valuation is the amount of disposition.

Explanation: The asset value of a life interest may be an exempt asset (1.1.E.170), but any income is assessable if it produces income. Surrendering the value of a life interest disposes of both the asset and its income.

Deprivation provisions do NOT apply if a recipient chooses NOT to receive income from their life interest in an income-producing asset. Any income produced in this instance continues to be included.

Explanation: The recipient has NOT formally surrendered the life interest.

Deprivation provisions do NOT apply if a recipient chooses NOT to live in a house in which they have a life interest.

Explanation: The recipient still owns the life interest and therefore it is still an assessable asset.

Act reference: SSAct section 1106 Disposal of ordinary income, section 1107 Amount of disposition (ordinary income), section 1123 Disposal of assets, section 1124 Amount of disposal or disposition (assets), section 1126AA Disposal of assets in income year-individuals, section 1126AB Disposal of assets in 5 year period-individuals, section 1126AC Disposal of assets in income year - members of couples, section 1126AD Disposal of assets in 5 year period-members of couples

Policy reference: SS Guide 4.6.2.10 General provisions for exempt assets, 4.1.10 The Rolling Five Financial Year Deprivation Provisions & Other Deprivation Changes Effective from 1 July 2002

Disposal of an asset to a special disability trust

From 20 September 2006, a person who disposes (or gifts) an asset to a special disability trust may be eligible for concessional means test treatment.

Policy reference: SS Guide 4.14.4 Gifting to Special Disability Trusts

Last reviewed: 7 November 2016