The Guides to Social Policy Law is a collection of publications designed to assist decision makers administering social policy law. The information contained in this publication is intended only as a guide to relevant legislation/policy. The information is accurate as at the date listed at the bottom of the page, but may be subject to change. To discuss individual circumstances please contact Services Australia.

4.1.10 The Rolling Five Financial Year Deprivation Provisions & Other Deprivation Changes Effective from 1 July 2002

Summary

This topic deals with the additional deprivation provisions that took effect from 1 July 2002. These changes are in addition to the deprivation provisions that allow disposals of $10,000 a year without any deprived asset being assessed. This topic covers:

  • the replacement of the pension year with the financial year (income year) as the basis from which disposal amounts are calculated and assessed from 1 July 2002, and
  • the $30,000 5-year disposal free area from 1 July 2002.

From 1 July 2002, all recipients will have the financial year (from 1 July of any given year until 30 June of the following calendar year) as the period over which disposal amounts are calculated and assessed for deprivation purposes. This will be the case regardless of when recipients commenced receiving social security payments.

Example: On 20 May 2001 Harold claimed Age, and 5 days later gifted $10,000 to his son. No deprived asset was assessed as Harold had not gifted more than $10,000 in his 'pension year', which commenced from 20 May 2001. On 25 May 2002 Harold gifted another $10,000 to his son without any deprivation applying, as a new 'pension year' commenced on 20 May 2002. On 1 July 2002 the new gifting rules took effect. Harold can gift up to $10,000 any time between 1 July 2002 and 30 June 2003 without any deprived assessed being assessed, and all future gifts made by Harold will be assessed based on the relevant financial year.

From 1 July 2002, in addition to the $10,000 single year disposal free area, a further disposal free area of $30,000 in any 5-year rolling period will apply.

Note: Disposals of assets prior to 1 July 2002 will not be assessable under these new rules.

Disposals of assets on or after 1 July 2002 will effectively be subject to 2 tests to determine whether deprivation is assessable or not:

  • firstly, whether the disposed of amount exceeds the $10,000 single year disposal free area for the financial year, and
  • secondly whether the amount disposed of exceeds the $30,000 5-year disposal free area for the current and previous 4 financial years (not prior to 1 July 2002) and is not caught under the first test amounts.

Calculating deprived assets under the 5 year rolling period rule

Following is a method for calculating the amount of a person's deprived assets under the 5-year rolling period rule from 1 July 2002.

Step Description
1

ADD the value of all gifts made by the person in the 5-year rolling period

(i.e. in the current financial year and the 4 previous financial years (occurring after 30 June 2002) and including the 'current' or most recent gift).
2

ADD all of the deprived asset values that have been included in the person's assets under both the:

  • $10,000 one-year rule, and
  • the $30,000 5-year rule during the rolling period, including
  • any assessable amount under the $10,000 one-year rule resulting from the 'current' assessment of the latest gift.
3 SUBTRACT the total from Step 2 from the total from Step 1. If this amount exceeds $30,000, then whichever is the lesser of the excess or the amount of the disposal, is to be included in the value of the person's assets for 5 years from the date of the disposal.

Example 1:

Financial Year: Gift Deprived asset assessed under $10,000 in a financial year free area rule* Deprived asset assessed under $30,000 5-year free area rule*
2002-03 $32,000 $22,000 $0
2003-04 $3,000 $0 $0#

* Deprived assets are maintained as a person's or couple's assets for 5 years from the date of the relevant gift and are subject to the income test deeming provisions.

# Please note that while total gifts are $35,000 no deprived asset is assessed under the 5-year rule after taking into account deprived assets already assessed in the 5-year period, e.g. $32,000 plus $3,000 minus $22,000 = $13,000, which is less than the relevant free area of $30,000.

Example 2:

Financial Year: Gift Deprived asset assessed under $10,000 in a financial year free area rule* Deprived asset assessed under $30,000 5-year free area rule*
2002-03 $16,000 $6,000 $0
2003-04 $8,000 $0 $0
2004-05 $17,000 $7,000 $0
2005-06 $9,000 $0 $7,000#
2006-07 $16,000 $6,000 $10,000
2007-08 $7,000 $0 $0

* Deprived assets are maintained as a person's or couple's assets for 5 years from the date of the relevant gift and are subject to the income test deeming provisions.

#Total Gifts are $50,000 ($16,000 plus $8,000 plus $17,000 plus $9,000) minus deprived assets already maintained of $13,000 ($6,000 plus $7,000) equals $37,000. $37,000 exceeds the $30,000 5-year free area by $7,000 accordingly a $7,000 deprived asset is assessed.

No double counting

It is important to note that, while both rules will operate concurrently, the new provisions ensure that there is no double counting of asset disposals that exceed the free areas of both rules. The legislation specifically restricts the operation of this new rule in such cases - refer to SSAct sections 1126AB(2)(b) and 1126AD(2)(b).

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

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