4.4.2 Deeming of Financial Investments
This section provides information about the categories of financial investments which are subject to the income test deeming rules. The current market value of the investment is used to calculate the amount of deemed income.
|Financial asset||Additional information|
If the investor is NOT carrying on a business then the arrangement must be examined to establish if it is a managed investment and therefore a financial asset.
Explanation: If the investor is carrying on a business alone or with other participants and there is a direct investment in an identifiable area of land and associated commodities, then it is not a financial asset.
|Bank bills, commercial bills, and promissory notes||
The value of bank bills, commercial, and promissory notes is the amount paid by the income support recipient to purchase the investment.
Example: An income support recipient buys a $100.00 promissory note for $80.00 and redeems it for $100.00 on maturity, therefore receiving a $20.00 profit.
Explanation: Bullion held for investment purposes is a financial asset. Jewellery or contemporary Australian currency which contains gold, silver or platinum, or coins, medals or decorations containing those metals held for non-investment purposes are not bullion.
Cash amounts including cash on hand and in safety deposit boxes.
Explanation: Income support recipients are not required to advise Centrelink of reasonable amounts which they are holding to meet day-to-day living expenses. Judgement will need to be exercised in determining what is reasonable.
|Conventional life insurance products||
Conventional life insurance policies during the life of the policy are not financial assets or subject to deeming; however, after maturity, any portion that is not withdrawn is regarded as a financial investment.
|Debentures and unsecured notes||
Debentures are loan certificates secured by a lien over assets of the borrower.
Unsecured notes are loan certificates not secured by any assets.
Explanation: The asset value of a debenture or unsecured note listed on a stock exchange is the market value. Where the investment cannot be sold until maturity, the face value of the investment is assessed.
|Delisted and suspended shares||
Suspension or delisting of company shares can change the value of the security for deeming purposes.
Explanation: Suspended from trading - the most recent value given to the shares by the administrator is used. In the absence of any such official information the last sale price on the last day of trading is used.
Delisted due to compulsory acquisition by another company - the last sale price on the last day of trading is used then the sale price on the first day of trading of the security under the new name after confirmation of the acquisition is used.
Delisted due to receivership, administration or liquidation - the last sale price quoted on the last day of trading is used until official notification is received from the company secretary, liquidator or administrator on the current price of the security.
Delisted due to trading as an unlisted company - the market value of the security is used for deeming.
Policy reference: SS Guide 184.108.40.206 Assessing Shares in Private & Unlisted Public Companies - Not Assessed Under Trusts & Companies Rules
Assets that a person destroys, disposes of, or reduces in some way WITHOUT receiving adequate financial consideration. Generally deprivation occurs when the asset is given away as a gift. The value of the deprived asset (less the allowable gifting amount) is subject to deeming.
Explanation: Any actual income lost as a result of the disposal of an income-producing asset is ignored.
|Farm management deposits||
The balance in the fund is the value that is deemed.
Explanation: Farm management deposits are a means by which those operating in the rural sector can smooth out their taxable income over a number of years. Farm management deposits are commercially available deposit account offered through authorised deposit taking institutions such as banks, credit unions and building societies. The scheme provides primary producers with a tax-linked savings option, which helps build cash reserves for difficult years.
Policy reference: SS Guide 220.127.116.11 Assessable Income & Assets from Primary Production
|Government and semi-government bonds (GSGB)||Securities issued by a federal, state or local government authority. The market value of bonds changes in response to market conditions, particularly changes in interest rates.|
Two types of income streams are included under deeming:
Note: Annuities which are not account-based are not included in the deeming provisions and will continue to be assessed under the return of capital rules (i.e. gross annual income less deduction amount), see 18.104.22.168.
|Interest rate products||
Money on deposit including bank, building society and credit union accounts.
Explanation: Deeming applies to home loan offset accounts but does NOT apply to a line of credit accounts.
Listed public securities on a stock exchange including exempt stock markets, either held in Australia or overseas and whether dividends are paid or not.
General listed securities:
Explanation: The value of a loan is the amount of principle outstanding.
Loans made by income support recipients to their own sole trader or partnership structures are NOT included as loans for deeming purposes. These are in effect 'loans to oneself' and are instead regarded as injections of capital and taken into account accordingly in the assessment of business income.
Act reference: SSAct section 1122 Loans
Also known as 'managed funds', 'pooled investments' or 'collective investments', where money is pooled together with other investors or used in a common enterprise and a 'responsible entity' operates the fund.
|Managed life insurance investments||
These are considered to be managed investments.
|Ostrich and emu farms||
Managed investment scheme - investors whose funds are pooled and who do NOT hold specific livestock as their own investment. These schemes ARE managed investments and ARE financial assets.
Explanation: Speculative investments are not financial assets. Share farming schemes are businesses unless the investor is NOT carrying on a business and the arrangement is a managed investment.
Overseas managed investments
|Managed investments held overseas are financial assets.|
|Private unit trusts||
Private unit trusts are a financial asset if they meet all the criteria for a managed investment.
Explanation: If a private unit trust does not meet ALL of the criteria for a managed investment (e.g. if an investor in a private unit trust exercises control over the management of the invested assets) then it is NOT a managed investment and is NOT a financial asset.
|Public unit trust investments||
Whether they are listed on the stock exchange or not, they are treated as managed investments (1.1.M.25).
|Sale and principal home or other property||
Explanation: If the proceeds are held in the form of a financial investment they are a financial asset for income test purposes.
If a principal home is sold and the proceeds are to be used to purchase, build, rebuild, repair or renovate another principal home then they MAY be exempted from assets testing for up to 12 months, or up to 24 months if certain criteria are met. See 22.214.171.124 for additional details.
Act reference: SSAct section 11A(1) Principal home, section 1118(2) If a person sells the person's principal home
|Sale of property agreement||
Usually there are separate sale and loan agreements and little doubt about whether the agreements create a loan.
Explanation: If there is NOT a separate loan agreement then it is considered a sale agreement.
If the contract uses terms that suggest the existence or setting up and commencement of a loan, or a mortgage agreement exists which is expressed to be security for a loan then it is considered to be a loan agreement.
Amounts outstanding under sale agreements are not financial assets. However, if the arrangement is regarded as a sale agreement and NOT a loan, but provides for interest to be payable on the outstanding balance of the purchase price, the interest payable is assessed as income.
Policy reference: SS Guide 4.6.4 Assessing Special Residences & Aged Accommodation.
|Superannuation and roll-over investments||
Superannuation and roll-over investments are treated differently depending on the age and circumstances of the person:
Explanation: In a very small number of cases the Minister for DSS provides exemptions for superannuation assets.
The Minister is the only person with the legislative power to exempt a superannuation investment.
Exemptions are considered if all of the investment cannot be accessed where:
Act reference: SSAct section 1084(1) Certain money and financial investments not taken into account, section 1118B Value of superannuation investments determined by the Minister to be disregarded
|Unlisted public securities||
Shares in public companies which are not listed on a stock exchange, but are available to the public whether they are held in Australia or overseas, or dividends are paid.
Explanation: Persons who are members of a co-operative are shareholders and they MAY receive bonus shares in place of the payment of a rebate for past purchases.