4.1.3 Deprivation of assets & income - effect on income
Summary
The value of disposed of assets (1.1.D.210) is subject to income deeming provisions if the value of these assets (1.1.A.290) exceed the disposal free areas.
This topic discusses the effect of asset disposal on:
- an income tested person, and
- a person's deemed income assessment.
Information on how to calculate the TOTAL deprivation amount for a person is provided in the referenced topic.
Policy reference: SS Guide 4.1.1 General provisions of deprivation, 4.1.10 The rolling 5 financial year deprivation provisions & other deprivation changes effective from 1 July 2002
Effect of asset disposal on an income tested person
Deprivation provisions apply to a person who is assessed under the income test. The value of a disposed of asset MUST be recorded, even IF it has no effect on the person's current entitlement. It MAY be necessary to obtain a valuation for the disposed of asset from a professionally qualified valuer appointed by Centrelink.
Explanation: The value of several disposed of assets MAY cause a person's pension, benefit or allowance to be assets tested. The deemed income may cause an effect under the income test.
If a person disposes of income WITHOUT disposing of assets, the actual amount of the income disposed of continues to be assessed indefinitely (1.1.D.220).
Example: IF a person forgoes a contracted superannuation pension increase OR foregoes a private annuity payment (1.1.P.425), THEN the rate of deprived income maintained continues to be assessed.
Where a person disposes of income and the income, or the right to income, is returned to the person, it may be appropriate to re-apply the SSAct definition of disposal, to determine if the disposal of income actually occurred in the first place.
Where a disposal of income, or the right to income, is determined to have occurred and the income, or the right to income, is returned to the person, any deprived income ceases to be assessable from the date of the return to the person of the right to the income.
Example: An age pensioner gifts the right to the income from a private annuity to their son. Six months after the gifting, the son returns the right to the income to the person. Deprived income ceases to be assessable from that date. However, the income from the private annuity will form part of the person's income under the social security income test.
Act reference: SSAct section 8(1)-'income'
Effect of disposal on deemed income
Deeming is applied to the value of all deprived assets. The actual income lost by disposal of an income-producing asset, when the disposal of assets is being assessed, is ignored.
An amount paid for the earning capacity of an income-producing asset CANNOT be used to reduce the assessable deemed income. This amount CAN be used to determine whether a person received adequate financial consideration (1.1.A.55) in exchange for the asset.
The following table shows examples of the effect of asset disposal on deemed income during a financial year period:
| If, in a single financial year for no consideration, a person disposes of … | and its value is … | then deemed income is assessed on … |
|---|---|---|
| one asset | $15,000 | $5,000. |
| 2 assets | $20,000 and $5,000 | $15,000. |
| one income producing asset | $50,000 and it produces an income of $5,000 per year | $40,000. Explanation: The actual income produced by the asset is IGNORED as deeming is applied. |
| one income producing asset | $50,000 and it produces an income of $15,000 per year. The person was also paid $5,000 for the earning capacity of the asset. | $35,000. Explanation: The income produced by the asset is ignored. Additional money paid for its earning capacity is treated as consideration received. |
Deemed income on a deprived asset ceases to be assessable when an asset is returned to the person (4.1.1).
Effect of disposal prior to claim
All assets disposed of in the 5 years prior to claim may be assessable under the deprivation provisions, and any deemed income that is assessable as a result of such disposals will also be assessable for as long as the deprived asset is recorded against the person.