188.8.131.52 Exemption of Financial Investments from Deeming
This topic provides information on the following subjects:
- background to deeming exemptions,
- date of effect for deeming exemptions,
- deeming exemptions for unrealisable assets assessed under the assets test financial hardship provisions,
- deeming exemptions for compensation and insurance payments held as financial investments,
- deeming exemptions for NDIS amounts,
- deeming exemption guidelines for financial investments in church and charitable organisations,
- deeming exemption guidelines for failed financial investments, and
- exemptions for financial investments in frozen unlisted property trusts and 'saved' personal (family) loans.
Note: Deeming exemptions for superannuation investments are covered in 4.4.2.
Background to deeming exemptions
The Minister for Families and Social Services has the legislative power to exempt a financial investment or class of financial investment (1.1.F.135) from the deeming rules.
The Minister has approved guidelines for exemption from the deeming rules. Guidelines vary for different types of investments. The guidelines are set out under separate headings later in this topic.
A deeming exemption removes the particular financial investment from the calculation of the recipient's deemed income, however, it does not alter the value of the investment under the assets test rules. A deeming exemption only removes a financial investment from the deeming provisions, and actual income, if any, is assessed.
Exemptions are granted only in special circumstances to preserve the fairness of deeming. Exemptions are not granted because of poor investment performance, such as shares producing negative returns, or because a low return investment was made in order to assist another person.
Date of effect for deeming exemptions
The Minister determines the date of effect for deeming exemptions as part of the decision to grant a deeming exemption.
Act reference: SSAct section 1084(1) Certain money and financial investments not taken into account, section 1082(2) For the purposes of this Division, the above threshold rate…, section 9(1)-'financial investment'
Deeming exemptions for unrealisable assets assessed under the assets test financial hardship provisions
From 20 September 2001, any financial investment that is regarded as unrealisable for the purposes of the assets test hardship provisions is exempted from the deeming rules when calculating the rate of payment under the hardship provisions. This only applies while the income support recipient is being paid under the assets test hardship provisions.
Act reference: SSAct section 1084(2) If a financial investment is an unrealisable asset for the purposes of section 1129, 1130B or 1131…
Compensation & insurance payments held as financial investments
In some instances compensation and insurance payments can be held as financial investments.
Example: A person receives an insurance payment following the loss of their home in a natural disaster such as a bushfire, and then holds the payment in their bank account until their home can be rebuilt.
In such cases, the financial investment and any interest earned are exempt from the deeming rules for 12 months or in some cases longer.
Explanation: The exemption from the income test deeming rules may be extended past 12 months if the recipient can show that they meant to spend the compensation or insurance payment on repairs within 12 months, but they were not able to do so for reasons beyond their control.
Act reference: SSAct section 1084(1) Certain money and financial investments not taken into account, section 8(8)(m) money from an investment that is:…
Policy reference: SS Guide 184.108.40.206 Income exempt from assessment - legislated
NDIS amounts (1.1.N.03) held by, or on behalf of, an NDIS participant (1.1.N.05) to pay for future disability expenses under their NDIS plan (1.1.N.06) are exempt from the deeming provisions of the income test.
Any actual returns that are earned, derived or received on NDIS amounts are exempt income and if they are held as a financial asset these amounts are also exempt from the deeming rules.
Example: NDIS participants who self-manage their NDIS amount in accordance with their NDIS plan may hold unspent NDIS amounts to pay for future disability expenses, and may earn interest on those amounts. This interest is not deemed, and the actual interest is also exempt income.
Act reference: SSAct section 9(1)-'financial investment', section 9(1)-'designated NDIS amount'
Policy reference: SS Guide 220.127.116.11 Income exempt from assessment - legislated
Financial investments in church & charitable organisations
Until 31 December 2009, the Minister for Families, Housing, Community Services and Indigenous Affairs provided deeming exemptions for all investments in certain church and charitable development funds. After 31 December 2009, only those individual investments in development funds exempt prior to 1 January 2010 continue to be exempt from the deeming rules until the particular investment ceases to exist.
The deeming rules will apply to all new investments and any additional monies provided by income support recipients for investment in development funds on or after 1 January 2010.
Failed financial investments
Exemptions are only granted where the outcome is consistent with the principles of deeming. These principles mean that recipients with the same amount in financial assets should receive similar treatment no matter how they choose to invest those assets, unless there are extremely special grounds for a deeming exemption.
Deeming exemptions are not required when a financial investment ceases to exist.
Explanation: Deeming can only apply to financial investments. Deeming cannot be applied to a financial investment if it does not exist. Therefore a deeming exemption cannot be applied when the financial investment ceases to exist.
Some investments may experience short term difficulties such as delays in payment or renegotiation of contracts. Deeming exemptions are provided for financial investments that have failed fundamentally, not for those in short term difficulties.
Failed financial investments are considered for deeming exemption against the following guidelines:
- the policy intent of deeming will not be compromised by the granting of an exemption,
- the financial investments (or a class of financial investments) are not operating to provide any returns, and
- investors have no access at all to the investment capital. (This includes cases where it is accepted that the investors have commenced all reasonable action to obtain access to the investment and the investment is currently inaccessible).
Policy reference: SS Guide 18.104.22.168 Failed Financial Investments
Financial investments in frozen unlisted property trusts & 'saved' personal (family) loans
The following 2 forms of investment, which were exempt from deeming before the July 1996 deeming changes, are included as financial investments when calculating deemed income unless a recipient can establish certain conditions exist.
- Low or zero interest loans made before 22 August 1990 ('saved' loans) made to:
- a family member, OR
- a private company (1.1.C.220) in which the recipient or family member has a controlling or substantial interest, AND
- 'Frozen' unlisted property trusts with a continuous restriction on access since 30 June 1996.
For these types of investment exemptions have been provided where the recipient holding the investment:
- at 30 June 1996, had to have claimed or been receiving a payment that was affected by deeming, AND
- was in financial hardship as a result of deeming.
Explanation: For the purposes of exemptions of the above forms of investment, financial hardship was when a recipient's total income, as a result of deeming, was lower than the maximum rate of pension or allowance, including RA where applicable, that could be paid to the recipient under the income test.
In this instance, total income was the sum of the following:
- any income actually received from the investment for which exemption is claimed,
- deemed income from the recipient's remaining financial assets,
- income from other sources, and
- the recipient's current income test rate of pension or allowance.
Act reference: SSAct section 23(14) For the purposes of this Act other than Part 2.11 and the YA Rate Calculator…