4.6.2.10 General provisions for exempt assets

Summary

ALL assets (1.1.A.290), other than those specified as exempt (1.1.E.170), are assessable. This topic provides additional information on the assessability of:

• an income support recipient's life, reversionary, remainder, and contingent interests (1.1.I.185)
• compensation and insurance payments
• NDIS amounts (1.1.N.03) and returns on NDIS amounts
• pre-paid funeral expenses
• exempt funeral investments
• pre-purchased burial plots
• accommodation bonds (1.1.A.15)
• refundable deposits (1.1.R.113)
• refunded accommodation bonds for an income support recipient who entered high level residential aged care (nursing home) (1.1.N.140) between 1 October and 5 November 1997, and
• payments available to Australian prisoners of war.

Assessing life, reversionary, remainder & contingent interests

The value of an income support recipient's life interest, reversionary interest, remainder interest or contingent interest is exempt UNLESS it was created:

• by the income support recipient
• by their partner (1.1.P.85), or
• on the death of their partner.

Exception: Where the life interest is in an income support recipient's principal home the value of the interest is an exempt asset.

Definition of insurance or compensation payments

Insurance or compensation payments can include:

• funds received due to a loss of or damage to a building (including the principal home) or plant, and
• payments that have been applied to build another building to replace the building (including the principal home) or plant that was lost, or
• payments that have been applied to rebuild, repair or renovate the building (including the principal home) or plant if the building was damaged.

Application of insurance or compensation payments to a building or plant

In addition to funds received that are held in a financial investment, the value of insurance or compensation payments that have been applied to build, repair or renovate the building or plant can be exempt from the assets test.

Application of insurance or compensation payments to the principal home

If the building is an income support recipient's principal home the value of the insurance or compensation payments that have been applied to build, rebuild, repair or renovate a new principal home can be exempt under the assets test. The amount that may be exempt can include the value of:

• the land on which the new home is being built, rebuilt, repaired or renovated
• the home that is in the process of being built, rebuilt, repaired or renovated, and
• a structure on the land (that is, damaged home) to the extent that the structure was built before the income support recipient began applying the payments.

For couples, where one member of the couple (whether of the same sex or a different sex) has applied the insurance or compensation payment their partner will also be regarded as applying the insurance or compensation payment.

Exemption period of insurance or compensation payments

Insurance or compensation payments received by an income support recipient due to a loss of or damage to buildings (including the principal home), plant or personal effects (1.1.P.235) are exempt assets for up to 12 months from the date that the payment was received.

The 12 month exemption CAN be extended beyond 12 months IF the income support recipient meets the criteria to gain an extension.

The criteria to gain an extended assets test exemption on insurance or compensation payments are the same as the criteria to gain an extension to the temporary absence from principal home provisions for up to 24 months.

Criteria for extending the exemption for 12 months or longer

To extend the insurance or compensation payments exemption past 12 months:

• the income support recipient's building (including the principal home) or plant must have been lost or damaged
• the loss or damage must not have been wilfully caused by the income support recipient
• the income support recipient must have made reasonable attempts
  • to have the plant or building (including the principal home) repaired
  • to sell the plant or building (including the principal home) in order to purchase or build another plant or building, or
  • to purchase or build another plant or building (including the principal home), and
• the income support recipient must have been making those attempts within a reasonable period after the loss or damage, and
• the income support recipient must have experienced delays beyond their control in purchasing, building, repairing or renovating the building (including the principal home) or plant.

All of the above criteria MUST be met. If one of the above criteria is not met then the income support recipient CANNOT gain an extension to the insurance or compensation assets test exemption payments past 12 months.

Topic 4.6.3.60 discusses the requirements that need to be met (making reasonable attempts, making those attempts within a reasonable period, and experienced delays beyond their control) in further detail.

Determining a time period for the extended exemption

A time period for the extended exemption of insurance or compensation payments should be determined. This time period should be in line with when the income support recipient anticipates, or the contract stipulates, the purchase, construction, rebuilding, repair or renovation of the building (including the principal home) or plant will be complete.

If the income support recipient's building (including the principal home) or plant is still not complete the time period for the exemption of insurance or compensation payments can be extended to a longer period (including past 24 months). However, the temporary vacation (home lost or damaged) exemption CANNOT be extended past 24 months.

The extended exemption of insurance or compensation payments ends when either:

• a new principal home is purchased, or the building, rebuilding, repair or renovation of the building (including the principal home) or plant is complete, or
  • Example: The final progress payment has been made and the certificate of occupancy has been issued.
• the determined extended time period expires

whichever comes first.

Income test rules for insurance or compensation payments held in a financial investment

Insurance or compensation payments received for buildings or plant is NOT treated as income for social security purposes. The actual income (if any) a recipient receives from the financial investment is exempt from assessment.

A lump sum compensation payment paid to an income support recipient for personal injury is NOT exempt from the assets test.

NDIS amounts & returns on NDIS amounts

NDIS amounts, 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 an exempt asset. They are also not considered to be a liquid asset.

A means test exemption applies to NDIS amounts in the hands of the NDIS participant:

• income test exemption 4.3.2.30
• deeming exemption 4.4.1.40.

NDIS participants are not required to notify the receipt of NDIS amounts, how NDIS amounts are spent, or about accounts holding only NDIS amounts (3.1.3).

Assessing funeral expenses (pre-paid funerals)

The amount of an advance payment made by an income support recipient for themselves or their partner's funeral service (a pre-paid funeral) is an exempt asset IF:

• it is a contracted payment, AND
• nothing further needs to be done for funeral services to be provided in accordance with the contract, AND
• the payment cannot be refunded, UNLESS the income support recipient moves outside the designated funeral service area.

There is no limit to the amount that an income support recipient may invest in a pre-paid funeral.

Exempt funeral investment (funeral bonds & funeral funds)

Since 1 January 2008, a person or couple (whether of the same sex or a different sex) can have up to the exempt funeral investment threshold (see following table) invested in a maximum of 2 funeral investments and the investments can be exempted from the assets test.

Prior to 1 January 2008, a person or couple (whether of the same sex or a different sex) could have only one funeral investment to a maximum investment of $5,000 exempted from the assets test.

An exempt funeral investment is usually called a funeral bond or funeral fund. An exempt funeral investment:

• is a funeral investment that matures on the death of the income support recipient or their partner, AND
• does not relate to a funeral for which funeral expenses have been paid in advance, AND
• is not able to be redeemed, AND
• has not had more than the exempt funeral investment threshold invested in it by the income support recipient.

Each member of a couple (whether of the same sex or a different sex) may invest up to the exempt funeral investment threshold in an exempt funeral investment. This means that if EACH member of a couple has an INDIVIDUAL investment of up to the exempt funeral investment threshold then the amount is an exempt asset for the couple. If a couple invest in a JOINT funeral investment then the amount invested must be no more than the exempt funeral investment threshold for the funeral investment to qualify as an exempt funeral investment.

From 1 January 2008, the exempt funeral investment threshold has been adjusted on 1 July each year in accordance with movements in the CPI.

Income test treatment of a funeral investment is discussed in 4.3.2.30.

Burial plots

A burial plot acquired by an income support recipient for him/herself or their partner is an exempt asset. For couples, each member of the couple (whether of the same sex or a different sex) (1.1.M.120) CAN have the value of a plot exempted as an asset. A family mausoleum, crypt or burial vault are also exempt assets.

Accommodation bonds

From 1 July 2005 accommodation bonds paid for entry to low level (hostel) residential aged care or an extra service place are exempt assets, regardless of when the bond was paid.

Refundable deposits

From 1 July 2014, people entering residential aged care will have the option of paying for their accommodation by a refundable deposit. These refundable deposits are exempt assets.

Refunded high level aged care (nursing home) accommodation bonds paid between 1 October & 5 November 1997

This exemption applies IF:

• an income support recipient paid the bond between 1 October and 5 November 1997, AND
• the bond was subsequently refunded.

Exemption is determined by how an income support recipient funded the accommodation bond. The following table explains the exemption provisions for these accommodation bonds.

Payments available to Australian prisoners of war

A one-off ex gratia payment of $25,000 may be available from the Australian Government to people who were interned by:

• the military forces of Japan, Germany, Italy or their allies during the Second World War, or
• the military forces of North Korea during the Korean War.

If the person who was interned has died, their surviving partner or estate may be entitled to the ex gratia payment.

The value of a person's assets for the purposes of the SSAct are to be permanently reduced by the amount of $25,000.

The one-off ex gratia payments of $25,000 have also been exempted from the income test by way of determinations made under SSAct subsection 8(11).

DVA is responsible for administering the ex gratia payments. For more information, see Benefits for prisoners of war and their dependants.

Note 1: For information about the treatment of restitution payments to victims of the Holocaust and other Nazi persecution, see 4.3.6.30, 4.3.6.40.

Note 2: The legislative basis for exempting the $25,000 ex gratia payment from the assets test is not in the SSAct.