House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister for Families, Community Services and Indigenous Affairs, the Hon Mal Brough MP)

Schedule 10 - Extension of the assets test exemption period

Summary

This Schedule amends the Social Security Act and the Veterans' Entitlement Act to provide a discretion to extend the assets test exemption for proceeds from the sale of the principal home from 12 months to up to 24 months in certain circumstances. This Schedule also provides a discretion to extend the current 12 months temporary absence from principal home rule for absences of up to 24 months, in relation to people who have suffered loss of or damage to their homes, including through a natural disaster.

Background

This measure is intended to address community concern that, in some markets, the average time to build homes is extending. Also, in the event of a natural disaster, the reduced supply of housing and the increased demand for labour in the building industry can increase the time it takes for a house to be purchased, rebuilt or repaired.

Proceeds from the sale of a person's home

Currently, the proceeds of the sale of a principal home is assets test exempt, if the person is likely to use the proceeds to buy or build another home within 12 months. Consequently, after 12 months have passed, the proceeds of the sale (and, if the sale proceeds have been used to rebuild a new home, the unfinished home and the land), become an assessable asset. Further, a customer is only considered a 'homeowner' within 12 months from the sale of the principal home. After the expiry of that period, if a new principal home is not acquired, the customer becomes a 'non-homeowner'.

People who have suffered a loss of or damage to their homes

The current legislation also allows a person to be temporarily absent from their principal home for any reason, and their principal home remains exempt from the assets test for up to 12 months. If the absence is beyond 12 months, the principal home becomes an assessable asset.

Further, the current legislation provides an exemption for insurance or compensation proceeds for up to 12 months. There is discretion to extend this 12 month assets test exemption to a longer period for 'any special reason'. Consequently, while insurance or compensation proceeds can be exempted beyond the 12 month period, the value of buildings or plant being rebuilt or repaired with the insurance proceeds cannot be exempted.

Explanation of the changes

Proceeds from the sale of a person's home

The Schedule amends the Social Security Act and the Veterans' Entitlement Act to provide a discretion to extend the assets test exemption for proceeds from the sale of the principal home from 12 months to up to 24 months where the person who has sold their home is making efforts to purchase or build a new home, has began those efforts within a reasonable timeframe from the date of sale, and has experienced delays beyond their control.

Where the customer has purchased land prior to the sale of the principal home, that land (up to the value that will be regarded as their principal home) will also be exempt from the assets test, from the date of the sale, if the income support recipient intends to build a new principal home on that land, at the time of the sale of the home.

The Schedule also amends the Social Security Act and the Veterans' Entitlement Act to clarify that the exemption of the proceeds from the sale of a home would also apply to land that has been purchased with the sale proceeds and the unfinished home being built with the sale proceeds.

Under this measure, the exempt asset value can never exceed the value of the proceeds of sale of the principal home.

People who suffered a loss of or damage to their homes

The bill provides for a discretion to extend the current 12 months temporary absence from principal home rule for absences of up to 24 months, where the person has suffered loss of or damage to their home, the person is making an effort to repair or sell their existing home, or to build or purchase a new home, and has begun those efforts within a reasonable timeframe.

The measure would also allow insurance or compensation proceeds received by a person whose building or plant (including their principal home) is lost or destroyed to have the value of that plant or building as it is rebuilt or repaired with the insurance proceeds exempted for up to 12 months or longer as determined by the delegate. This is provided the person is making efforts to have the plant or building rebuilt or repaired, and has begun those efforts within a reasonable timeframe, and has experienced delays beyond their control. The exemption will only apply while the plant or building is being rebuilt or repaired.

Where the person intends to repair or rebuild their existing principal home, their home and land (up to the value that will be regarded as their principal home) will continue to be exempt from the assets test (subject to the time limit above).

Where the person intends to rebuild a new principal home on a different block of land, the land (that is, the land that will be included in a reference to the principal home) on which they intend to build a new principal home will be exempt from the assets test (subject to the time limit above). However, the value of their former home (if any) and land would be assessed as an asset under the assets test.

Social Security Act amendments

Homeowner

Item 1 repeals paragraph 11(4)(c) and substitutes a new provision. New paragraph 11(4)(c) provides that a person is regarded as a homeowner for the period in which:

•

the whole or a part of the proceeds of the sale of the person's principal home are disregarded in calculating the value of a their assets under subsection 1118(2); or

•

the value of a residence, land or structure is disregarded under subsection 1118(2).

As currently applies, where the person who sells their principal home is a member of a couple, both that person and their partner can be regarded as homeowners under this provision.

Temporary absence

Item 2 amends paragraph 11A(9)(a) in consequence of new subsection 11A(9A). Paragraph 11A(9) currently allows a person's residence to continue to be regarded as their principal home if they are temporarily absent from that home for up to 12 months. New paragraph 11A(9)(a) recognises that a period of temporary absence can be extended beyond the current 12 month limit to any longer period of up to 24 months as determined under new subsection 11A(9A).

Item 3 inserts new subsection 11A(9A), which specifies that the Secretary may determine, in writing, a period of temporary absence of up to 24 months, if the Secretary is satisfied that all of the conditions set out in paragraphs 11A(9A)(a) to (e) are met. These conditions are:

(a)

a person's principal home is lost or damaged, such as by a natural disaster;

(b)

the loss or damage was not wilfully or intentionally caused by the person;

(c)

as a result of the loss or damage, the person is making reasonable attempts to either:

•

to rebuild or repair the principal home, or

•

to sell the home in order to purchase or build another residence that is to be the person's principal home; or

•

purchase or build another residence that is to be the person's principal home;

(d)

the person has made those attempts within a reasonable period after the loss or damage; and

(e)

the person has experienced delays beyond their control in rebuilding, repairing or selling the principal home, or purchasing or building the other residence.

The combined effect of items 2 and 3 is that the Secretary can determine that, if the conditions under paragraphs 11A(9A)(a) to (e) are met, the residence of a person is to be taken to continue to be the person's principal home, even if a person is absent from their residence for a period of more then 12 months, but no more then 24 months.

Ineligible homeowner

Item 4 amends paragraph (a) of the definition of ineligible homeowner in subsection 13(1), by deleting the reference in parentheses to 'proceeds of sale of principal home disregarded for 12 months'. These words merely signpost the effect of current paragraph (a) and are of no substantive effect. Rather than amend this reference to take account of the extension to the 12 month rule for disregarding proceeds from the sale of a person's principal home, the words have been removed altogether.

Item 5 makes a minor drafting amendment to paragraph 1118(1)(s) to make clear that the insurance or compensation payments received by the person can be received because of the loss of or damage to buildings, plant or personal effects.

Application of insurance and compensation payments to rebuilding etc.

Item 6 inserts new paragraph 1118(1)(sa) which provides for an additional category of asset that are exempt from the assets test. Currently, paragraph 1118(1)(s) applies to exempt, for 12 months or a longer period determined by the Secretary, the amount of any insurance or compensation payment received because of the loss of or damage to buildings, plants or personal effects. The new category of exempt assets provides for when the insurance or compensation payments resulting from loss of or damage to a building or plant (including a person's principal home) are applied to build, rebuild, repair or renovate the building or plant. The amount that may be disregarded is worked out by reference to subsection 1118(1AB), and the period during which the amount may be disregarded is worked out by reference to subsection 1118(1AC).

Item 7 inserts new subsections 1118(1AA), 1118(1AB) and 1118(1AC). Subsection 1118(1AA) provides for conditions to be met before subsection 1118(1AB) applies. Subsection 1118(1AA) provides that subsection 1118(1AB) applies if a person receives any insurance or compensation payments because of loss of or damage to a building or plant (including the person's principal home), and either:

•

the person applies those payments to build another building or plant to replace the lost building or plant; or

•

the person applies those payments to rebuild, repair or renovate the building or plant.

Subsection 1118(1AB) provides for determining the amount that may be disregarded for the purposes of new paragraph 1118(1)(sa). The effect of paragraph 1118(1AB)(a) is that the value of the building or plant that is being built, rebuilt, repaired or renovated can be disregarded only to the extent that insurance or compensation proceeds have been so applied.

Paragraph 1118(1AB)(b) provides that, if the building referred to in paragraph 1118(1AB)(a) is to be the person's principal home, the amount that may be disregarded is:

•

the value of the land on which the building is being built, rebuilt, repaired or renovated to the extent that, once the building becomes the person's principal home, the land will, under section 11A, be included in a reference to the principal home ; and

•

the value of any other structure (including an incomplete structure) on that land, that is to be the person's principal home to the extent that the structure was built before the person began applying the insurance or compensation payments.

Subsection 1118(1AC) provides that the period of time in which the amount under subsection 1118(1AB) may be disregarded, begins when the insurance or compensation payment are received, and ends at the earlier of the following times:

•

12 months after the receipt of the insurance or compensation payment (or such longer period as the Secretary determines for any special reason);

•

when the building, rebuilding, repair or renovation of the building or plant is complete.

Application of proceeds of sale of principal home Item 8 and 9 inserts new subsections 1118(1B) and (2), which provide for circumstances when the application of proceeds of the sale of a principal home may be disregarded in calculating a person's assets.

New subsection 1118(1B) provides that new subsection 1118(2) applies if a person sells their principal home (paragraph (a)) and the person either:

•

does not have a right or interest in a principal home; or

•

the person has a right or interest in a principal home that the Secretary is satisfied does not give the person reasonable security of tenure (paragraph (b)).

Subsection 1118(1B) further requires (at paragraph (c)) that, within 12 months from the sale, or any longer period as determined under subsection 1118(2B), one or more of the following applies:

•

the person intends to apply the sale proceeds to build, rebuild, repair or renovate another residence that is to be the person's principal home (subparagraph 1118(1B)(c)(i));

•

the person applies the sale proceeds to build, rebuild, repair or renovate another residence that is to be the person's principal home (subparagraph 1118(1B)(c)(ii));

•

the person intends to apply the sale proceeds to purchase another residence that is to be the person's principal home (subparagraph 1118(1B)(c)(iii)).

Where the person who intends to apply or applies the proceeds to purchase, build, rebuild, repair or renovate the person's principal home is a member of a couple, both that person and their partner are regarded as intending to apply, or applying, those proceeds under this section.

Subsection 1118(2) provides for the period of time, and the amount that is to be disregarded, if proceeds from the sale of a person's principal home are intended to be applied or are applied.

Paragraph 1118(2)(a) provides that, if subparagraph 1118(1B)(c)(i) applies, (that is, the person intends to apply the sale proceeds to build, rebuild, repair or renovate another residence that is to be the person's principal home) the sale proceeds, to the extent that the person intends to apply those proceeds to build, rebuild, repair or renovate the other residence, are to be disregarded, until the earlier of the following times:

•

the period of 12 months after the sale (or any longer period as determined by subsection 1118(2B)) ends;

•

the time the Secretary becomes satisfied that the person has ceased to have that intention.

Paragraph 1118(2)(b) provides that, if subparagraph 1118(1B)(c)(ii) applies, (that is, the person applies the sale proceeds to build, rebuild, repair or renovate another residence that is to be the person's principal home) the following are to be disregarded, until 12 months after the sale (or any longer period as determined by subsection 1118(2B)), to the extent that the person applies those proceeds to build, rebuild, repair or renovate that other residence:

•

the value of the other residence;

•

the value of the land on which the other residence is being built, rebuilt, repaired or renovated, to the extent that, once the building becomes the person's principal home, the land will, under section 11A be included in a reference to the principal home ; and

•

the value of any other structure on that land, that is to be the person's principal home to the extent that the structure was built before the person began applying those sale proceeds.

The maximum asset value that can be exempted from the assets test under this provision is the value of the proceeds of sale from the person's principal home.

Paragraph 1118(2)(c) provides that, if subparagraph 1118(1B)(c)(iii) applies, (that is, the person intends to apply the sale proceeds to purchase another residence that is to be the person's principal home), the sale proceeds are to be disregarded, to the extent that the person intends to apply those proceeds to purchase another residence, until the earliest of the following times:

•

the period of 12 months after the sale (or any longer period as determined by subsection 1118(2B)) ends; and

•

the time the Secretary becomes satisfied that the person has ceased to have that intention.

Item 10 inserts new subsection 1118(2B), which provides for conditions that must be met for the Secretary to have the discretion to determine a period of longer than 12 months, but no more then 24 months, in which sale proceeds may be disregarded. Those circumstances are:

•

a person who has sold their principal home is making reasonable attempts to purchase, build, repair or renovate another residence;

•

the person has been making those attempts within a reasonable period after selling the principal home; and

•

the person has experienced delays beyond their control in purchasing, building, repairing or renovating the other residence.

Veterans' Entitlements Act amendments

Items 11 to 18 make corresponding amendments to the Veterans' Entitlements Act. The following table sets out the corresponding amendments in the two Acts.