Assessing deprivation/gifting 108-06010010

Item

Example

1

Example 1

On 2 January 2022, Jane, who receives JobSeeker Payment, gifts $20,000. This is the only gift Jane has made within the last 5 years. The first $10,000 is not assessed, as this is part of the gifting free area. The balance of $10,000 is assessed as a deprived asset for 5 years from the date of the gift.

It’s important to remember to consider both gifting free areas:

• the $10,000 per financial year, and
• $30,000 in a rolling five financial year period

Even though Jane has gifted less than $30,000 and has not reached the $30,000 gifting free area limit in the 5 year rolling period, as the $20,000 was disposed as one gift, only the $10,000 gifting free area amount applies.

2

Example 2

In the first year (on 2 July 2002) Derrick, who receives an Age Pension, gifts $20,000. The first $10,000 is not assessed, as this is part of the gifting free area. The balance of $10,000 is assessed as a deprived asset for 5 years from the date of the gift.

The second year (on 20 July 2003) Derrick gifts $20,000. The first $10,000 goes towards the gifting free area; the balance of $10,000 is assessed as a deprived asset for 5 years. Now there is $20,000 in the gifting free area and $20,000 being assessed as deprived assets.

The third year (on 30 July 2004) Derrick gifts a further $20,000. Again $10,000 is taken to the gifting free area and $10,000 is assessed as a deprived asset. There is now $30,000 in the gifting free area and $30,000 being assessed as a deprived asset.

Note: the 5 year rolling period is 5 consecutive income years starting on 1 July of the income year of the first gift. Derrick has now reached the $30,000 gifting free area limit in the 5 year rolling period. Any amount that would normally go towards the gifting free area will now be assessed as a deprived asset.

The fourth year (on 22 July 2005) Derrick gives a further $30,000 away. $10,000 that would normally go towards the gifting free area is now considered as an asset as Derrick has exceeded the $30,000 limit allowed over a 5 year period. The total amount of $30,000 is assessed as deprivation.

The total deprivation to be held on Derrick's record is the sum of:

• first income year $10,000
• second income year $10,000
• third income year $10,000
• fourth income year $30,000
• giving a total of $60,000

As each held amount reaches its 5 year period end, the total will reduce by that amount.

3

Example 3

In the first year (on 2 July 2002) Bob, who receives an Age Pension, gifts $20,000. The first $10,000 is not assessed as this is part of the gifting free area. The balance of $10,000 is assessed as a deprived asset for 5 years from the date of the gift.

The second year (on 20 July 2003) Bob gifts $20,000. The first $10,000 goes towards the gifting free area; the balance of $10,000 is assessed as a deprived asset for 5 years. Now there is $20,000 in the gifting free area and $20,000 being assessed as deprived assets.

The third year (on 22 July 2004) Bob gifts a further $100,000. Again $10,000 is taken to the gifting free area and the balance of $90,000 is assessed as a deprived asset for 5 years. There is now $30,000 in the gifting free area and $110,000 being assessed as a deprived asset.

Note: Bob has now reached the $30,000 gifting free area limit in the 5 year rolling period. Any amount that would normally go towards the gifting free area will now be assessed as a deprived asset.

The fourth year (on 2 July 2005) Bob gives a further $30,000 away. $10,000 that would normally go towards the gifting free area is now considered as an asset as Derrick has exceeded the $30,000 limit allowed over a 5 year period. The total amount of $30,000 is assessed as deprivation for 5 years.

The total deprivation to be held on Bob's record is the sum of:

• first income year $10,000
• second income year $10,000
• third income year $90,000
• fourth income year $30,000
• giving a total of $140,000

As each held amount reaches its 5 year period end, the total will reduce by that amount.

Item

Description

1

Question: Are assets disposed of before grant affected by the deprivation provisions?

Answer: Any amounts gifted in the 5 years before grant of payment may be assessed under the deprivation rules. Deprivation provisions do not apply where the customer has disposed of an asset within the 5 years before grant but could not reasonably have expected to become qualified for payment. For example, a customer qualifies after the unexpected death of their partner, job loss or unexpected illness.

2

Question: What are examples of income only gifts?

Answer: An example of an income only gift is forfeiting the right to a superannuation pension or giving the superannuation pension to a third party. A superannuation pension pays an income for an agreed period. At the end of the period, the income stops and there is no residual value. This income stays on the customer's record for as long as the gifted income could have been the customer's. If it were payable for a lifetime, the income would be maintained for the customer's lifetime.

If a customer 'gifts' the rental income from a property, but maintains ownership of that property, the rental income constitutes an 'income only' gift.

3

Question: How is the date of disposal determined?

Answer: The disposal date is usually the date another person takes possession according to evidence, or a statement by the donor and (if necessary) the recipient. If there is a legally binding transfer agreement, the registration date is usually used, but if there is a significant delay after the old owner has signed it, examine the situation to see if ownership has changed. If the new owner-to-be has the agreement, then the knowledge it could be signed and registered at any time would give them the same power as the legal owner.

In the case of gifting money by cheque, the deprivation has occurred on the date the cheque is given to the recipient of the gift. The exception would be a cheque provided under an arrangement (verified by a written statement) that it would only be cashed if needed and therefore may never be used. In these circumstances, the deprivation will be considered to have occurred once the cheque is cashed.

4

Question: When is the surrender of the value of a life interest considered deprivation?

Answer: When a life interest is surrendered, the delegate must refer the case to the Complex Assessment Officer (CAO), who will obtain a valuation from the Australian Government Actuary (AGA). The AGA valuation is the amount of disposition. The asset value of a life interest is generally an exempt asset but any income is assessable. Surrendering the value of a life interest disposes of both the asset and its income.

Deprivation of assets provisions do not apply if a customer chooses not to receive income from their life interest in an income producing asset. The customer has not formally surrendered the life interest. However, they will be assessed under the deprived income provisions.

Deprivation provisions do not apply if a customer chooses not to live in a house in which they have a life interest. The customer still owns the life interest and therefore it is still an assessable asset.

5

Question: How are the deeming rules applied to deprived assets?

Answer: Deprived assets are defined as financial assets and are subject to the deeming rules.

The deeming rules are applied to the:

• value of all financial assets disposed of during the previous 5 years minus
• the allowable disposal limit minus
• the amount (if any) of consideration received plus
• the value of all other financial assets

6

Question: How is deprivation assessed if members of a couple separate?

Answer: For couples who have separated permanently because of a relationship breakdown, the disposition of assets or income is reassessed. If the asset/income was jointly owned, 50 per cent of the assessable value continues to be assessed against each partner. If owned by 1 partner, 100 per cent of the assessable amount is to be included in the assets/income of the partner who owned it. The amount held against the partner who did not own the asset is not transferred to that partner when they separate.

7

Question: How is deprivation assessed when 1 member of a couple dies?

Answer: In the case of the death of a partner, if the asset or income was owned jointly, the amount of disposition held against the surviving partner does not change. The amount held against the deceased partner is not transferred to the surviving partner.

If the asset or income was owned by the deceased partner, the amount of disposition held against the surviving partner reduces to zero.

If the deprived asset (or income) was owned only by the surviving partner, the entire amount relating to the disposition formerly included in the assets/income of the deceased partner is to be included in the assets/income of the surviving partner. That is, because the asset/income was owned by the surviving partner the amount of the deprivation, which was previously shared between both partners is assessed against the surviving partner.

8

Question: If a customer has gifted an amount equal to or less than the allowable limit does it have to be recorded?

Answer: All disposals of assets are to be noted on the Gifted/Deprived Asset (GIFT) screen even if they are less than the allowable disposal limit, for example, a customer must advise if they gave each of their 10 grandchildren $200.00 in lieu of a Christmas present. The system will automatically calculate the total amount gifted in the income year and apply the deprivation provisions when appropriate. At the time of assessment, create a DOC containing the relevant details of each disposed item/gift.

9

Question: If a disposed of asset is returned to a customer, how is it assessed?

Answer: Before 18 October 2007, where a disposed of asset was returned to a customer, the amount of the gift could not be disregarded. However, from 18 October 2007, the policy was amended (and supporting legislation was drafted) to allow a gift to be disregarded from the date of return.

For the period between the gift and its return, it is to be assessed under the gifting rules that is, for its value less the allowable threshold, and deemed.

10

Question: Is donating or tithing to a church or charitable organisation counted as a gift?

Answer: Yes, this is a gift to be coded on the GIFT screen.

11

Question: Customer is executor of a deceased estate - how do gifting rules apply?

Answer: If a customer is an executor of the estate, the gifting provisions do not apply to actions the customer takes in their capacity as executor. The gifting rules would not apply because the executor holds the assets of a deceased estate on behalf of the beneficiaries and potential beneficiaries of the estate. The person performing the role of the executor does not have any personal interest in the assets, derives no benefit from the estate and therefore their pension or allowance is not affected.

12

Question: Customer is an executor and they or their partner are a beneficiary of the deceased estate - how do gifting rules apply?

Answer: If a customer is both the beneficiary of a deceased estate and the executor of a deceased estate, it is necessary to determine if the customer is acting in their capacity as executor or as a beneficiary. Actions of the executor/beneficiary are regarded as separate, even though they are the same person.

The gifting provisions do not apply to bona fide actions the person takes in their capacity as executor. Actions of the executor and the assets of the estate would be regarded as separate from those of the customer even though they are the same person. An executor would be regarded as acting in a bona fide capacity where the executor is acting in accordance with the terms of the written will.

The executor may settle claims against the estate (for example, from family members omitted from the will). To establish if the person is acting in a bona fide capacity, the executor must provide (and will be requested to provide) evidence supporting those claims, (for example, a legal opinion which states the claimants have a reasonable prospect of success if they took their claims to court). Evidence could also include the records of any alternative dispute resolution process with an independent arbitrator.

Refer these cases to a Complex Assessment Officer.

If the executor is considered not to have acted in a bona fide capacity the gifting rules apply to the extent of the amount gifted which was due to them as a beneficiary of the estate.

Item

Period

1

Before 1 March 1991

• Single $2,000
• Member of a couple (combined) $4,000

2

Between 1 March 1991 and 30 June 2002

• Single $10,000
• Member of a couple (combined) $10,000
• An amount disposed of that exceeds the allowable limit must be maintained for a period of 5 years from the date of disposal

3

On or after 1 July 2002

• Single $10,000
• Member of a couple (combined) $10,000
• In addition to the existing $10,000 per income year rule, a rolling period limit was introduced. The rolling period is the period comprising the income year in which the relevant disposal took place and any such (if any) of the 4 previous income years as occurred after 30 June 2002
• If a customer or couple gifts assets in excess of $30,000 in a 5 income year period, the excess would be assessed as a deprived asset for 5 years from the date of the gift, and will be subject to the deeming provisions. This rule applies to gifts made after 1 July 2002. Gifts made before this change are subject to the old rules
• Note: while both the income year rule and the 5 income year rolling period operate concurrently, there will be no double counting of asset disposal that exceeds the free areas of both rules. An amount disposed of that exceeds the allowable limit must be maintained for a period of 5 years from the date of disposal