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﻿ 9.5.4 Deeming of Savings Investments
Home > Compensation and Support Policy Library > Part 9 Principles for Determining Pension Rate > 9.5 Deeming Provisions > 9.5.4 Deeming of Savings Investments
VEA → [2]
This section contains information on the deeming provisions as they apply to savings investments.
Veterans' Entitlements Act 1986 [3] Division 3 - Deemed Income from Financial Assets commencing section 46D
VEA → (go back) [4]
Last amended: 27 May 2008
What is included in cash and money?
Pensioners are not required to advise DVA [6] of reasonable amounts of money that they are holding to meet day-to-day living expenses. Judgement will need to be exercised in determining what is reasonable.
Financial assets included in cash and money in deposits are:
cash amounts, including cash on hand and in safety deposit boxes, regardless of when the cash was acquired, and
money on deposit regardless of when the accounts were opened, including bank, building society and credit union accounts, such as:
savings accounts, including home loan offset accounts,
interest bearing deposits, and
Accounts (such as home loan offset accounts) where the interest return is immediately applied to a specific purpose such as a loan, rather than being directly received by the pensioner, are still financial assets for deeming purposes.
Home loan offset and line of credit accounts
Some financial institutions operate accounts which are similar to savings accounts but which do not pay interest direct to the pensioner. Instead the interest earned on the deposit is used to reduce the interest payable on the investors' outstanding home loan. These accounts are known as home loan offset or mortgage saver accounts.
Instead of opening a mortgage saver account that is separate from the housing loan account, pensioners can have a 'line of credit' which allows them to:
make early repayments to their housing loan account, which reduces the principal amount used to calculate the interest payable on the loan, and
withdraw money from the account, which increases the amount they owe.
A loan [6] is a financial asset [6], especially money, which is lent, on the condition that it be returned, usually with interest.
Examples of loans affected by deeming
Loans for deeming include the following:
loans to family members [6],
loans to trusts or companies, and
loans to any other individual, group or corporation.
Bank bills, commercial bills and promissory notes
Bank bills, commercial bills and promissory notes are generally short term 'discounted' securities. In other words, instead of earning interest, the bill or note is issued at a discount from the face value, and the holder receives the face value when it matures. The discount rate is generally expressed as a rate of interest. A pensioner, for example, may buy a $100.00 promissory note for $80.00 and redeem it for $100.00 on maturity, therefore receiving a $20.00 profit.
Debentures and unsecured notes are loan certificates issued by companies to investors from whom they are borrowing money. The investment provides a return in the form of interest. The following table provides some additional information about unsecured notes and debentures.
Debentures are secured by a lien over certain assets of the borrowing company. They usually have a fixed:
capital value, and
rate of interest, payable quarterly.
Deferred interest debentures
Interest on deferred interest debentures:
is deferred until maturity, and
may be calculated on a compounded basis, which means that it is calculated, not only on the original capital, but also on the interest previously earned.
These are unsecured because no assets are charged as security for the loan.
The following table lists assets that are included as bullion and those that are not.
If an asset is held for...
Investment purposes and is one of the following:
coins, medals and decorations containing those metals
Non-investment purposes and is one of the following:
jewellery or contemporary Australian currency which contains gold, silver or platinum, or
coins, medals, decorations containing those metals
not bullion
Income Equalisation Deposits are a means by which those operating in the rural sector can smooth out their taxable income over a number of years. The Income Equalisation Deposit scheme allows a primary producer to make a deposit of surplus funds with the Department of Primary Industry and Energy. The primary producer's taxable income in the tax year when the deposit was made is reduced by the amount of the deposit. The deposits attract an annual interest payment, which is regarded as income for taxation purposes when withdrawn. Income Equalisation Deposits are regarded as financial investments.
How to apply deeming to loans
9.5.4/Deemed Income from Savings Investments [13]
How to apply deeming to bank bills, commercial bills and promissory notes
How deeming is applied to debentures and unsecured notes
The following investments all meet the definition of a loan:
commercial bills,
non-convertible notes, and
Note – a person is not treated as having made a loan merely because:
the person has an account with a financial institution, or
the person has paid an entry contribution.
According to section 5J(1) [19] of the VEA a financial asset means;
a financial investment [6], or
a deprived asset [6]
According to section 5L of the VEA [3]a family member, in relation to a person, means:
Please note, the definition of a parent is further defined in section 10A of the VEA [3].
What are government and semi-government bonds?
Government and semi-government bonds are securities which:
are issued by a:
Australian, state or local government authority, or
government guaranteed authority, such as Telstra or a State Electricity Power Supplier, such as Pacific Power,
have a definite maturity date, and
are usually issued at a fixed rate of interest, often payable half yearly. More ? [21]
Indexed government and semi-government bonds
Some authorities, including the Reserve Bank on behalf of the Australian Treasury, issue indexed bonds. The following table describes the two types of indexed bonds.
The rate of interest paid each year varies regularly according to changes in the consumer price index.
The capital value may increase from time to time, in line with the average weekly ordinary time wages rate. The rate of interest is normally low at around 2% to 3% per year, but is applied to the changing capital value.
Value of government and semi-government bonds
The following table describes the three values associated with government and semi-government bonds.
The amount that will be repaid to the pensioner at the end of the term. For example, a pensioner buys a $10,000 face value semi-government bond. If they hold this bond until its maturity, they will receive $10,000 from the relevant semi-government authority.
The amount of money that the pensioner actually pays for the bond. For example, a pensioner pays $9,800 for a $10,000 face value bond.
The amount that the pensioner can receive if they sell the bond. For example, a pensioner pays $9,800 for a $10,000 face value bond and 6 months later approaches a fixed interest dealer to obtain a price for the bond. Due to changes in market conditions, the dealer offers the pensioner $9,600 for the bond.
More ? [22]
Reviewing the value of government and semi-government bonds
The market value of government and semi-government bonds changes in response to market conditions, particularly changes in interest rates. The value of government and semi-government bonds is reviewed:
when they mature, or
if a pensioner advises of changes in the value of the bond:
on review forms,
in response to notification requirements, or
Assessable value of a government or semi-government bond
More ? [26]
Chapter 9.2 [27]
Source URL (modified on 30/03/2015 - 9:50am): http://clik.dva.gov.au/compensation-and-support-policy-library/part-9-principles-determining-pension-rate/95-deeming-provisions/954-deeming-savings-investments
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[2] http://clik.dva.gov.au/book/export/html/16021#tgt-VEA_ftn1
[3] http://www.comlaw.gov.au/Series/C2004A03268
[4] http://clik.dva.gov.au/book/export/html/16021#ref-VEA_ftn1
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[10] http://clik.dva.gov.au/book/export/html/16021#tgt-cspol_part9_ftn482
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[12] http://clik.dva.gov.au/book/export/html/16021#tgt-cspol_part9_ftn484
[13] http://clik.dva.gov.au/compensation-and-support-policy-library/part-9-principles-determining-pension-rate/95-deeming-provisions/954-deeming-savings-investments/deemed-income-savings-investments
[14] http://clik.dva.gov.au/book/export/html/16021#ref-cspol_part9_ftn480
[15] http://clik.dva.gov.au/book/export/html/16021#ref-cspol_part9_ftn481
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[23] http://clik.dva.gov.au/book/export/html/16021#ref-cspol_part9_ftn485
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[27] http://clik.dva.gov.au/compensation-and-support-policy-library/part-9-principles-determining-pension-rate/92-residential-situation
[28] http://clik.dva.gov.au/book/export/html/16021#ref-cspol_part9_ftn487