Veterans’ Entitlements (Modification of Asset Deprivation Rules) Principles 2025

The instrument introduces or relies on several key concepts from the Act. The asset disposal provisions are defined in section 4 as Subdivision B of Division 11 of Part IIIB and section 45UT of the Act. These are the general rules that treat certain transfers of property as disposals of assets for pension means testing purposes, even if the transferor did not receive market value consideration. The instrument does not replace those provisions but modifies how the Commission must apply them.

Attributable stakeholder is a concept from the Act’s attribution rules for companies and trusts. An individual is an attributable stakeholder if they have a specified level of control or beneficial interest in the company or trust. The instrument uses this concept repeatedly. For example, under Part 2, the Commission must take into account whether the transferor was the only attributable stakeholder before or after the transfer (sections 7(2), 8(2)). Under Part 3, the Commission considers the individual’s asset attribution percentage and income attribution percentage (sections 9(3), 10(2), 12(3)). These percentages reflect the proportion of the company’s or trust’s assets or income that is attributed to that stakeholder under the Act’s rules.

A genuine transfer of capital is defined in section 13(3) for the purpose of the genuine investor exception. Four conditions must all be satisfied: (a) the individual receives shares or units of a value equivalent to the capital transferred; (b) the individual has a legal or equitable right to a share of capital on winding up; (c) the individual has a legal or equitable right to receive dividends or distributions in accordance with the constituent documents or trust terms; and (d) the individual is over 18. This is a strict test, not a flexible one. The Commission must then consider whether the dividend or distribution is reasonable having regard to the proportion of the individual’s capital transfer to the total assets of the company or trust at the time of transfer (section 13(4)).

The derivation period is used in Part 3 but not defined in the instrument; it is presumably defined in the Act. For Part 4 and Part 5 disposals (before 1 January 2002), the key concept is unfairness or unreasonableness. The Commission must consider whether, in all the circumstances, applying the asset disposal provisions would be unfair or unreasonable in relation to the individual. This is a broad evaluative test. Specific circumstances that trigger this consideration include where the asset’s value has not decreased or has increased (sections 16, 22), where the value decreased but the decrease is not attributable to conduct intended to avoid the asset disposal provisions (sections 17, 23), or where the company or trust sold the asset at arm’s length and retained the consideration (sections 18, 24). Section 19 adds a special rule for couples: if both members of a couple are the only attributable stakeholders on 1 January 2002, the Commission must consider whether applying the provisions would be unfair or unreasonable.

The instrument directly affects veterans and their partners (including members of a couple as defined in the Act) who have transferred or may transfer property to a company or trust. This includes individuals who are sole attributable stakeholders of a family company or trust, as well as those who hold stakes alongside other stakeholders. Veterans who operate small businesses through a corporate structure or trust are particularly affected, as transfers of business assets or capital contributions to such entities may be recharacterised as asset disposals for means testing purposes, reducing their pension entitlement.

It also affects the Repatriation Commission, which is the decision-maker required to apply these principles when making determinations under sections 52ZZW(1), 52ZZX(3), 52ZZZ(1), and 52ZZZA(1) of the Act. The Commission must now take into account the specified factors and cannot rely solely on the general asset disposal provisions. This imposes a procedural duty on the Commission that did not exist in the same form before the instrument commenced.

Companies and trusts that receive property transfers from veterans are indirectly affected. The Commission’s determination of whether a transfer is an asset disposal may affect the valuation of the veteran’s assets, which in turn may affect the pension rate. The entity itself is not a party to the determination, but its structure and attribution percentages become relevant evidence. For genuine investors (section 13), the instrument provides a potential exemption from the asset disposal rules, but only if the strict conditions for a genuine transfer of capital are met. This means that passive investors in companies or trusts who are not attributable stakeholders may be protected, but only if they made a genuine capital contribution and received equivalent shares or units.

The instrument does not affect the general public or all veterans. It only applies to those who have made transfers to companies or trusts that fall within the scope of the asset disposal provisions. Veterans who hold assets directly in their own name without intermediary entities are not affected. Similarly, it does not affect transfers to natural persons or to entities that are not companies or trusts.

The principal duty imposed by this instrument is on the Repatriation Commission. Under each Part, the Commission must take into account specific factors when making a determination under the relevant subsection of the Act. The word “must” is used consistently: sections 7(2), 8(2), 9(3), 10(2), 12(3), 13(4) for Parts 2 and 3; and sections 16(2), 17(2), 18(2), 19(2), 22(2), 23(2), 24(2) for Parts 4 and 5. This is a mandatory consideration, not a discretionary one. The Commission cannot ignore these factors. However, the instrument does not prescribe the weight the Commission must give to any factor, nor does it dictate the outcome. The Commission retains discretion within the framework set by the principles.

For transfers on or after 1 January 2002 (Parts 2 and 3), the duties are more structured. In Part 2, the Commission must take into account the individual’s status as sole attributable stakeholder or, if there are multiple stakeholders, the income or asset attribution percentages before and after the transfer. In Part 3, the Commission must consider the reasonableness of the dividend or distribution amount relative to the individual’s asset attribution percentage (section 12) or, for genuine investors, relative to the proportion of capital transferred (section 13). This creates a right for the individual to have the Commission consider these factors, and the Commission’s decision may be reviewable if it fails to do so.

For transfers before 1 January 2002 (Parts 4 and 5), the duty is to consider whether applying the asset disposal provisions would be unfair or unreasonable in all the circumstances. This is a broader duty, but it is still mandatory. The instrument sets out specific triggers for when this consideration must occur, such as asset value being maintained or increased (sections 16, 22), asset value decreased without avoidance conduct (sections 17, 23), or the entity retaining arm’s length consideration (sections 18, 24). The individual has a right to have the Commission consider these circumstances, but the outcome is not predetermined.

The instrument does not create any new rights for the Commission to demand information from individuals, nor does it impose duties on individuals. The individual’s duty to disclose assets and transfers remains under the Act. The instrument only modifies how the Commission treats certain transfers. It also does not create a right of appeal or review; that remains under the Act’s existing review mechanisms.

This instrument does not create any penalty provisions, offences, or enforcement mechanisms. It is a legislative instrument that modifies decision-making principles only. The penalties and enforcement relevant to this area are found in the Veterans’ Entitlements Act 1986 itself, particularly in relation to false statements, failure to notify changes, and overpayments. For example, if a veteran fails to disclose a transfer to a company or trust and the Commission later determines that the asset disposal provisions apply with modifications under this instrument, the veteran may face an overpayment that must be repaid, and potentially administrative penalties under the Act. However, those consequences arise from the Act, not from this instrument.

The practical enforcement risk is that the Commission, having applied the principles set out in this instrument, may decide that a transfer is an asset disposal, thereby increasing the veteran’s deemed assets and reducing the pension entitlement. The veteran’s recourse is to seek internal review or appeal to the Veterans’ Review Board and then to the Administrative Appeals Tribunal and the Federal Court. The instrument itself cannot be directly enforced by private individuals; rather, it constrains the Commission’s discretion, and a failure to comply with the mandatory consideration requirements could be grounds for judicial review on the basis of legal error.

There is no provision for the Commission to impose fines or sanctions under this instrument. The enforcement of the pension means testing regime as a whole is carried out through the Act’s compliance mechanisms, including debt recovery and prosecution for fraud. The instrument’s role is purely evidentiary and procedural: it tells the Commission what factors it must weigh. If the Commission fails to weigh them, any resulting decision may be invalid and set aside. Conversely, if the Commission properly applies the principles and determines that a disposal occurred, the veteran must accept the reduction in pension unless a successful review overturns that decision.

The instrument is made under the Veterans’ Entitlements Act 1986, specifically paragraphs 52ZZZQ(f) and (g). It operates entirely within the framework of that Act. The most direct interaction is with Division 11A of Part IIIB of the Act, which contains the general asset disposal rules. The instrument modifies the application of those rules for transfers to companies and trusts, but does not repeal or replace them. The general rules continue to apply to all other asset disposals not covered by the instrument.

The instrument also interacts with the Social Security Act 1991 indirectly. The Veterans’ Entitlements Act contains provisions that mirror or align with social security means testing, and the concept of asset deprivation is similar in both regimes. However, this instrument applies only to veterans’ entitlements, not to social security payments. A veteran who also receives a social security payment (such as a partner in a mixed entitlement household) may need to have the transfer assessed under two different sets of rules, which could lead to inconsistent outcomes. The instrument does not address that scenario.

Interaction with taxation law is also relevant but not directly addressed. The transfer of property to a company or trust may have capital gains tax or stamp duty implications. The instrument does not affect those. A transfer may be treated as a disposal for pension purposes even if it is not a disposal for tax purposes, and vice versa. Practitioners must be careful to advise clients on both sets of obligations.

The instrument also interacts with state and territory laws regarding trusts and companies. The definition of “attributable stakeholder” and attribution percentages depends on the Act’s own rules, which may differ from the legal ownership and control under corporations law or trust law. For example, a person may be a beneficiary of a discretionary trust but not an attributable stakeholder under the Act if the trustee has not exercised discretion in their favour. The Commission must apply the Act’s definitions, not general law concepts.

The repeal of Schedule 5 to the Veterans’ Affairs (Legislative Instrument Re-making Exercise) Instrument 2014 means that the previous principles no longer apply. Any decisions made under the old instrument may need to be reviewed if they are still in force, though the instrument does not contain transitional provisions for existing determinations. It states that it commences the day after registration (section 2), so from that date the Commission must use the new principles.

This instrument is a new legislative instrument made in 2025. It does not amend any existing instrument (other than repealing the old one). The only amendment recorded within the instrument itself is the repeal of Schedule 5 to the Veterans’ Affairs (Legislative Instrument Re-making Exercise) Instrument 2014, as stated in section 3A. That earlier instrument contained the previous version of these principles. The instrument therefore represents a complete replacement, not an incremental amendment.

No other amendment history is provided in the instrument. It does not amend the Veterans’ Entitlements Act 1986 itself; it is made under existing provisions of that Act. The Act’s provisions (sections 52ZZZQ(f) and (g) and the asset disposal provisions) remain unchanged by this instrument. Any future changes to the Act may require corresponding changes to this instrument.

Because the instrument only commenced the day after registration, its practical effect is yet to be tested. There is no accumulation of amendments or judicial interpretations specific to this version. However, the earlier principles it replaces may have been subject to litigation or administrative practice guidance. Practitioners who advised clients under the old principles should note the differences, particularly the more detailed factors in Parts 2 and 3 of the new instrument and the continued broad unfairness test for pre-2002 disposals.

The instrument does not include a sunset clause or a review date. It will remain in force until repealed or replaced. Future governments may amend it via a later legislative instrument, which would be published on the Federal Register of Legislation.

The instrument itself has no litigation history because it is new. No cases are mentioned in the instrument. However, the underlying asset disposal provisions of the Veterans’ Entitlements Act have been litigated extensively in the Administrative Appeals Tribunal and the Federal Court. Cases have considered what constitutes an asset disposal, the meaning of “attributable stakeholder”, and the circumstances in which it is unfair or unreasonable to apply the provisions. While those cases are not binding on the interpretation of this instrument, they provide context. The principles in Parts 4 and 5, which require the Commission to consider unfairness or unreasonableness, are likely to generate similar litigation if the Commission applies them inconsistently.

The instrument’s mandatory consideration requirements may be tested in judicial review proceedings. An applicant could argue that the Commission failed to take into account a relevant factor (such as the income attribution percentage under section 9) or took into account an irrelevant factor. The Federal Court may be called upon to interpret what “take into account” means in this context - whether it requires the Commission to give reasons explaining how the factor was weighed, or merely to acknowledge it.

The “genuine transfer of capital” definition in section 13(3) may also attract litigation. The four conditions are detailed, but disputes may arise over whether shares or units are of “equivalent” value, or whether the individual has a legal or equitable right to a share of capital on winding up. The requirement that the individual is over 18 may also be challenged as age discrimination, though it is presumably tied to the Act’s treatment of minors.

The test of fairness and reasonableness in Parts 4 and 5 is inherently litigable. The Commission’s decision to apply or not apply the asset disposal provisions under these Parts will be fact-intensive, and applicants may argue that the Commission erred in weighing the circumstances. No precedent specifically under this instrument exists yet, but past AAT decisions under the old principles may be cited.

Several aspects of this instrument could trap unwary practitioners and veterans. First, the distinction between Parts 2 and 4 based on the date of disposal (1 January 2002) is critical. A transfer made on 31 December 2001 is governed by the pre-2002 rules in Part 4, which require the Commission to consider whether applying the asset disposal provisions would be unfair or unreasonable. A transfer made on 1 January 2002 is governed by Part 2, which has more structured factors and no general unfairness safety valve. The instrument does not explain why this date was chosen, but it appears to relate to the introduction of the attribution rules in the Act. Practitioners must ascertain the exact date of transfer and ensure the correct Part is applied.

Second, the “genuine transfer of capital” exception in Part 3 is narrow. Section 13(3) requires all four conditions to be satisfied. Condition (a) requires that the individual receive shares or units of a value “equivalent to the value of the capital transferred”. This is a strict equivalence test, not a reasonableness test. If shares are issued at a discount or premium, or if the value of the capital cannot be easily determined, the condition may not be met. Condition (c) requires a legal or equitable right to receive dividends or distributions in accordance with the constituent documents or trust terms. If the company or trust has discretion whether to pay dividends, the individual may not have a right, only a hope. The Commonwealth may argue that discretionary trusts or companies with discretionary dividend policies do not satisfy this condition.

Third, the instrument does not require the Commission to give determinative weight to any factor. A Commission decision that properly takes into account all relevant factors but still decides against the veteran may be very difficult to challenge. The broad discretion in Parts 4 and 5 (“in all the circumstances”) gives the Commission latitude, and a tribunal or court may be reluctant to substitute its own view.

Fourth, the term “derivation period” in Part 3 is not defined in the instrument. Practitioners will need to look to the Act for its definition, which may be obscure or subject to interpretation. This could create uncertainty about whether the genuine investor exception is available for a particular period.

Fifth, the instrument applies only to transfers by way of capital contribution (Part 2) or dividends/distributions (Part 3). Other forms of value shifting, such as loans to a trust or forgiveness of debt, are not covered by these principles. The general asset disposal provisions may still apply to those transactions without the benefit of the modifications.

Finally, the repeal of the old principles (section 3A) means that any decisions made under the old instrument are no longer governed by it. However, the new instrument does not contain transitional provisions explaining whether pending determinations should be reassessed under the new principles. The commencement rule suggests that from the day after registration, all future determinations must use the new principles. But for a transfer that occurred years ago, the relevant principles are those in force at the time of the determination, not at the time of transfer. This could lead to retrospective effect if the new principles produce a different result from the old ones.

Compliance with this instrument is primarily the responsibility of the Repatriation Commission, not the individual. However, veterans and their advisers can take steps to ensure that the Commission properly applies the principles and that the veteran’s position is protected.

For veterans who have transferred property to a company or trust (including by way of capital contribution), the first step is to determine the date of the transfer. If it occurred before 1 January 2002, the Commission must consider whether applying the asset disposal provisions would be unfair or unreasonable under Part 4 or Part 5. The veteran should gather evidence of the circumstances: the value of the asset at the time of transfer and on 1 January 2002, any subsequent sale by the entity and whether the consideration was retained, and whether the decrease in value (if any) was due to normal market forces rather than avoidance conduct. If the veteran was a member of a couple, evidence of both partners’ stakeholder status is relevant.

For transfers on or after 1 January 2002, the veteran should maintain records showing their attribution percentage in the company or trust before and after the transfer. If the transfer is to a company or trust with two or more attributable stakeholders, records of the income and asset attribution percentages of all stakeholders are important. The veteran should also document whether they were the sole attributable stakeholder or whether both members of a couple were the only stakeholders. This evidence will help the Commission take into account the factors in sections 7, 8, 9, and 10.

If the veteran receives a dividend or distribution from a company or trust, they should check whether they are an attributable stakeholder. If they are, they should ensure that the amount is reasonable in light of their asset attribution percentage before and after any disposal by the entity (section 12). If they are not an attributable stakeholder, they may qualify for the genuine investor exception under section 13, but only if they made a genuine transfer of capital that meets all four conditions. The veteran should retain the constituent documents of the company or trust, evidence of the capital transfer, the share or unit certificate, and any documentation showing they are over 18 and have rights to capital on winding up and to dividends or distributions.

The Commission must document how it took each relevant factor into account. A veteran who receives an adverse determination should request reasons and check that the Commission addressed the required factors. If a factor was omitted, the veteran may have grounds for review. The instrument does not prescribe the format of the consideration, but best practice for the Commission is to produce a written decision that explicitly references each relevant section and explains the weight given.

For practitioners, the key compliance task is to identify whether a client’s transfer falls within the scope of the instrument and which Part applies. If the transfer is to a company or trust and the client is receiving or applying for a service pension, income support supplement, or other means-tested benefit under the Act, the asset disposal rules will be relevant. The practitioner should advise the client to provide full disclosure to the Commission and to seek professional valuation of assets if necessary. The instrument does not reduce the need to comply with the Act’s general disclosure obligations.