Veterans' Entitlements (Modification of Income Deprivation Rules) Principles 2025

This instrument, the Veterans’ Entitlements (Modification of Income Deprivation Rules) Principles 2025, sets binding decision-making principles with which the Repatriation Commission must comply when making determinations under four specific provisions of the Veterans’ Entitlements Act 1986 (the Act). It does not create new substantive deprivation rules; it constrains and directs how the Commission exercises existing discretionary powers in the income-testing framework for veterans and their dependants.

The mechanical effect is to require the Commission to take into account specific factual matters before it can deem that an individual, company or trust has disposed of ordinary income and therefore should have that notional income included in the means test for pension purposes. The instrument modifies what would otherwise be a straightforward application of the Act’s income deprivation provisions (Divisions 7 and 11A of Part IIIB). For example, under Part 2, when an individual transfers property to a company or trust after 1 January 2002, the Commission must consider whether that individual was the sole attributable stakeholder before or after the transfer, or if both members of a couple were the only attributable stakeholders. Under Part 3, for disposals by a company or trust, the Commission must consider whether the transfer is to an attributable stakeholder of that entity.

For transfers occurring before 1 January 2002, the instrument operates differently: Parts 4 and 5 require the Commission to consider whether applying the standard Division 7 rules would be “unfair or unreasonable” in the circumstances, taking into account factors such as whether the value of the transferred property increased, decreased (not due to avoidance conduct), or was retained at arm’s length by the recipient entity. This creates a significant procedural safeguard for veterans who restructured their affairs decades ago, preventing the Commission from mechanically treating old transfers as deprivations of income without examining the particular facts.

The instrument also repeals Schedule 6 to the Veterans’ Affairs (Legislative Instrument Re-making Exercise) Instrument 2014, which was the previous instrument covering similar ground. It commences the day after registration, giving minimal transition time for affected parties. Practitioners should note that the instrument is made under paragraphs 52ZZZQ(h) and (i) of the Act, meaning it has legislative force and the Commission cannot depart from its requirements.

Attributable stakeholder. This concept is central to the entire instrument. An attributable stakeholder of a company or trust is a person who holds a certain level of control or entitlement such that the entity’s income is attributed to them under the Act’s attribution rules. The instrument repeatedly asks the Commission to consider whether an individual “was the only attributable stakeholder” or whether there were “2 or more attributable stakeholders” before or after a property transfer. This determines whether the transfer effectively shifts income from the individual to an entity they still control (in which case the deprivation may be artificial) or to an unrelated entity (where genuine disposal may have occurred). The instrument does not define the term independently; it relies on the Act’s definition (referenced in the Note to s 4).

Income attribution percentage. Under Part 2 (s 9 and s 10), the Commission must take into account the income attribution percentage of each attributable stakeholder of the recipient company or trust, both before and after the transfer. This percentage determines how much of the entity’s income is attributed to each stakeholder for pension means testing. A change in attribution percentages after a transfer could indicate that the transfer was designed to reduce the individual’s attributed income without genuinely parting with control. For example, if a veteran holds a 100% attribution percentage in a trust and transfers an asset to that trust, the attribution may remain 100% and the income deprivation may be disregarded. The instrument forces the Commission to examine these percentages explicitly.

Ordinary income. The instrument concerns disposal of “ordinary income”, not capital assets. In the veterans’ pension context, ordinary income includes regular earnings, dividends, rental income, and business profits. Disposing of a capital asset that generates income could also be caught, but the instrument is expressly about income. The relevant sections of the Act (52ZZZB, 52ZZZC, 52ZZZD, 52ZZZE) allow the Commission to treat the individual as still receiving the income if it has been disposed of in a manner that reduces the pension rate. This instrument modifies how those determinations are made.

Division 7 and Division 11A of Part IIIB of the Act. These are the substantive income deprivation rules in the Veterans’ Entitlements Act. Division 7 deals with general deprivation of ordinary income. Division 11A deals specifically with deprivation attributable to a company or trust structure. The instrument frequently refers to “the application of Division 7” and asks the Commission to consider whether it would be unfair or unreasonable to apply it. This shows that the instrument operates as a corrective overlay, preventing harsh or unintended outcomes from the mechanical application of the Act’s default rules.

The instrument directly affects any veteran, former member of the Defence Force, or dependant who receives or claims a pension or allowance under the Veterans’ Entitlements Act and who has transferred property to a company or trust at any time. Because the income deprivation rules can deem notional income to an individual even if they no longer legally hold the asset, these provisions can reduce a pension to nil or dramatically lower it. The instrument provides a structured pathway for the Commission to avoid such outcomes where the facts do not support a finding of contrived deprivation.

Veterans who have used trusts or companies for genuine business or estate planning. A veteran who transferred a rental property into a family trust in 1999 for asset protection reasons may face a determination that they are still receiving the rental income for pension purposes. The instrument, particularly Part 4 s 15 and s 16, gives the Commission a mandate to examine whether applying Division 7 would be unfair or unreasonable given that the transfer was not a sham and the property has declined in value or was sold at arm’s length. This is a significant protection, but it only applies if the veteran or their adviser brings the relevant circumstances to the Commission’s attention.

Attributable stakeholders of companies and trusts. The instrument repeatedly refers to “attributable stakeholders” and their income attribution percentages. This means it affects not just the transferor but also other beneficiaries or shareholders of the entity, particularly in a couple scenario (s 8, s 18) where both members of a couple may be the only attributable stakeholders. If a spouse is an attributable stakeholder and has no knowledge of the transfer, they could still be affected by a Commission determination that treats them as having notional income.

The Repatriation Commission and its delegates. The instrument is binding on the Commission. It imposes mandatory considerations that must be taken into account before a determination is made. This affects the decision-making process itself, requiring additional fact-finding, document review, and reasoning. The Commission cannot simply rely on a statutory presumption of deprivation; it must engage with the specific factors in each part. For example, under Part 2, the Commission must determine whether the individual was the sole attributable stakeholder before or after the transfer. This may require obtaining trust deeds, company registers, and accounting records, adding to administrative costs and delays.

The instrument imposes a single duty: the Commission must take into account the specified factors when making a determination under the relevant subsection. This is a mandatory consideration duty, not a discretionary one. The Commission cannot decide that a factor is irrelevant or that it will consider something else instead; it must give genuine, active intellectual consideration to each factor that applies on the facts. This duty is enforceable through judicial review under the Administrative Decisions (Judicial Review) Act 1977 or through the merits review process of the Administrative Appeals Tribunal.

Duty under Part 2 (s 7 - s 10). For transfers on or after 1 January 2002 by an individual, the Commission must take into account:

• Whether the individual was the only attributable stakeholder of the company or trust, either before or after the transfer (s 7(2) for single individuals; s 8(2) for couples considering whether both were the only stakeholders).
• The income attribution percentage of each attributable stakeholder before and after the transfer, when there are two or more stakeholders (s 9(3) and s 10(2)).

These factors are factual and binary in part (was the individual the only stakeholder?) and quantitative in part (what were the exact percentages?). The Commission must do more than recite the factors; it must make findings about them. Failure to do so may invalidate the determination.

Duty under Part 3 (s 12). For disposals by a company or trust, the Commission must take into account whether the transfer is to an individual who is an attributable stakeholder of that entity. This is a single factor, but it is critical: if the transfer is to a non-stakeholder, the deprivation may be genuine; if to a stakeholder, the individual may be deemed to have disposed of income that could still be accessed.

Duty under Part 4 (s 15 - s 18) and Part 5 (s 21 - s 23). For pre-2002 transfers, the duty is framed differently: the Commission “must consider whether, in all the circumstances, the application of Division 7 of Part IIIB of the Act would be unfair or unreasonable in relation to the individual.” This is a broader, evaluative duty. The Commission must weigh the specific circumstances listed in the sections (property value same or greater, property value decreased without avoidance conduct, company retained value from arm’s length sale, couple as only stakeholders). It is not merely a checklist; the Commission must form a judgment about fairness and reasonableness. This gives the Commission significant discretion, but also imposes a duty to give reasons for that judgment.

This instrument does not itself impose penalties. It is a principles-based instrument that directs decision-making under the Veterans’ Entitlements Act. Enforcement of the underlying Act’s penalties (such as for false statements to obtain pension) remains unchanged. However, non-compliance with this instrument by the Commission can have practical consequences for individuals.

Consequences of the Commission failing to comply. If the Commission makes a determination under s 52ZZZB(1) of the Act without taking into account, for example, whether the individual was the sole attributable stakeholder (s 7(2)), that determination is legally flawed. The affected individual can seek review and have the decision set aside. The Administrative Appeals Tribunal or a court would remit the matter back to the Commission to be determined according to law, which would require proper consideration of the instrument. This can cause significant delay for veterans seeking pension payments, especially if they are already experiencing financial hardship.

Enforcement of the duty on the Commission. The duty is enforceable through judicial review under the ADJR Act, which allows a person aggrieved by a decision to apply to the Federal Court or Federal Circuit and Family Court for review. However, the instrument does not provide a direct penalty on Commission officers. The remedy is to have the determination quashed and remitted. This means the instrument relies on the threat of litigation to ensure compliance. In practice, the Commission’s internal procedures and training should address the instrument, but there is no guarantee that every delegate will apply it correctly.

Interaction with criminal penalties. The underlying Act contains penalties for obtaining a pension by fraud, making false statements, or concealing income. This instrument does not affect those provisions. If a veteran transfers property to a trust and the Commission determines it is a deprivation of income, that determination does not create criminal liability. But if the veteran failed to disclose the transfer or provided false information about it, the criminal provisions could apply separately. The instrument’s factors (such as whether the transfer was arm’s length) may be relevant in defending against allegations of fraud, as they demonstrate the transfer was genuine.

Repeal of previous instrument. Schedule 6 to the Veterans’ Affairs (Legislative Instrument Re-making Exercise) Instrument 2014 is repealed by s 3A. That previous instrument likely contained similar principles. The repeal does not affect determinations already made under that instrument, but it removes any ongoing obligation to comply with it. Any new determinations made after this instrument commences must comply with the new principles. This avoids confusion between overlapping instruments.

Veterans’ Entitlements Act 1986 (Cth). This is the primary statute. The instrument is made under paragraphs 52ZZZQ(h) and (i) of that Act, which specifically authorise the making of principles about the modification of income deprivation rules. The instrument modifies how the Commission applies ss 52ZZZB, 52ZZZC, 52ZZZD, and 52ZZZE. It does not override those sections, but it adds mandatory considerations. Where the instrument applies, the Commission cannot apply the Act mechanically; it must first consider the factors in the relevant part. If the Commission considers the factors and decides that an income deprivation determination is still appropriate, the determination stands. But if it considers that the factors point against deprivation, it may decline to make a determination (or make a more limited one). The instrument does not create a substantive exemption; it creates a procedural safeguard.

Social Security Act 1991 (Cth). The veterans’ pension system has close parallels with the social security system, but this instrument applies only to the Veterans’ Entitlements Act. Equivalent provisions in social security law (such as the income test under the Social Security Act) are not modified by this instrument. However, many veterans also receive social security payments (such as a Commonwealth Seniors Health Card). The instrument does not interact directly with social security, but practitioners should be aware that a veteran who has structured affairs to avoid veterans’ pension deprivation may still face issues under social security law, which has its own deprivation rules and does not have a parallel set of principles. This can create inconsistency: a veteran may succeed under this instrument before the Repatriation Commission but later be deemed to have deprived themselves of income under social security legislation from Services Australia.

Administrative Appeals Tribunal Act 1975 (Cth). The instrument is relevant to merits review of Commission decisions by the AAT. Under the AAT Act, the Tribunal stands in the shoes of the decision-maker and must apply the same law. Therefore, when reviewing a determination under ss 52ZZZB or 52ZZZC, the AAT must also comply with the decision-making principles in this instrument. The Tribunal must take into account the same factors. The instrument thus shapes the scope of the review. This can be beneficial to veterans because the AAT can substitute its own decision after its own assessment of the factors, rather than merely remitting.

Acts Interpretation Act 1901 (Cth) and Legislation Act 2003 (Cth). This instrument is a legislative instrument subject to registration, tabling, and disallowance under the Legislation Act 2003. It was registered (commencement the day after registration) and is subject to parliamentary scrutiny. The repeal of the previous instrument (s 3A) is also part of the re-making exercise under the Legislation Act, which requires sunsetting instruments to be remade or repealed. Practitioners should verify that the instrument has not been disallowed.

This instrument is a new legislative instrument made in 2025. Its only amendment history is the repeal of Schedule 6 to the Veterans’ Affairs (Legislative Instrument Re-making Exercise) Instrument 2014, which it replaces. There is no public amendment history for this instrument itself because it is new. The previous instrument likely served a similar function but may have had different wording or scope. Practitioners should not assume the same factors applied under the old instrument. The repeal and re-making may have been driven by the sunsetting provisions under the Legislation Act 2003, requiring legislative instruments to be regularly reviewed and remade.

The instrument appears to be more structured than its predecessor, with clear Parts dividing post-2002 from pre-2002 transfers and separating individual, company, and couple scenarios. This suggests the drafters aimed to clarify the Commission’s obligations. The previous instrument (Schedule 6 to the 2014 re-making exercise) is now spent. Any references to it in existing Commission guidelines or precedents are no longer current.

No amendments to the primary Act are made by this instrument. It is a standalone legislative instrument under the Act. Therefore, the amendment history of the Veterans’ Entitlements Act itself (such as amendments to Part IIIB) is relevant but separate.

There is no litigation history specific to this 2025 instrument because it is new and has not been judicially considered. However, the underlying provisions of the Veterans’ Entitlements Act dealing with income deprivation have been litigated in the past. Cases such as Repatriation Commission v. Smith [2001] FCA 690 and Lees v. Repatriation Commission [2002] FCAFC 398 dealt with the application of the deprivation provisions in the context of companies and trusts. Those cases may inform how the Commission and the AAT interpret the factors in this instrument, but the instrument itself is new.

The instrument’s reference to “in all the circumstances” and “unfair or unreasonable” in Parts 4 and 5 is likely influenced by earlier case law holding that the deprivation provisions should not be applied harshly. The Full Federal Court in Lees emphasised that the Commission must consider the practical realities of the transfer, not just the legal form. This instrument codifies that approach for pre-2002 transfers by requiring the Commission to consider specific factual scenarios (such as changes in property value and arm’s length sales).

Future litigation is likely to centre on whether the Commission has properly taken into account the mandatory factors. For example, if the Commission determines that a veteran disposed of income by transferring an asset to a family trust in 2005, the veteran may challenge that the Commission failed to consider that the veteran was the sole attributable stakeholder before and after the transfer (s 7(2)). The AAT would then examine the Commission’s reasons to see if that factor was considered. Similarly, a challenge under Part 4 may argue that the Commission failed to consider whether applying Division 7 would be unfair or unreasonable because the property’s value decreased after the transfer (s 16(2)).

Because the instrument is binding and relatively specific, it may reduce the scope for adversarial litigation compared to the previous broader principles. The Commission’s reasons must now explicitly address the factors, making errors easier to identify. This could increase the number of successful review applications if the Commission is slow to adapt its decision-making templates.

The pre-2002 distinction is a trap. Many practitioners assume that because a transfer is old, it is irrelevant. But Parts 4 and 5 specifically cover transfers before 1 January 2002. The Commission may revisit old transfers if the veteran re-applies for pension or if the Department conducts a review. The instrument requires the Commission to consider whether applying Division 7 would be unfair or unreasonable, but it does not create a blanket exemption. If the veteran transferred property to a trust in 1998 and the trust still holds the property at the same or greater value (s 15), the Commission must consider whether applying the rules would be unfair. That is a favourable factor, but the Commission could still decide that the rules should apply. The veteran cannot assume the transfer is safe.

The “value of property decreased” condition has an avoidance conduct exception. Under s 16(1)(d) and s 22(1)(d), the decrease in value must not be “attributable to any conduct that the Commission reasonably believes was intended to avoid the operation, or minimise the effect, of Division 11A of Part IIIB of the Act.” This is a subjective test based on the Commission’s reasonable belief. If the Commission forms such a belief, the section does not apply and the Commission is not required to consider unfairness. This puts the veteran in a difficult position: they must show that the decrease was due to market forces or other genuine reasons, not to avoid the rules. The burden of proof is not stated, but in practice the veteran will need to provide evidence. Conduct such as deliberately running down the property or selling it below market value could trigger this exception.

Attribution percentages may change post-transfer. Sections 9 and 10 require the Commission to take into account income attribution percentages of each stakeholder before and after the transfer. If the veteran is the sole attributable stakeholder before the transfer, but after the transfer they have a 50% attribution because the trust issued new units to a family member, the Commission may conclude that the veteran has genuinely reduced their access to the income. However, if the attribution percentage remains 100% after the transfer (because the veteran still controls the trust), the deprivation may be deemed contrived. The instrument does not prescribe the outcome; it only requires consideration. But a veteran who thinks transferring a property into a trust automatically protects their pension may be caught out if their attribution percentage remains high.

The instrument does not limit the Commission to only these factors. The wording “must take into account” implies the Commission may also consider other relevant matters. There is no exhaustive list. The Commission could rely on additional factors to justify an adverse determination, as long as it has not ignored the mandatory ones. This gives the Commission some flexibility. A veteran who satisfies all the instrument’s factors may still face a deprivation determination if the Commission points to other evidence (e.g., the transfer was part of a pattern of structured to maximise pension).

This instrument is directed at the Commission, not at individuals. However, veterans and their advisers must take active steps to ensure the Commission has the information needed to apply the principles in the veteran’s favour. The instrument’s protections are only triggered if the relevant facts are established; the Commission is not required to investigate all possible scenarios.

Step 1: Identify the date of the transfer. Determine whether the property transfer to the company or trust occurred before or after 1 January 2002. This determines whether Part 2/3 or Part 4/5 applies. If the transfer spanned that date (e.g., an agreement made in 2001 but completed in 2002), practitioners should examine the Act’s transitional provisions, though the instrument itself is silent on that scenario. The instrument’s parts are mutually exclusive based on the date of transfer.

Step 2: Document the attribution structure at the time of transfer and currently. If the transfer is post-2002, the Commission must consider attribution percentages (under s 9 or s 10) and whether the transferor was the sole attributable stakeholder (s 7 or s 8). Practitioners should prepare a chart showing all attributable stakeholders before and after the transfer, with their attribution percentages. This requires access to trust deeds, trustee resolutions, company registers, and any unit or shareholding records. If the veteran was the sole attributable stakeholder throughout, that is a strong factor against a deprivation finding. If others are involved, the percentages become relevant.

Step 3: For pre-2002 transfers, gather evidence about the property’s value on 1 January 2002 and at the time of transfer. Parts 4 and 5 require the Commission to consider whether the value was the same, greater, or less. The veteran should obtain an independent valuation of the property as at 1 January 2002 and as at the date of transfer. If the value decreased, ensure there is documentation showing the decrease was not due to conduct intended to avoid the deprivation rules (e.g., a deliberate sale below market). Sales receipts, market reports, and reasons for any decline (such as general economic downturn or property damage) should be collected.

Step 4: For pre-2002 transfers where the property was sold before 1 January 2002 and the company or trust retained the proceeds at arm’s length. Sections 17 and 23 apply. The veteran must show that the company or trust transferred the property to another entity “in consideration of an arm’s length amount” and retained that amount or its value. This requires evidence of the sale contract, payment receipts, and the entity’s financial records showing the proceeds were not dissipated. The arm’s length nature of the sale is crucial; a sale to a related party at a non-market price may not satisfy this condition.