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Asset-Tested Income Streams

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Last amended 
1 July 2019

VEA

Asset-tested income streams (long term)

An asset-tested income stream (long term) is an income stream that:

  • was purchased on or after 20 September 2007, or
  • was purchased before 20 September 2007 and does not meet all the characteristics of an asset test exempt income stream.

An asset-tested income stream (long term) is an income stream wher ethe specified term of the contract is:

  • more than five years, or
  • five years or less provided the term is equal to or greater than the owner's life expectancy.

If the income stream was purchased before 20 September 2007 and doesn not meet all the characteristics of an asset-test exempt income stream, it is an asset-tested income stream (long term).

Income streams that are paid for the life of the owner and were purchased on or after 1 July 2019 are classified as asset-tested income streams (lifetime).

 
Term and relevant number of an asset-tested income stream (long term)

The term of an asset-tested income stream (long term) is also known as its relevant number. For an asset-tested income stream (long term) paid for a fixed term, the relevant number is the fixed term that the income stream is payable for as specified in the contract. For asset-tested income streams (long term) paid for life and for all allocated income streams, the relevant number is either:

  • the life expectancy of the primary beneficiary (that is, where there is no nominated reversionary beneficiary), or
  • the longest life expectancy of either the primary beneficiary or reversionary beneficiary (ie where there is a nominated reversionary beneficiary or where the income stream is purchased in joint  names).    More

When determining the relevant number, the actual life expectancy factors are used (that is, there is no rounding). If there is a guaranteed period, the relevant number will be based on the life expectancy, not the guaranteed period.

Asset-tested income streams (long term deemed)

An account-based income stream, also known as an allocated pension or transition to retirement pension, is an asset-tested (long term deemed) income stream and is treated as a financial asset and deemed if either:

  • the income stream commenced on or after 1 January 2015; or
  • the income stream commenced before 1 January 2015 and the owner has not been in continuous receipt of an income support payment since 31 December 2014.

Under grandfathering provisions, an account-based income stream is not an asset-tested (long term deemed) income stream, and will continue to be assessed as an asset-tested (long term) income stream, if it:

  • commenced before 1 January 2015, and
  • was assessed after 1 January 2015 as an asset-tested (long term) income stream, and
  • reverted to a reversionary beneficiary under the income stream contract following the death of the original owner, and
  • the reversionary beneficiary has been continuously in receipt of an income support payment since the reversion of the income stream.

Under grandfathering provisions, an account-based income stream is not an asset-tested (long term deemed) income stream, and will continue to be assessed as an asset-tested (long term) income stream, if it:

  • was assessed as an asset-tested (long term) income stream, and
  • was commuted on or after 1 January 2015 as part of a divorce/separation settlement (a court order under Part VIIIAA or Part VIIIB of the Family Law Act 1975), and
  • a new account-based income stream was purchased by direct rollover of the proceeds, and
  • the owner has been continuously in receipt of an income support payment since the commencement of the new income stream.
Asset-tested income streams (lifetime)

An asset-tested lifetime income stream is an income stream that:

  • was purchased on or after 1 July 2019,
  • once regular payments commence, the payments continue for the rest of the owner's life,
  • the amounts paid are based on the age, life expectancy or other factors relevant to the mortality of the owner, and
  • does not have the characteristics of an asset-test exempt income stream or a defined benefits scheme.

More: 10.5.2 Asset-tested Income Streams - Lifetime and 10.5.4 Income and Assets Assessment of Income Streams.

VEA: section 5JE.

Asset-tested income streams (short term)

An income stream is classified as an asset tested income stream (short term), when the term is five years or less and it is not an:

  • asset-test exempt income stream,
  • asset-tested income stream (long term), or
  • asset-tested income stream (lifetime).    More
Certain income streams purchased on or after 20 September 2007 may be asset-test exempt

Most income streams purchased on or after 20 September 2007 are asset-tested income streams.  There are some exceptions for income streams purchased from the commutation of an asset-test exempt income stream, if certain conditions are met.   

More

An income stream is an asset-tested long term income stream if it is:

  • and has:
    • a specified term greater than 5 years (i.e. not for the life of an individual or individuals);
    • a specified term of 5 years or less, that is equal to or greater than the purchaser's life expectancy; or
    • the income stream pays for the life of the individual or individuals and was purchased or acquired before 1 July 2019.

Note: income streams that pay for the life of an individual or individuals, purchased or acquired on or after 1 July 2019, are assessed as asset-tested lifetime income streams.

Legislative reference: subsection 5J(1) Veterans' Entitlements Act 1986

According to subsection 5J(1) of the VEA, an income stream includes:

  • an income stream arising under arrangements that are regulated by the Superannuation Industry (Supervision) Act 1993; or
  • an income stream arising under a public sector scheme (within the meaning of that Act); or
  • an income stream arising under a retirement savings account; or
  • an income stream provided as life insurance business by a life company registered under section 21 of the Life Insurance Act 1995; or
  • an income stream provided by a friendly society (within the meaning of the Income Tax Assessment Act 1996); or
  • an income stream designated in writing by the Commission for the purposes of this definition, having regard to the guidelines determined under subsection 5J(1F) of the VEA;

but does not include any of the following:

  • available money;
  • deposit money;
  • a managed investment;
    • an investment in a public unit trust;
    • an investment in an insurance bond;
    • an investment with a friendly society;
    • an investment in a superannuation fund;
    • an investment in an approved deposit fund;
    • an investment in an ATO small superannuation account;
  • a listed security;
  • a loan that has not been repaid in full;
  • an unlisted public security; 
  • gold, silver or platinum bullion; or
  • a payment of compensation in relation to a person's:
    • inability to earn, derive or receive income from remunerative work; or
    • total and permanent disability or incapacity.

 

 

An income stream is an asset-test exempt income stream if it is purchased before 20 September 2007 and must be:

  • paid for the income support recipient's lifetime for lifetime products; or
  • paid for a fixed period based on the income support recipient's life expectancy or that of their reversionary partner's;

and:

  • make payments at least annually;
  • specify the payment to be made in the first year;
  • not pay less than the previous year's payments in any year;
  • limit indexation to no more than 5% or CPI plus 1% in any year;
  • convert the purchase price wholly into income;
  • have no residual capital value;
  • have limited commutation;
  • have limited reversionary benefits;
  • have limited transferability;
  • not be able to be borrowed against; and
  • in respect of market-linked income streams, must make payments according to the formula in the Superannuation Industry (Supervision) Regulations 1994.

Legislative reference:

Veterans' Entitlements Act 1986:

Life expectancy is the length of time a person is expected to live and is has the same meaning as 'life expectancy factor' under section 27H of the Income Tax Assessment Act 1936.

An income stream's relevant number is the length of time an income stream is paid for. It can be a fixed term or the life expectancy factor of the payee or reversionary beneficiary.

A guaranteed period ensures that the pension payments will continue to the estate should the owner and the reversionary beneficiary die during the guaranteed period.

An income stream is an asset-tested short term income stream if the term of the income stream is five years or less and it is not any of the following:

Legislation: subsection 5J(1) Veterans' Entitlements Act 1986