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Determining what Proportion of an Asset Test Exempt Income Stream is Exempt

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Last amended: 20 August 2012

Defined benefit income streams are 100% asset test exempt

    

The Commission has made several determinations in the form of legislative instruments that regardless of its commencement day, a defined benefit income stream is 100% asset test exempt.

Asset test exempt income streams commencing before 20 September 2004 are 100% asset test exempt

    

An asset test exempt income stream commencing before 20 September 2004 is 100% asset test exempt.

Asset test exempt income streams commencing on or after 20 September 2004 and before 20 September 2007 are generally 50% exempt

    

Most asset test exempt income streams commencing on or after 20 September 2004 and before 20 September 2007 are 50% asset test exempt. However, principles have been developed allowing the Commission to determine that certain asset test exempt income streams commencing on or after 20 September 2004 and before 20 September 2007 are 100% asset test exempt. The income stream must:

Income streams commencing on or after 20 September 2007 are generally not asset test exempt

Most income streams commencing on or after 20 September 2007 are not asset test exempt. However, principles have been developed allowing the Commission to determine that certain income streams commencing on or after 20 September 2007 are either  50% or 100% asset test exempt. The income stream must:

The level of asset test exemption (50% or 100%) will be the same as the asset test exemption applicable to the existing asset test exempt income stream.

Principles under which a new income stream can be asset test exempt

In general terms, the Principles under which a new income stream can retain its asset test exemption are limited to commutations made to enable:

  • changes to be made to the income stream where either:
  • the reversionary beneficiary predeceases the primary beneficiary, or
  • the primary beneficiary and the reversionary beneficiary are no longer members of a couple,
  • compliance with actuarial certification,
  • a transfer to a successor fund,
  • a payment split under Part VIIIB of the Family Law Act 1975,
  • a Family Court order or injunction under Part VIIIAA of the Family Law Act 1975,
  • payment of a superannuation contributions surcharge debt,
  • payment of excess contributions tax,
  • payment of a hardship amount,
  • transfer of all assets supporting a market linked income stream to another market linked income stream,
  • closure of a self managed superannuation fund,
  • compliance with regulation 6.21 of the Superannuation Industry (Supervision) Regulations 1994, or
  • payment of excess contributions tax.

The original income stream must be commuted in full, in one complete transaction, and the commuted amount rolled over to the new income stream, except for commutations made in relation to payment splits under the Family Law Act, or payment of a superannuation contributions surcharge debt, excess contributions tax or hardship amount, which can be partial commutations.  A partial commutation based on a partial transfer of assets cannot be recognised, outside of the limited allowed circumstances, including in those cases where the transfer of the remaining asset value has been delayed.

Full details of each allowable commutation event are outlined in the Veterans Entitlements (Retention of exemption for asset-test exempt income streams) Principles 2011.    


The commencement day in relation to an income stream is the first day of the period to which the first income stream payment relates. This is usually one instalment period before the date of the first payment.

 

 

A defined benefit income stream is an income stream  where the payments are not fully determined by a purchase price. Instead, payments are made with reference to a set formula based on:

  • the person's salary before retirement,
  • years of service, and/or
  • the governing rules of the income stream.

 

 

An income stream is an asset-test exempt income stream if it is purchased before 20 September 2007 and satisfies the characteristics of the following sections in the Veterans' Entitlements Act 1986:

A commutation, in relation to an income stream, is the conversion of part or all of the future income stream payments into a lump sum. A commutation is similar to a withdrawal.

 

 

Superannuation contributions surcharge has the meaning that it has in the Superannuation Contributions Tax (Assessment and Collection) Act 1997.

A person may apply to the Commission in writing to be allowed to commute the whole or part of an income stream because of extreme financial hardship. According to s.5JA of the VEA, the Commission may determine an amount as allowable commutation if these conditions are satisfied:

  •       the person's circumstances are exceptional and could not be reasonably foreseen at the time the person purchased the income stream, and
  •       the person has insufficient liquid assets or other assets (excluding the person's principal home) that could be realised to avoid the extreme financial hardship, and
  •       that amount is required to meet unavoidable expenditure.