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Other Rules Regarding Income Streams
Last amended: 13 May 2016
Ongoing disability/invalidity benefits paid from a superannuation fund
Ongoing disability or invalidity benefits paid from a superannuation fund are treated as defined benefit income streams. The presence of an offset clause in the superannuation fund's group insurance policy does not alter the treatment of the disability/invalidity benefit as a defined benefit income stream, and does not invoke the compensation recovery provisions. However, pre-assessment payments paid by the Commonwealth Superannuation Corporation (CSC) while a person is waiting for a decision on their request to the CSC for invalidity retirement are considered to be compensation and are assessed under the compensation recovery provisions.More →
Income streams paid to a trust or company
Income streams paid to a trust or company are assessed under the Trusts and Companies rules. If the ownership structure subsequently changes so that the income stream is paid to the beneficiary, this is treated as a commutation and the commencement of a new income stream on that date. However, an income stream purchased by a self managed superannuation fund (SMSF) or small APRA fund (SAF) from a commercial provider and paid to the beneficiary through the SMSF or SAF is assessed under the income stream rules where the income stream is purchased in the beneficiary's name.More →
A successor fund, in relation to a transfer of superannuation benefits of a member from one superannuation fund to another, is a fund which satisfies the following conditions:
- the fund gives the member equivalent rights to the rights they had in the original fund in respect of the superannuation benefits, and
- before the transfer, the trustee of the fund agreed with the trustee of the original fund that the fund will confer on the member equivalent rights to the rights that the member had under the original fund in respect of the benefits.
Where the fund is a successor fund, then the transfer of the right to an income stream continues with the same commencement day, original purchase price, relevant number and deduction, unless the person elects to commute part of the income stream. The impact of commutation will depend on the type of income stream.
Asset Test Exempt Income Streams - Defined Benefit
Compensation recovery provisions
A superannuation fund is defined in the VEA as being:
- a fund that is or has been a complying superannuation fund within the meaning of section 45 of the Superannuation Industry (Supervision) Act 1993 in relation to any tax year; or
- an Australian superannuation fund (within the meaning of the Income Tax Assessment Act 1997) that is not a complying superannuation fund mentioned in paragraph (a) in relation to any tax year; or
- a scheme for the payment of benefits upon retirement or death that is constituted by or under a law of the Commonwealth or of a State or Territory; or
- an RSA within the meaning of the Retirement Savings Accounts Act 1997; or
- any of the following funds (unless the fund is a foreign superannuation fund):
- a fund to which paragraph 23(jaa), or section 23FC, 121CC or 121DAB, of the Income Tax Assessment Act 1936 (as in force at any time before the commencement of section 1 of the Taxation Laws Amendment Act (No. 2) 1989) has applied in relation to any tax year;
- a fund to which paragraph 23(ja), or section 23F or 23FB, of the Income Tax Assessment Act 1936 (as in force at any time before the commencement of paragraph (a) of the definition of superannuation fund in former subsection 27A(1) of the Income Tax Assessment Act 1936) has applied in relation to the tax year that started on 1 July 1985 or an earlier tax year;
- a fund to which section 79 of the Income Tax Assessment Act 1936 (as in force at any time before 25 June 1984) has applied in relation to the tax year that started on 1 July 1983 or an earlier tax year.
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.
The purchase price of an income stream is the nominal sum of the paymetns made to purchase the income stream (including amounts paid by way of employer and employee contributions) less any commuted amounts.
Note: In determining the means test assessment of asset-tested income streams (lifetime), the purchase price is not used. Rather, the grossed up purchase amount.
Legislation: Section 5J(1)
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.