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Assessment where Fund Closes or is in Financial Difficulty
Last amended: 10 March 2011
Closure of fund
Where a self managed superannuation fund (SMSF) or small APRA fund (SAF) is wound up, the income ceases to be paid on the date that the fund is wound up. Any remaining assets in the fund are assessable in the same manner as superannuation from that date.
It is important that the department is informed when a SMSF or SAF is experiencing financial difficulty. A trustee's report should be provided, which should outline details on action being taken to either wind up the fund or restore the fund to viability and the expected date for finalising actions,
No payment for a period of more than twelve months
If an income stream ceases to make payments for a period of more than twelve months, it ceases to exist as an income stream. This is because it no longer meets the criterion of making payments at least annually. Any remaining assets in the fund are assessable as superannuation from the date that the income stream ceases to exist.
The income stream is reassessed as if it was never an asset test exempt income stream from the commencement date. This may result in a debt being raised. Any resulting overpayment is recoverable under existing policy.More ?
Loss of asset test exempt status can be avoided by commuting the income stream to a new asset test exempt income stream prior to the end of the twelve month period since the last payment, that is, before the original stream loses asset test exempt status. When this happens, the debt provisions will not apply. Principles have been established to determine whether the new income stream is 100% or 50% asset test exempt.More ?
Funds that made reduced payments
Where payments under an asset test exempt income stream are reduced below the amount specified in the contract, the income stream will lose its asset test exemption and is treated as though it was never an asset test exempt income stream. This may result in a debt. Any overpayment resulting from loss of asset test exempt status is recoverable under existing policy. Loss of asset test exempt status can be avoided by commuting the income stream to a new asset test exempt income stream prior to the reduction in payments.More ?
Actuarial certificate does not express a positive opinion
Where a 100% asset test exempt income stream fails to meet the high probability requirements for actuarial certification and loses its asset test exemption, the income stream owner will have the option to either:
- keep their asset test exemption by restructuring their income stream into an appropriate retail product, as outlined in the Veterans' Entitlements (Retention of Exemption for Asset-test Exempt Income Streams) Principles 2007, or More ?
- lose their asset test exemption by restructuring their income stream into an asset tested market linked income stream (long term) within the SMSF or SAF.
Waiver of debt under temporary debt relief arrangements
Under normal circumstances if the income stream is restructured to form a market linked income stream, the income stream would be retrospectively reclassified as an asset tested (long term) income stream. A debt to the Commonwealth would be raised if the pension the person received exceeds what they should have received if the income stream had always been assessed as asset-tested (long term). Under the temporary relief arrangements, the debt will be waived if it meets the terms outlined in the Veterans' Entitlements (Class of Debts – Self Managed Superannuation and Small APRA Funds) Specification 2010. All such cases should be referred to the DVA Investment Database Unit, Sydney Office.More ?
Duration of temporary debt relief arrangements
The temporary debt relief arrangements apply only to actuarial opinions given in the 2008-2009 and 2009-2010 financial years and expired on 30 June 2010.
Income streams commencing on or after 20 September 07 are generally not asset test exempt
Legislation Library – Income Support
Legislation Library – Income Support
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;
- 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.
Veterans' Entitlements Act 1986: