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Return of Purchase Price and Deprivation
Last amended: 10 March 2011
Confirming return of purchase price for self managed superannuation funds and small APRA funds
For lifetime and life expectancy income streams paid by self managed superannuation funds (SMSFs) and small APRA funds (SAFs) to be asset test exempt, the purchase price must be wholly converted to income. The Australian Government Actuary (AGA) will estimate the total payments to be paid under the income stream. The total must be equal to or greater than the purchase price for the income stream to be asset test exempt. If the total payments are less than the purchase price, the income stream cannot be asset test exempt.
Investigation of deprivation involving SMSFs and SAFs
The income stream must also be investigated to ensure no deprivation has occurred. Deprivation occurs where the income stream's purchase price exceeds its net present value, as calculated by the AGA. An income stream may still be asset test exempt where deprivation has occurred, but the deprived amount is included in the person's assessment as a deprived asset.
Example of deprivation involving SMSFs and SAFs
$100,000 is paid for a 10 year income stream which paid $6,000 per annum as income, not indexed. The total payments paid by the income stream are $60,000, but the net present value of the income stream as determined by an actuary is only $53,000.
The deprived amount is therefore $100,000 less $53,000 = $47,000.
The amount assessed as a deprived asset is therefore $47,000, less $10,000 allowed limit per pension year = $37,000.
The deprived amount is treated as a financial asset for pension assessment purposes for 5 years.More ?
Treatment of unallocated reserves in SMSFs and SAFs
SMSFs and SAFs may hold unallocated reserves. This represents assets of the fund that have not been attributed to a specific member. Unallocated reserves should be attributed to each member of the fund in proportion to their interest in the fund. If it is not possible to attribute unallocated reserves in this manner, they should be attributed equally between all members.
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)
A deprived asset is an asset:
- that has been disposed of for less than its value (that is, adequate financial consideration has not been received), and
- the value of which is included in the value of the person's assets for the purpose of determining that person's rate of pension.