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Assessment of Base Amount Payment Splits - Non Defined Benefit Income Streams (Non Allocated, Asset Tested Long Term)

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Last amended: 13 May 2008

Calculating the asset value between the operative time and the date of the first splittable payment

This table shows how to calculate the asset value of the income stream. Note that the assets test assessment depends on the purchase date of the income stream:

  • for income streams purchased before 20 September 2004, no asset value is assessed
  • for income streams purchased between 20 September 2004 and 19 September 2007, 50% of the asset value is assessed
  • for income streams purchased from 20 September 2007, 100% of the asset value is assessed.

Step

Action

1

Establish the value of the base amount paid to the former partner (BA) and the value (V) of the relevant superannuation interest at the operative time.

2

Determine the proportions for the former partner (NMSPROP) and the owner (MSPROP).

NMSPROP = BA ? V

MSPROP = 1 - NMSPROP

3

Calculate the notional purchase price (NPP) at the operative time for the original FLA income stream.

The NPP = the purchase price of the original FLA income stream on the commencement day less any commutations made before the operative time.

4

Calculate the NPP for the primary and secondary FLA income streams by applying MSPROP and NMSPROP respectively to the NPP.

NPP for the [glossary:primary:] [glossary:FLA:] income stream (MSNPP) = NPP x MSPROP

NPP for the [glossary:secondary:] [glossary:FLA:] income stream (NMSNPP) = NPP x NMSPROP

5

Determine the residual capital value (RCV) for the primary and secondary FLA income streams. Unless otherwise stated, the RCV for the primary FLA income stream (MSRCV) and the secondary FLA income stream (NMSRCV) will be calculated by applying MSPROP and NMSPROP to the RCV of the original FLA income stream.

MSRCV = MSPROP x RCV of original FLA income stream

NMSRCV = NMSPROP x RCV of original FLA income stream

6

Calculate the asset value of the primary FLA income stream using the formula

MSNPP – (MSNPP –MSRCV) ? relevant number x term elapsed

Calculate the asset value of the secondary FLA income stream using the formula:

NMSNPP – (NMSNPP – NMSRCV) ? relevant number x term elapsed

Relevant number is the relevant number of the original FLA income stream on its commencement day.

Term elapsed is the number of years elapsed since the commencement day of the original FLA income stream.

Asset value generally not reviewed until date of first splittable payment

The asset value calculated between the operative time and the date of the first splittable payment is generally not reviewed until the date of the first splittable payment. However, the value is reviewed if the former partner's base value amount is paid out in full prior to the date of the first splittable payment.

Calculating the asset value from the date of the first splittable payment

This table shows how to calculate the asset value of the income stream. Note that the assets test assessment depends on the purchase date of the income stream:

  • for income streams purchased before 20 September 2004, no asset value is assessed
  • for income streams purchased between 20 September 2004 and 19 September 2007, 50% of the asset value is assessed
  • for income streams purchased from 20 September 2007, 100% of the asset value is assessed.

Step

Action

1

Determine the proportions in which the original FLA income stream is split for the owner (MSPROP) and the former partner (NMSPROP).

MSPROP = primary FLA income stream payment ? original FLA income stream payment

NMSPROP = secondary FLA income stream payment ? original FLA income stream payment

The primary and secondary FLA income stream payments are calculated from the payment after the first splittable payment.

The original FLA income stream payment is the payment at the time of the first splittable payment as if the payment split had not occurred.

2

Calculate the notional purchase price (NPP) at the operative time for the original FLA income stream.

The NPP = the purchase price of the original FLA income stream on the commencement day less any commutations made before the operative time.

3

Calculate the NPP for the primary and secondary FLA income streams by applying MSPROP and NMSPROP respectively to the NPP.

NPP for the primary FLA income stream (MSNPP) = NPP x MSPROP

NPP for the secondary FLA income stream (NMSNPP) = NPP x NMSPROP

4

Determine the residual capital value (RCV) for the primary and secondary FLA income streams. Unless otherwise stated, the RCV for the primary FLA income stream (MSRCV) and the secondary FLA income stream (NMSRCV) will be calculated by applying MSPROP and NMSPROP to the RCV of the original FLA income stream.

MSRCV = MSPROP x RCV of original FLA income stream

NMSRCV = NMSPROP x RCV of original FLA income stream

5

Calculate the asset value of the primary FLA income stream using the formula

MSNPP – (MSNPP –MSRCV) ? relevant number x term elapsed

Calculate the asset value of the secondary FLA income stream using the formula:

NMSNPP – (NMSNPP – NMSRCV) ? relevant number x term elapsed

Relevant number is the relevant number of the original FLA income stream on its commencement day.

Term elapsed is the number of years elapsed since the commencement day of the original FLA income stream.

Impact of subsequent commutations on asset value

Any commutations made after the operative time are apportioned between the primary and secondary FLA income streams in the same proportion as the original percentage payment split. The commutation will affect the NPP and therefore the asset value of both the primary and secondary FLA income streams.

Subsequent reviews of asset value

FLA income streams are subject to the same asset value reviews as other income streams. The first six or twelve monthly review of the primary and/or secondary FLA income streams is taken from the time of the previous review date of the original FLA income stream. If the original FLA income stream has not yet had its first review, the review of the primary and/or secondary FLA income stream is taken from the commencement day of the original FLA income stream.

Income test assessment

This table shows how to calculate the assessable income from the income stream.

Step

Action

1

Any income paid between the operative time and the date of the first splittable payment is an exempt lump sum.

Any amount paid out of the first splittable payment is also an exempt lump sum.

Any income stream payments after the first splittable payment are assessable income.

2

Obtain the gross income for the primary and secondary FLA income streams.

3

Determine the proportions in which the original FLA income stream is split for the owner (MSPROP) and the former partner (NMSPROP).

MSPROP = primary FLA income stream payment ? original FLA income stream payment

NMSPROP = secondary FLA income stream payment ? original FLA income stream payment

The primary and secondary FLA income stream payments are calculated from the payment after the first splittable payment.

The original FLA income stream payment is the payment at the time of the first splittable payment as if the payment split had not occurred.

4

Calculate the notional purchase price (NPP) immediately before the date of the first splittable payment.

The NPP = the purchase price of the original FLA income stream on the commencement day less any commutations made before the date of the first splittable payment.

5

Calculate the NPP for the primary and secondary FLA income streams by applying MSPROP and NMSPROP respectively to the NPP.

NPP for the primary FLA income stream (MSNPP) = NPP x MSPROP

NPP for the secondary FLA income stream (NMSNPP) = NPP x NMSPROP

6

Determine the residual capital value (RCV) for the primary and secondary FLA income streams. Unless otherwise stated, the RCV for the primary FLA income stream (MSRCV) and the secondary FLA income stream (NMSRCV) will be calculated by applying MSPROP and NMSPROP to the RCV of the original FLA income stream.

MSRCV = MSPROP x RCV of original FLA income stream

NMSRCV = NMSPROP x RCV of original FLA income stream

7

Calculate the deduction amount for the primary and secondary FLA income streams.

Deduction for the owner = (MSNPP – MSRCV) ? relevant number

Deduction for the former partner = (NMSNPP – NMSRCV) ? relevant number

Relevant number is the relevant number of the original FLA income stream on its commencement day.

8

Reduce the gross income of the primary and secondary FLA income streams by their respective deduction amounts.

Impact of subsequent commutations on assessable income

Any commutation made after the operative time is apportioned between the primary and secondary FLA income streams in the same proportion as the proportions of the regular splittable payments. The commutation will affect the gross income, NPP and therefore the deduction amount for both the primary and secondary FLA income streams.


One element of the means test for income support pensions whereby the rate of pension payable to a pensioner reduces progressively as their assets increase above a certain threshold known as the assets value limit (AVL).

Section 5J(1) of the VEA defines a purchase price, in relation to an income stream, as the sum of the payments made to purchase the income stream (including amounts paid by way of employer and employee contributions), less any commuted amounts.

 

 

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 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.

 

 

According to section 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 by a life insurance business (within the meaning 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;
  • a listed security;
  • a loan that has not been repaid in full;
  • an unlisted public security; or
  • gold, silver or platinum bullion.

 

 

According to section 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 by a life insurance business (within the meaning 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;
  • a listed security;
  • a loan that has not been repaid in full;
  • an unlisted public security; or
  • gold, silver or platinum bullion.

 

 

The residual capital value is the amount (if any) remaining at the end of an income stream's term, consisting of a portion of the initial capital invested in the income stream.

 

 

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.