Base Amount Payment Splits - Asset-tested Long Term Income Streams
This table shows how to calculate the asset value of Long Term Income Streams where the superannuation agreement or court order specifies a base payment amount, rather than a percentage, from the original Family Law Affected income stream owned by the member.
For Asset-test Exempt Income Streams, Defined Benefit Income Streams, Asset-tested Allocated (Account-based) and Market Linked Income Streams or Lifetime Income Streams, see the relevant pages under 10.5.6 Family Law Affected Income Streams.
Calculating the asset value between the operative time and the date of the first splittable payment
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 primary FLA income stream: (MSNPP) = NPP x MSPROP NPP for the secondary 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.
Example: Henry buys a fixed term pension from the ZYX Super Fund on 1 January 1998 that makes the first income payment on 1 February 1998. His income stream is assessed by DVA as an 'asset tested income stream (long term) (ATLT)'.
Purchase price = $500,000
Term = 20 years
Pension payments = $45,000pa (payable once a year)
RCV = nil
Henry commutes $50,000 on 1 January 2003 and his pension payments are reduced to $39,500 pa.
Henry and Wilma subsequently divorce and on 2 January 2005, the court awards a base amount of $200,000 from Henry's income stream. The operative time is 1 January 2005.
As a result of the court order, Wilma receives the full amount of the first payment from the income stream (the first splittable payment) of $39,500 on 1 February 2005. Wilma then requests 25% of the remaining base amount as a lump sum. The remainder of the base amount will then be paid to Wilma as a secondary FLA, determined in accordance with Division 6.3 of the Family Law (Superannuation) Regulations 2001.
The superannuation fund paying Henry's pension notifies Wilma that she will receive a lump sum of $38,120 and a secondary FLA of $16,530 pa.
Note: The figure of $38,120 that Wilma receives is not 25% of $200,000 reduced by $39,500, i.e. $40,125. The difference between the two figures arises because of the need to take account of the pension valuation factors that apply to the commutation. Further details on these factors are contained in Regulation 58(5) of the Family Law (Superannuation) Regulations 2001.
Henry's annual payments (the primary FLA) will be $18,200 pa. The first of the split payments to Henry and Wilma commence on 1 February 2006.
Assets test: Stage 1 - assessment between operative time and date of first splittable payment, i.e. 2 January 2005 to 1 February 2005.
Step | Description |
|---|---|
1 | Obtain: Base amount (BA) = $200,000, and Value of member's superannuation interest (V) = $332,630. |
2 | Calculate proportions in which the asset backing the original FLA is split between the member (MPROP) and the non-member (NMPROP) at the operative time. NMPROP = BA ÷ V = $200,000 ÷ $332,630 = 0.601. MPROP = 1 − NMPROP = 1 − 0.601 = 0.399. |
3 | Calculate NPP for original FLA at operative time. NPP of original FLA at operative time (NPP) = Purchase price of original FLA at commencement day − any commutations prior to operative time = $500,000 − $50,000 = $450,000. |
4 | Calculate NPP at operative time for primary FLA and secondary FLA as follows: M notional purchase price (MNPP) = MPROP × NPP of original FLA at operative time = 0.399 × $450,000 = $179,550. NM notional purchase price (NMNPP) = NMPROP × NPP of original FLA at operative time = 0.601 × $450,000 = $270,450. |
5 | Calculate asset values for primary FLA (M asset) and secondary FLA (NM asset) as follows: M asset = MNPP − [(MNPP − MRCV) ÷ RN] × term elapsed = 179,550 − [(179,550 − 0) ÷ 20] × 7} = $116,708. NM asset = NPP − [(NMNPP − NMRCV) ÷ RN] × term elapsed = 270,450 − [(270,450 − 0) ÷ 20] × 7 = $175,793. |
Note: There will be no further reassessment of asset values for the primary FLA and secondary FLA prior to the date of the first splittable payment unless the non-member's interest is paid out in full.
Assets test: stage 2 (assessment from date of first splittable payment)
At the date of the first splittable payment, Wilma receives the full amount of the payment that would have gone to Henry if the payment split had not occurred plus a lump sum of $38,120.
The remainder of Wilma's base amount is paid via a split income stream payment of $16,530 pa. Henry receives a split income stream payment of $18,200 pa.
Step | Description |
|---|---|
1 | Calculate proportions in which the asset backing the original FLA is split between member (MPROP) and non-member (NMPROP) at the date of the first splittable payment. MPROP = primary FLA income stream payment (member) ÷ original FLA income stream payment = 18,200 ÷ 39,500 = 0.461. NMPROP = secondary FLA income stream payment (non-member) ÷ original FLA income stream payment = 16,530 ÷ 39,500 = 0.418. |
2 | Calculate NPP for original FLA immediately before date of first splittable payment. NPP of original FLA immediately before date of first splittable payment (NPP) = Purchase price of original FLA at commencement day − any commutations prior to date of first splittable payment = $500,000 − $50,000 = $450,000. Note: The lump sum payment to Wilma of $38,120 is not included in this calculation as payment does not occur until the time of the first splittable payment. |
3 | Calculate NPP for primary FLA (MNPP) and secondary FLA (NMNPP) as follows: MNPP = MPROP × NPP = 0.461 × $450,000 = $207,450. NMNPP = NMPROP × NPP = 0.418 × $450,000 = $188,100. |
4 | Calculate asset values for primary FLA (M asset) and secondary FLA (NM asset) as follows: M asset = MNPP − [(MNPP − MRCV) ÷ RN] × term elapsed = 207,450 − [(207,450 − 0) ÷ 20] × 8 = $124,470. NM asset = NMNPP − [(NMNPP − NMRCV) ÷ RN] × term elapsed = 188,100 - [(188,100 − 0) ÷ 20] × 8 = $112,860. Note: The values for M asset, NM asset will apply only for the period from 1 February 2005 to 31 December 2005, as the commencement day of the income stream was 1 January 1998. Therefore, assuming an 'annual payment frequency', the next annual depletion will occur on 1 January 2006 (the annual anniversary of the commencement day). The adjustment will be in accordance with the standard depletion formula for asset-tested income streams (long term). |
Income test: stage 1 (assessment between operative time and date of first splittable payment)
- No income assessed.
- Any income payments assessed as exempt lump sums.
Income Test: stage 2 (assessment from date of first splittable payment).
Step | Description |
|---|---|
1 | Obtain new gross income for primary FLA and secondary FLA, i.e. $18,200pa for Henry and $16,530 for Wilma. |
2 | Calculate deduction amount for the primary FLA (MDA) and the secondary FLA (NMDA) using the formula: MDA = (MNPP − MRCV) ÷ RN = (207,450 − 0) ÷ 20 = $10,373. NMDA = (NMNPP − NMRCV) ÷ RN = (188,100 − 0) ÷ 20 = $9,405. |
3 | Reduce gross income for primary FLA and secondary FLA by the respective deduction amounts to determine assessable income. Assessable income (Henry) = $18,200 − $10,373 = $7,827. Assessable income (Wilma) = $16,530 − $9,405 = $7,125 |
Source URL: https://clik.dva.gov.au/compensation-and-support-policy-library/part-10-types-income-and-assets/105-income-streams/1056-special-provisions-regarding-family-law-affected-income-streams/base-amount-payment-splits-asset-tested-long-term-income-streams