B20/1993 BUDGET 1992 INITIATIVE TO EXTEND CURRENT CPSB EXEMPTION RULES TO ALL SUPERANNUATION FUNDS

DATE OF ISSUE: 6 April 1993

BUDGET 1992 INITIATIVE TO EXTEND CURRENT CPSB EXEMPTION RULES TO ALL SUPERANNUATION FUNDS

PURPOSE

The purpose of this Departmental Instruction (DI) is to advise of changes to the income and assets test relating to superannuation fund investments, announced in the 1992 Budget.

2.The changes will extend the existing exemption rules that currently apply to Compulsorily Preserved Superannuation Benefits (CPSBs) to all superannuation products including Approved Deposit Funds (ADFs) and Deferred Annuities (DAs) until the investor reaches pension age.

EFFECTIVE DATE

3.The extension of the exemption rules will apply to all superannuation funds from 1 April 1993.  The necessary program changes will occur over the weekend of 13-14 March 1993 and will therefore be available from 15 March 1993.

BACKGROUND

4.A joint DSS/DVA Investment Income Review took place during 1991/92.

5.The aim of the review was to:

.simplify the income test treatment of various types of investments; and

.improve equity in the treatment of clients who hold different types of investments.

6.The extension of the exemption rules currently applying to preserved superannuation benefits, to all superannuation funds was included in those initiatives adopted from the Investment Income Review by the Government in the 1992 Budget.

7.It should be noted that several other Budget 1992 managed investment changes resulting from the same review will be introduced with effect from 1 April 1993.  Because there are a number of areas that overlap, particularly procedural, this DI should be read in conjunction with the Budget 1992 Managed Investment Changes DI which will be issued shortly..

PRE 1 APRIL 1993 EXEMPTION RULES

8.From 1 February 1990, superannuation investments and any preserved components of roll-over funds like ADFs and DAs were exempt under the income and assets tests until the investor reached pension age.  (Departmental Instruction B29/90 dated 6 August 1990 provides details of rules and procedures that applied from 1 February 1990.)  These investments were previously named under the general heading, Compulsorily Preserved Superannuation Benefits (CPSBs).

9.Unless money was withdrawn from a preserved superannuation fund the asset value was disregarded and no income maintained until the client who owned the investment reached pension age.

10.It should be noted that there are basic differences between Superannuation Funds/Bonds and roll-over funds such as ADFs and DAs.  The latter two may have preserved and non-preserved components.  In addition ADFs and DAs may include non-superannuation deposits.

11.Because of these differences, slightly different exemption rules were developed for CPSBs as opposed to the preserved component of an ADF or DA:

.If a person withdrew from a CPSB investment prior to pension age, any profit or capital growth component of that withdrawal that accrued while the person was in receipt of a pension*, was assessed as income for 12 months following the date of withdrawal using the managed investment withdrawal worksheet (D2702).  The balance of moneys remaining in the product continued to be regarded as a preserved benefit and were disregarded under the income and assets tests until the pensioner reached pension age.

*Please note that, where there was a period of at least 2 years when the person was not in receipt of pension or benefit, the growth or profit that accrued during periods prior to the time, when no pension was received, was disregarded.

.Where the withdrawal was from an ADF or a DA on the other hand,  the withdrawal was generally taken to indicate retirement.  The calculation of profit on the preserved component was the same as for CPSBs however the balance of the previously exempt component was no longer considered a preserved benefit.  Therefore normal managed investment rules applied to the whole of the remaining investment irrespective of the age of the investor.

12.Once pension age was attained, normal managed investment (MI) rules applied for all superannuation funds.

PENSION AGE

13."Pension age" is defined in ss5Q(1) of the VEA as:

(a)for a female veteran - 55 years; or

(b)for a male veteran - 60 years; or

(c)for any other woman - 60 years; or

(d)for any other man - 65 years.

THE NEW RULES

Introduction -The Basic Rules

14. The income/asset exemption rules applying to CPSB funds have been fully extended to roll-over funds such as ADFs and DAs with effect from 1 April 1993.  However, it should be noted that the new rules do not apply to immediate annuities and superannuation pensions.

15.The term CPSB is no longer applicable and has been replaced by the generic term "Superannuation Fund Investment" which encompasses Superannuation Bonds, Superannuation Funds, ADFs and DAs.

16.The extension of the rules means that, unless withdrawn, all amounts retained in a Superannuation Fund will continue to be exempt under the income and assets tests until the investor reaches pension age.

17.Both DVA and DSS legislation have been changed to reflect these rules.

AIM

18.The aim of extending the exemption rules to all Superannuation Fund Investments is to encourage self-provision in retirement by discouraging clients from withdrawing from Superannuation Fund Investments for reasons such as loss of job etc. and to provide a disincentive to pensioners who may otherwise dispose of their retirement benefits in order to avoid the income and assets tests.

TARGET POPULATION

19.The maximum number of DVA clients affected by this initiative is 1670.    The DSS target population is 7500.   However the initiative is intended to encourage more people to invest in retirement funds in the future.  Therefore it is anticipated that the percentage of new clients with superannuation fund investments will increase.

LEGISLATION

20.The VEA was amended to reflect the superannuation fund changes when the Veterans' Affairs Legislation Amendment Act (No. 2) 1992 was given Royal Assent on 24 December 1992.  The relevant changes can be found at Attachment A to this paper.  Briefly the amendments are:

.Paragraph 5H(8)(i) was amended to replace the term "Compulsorily Preserved Superannuation" with the term "Superannuation Fund Investment".

.Subsection 5J(1) was amended to provide definitions of "investment" and "realises an investment" in relation to Superannuation Funds.

.Subdivision D of Division 8 of Part III of the Act was repealed and replaced with a new "Subdivision D - Superannuation Fund Investments Before Pension Age".

.Subsection 46S(1) provides new clarification of the exempt status of the investment if a person with a Superannuation Fund Investment has not reached pension age.

.New section 46SA relates to "Early Withdrawal from a Superannuation Fund".

.Paragraph 52(1)(f) has been amended to include references to all superannuation type funds to be disregarded until pension age.

OBSOLETE RECORDING AND REVIEW PROCEDURES

21.Prior to 1 April 1993 examiner action was as follows:

A.Preserved Funds

Exempt

(i)Record the details of a client's CPSB investment(s) or preserved component of roll-over fund on the Other Assets PP.OA) screen with $0.01 asset value;

(ii)Set a manual review (D5515) was set for the date when the pensioner would reach pension age.

Non-Exempt

(iii)Once pension age was attained, delete the (D5515) review;

(iv)delete the investment from the PP.OA screen; and

(v)re-record the investment on the Managed Investment screen (PP.MI) where normal MI rules applied.

B.Non-preserved Roll-over funds

22.In the case of non-preserved roll-over funds or non-preserved components of roll-over funds, the details of the non-preserved investment were recorded on PP.MI and assessed according to existing MI rules.  These rules applied irrespective of the age of the client.

23.The existing procedures meant that superannuation funds could be recorded either on PP.OA or PP.MI depending on exemption status and, in the case of partially preserved investments, details could be split between PP.OA and PP.MI.

24.The procedures were cumbersome and duplicated work for Branches.   In addition, the risk of procedural breakdown and possible overpayment  under these conditions was relatively high.

NEW RECORDING AND REVIEW PROCEDURES

Automatic Recording and Updating

25.From 1 April 1993 the Managed Investment screen (PP.MI) must be utilised for all managed investment assessments including exempt superannuation.  It is important that Branch Officers read this DI in conjunction with the related Managed Investments DI in order to appreciate the full scope of the MI system enhancements now available.

26.A training course on all the Managed Investment changes occurring from 1 April 1993 was conducted for Investment Policy Officers (IPOs) on 4-5 March 1993.  This course provided details of legislative, policy and procedural changes taking place, including superannuation fund changes.  A copy of the training manual prepared is available in all Branches.

27.Following the processing run on 13-14 March 1993, it will no longer be necessary to record any superannuation fund details on the PP.OA screen.  Nor will it be necessary to set a manual (D5515) review for an investor's pension age birthday.

28.The managed investment data that is provided by DSS distinguishes  superannuation funds from other managed investments.  From 1 April 1993 this information will be automatically updated.

29.System enhancements have been made in order to allow the

MI system to identify Superannuation Fund Investments and determine whether exemption rules should apply in individual cases based on the veteran status, sex and age of the investor.

30.From 15 March 1993 onwards, all managed investments including exempt products must be recorded on PP.MI.

31.Once the investment is recorded, PP.MI will automatically determine whether the investment should be exempt or not.

32.If the investor is under the relevant pension age a zero asset value will be automatically set.  In other words, the system automatically ignores the value or unit numbers recorded if the exemption criteria are met.  A special warning message will appear on the PP.MI advising the examiner of the exemption.

33.All existing Superannuation Fund Investments currently recorded on the MI system that meet the exemption criteria will be automatically exempted from 1 April 1993.

Recording and review of profits on withdrawals

34.A new profit data collection screen is now available for recording  profit.  The new screen PP.PF will allow profits and losses to be automatically offset against other profits and losses calculated on withdrawals from 'saved' investments (i.e. pre 9/9/88 MLIs and pre 1/1/88 ARIs) and from superannuation funds where profit or losses (on withdrawals prior to pension age) are assessed for 12 months.

35.Once the realised profit has been held for 12 months the case will be automatically identified and profit/loss deleted as part of the fortnightly profit processing run.

Recording of Entry Fees for Exempt Superannuation Funds

36.From 1 April 1993, entry fees for all superannuation funds should be recorded on the MI system whether they are exempt products or not.  Once recorded the MI system will determine whether fees should be offsettable or not based on the investment's exemption status.

37.The PP.MI screen will only display the total 'Fee PF' figure of all managed investments recorded.  For further information or if fees are to be A=added, C=changed or D=deleted it will be necessary to go to the FEE sub-screen.  This can be done by typing 'F' or 'FEE' in the Action field next to the relevant product on the PP.MI screen.

38.Once the entry fee has been held for 12 months the case will be automatically identified and the fees deleted as part of the fortnightly MI processing.

Procedures for Pension Age Review

39.Once pension age is attained cases that should no longer be exempt will be identified as part of the fortnightly managed investment processing run.

40.Unitised superannuation funds will be automatically reassessed however this will not be possible in the case of non-unitised products.

41.It is not possible for the MI system to automatically reassess the value of non-unitised superannuation funds.  Therefore, a schedule of all cases where a non-unitised fund is no longer to be exempted, will be produced on a fortnightly basis.  Branch officers will be required to contact the investor to find out the current value of the investment and manually reassess these cases.

42.Please note that if the investment was less than 12 months old when the investor turns pension age entry fees should be taken into account in the assessment of income.

Manual Action (Existing CPSBs)

43.Nationally, there are approximately 160 cases with exempt superannuation funds (CPSBs) currently recorded on the PP.OA screen.

44.It will be necessary for Branches to take manual action to delete the (D5515) review and the CPSB details from PP.OA and re-record  the investment details on PP.MI.  In order to do this examiners will need to obtain the file so that full details of the investment can be recorded.

45.The list of existing exempt CPSB cases will shortly be forwarded to the contact officer in each Branch Office.  This list will also include any new CPSB cases that Branches have notified Central Office about between 14/12/92-09/03/93 and will also include a small number of exempt funeral bonds* which can now also be recorded on PP.MI.  The information to be provided on the list will include surname, file number, date of birth and client ID (vet/sps) of the investor and investment details currently recorded.

*Procedural changes to exempt funeral bonds are the subject of a separate DI. Please note there is no change to the rules relating to funeral bond exemption.  See IPOs re: funeral bonds if unsure of what action to take.

46.As CPSB investments are currently exempt, they are not affecting the service pension assessment.  Therefore a decision on when this manual conversion action should be taken will be up to the discretion of the individual Branches based on existing workloads and priorities after 1 April 1993.  Branches should be aware however that these cases must continue to be processed prior to the investor reaching pension age in order to prevent overpayment of service pension.

WITHDRAWAL FROM A SUPERANNUATION FUND

47.Income is currently assessed following withdrawals from superannuation/roll-over investments taking account of the date of the investment, the preserved component, and  the clients "assessable period".  The new rules disregard all amounts held in superannuation/rollover funds, prior to pension age, unless a withdrawal is made.

48.If a withdrawal is made the calculation of profit or loss should be calculated using the Managed Investment Withdrawal Worksheet (D2702).  This form has been amended to reflect the new rules.  Supplies of the amended forms have been ordered for Branch Offices.

Prior to pension age

49.Under the new rules, if a pensioner withdraws funds from an exempt  superannuation fund prior to pension age (including those superannuation funds that were exempt prior to 1 April 1993), the commencement date of the assessable growth period for new investments and for those investments that were not exempt prior to 1 April will be the later of:

.1 April 1993;  or

.the date of investment;  or

.the date of commencement of payment of pension, (disregarding any period that occurs before a continuous period of at least 2 years during which time the person did not receive a pension, allowance or benefit).

50.This will ensure that non-preserved amounts formerly assessed for a period on an ongoing basis will not be taken into account again on realisation for the same period.

51.Please note:  using 1 April 1993 as the earliest possible date for all exempt Superannuation Fund Investments is an administrative decision which has also been applied by DSS.

Post-Pension Age Withdrawals

52.For post-pension age withdrawals from superannuation/rollover investments assessed on realisation, irrespective of whether an amount was considered preserved, the commencement date of the assessable period will be the later of:

.1 April 1993;  or

.the date of investment;  or

.the date of commencement of pension payment, (disregarding any period that occurs before a continuous period of at least 2 years during which the person did not receive a pension, allowance or benefit);  or

.the relevant pension age of the investor.

53.In regard to all withdrawals, if the MIWW is used and the commencement date is set in accordance with Section 1 of the form, then the start of the assessable period should be set correctly.

SWITCHING

54.As a general rule, an investor is considered to have realised those investments from which they have switched and to have invested in a new range of products.

55.However, special rules apply to superannuation funds.  These are discussed below.

Prior to pension age

(i)If the superannuation benefits are directly rolled-over into a superannuation pension or immediate annuity the "on realisation" rules do not apply but the pension or immediate annuity is held as income on an on-going basis;

(ii)If the superannuation benefits are directly rolled-over into an ADF or DA, the investment is deemed not to have been realised and the new investment will remain exempt prior to pension age unless subsequently withdrawn.

(iii)Where the investment is accessed following a switch into an ADF or DA, and the investor is still under pension age when the switch occurs, the profit or growth component of the withdrawal is to be calculated on the basis of the earlier date for the product held before the switch was made, i.e. the date that the original investment was made or date of grant of pension, whichever was the later.

56.If the investor still has the investment at pension age, normal managed investment rules would apply.

OFFSETTING RULES

Profits and Losses

57.Current policy allows for offsetting of realised profits and losses on realisation of 'saved' investments (i.e.  pre 9/9/88 MLIs and pre 1/1/88 ARIs).  Post 1 April 1993, this policy will be expanded to allow for offsetting between realised profits and losses assessed on the above group of saved investments and amounts assessable on withdrawals made from  superannuation funds where the investor is under pension age.

58.These amounts are not, however able to be offset against share income, managed investment income or other income assessed on an ongoing basis.

59.If, from 1 April 1993,  money is withdrawn from any type of superannuation fund prior to pension age the assessable growth component will be held in the assessment for 12 months from the time of the withdrawal.  The newly revised managed investment withdrawal worksheet (D2702) should be used to calculate the profit pertaining to the withdrawn capital.  (Please note:  printing and despatch of supplies of the newly amended D2702 for all Branches has been arranged.)

60.If a partial withdrawal is made the remaining superannuation fund investment will continue to be exempt under the income and asset tests until pension age. Entry Fees

61.Current policy allows entry fees paid as a condition of making an investment to be deducted from income that would otherwise be assessed (i.e. on an on-going basis), for 12 months from the date the investment is made.  Because superannuation funds will be exempt prior to pension age it will not be possible to offset entry fees on these investments.

Exit Fees

62.Please note that the rules effective from 1 April 1993 that will allow the offsetting of exit fees on investments that are assessed on an ongoing basis do not apply to "on realisation" investments or superannuation fund investments whilst they are exempt (prior to pension age).

ADVICES

Quarterly advices

63.All superannuation/roll-over funds recorded on the MI system will be automatically exempted with effect from 1 April 1993 if they satisfy the exemption criteria.  Where exemption occurs automatically, a special paragraph advising affected clients of the exemption will appear in the March 1993 Quarterly Advice (refer DI B12/93 of 22 February 1993).

Fortnightly advices

64.A special Reason for Variation paragraph (see Attachment B) relating to un-exemption of superannuation funds where the investor turns pension age has been added to the selection of paragraphs in the Payment Advices System.  This paragraph will be available for the first fortnightly processing run to be conducted after 1 April 1993 (i.e. 22 April). The relevant paragraph will be automatically selected in the case of unitised superannuation funds.

65.However , non-unitised products will have to be processed manually therefore the relevant paragraph will not be selected automatically.  Examiners will have to utilise the 3 lines (216 character) variable information option available on the PP.AD screen.  Suggested wording is:

(i)In the case of the investor:

Because you have now reached pension age,  ... years, your superannuation fund(s) investment is no longer exempt under the income and assets tests and will be assessed using normal managed investment rules.

(ii)In the case of the spouse:

Because your partner has now reached pension age,  ... years, his/her * superannuation fund(s) investment is no longer exempt under the income and assets tests and will be assessed using normal managed investment rules.

*  Delete whichever is not applicable.

66.The existing Reason for Variation paragraphs that are used for deletion of profit/loss or fees will be applicable for deletion of profit/loss or fees after 12 months, for all affected managed investments including superannuation funds.

Daily Advices

67.Please refer to the DI on Budget 92/93 Managed Investment Changes for details of the new amended managed investment information appearing in the advice letters.  This section of the advice letter has been simplified into a table of investments.  In the case of exempt superannuation funds a message will appear below the investment details advising the client that the investment is exempt until pension age.

NEW CLAIMS WHERE DATE OF GRANT IS PRE 1 APRIL 1993

68.A small number of new grants that will have an effective date pre 1 April 1993 and may have managed investments including superannuation funds will be outstanding at the time of implementation of the Budget 1992 initiatives.

69.The pre 1 April 1993 arrears for these cases will have to be calculated manually using the pre 1 April 1993 rules.  That is, in the case of  non-preserved superannuation/roll-over funds the value of these investments will not be exempt from date of grant to and including 31 March 1993.

REMOVAL OF VOLUNTARY PRESERVATION CLAUSE ON ROLL-OVER CONTRACTS

70.A number of clients may request the deletion of a voluntary preservation clause from their contract after 1 April 1993 to enable them to access their funds.  It should be noted that deletion of the voluntary preservation clause following 1 April will not result in reassessment of client entitlements for the period prior to 1 April 1993, when the voluntary preservation clause was operative.  This is because clients were correctly assessed at that time, given the existence of the clause.

CLIENT INQUIRIES

71.Attachment C summarises the changes to superannuation funds effective from 1 April 1993 (prepared for the Managed Investment training course).

CONTACT OFFICERS

72.If Branch Officers require further assistance concerning the changes to superannuation they should firstly contact their Branch IPO.  If the IPO is unable to answer the query then either the project manager, Peta Stevenson on (06) 289-6408 or the project officer, Oona O'Beirne on (02) 213-7771 should be contacted.

Peter Hawker

NATIONAL PROGRAM DIRECTOR

BENEFITS

25 March 1993

Attachment A (i)

Veterans' Affairs Legislation Amendment (No. 2)  No.  , 1992 25

Division 6 - Superannuation investments prior to pension age

Income test definitions

48.Section 5H of the Principal Act is amended by omitting paragraph (8)(i) and substituting the following paragraph:

"(i)any return on a person's investment in:

  (i)  a superannuation fund; or

(ii)  an approved deposit fund; or

(iii)  a deferred annuity;

until the person:

(iv)  reached pension age; or

  (v)  commences to receive a pension or annuity out of the fund;

Note 1:for 'pension age' see subsection 5Q(1)

Note 2:for 'superannuation fund' - 'approved deposit fund' and deferred annuity' see subsection 5J(1)"

Investment income definitions

49.Section 5J of the Principal Act is amended:

(a)by inserting in subsection (1) the following definitions:

"'investment', in relation to a superannuation fund, approved deposit fund or deferred annuity, has the meaning given by subsection (6);

'realise', in relation to an investment, has the meaning given by subsections (7) and (8)";

(b)by adding at the end the following subsections:

"(6) For the purposes of this Act, a person has an investment in a superannuation fund, approved deposit fund or deferred annuity if the person has benefits in the fund or under the annuity (whether the benefits are attributable to amounts paid by the person or someone else).

"(7) For the purposes of this Act, a person realises an investment if, and only if:

(a)all or part of the amount of the investment is withdrawn; or

(b)where the investment is an eligible investment in a body corporate or trust fund - the person transfers all or part of the investment to another body corporate or trust fund; or

(c)all or part of the return on the investment is paid to another person; or

(d)the investment matures; or

(e)the investment is assigned by the person to another person; or

Attachment A (ii)

Veterans' Affairs Legislation Amendment (No. 2)  No.  , 1992

(f)the investment is disposed of by the person otherwise than in the way referred to in paragraph (e)

"(8) For the purposes of subsection (7), if:

(a)a person realises an investment; and

(b)the return on the investment is paid to another person;

the return is taken to be received by the person realising the investment."

Investments made before 1 January 1988 with friendly societies or where no immediate return

50.  Section 46B of the Principal Act is amended by omitting subsection (2) and substituting the following Notes:

"Note 1: for 'assessable period" see subsection 5J(1).

Note 2: for 'realising' an investment see subsections 5J(7) and (8)

New Subdivision D of Division 8 of Part III

53.  Subdivision D of Division 8 of Part III of the Principal Act is repealed and the following Subdivision is substituted:

"Subdivision D - Superannuation fund investments before pension age

Provisions affecting superannuation fund investments before pension age

"46S.(1)  If:

(a)a person has an investment in:

  (i)  a superannuation fund; or

(ii)  an approved deposit fund; or

(iii)  a deferred annuity; and

(b)the person has not reached pension age; and

(c)the person has not commenced to receive a pension or annuity from the investment;

this is how the investment is treated;

(d)the return on the investment is not treated as ordinary income (see paragraph 5H(8)(i)):

Note:the investment is also disregarded for the purposes of the assets test (see paragraph 52(1)(f)).

Attachment A (iii)

Veterans' Affairs Legislation Amendment (No. 2)  No.  , 1992 27

(e)the return on the investment is not treated as ordinary income under the managed investment rules in Subdivision AA of this Division (see subsection 5J(1C));

(f)if the investment is realised the proceeds are spread across the following 12 months (see section 46SA).

Early withdrawal from superannuation fund

"46SA.  If:

(a)a person realises an investment in a superannuation fund, approved deposit fund or deferred annuity before the person reaches pension age; and

(b)the amount realised is not rolled over into;

  (i)  a superannuation fund; or

(ii)  an approved deposit fund; or

(iii)  a deferred annuity; and

the person is, for the purposes of this Act, taken to receive one fifty-second of the assessable growth component of that amount as ordinary income of the person during each week in the period of 12 months starting on the day when the person realises the investment.

Note:for 'assessable growth component' see subsection 5J(1)

Certain assets to be disregarded in calculating the value of a person's assets

54.  Section 52 of the Principal Act is amended by omitting paragraph (1)(f) and substituting the following paragraph:

"(f)the value of the person's investment in:

  (i)  a superannuation fund; or

(ii)  an approved deposit fund; or

(iii)  a deferred annuity;

until the person:

(iv)  reached pension age; or

  (v)  commences to receive a pension or annuity out of the fund;

Division 7 - Fringe benefits and treatment benefits

Disposal of ordinary income

55.  Section 48 of the Principal Act is amended by omitting subparagraph (1)(c)(iii) and substituting the following subparagraph:

"(iii)to ensure that the person or the person's partner would be eligible for benefits under Division 15 of this Part or fringe benefits under the Social Security Act".

Attachment B

AMENDMENT TO WORDING OF NEW REASON FOR VARIATION PARAGRAPH RE: FORTNIGHTLY PROCESSING UN-EXEMPTION

OF SUPERANNUATION FUND WHEN PENSION AGE IS ATTAINED

Managed Investments:  Superannuation Fund

For service pension purposes the value of investments in Deferred Annuities, Approved Deposits Funds or other superannuation type funds are disregarded under the income and assets tests until the investor reaches pension age (i.e. for veteran service pensioners, 55 years for females and 60 years for males; for all other service pensioners, 60 years for females and 65 years for males).

Once pension age is reached normal income and asset rules apply to the investment.  Therefore the income and asset amounts used to work out your rate of service pension have changed.  Set out below are the investments that are no longer exempt for service pension purposes.

.COMMONWEALTH BANK - ADF

The income and asset values now recorded for all your managed investments are shown in the income and assets list below.

Attachment C

NEW SUPERANNUATION AND ROLLOVER INVESTMENT RULES

The current rules only exempt Superannuation Bonds/Funds and the "preserved component" of a Rollover Investment (Approved Deposit Fund =ADF and Deferred Annuities = DA) from the income and assets test until the owner of the investment reaches pension age or draws upon the investment prior to reaching pension age.

CHANGES WEF 1.4.93

2.All Superannuation Investments (i.e. Superannuation Bonds/Funds, Approved Deposit Funds (ADFs) and Deferred Annuities (DAs)) will be exempt from the income and assets tests until the owner of the investment reaches pension age or draws upon the investment prior to reaching pension age.  Pension age is 55yrs for a female veteran; 60yrs for a male veteran; 60yrs for other female; 65yrs for other male.

3.It will no longer matter whether the amount is preserved or not.

.The term "Compulsorily Preserved Superannuation Benefit" (CPSB) is no longer applicable, and has been replaced by the term "Superannuation Fund Investment".

.A "Superannuation Fund Investment" means an investment in a Superannuation Bond or Fund, an Approved Deposit Fund (ADF) or a Deferred Annuity (DA).

.All Superannuation Fund Investments must now be data collected on PP.MI regardless of the clients age.

PRIOR TO PENSION AGE

.The PP.MI screen will automatically exempt the income and asset value of a Superannuation Bond/Fund, ADF or DA.  The screen will decide to exempt the investment on the basis of the persons 'sex' and 'age'.

.Entry and exit fees can be recorded on the exempt investment, but will not be allowed as a deduction until the person reaches pension age.

.If a person withdraws from the Superannuation Bond/Fund, ADF or DA, profit will need to be calculated on the withdrawal using the MIWW - Managed Investment Withdrawals Worksheet.  Section 1 of the MIWW will determine the assessable period for profit calculation for Superannuation Investments.

.If a person rolls over moneys from a Superannuation Bond/Fund into an ADF or a DA, or directly into an Immediate Annuity or Superannuation Pension, then this is NOT treated as a realisation.

AFTER PENSION AGE

.The PP.MI screen will automatically assess the income and asset value of a Superannuation Bond/Fund, ADF or DA once the person reaches pension age.  The investment will be assessed under the normal managed investment rules (i.e. either 'on realisation' or 'ongoing').

.The Managed Investment Fortnightly Run will now automatically unexempt any exempt Superannuation Bond/Fund, ADF or DA investments when the person reaches pension age.  There is no need to set a D5515 Review for the 'Pension Age' Birthday of the person.

.If a withdrawal is made after pension age from a Super Bond/Fund, ADF or DA that is assessable on realisation', profit will need to be calculated on the withdrawal using the MIWW - Managed Investment Withdrawals Worksheet.  Section 1 of the MIWW will determine the assessable period for profit calculation for Superannuation Investments.

NOTE:  In any case, where the investor withdraws from a Superannuation Bond/Fund, ADF or DA, either:

a)prior to pension age;  or

b)after pension age (and the investment is assessable 'on realisation');

you must use the Superannuation part of Section 1 of the MIWW to determine the assessable period for profit calculation.

.Any profit or loss calculated as a result of such a withdrawal (either prior to or after pension age) must be recorded on the new PP.PF 'Profit' screen as these realised profits and losses can be offset against other profits and losses calculated on withdrawals from other managed investments.

Important Note:Where a partial withdrawal is made prior to pension age, any remaining amount in the investment will remain exempt.