B47/1992 ASSESSMENT OF PROFIT ON FRIENDLY SOCIETY AND DEFERRED INTEREST INVESTMENTS PURCHASED BEFORE 1 JANUARY 1988 AND MARKET LINKED INVESTMENTS PURCHASED BEFORE 9 SEPTEMBER 1988.

DATE OF ISSUE:  28 October 1992

ASSESSMENT OF PROFIT ON FRIENDLY SOCIETY AND DEFERRED INTEREST INVESTMENTS PURCHASED BEFORE 1 JANUARY 1988 AND MARKET LINKED INVESTMENTS PURCHASED BEFORE 9 SEPTEMBER 1988.

MANAGED INVESTMENTS WITHDRAWALS WORKSHEET

Summary

A change in policy has been approved for the method of assessing Friendly Society and deferred interest investments purchased before 1 January 1988 and Market Linked Investments purchased before 9 September 1988. The new method of calculation of profit on the investments for service pension purposes will:

i) Only assess profit that actually accrued while the pensioner was in receipt of a service pension ;

ii) disregard any profit that accrued during periods of non-receipt of service pension ;

iii) if the period of non-receipt of pension is 2 years or more, disregard any profit that accrued prior to reinstatement of service pension; and

iv)provide a basis for assessing profit on Compulsorily Preserved Superannuation Benefits

2. The "Managed Investments Withdrawals Worksheet" (MIWW) has replaced the "Capital Profit Apportionment Sheet" (CPAS). The MIWW form is used to calculate the amount of income which will affect service pension entitlement when the following investments are realised:

i) Friendly Society and Deferred Interest investments purchased prior to 1 January 1988,

ii) Market-linked investments purchased prior to 9 September 1988, and

iii) Preserved superannuation benefits, when a withdrawal is made prior to pension age, or after pension age.

Background

3. Certain pre 1/1/88 and 9/9/88 managed investments have income which accrues on the investment assessed on realisation, that is on the sale, maturity, surrender, transfer, gifting or withdrawal  of all or part of the investment.  The profit component is then calculated and held in the pension assessment for 12 months from the day on which the person became entitled to receive the amount , instead of during the term of the investments.

4. The same investments purchased after 1/1/88 and 9/9/88 have income assessed under the legislation on an ongoing basis.

5. The policy introduced in 1987 when these changes were announced required growth to be assessed over the entire life of the investment. Various discounts were then made using actuarial formulae to reduce the profit for periods when the person was not eligible to receive a pension. The calculations involved considerable manual effort in cases where numerous deposits and withdrawals were made during the life of the investment. This could be compounded if the pensioner had multiple investments. The methodology used created confusion for the pensioner and staff. Also the method was not used or understood by the investment industry.

6. The Managed Investments Withdrawals Worksheet (MIWW) has now been introduced to simplify the assessment process for managed investments and to include preserved superannuation benefits calculations. This form simplifies the process, is readily explainable to pensioners and aligns DVA with the DSS method of calculation.

7. The MIWW is to be used for all assessments. The CPAS is not to be used.

Legislation

8. The use of the MIWW applies to investments covered by VEA sections 46,  46B, 46H, 46J, 46K and 46S.

9. "Pension age" is defined in the VEA sub-section 5Q(1).

The purpose of the MIWW

10. The MIWW is used to calculate the amount of assessable income for DVA and DSS pension and DSS benefit/allowance recipients, for those managed investments which are assessable upon realisation. Profit amounts calculated through the use of the form are to be assessed as income for 12 months following the date of realisation. However, where a realisation produces a loss, that loss may be offset against profits from other realisations assessed during the same 12 month period.

11. A realisation of an investment occurs through:

. a withdrawal from the investment;

.maturity of the investment;

. gifting of the investment; or

. in some cases, transfer of the investment to another investment.

12. The MIWW is to be used in the following circumstances:

. where there is realisation of friendly society bonds or deferred interest investments purchased prior to 1 January 1988;

. where there is realisation of market-linked investments (MLIs) purchased prior to 9 September 1988;

. Compulsorily preserved superannuation benefit (CPSB) cases where there is withdrawal before pension age from superannuation bonds and funds, or from the preserved component of an approved deposit fund (ADF) or deferred annuity (DA); and

. CPSB cases where there is a realisation after pension age from superannuation bonds and funds, or from the preserved component of market-linked ADFs and DAs purchased before 9 September 1988.

Advantages of the new worksheet

13. The advantages of the MIWW are that it:

a) Maintains the concession to only assess profit that accrued while the person is a service pensioner, but is more generous than the old CPAS in that it:

  i) only assesses profit that actually accrued while the person was in receipt of a pension; and

ii) disregards any profit accrued before periods of two or more years of non-receipt of a pension;

b) Is easier to explain to clients and members of the financial industry.

c) More accurately reflects the profit actually accrued over the period the person was in receipt of a pension.

d) Is simpler to use and will reduce much of the confusion still being experienced by processing staff some four years after the original worksheet was introduced.

e) Requires less information to be obtained by staff in order to perform the calculation, as there is no need to request information in relation to transactions that occurred prior to the person being granted pension (refer point i) above).

f) Provides a method with a legal basis for assessing profit on withdrawals from preserved superannuation benefits.

Procedures for using the MIWW

14. Before using the MIWW you need to check on the investment information screen (PP.II) to see if the investment is assessable on realisation.

15. Full information on the use of the MIWW is provided on the reverse of the form. (A draft copy of the form is attached for interim reference use until printing of a formal form has been completed.)  A summary of this information follows:

1) Section 1 of the form is used to ascertain the start date of the assessment period. The assessment period is the time during which growth in the value of the investment is assessable for pension and DSS benefit/allowance purposes. This section has also been divided into two parts to allow for the different procedures to calculate the starting dates of the assessment periods for ordinary managed investments and  compulsorily preserved superannuation benefits (CPSBs).

2) Section 2 of the form calculates the gross assessable amount of capital growth in the value of the investment. If the client was in receipt of a pension or DSS benefit/allowance for the whole of the assessment period and has realised the full amount of the investment, this will be the amount assessable for 12 months following the date of realisation.

3) Section 3 of the form is used to calculate the gross assessable amount where only part of the investment is currently being realised.

4) Section 4 of the form is used to calculate the gross assessable amount where there were gaps in the assessment period. This takes into account the principle that the growth in the value of the investment during these gaps is not assessed for pension or DSS benefit/allowance purposes.

5) The amount at box J of section 4 is the amount to be included as income for 12 months from the date of realisation.

Managed Investment  ('MI') screen procedures

16. The fortnightly amount of profit to be assessed is placed on the 'MI' screen via the Investment Information 'II' screen by adding a false manager/product which has been set up as:

MANAGER : PROFIT TO BE HELD FOR 12 MONTHS DUE TO REALISATION

PRODUCT :  OF A CAPITAL GROWTH INVESTMENT

17. The "DATE ACQUIRED' in these cases is the date of the realisation.

18. The MI automatic fortnightly reassessment run will identify the profit entry on the 'MI' screen and delete it from the pay-day after the 12 month anniversary of the 'DATE ACQUIRED' as recorded on the 'MI' screen.

19. Since these cases are either automatically processed or automatically listed for processing, there is no need to set manual reviews.

20. There may be cases where a MIWW assessment provides a loss (negative return) from a realisation, and that loss is offset against realised profits on similar managed investments during an overlapping period,  In these cases it may still be necessary to set a manual review if the end of the overlapping period is not the same as the realisation date set in the 'DATE ACQUIRED" field on the 'MI' screen.

Reference areas

21. The new issue of the GOSP will in due course contain references to the use of the MIWW form under the headings "ASSETS AND INCOME TESTS"  "Managed Investments".

22. The Investment Policy Officer in each State will organise training in the use of the new form if necessary, and will be able to provide ongoing assistance with any queries that may arise regarding the use of the MIWW.

PETER HAWKER

NATIONAL PROGRAM DIRECTOR

(BENEFITS)

ATTACHMENT TO THIS INSTRUCTION

(NOTE:  This attachment has been rekeyed to enable it to be be included on the General)

MANAGED INVESTMENT WITHDRAWALS WORKSHEET

Withdrawal date

File No.___________ — Name ___________________________________ — date/              /

              Fund Manaager __________________________________              Product ____________________________

Section 1 - Calculation of start date of Assessment Period

Ordinary Non Superannuation Investment — Superannuation (CPSB) Invesment

(groups a and b in Guide Note 1)(groups c and d in Guide Note 1)

Start date is the later of:Start date is the later of:

                                       (i)date of commencement of pension (if 2

(i)date of commencement of pension (if 2 — or more years of continuous non-

or more years of continuous non-payment prior to latest

payment prior to latest grant, ignore earlier dates

grant, ignore earlier dates of grant://

of grant://

(ii)date the investment  was

(ii)date the investment was — made://

made://

(iii)only if the CPSB is realised

(iii)for friendly societies, after pension age - date of

write 1 November 83://pension age://

Start date of assessment (iv)only if the CPSB was formerly

period (as calculated above) is//assessed on an ongoing basis -

date this ceased://

Start date of assessment period

(as calculated above) is//

Section 2 - Calculation of Gross Assessable Amount

AValue of investment at date of maturity/withdrawalA __________

BAll earlier amounts withdrawn from the investmentB __________

during assessment period

CValue of investment at start of assessment period

(as per start date in Section 1 above) PLUS anyTotal (A + B) __________

subsequent additions to the investment.

DProfit on previous sales/withdrawals from this

investment during the assessment period - this

is the sum of any previous positive Box GD __________

amounts on this version of the form, and any

positive Box I amounts on the old version

of this form.

Total (C + D) __________

EGross Assessale Amount = (A + B) - (C + D)E ________

Section 3 - Partial Sale/Withdrawals

Is this a partial sale/withdrawal?

Yes — complete the details below — No — transfer the figure in box E above to box G below,

then go to Section 4

FAmount now being sold/withdrawnF __________

GProportion realisedF __________XE __________=G ________

A __________(profit/loss realised on sale/withdrawal)

Section 4 - Assessment Period

Start of the assessment period as End of the assessment period (date of

per Section 1//withdrawal)//

Were there gaps in payment in the assessment period?

Yes — complete the details below — No — transfer the figure in box G above to box J below,

then complete item K

HNumber of whole months in assessment period

(not calendar months)H __________

INumber of whole months in H during whichI ___________

pension was paid (not calendar months)

JProportion assessableI __________XG ___________=J ______

H __________(assessable amount)

KFortnightly amountJ __________divided by 26=K ______

Examiner ____________________ — Date//

Guide to the Managed Investment Withdrawals Worksheet

APPLICATION OF THE SHEET

1.The worksheet is to be used in the following9.Where it becomes evident that earlier

cases:withdrawals have been made in the

arealisation of friendly society bonds or — assessment period without advising the

deferred interest investments purchased prior               Department, separate withdrawal worksheets

to 1 January 1988:should be prepared for each withdrawal,

b.realisation of Market Linked Investments — beginning with the earliest.  If appropriate.

(MLI's) which were purchased prior to overpayments should be raised.  Details of

9 September 1988;past transactions should be requested.

OR

c.CPSB cases - withdrawals from superannuation              ITEMS ON THE SHEET

funds and bonds before age pension:  10.The items on the sheet should be completed

realisation of the preserved component of an               as follows:

Approved Deposit Fund (ADF) or Deferred

Annuity (DA) before pension age.Item AThis is the value of the investment at

d.CPSB cases - withdrawals from superannuation — the date of realisation, including the amount

funds and bonds after pension age;  realisation — now being realised.

after pension age of the preserved component

of a pre 9 September 1988 market linked ADFItem BThis is the total amount withdrawn

or DA.from this investment during the assessable

NOTE: 'Pension age' means 55 years for a femaleperiod excluding periodical distributions of

veteran;  60 years for a male veteran;  or 60 years — income or dividends.

for any other female;  65 years for any other male

Item CThis is the value of the investment at

UNDERLYING PRINCIPLESthe start of the assessable period plus any

2.The principle underlying this sheet is that increases — additional amounts invested during the

in the value of an investment while pension assessable period.  Includes reinvested

(including Department of Social Security pensionsdividends but not bonuses.

or benefit/allowance) was paid, should be treated

as income for 12 months when the investment isItem DThis is the net total of all earlier

realised.  The legislative basis for this procedure — realised capital profits (positive amounts)

is contained in Section 46 of the VEA.during the assessment period.  It includes

amounts assessed in the past as a result of

3.The increase in the value of an investment is — calculations such as this one even though

calculated by adding the value of the investment at — 12 months may not have elapsed since the

the date of the withdrawal to all earlier amounts — calculation.  It also includes amounts which

withdrawn (A+B), and deducting the value of the — should have been assessed but for

investment at the start of the assessable period (C).Departmental oversight or failure to notify

Previously realised profits, on which income has (see 9 above).

already been assessed (D) are also deducted,

otherwise those profit amounts would be countedItem EThis is the profit liable to assessment

twice.  The profit to be assessed on a total withdrawal — on sale/withdrawal as per point 3 above.  Even

(E), is therefore (A+B) - (C+D).if a loss has occurred the worksheet should be

completed - see Item J.

4.If only part of the investment is withdrawn, the realised

profit or loss must be scaled down proportionally ie.Item F              This is the part of the investment now

if only half of the investment is cashed in only half of — being withdrawn/sold, after deducting

the capital gain (profit) is being realised.expenses such as fees or brokerage, but

before any tax has been deducted.

Item GThis is the part of the profit or loss

ASSESSABLE PERIODwhich has been realised on this withdrawal/

5.Where pension was not paid for the whole of the — sale.

assessable period, the profit or loss to be taken into

account must be reduced proportionally - if theItem HThis is the number of whole months

investor had gaps in receipt of pension resulting in — in the assessment period.  Count months from

pension only being paid for 30 months out of an — date to date commencing at the start of the

assessable period of 40 months, only 3/4 of the assessment period, eg. 7 April to 6 May = one

realised profit would be treated as income.whole month;  7 April to 5 May = nil whole

months.  Do not use whole calendar months

6.The assessable period does not include any period — eg. all of April or all of May.

prior to a gap of two years or more during which

pension was not paid.  If the non-payment gap isItem IThis is the number of whole months

less than 2 years, use the earliest date of grant in — that pension was received during the

determining the start date of the assessment period.assessable period.  Count whole months as

defined in Item H above.

7.Where a married couple who are joint owners of an

investment have different dates of grant, use theItem JThis is the assessable amount from

earliest date as the date of commencement of pension — the withdrawal.  If this a profit, it should be

for both clients in determining the start date of the — held as income for 12 months from the date

assessment period.of realisation.  If this is a loss (a negative

amount) it can be offset during the 12 months

8.Where one partner only is qualified for pension against any profits calculated using this form

and the other partner is the sole owner of the (or the old form D2702) but only for the

investment, the start date of the assessment period overlapping period.  The profit/loss should be

was made.  The exception is where the non-held even if the whole investment is realised.

qualified partner withdraws from a CPSB prior to

pensionable age.  In this situation there is no Item KThis is Item J converted to a

assessable period, and this means no income can fortnightly amount.

be assessed.