B48/1994 TRANSFER OF SHARES AND MANAGED INVESTMENTS UPON DEATH OR SEPARATION

DATE OF ISSUE:  18 OCTOBER 1994

TRANSFER OF SHARES AND MANAGED INVESTMENTS UPON DEATH OR SEPARATION

The purpose of this Departmental Instruction (DI) is to clarify and amend current policy regarding the treatment of:

• the transfer of "saved" managed investments between members of a couple where the transfer occurs by reason of the death of a member of the couple; and

• the transfer of ownership of "saved" shares and "saved" managed investments between members of a couple where the transfer occurs as part of a divorce or separation settlement.

Transfer between members of couple of saved Accruing Return Investments (ARI's) or Market Linked Investments (MLI's) by reason of death of member of couple

2.Normally, where a saved ARI acquired prior to 1 January 1988 or a saved MLI acquired prior to 9 September 1988 is transferred that investment is taken to have been "realised" for service pension purposes (see subsection 5J(7) and sections 46B and 46J of the Veterans' Entitlements Act 1986 (VEA)).

3.Where a realisation of such an investment is taken to have occurred by reason of a transfer of that investment, as well as having profit assessed as income for a period of 12 months commencing on the date of the transfer, the investment will have a new acquired date and will be assessable under the new managed investment rules ie., income will be assessed on an ongoing basis using a rate of return. (The effect of realisation of a managed investment which is not saved is not an issue here because such investments have income assessed on an ongoing basis only (using a rate of return) and would continue to have income assessed on this basis even if transferred.)

4.However, it is not the intention of the above-mentioned policy to treat as a realisation any transfer of a saved ARI or MLI between members of a couple which occurred by reason of the death of a member of that couple.

5.Instead, it is current policy that the transfer of a saved ARI or MLI under such circumstances is not considered to be a realisation of the investment for the purposes of the VEA. Consequently, the original date of acquisition for such investments remains as the acquisition date for service pension purposes when the investment is transferred to the surviving partner. This means that income assessable on realisation will only be assessed when a partial or complete realisation of the investment is made by the surviving partner.

6.It should be noted that this beneficial policy is identical to that which has been previously advised with respect to similar circumstances for saved shares (see DI No. B73/93 and the GOSP chapter on shares). This policy is also identical to currently stated Department of Social Security (DSS) policy.

Transfer between members of former couple of saved managed investments/shares by reason of divorce or separation

7.It is current policy (as previously stated in paragraph 35 of DI No.B73/93 and the GOSP chapter on shares) that the transfer of saved shares (acquired prior to 19 August 1992) between members formerly of a couple which occurred as the result of a breakdown of the marriage or relationship (ie., divorce or separation) is not taken to be a disposal of such shares. Where saved shares are transferred under such circumstances, the date the shares were originally acquired remains as the date of acquisition of those shares in the hands of the recipient. Therefore any transfer of saved shares in such circumstances will continue to be considered as saved and will not be considered to be "new" shares and will therefore not be subject to income being assessed on an ongoing basis using a rate of return.

8.Effective immediately, the policy with regard to the treatment of saved ARI's and MLI's will be identical to the above-mentioned policy for saved shares. That is, a beneficial policy will be applied such that, where a saved ARI or MLI is transferred between members formerly of a couple, and such a transfer occurred as the result of a breakdown of the marriage or relationship (ie., divorce or separation), no realisation will be taken to have occurred and the investment will retain its original acquired date in the hands of the recipient.

9. ARI's/MLI's/shares purchased after the relevant savings dates are not affected by this policy and any such managed investments/shares transferred under such circumstances would continue to have income assessed on an ongoing basis in the hands of the recipient.

DSS Policy re transfer between members of former couple of saved managed investments/shares by reason of divorce or separation

10.It should be noted that the above mentioned policy for both saved shares and saved ARI's and MLI's is not the same as current DSS policy. DSS do not apply the same beneficial policy as DVA and consider any transfer of saved shares or saved ARI's and MLI's between members of a former couple which occurs by reason of a divorce or separation settlement action to be a realisation for pension purposes.

11.The practical application of DSS policy is that saved shares/managed investments transferred under such circumstances:

• have income assessed on realisation for saved ARI's/MLI's;

• lose their saved status for pension purposes and are taken to be "new" investments with new acquired dates; and

• the "new" investments have income assessed on an ongoing basis using a rate of return.

Contact officer

12.The contact officer regarding inquiries related to this Instruction is Martin Dibb - telephone 06-2896706.

KAY GRIMSLEY

ASSISTANT SECRETARY

INCOME SUPPORT