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Asset-Test Exempt Income Streams - Defined Benefit
General characteristics of defined benefit income streams
A defined benefit income stream is an income stream that:
- meets the definition of 'pension' as specified in the Superannuation Industry (Supervision) (SIS) Regulations 1994,
- is paid from a public sector or private sector defined benefit superannuation fund,
- determines the payment rate by factors other than the purchase price, such as the length of service and final salary.
Conditions for exemption to be extended
All of the following conditions must be met for a defined benefit income stream to be asset-test exempt:
- the scheme or fund from which the income stream is paid:
- was established before 20 September 1998, and
- provided the income stream product before that date,
- the income stream product was treated as a superannuation pension and was exempt from the assets test before 20 September 1998,
- a pensioner started the income stream:
- before 20 September 1998, or
- after 20 September 1998 from a pre-20 September 1998 defined benefit superannuation pension product,
- for a private sector scheme or fund, unless the pensioner is a reversionary beneficiary:
- the income stream is directly connected to the pensioner's previous employment, and
- the payments from the defined benefit income stream become payable to, or for, the pensioner because of that employment.
Term and relevant number of a defined benefit income stream
Although the term of a defined benefit income stream is for the life of the beneficiary, the relevant number is either the:
- life expectancy of the primary beneficiary (ie where there is no nominated reversionary beneficiary), or
- longest life expectancy of either the primary beneficiary or reversionary beneficiary (ie where there is a nominated reversionary beneficiary or where the income stream is purchased in joint names).
When determining the relevant number the actual life expectancy factors are used (ie there is no rounding).
Reversion to reversionary beneficiary
Defined benefit income streams continue to be asset-test exempt on reversion to a reversionary beneficiary. On reversion, the gross payment, deductible amount and the deductible amount calculation method may change.
A superannuation fund is defined in the VEA as being:
- a fund that is or has been a complying superannuation fund within the meaning of section 45 of the Superannuation Industry (Supervision) Act 1993 in relation to any tax year; or
- an Australian superannuation fund (within the meaning of the Income Tax Assessment Act 1997) that is not a complying superannuation fund mentioned in paragraph (a) in relation to any tax year; or
- a scheme for the payment of benefits upon retirement or death that is constituted by or under a law of the Commonwealth or of a State or Territory; or
- an RSA within the meaning of the Retirement Savings Accounts Act 1997; or
- any of the following funds (unless the fund is a foreign superannuation fund):
- a fund to which paragraph 23(jaa), or section 23FC, 121CC or 121DAB, of the Income Tax Assessment Act 1936 (as in force at any time before the commencement of section 1 of the Taxation Laws Amendment Act (No. 2) 1989) has applied in relation to any tax year;
- a fund to which paragraph 23(ja), or section 23F or 23FB, of the Income Tax Assessment Act 1936 (as in force at any time before the commencement of paragraph (a) of the definition of superannuation fund in former subsection 27A(1) of the Income Tax Assessment Act 1936) has applied in relation to the tax year that started on 1 July 1985 or an earlier tax year;
- a fund to which section 79 of the Income Tax Assessment Act 1936 (as in force at any time before 25 June 1984) has applied in relation to the tax year that started on 1 July 1983 or an earlier tax year.
The purchase price of an income stream is the nominal sum of the paymetns made to purchase the income stream (including amounts paid by way of employer and employee contributions) less any commuted amounts.
Note: In determining the means test assessment of asset-tested income streams (lifetime), the purchase price is not used. Rather, the grossed up purchase amount.
Legislation: Section 5J(1)
A superannuation pension is a periodical payment received by a retiree from superannuation fund. During a person's working life, an individual may make regular contributions to superannuation fund in order to secure financial security after retirement. After retirement the superannuation may be collected as a:
- lump sum; or
- combination of both.
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).
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.
Life expectancy is the length of time a person is expected to live and has the same meaning as 'life expectancy factor' under section 27H of the Income Tax Assessment Act 1936.