Defined benefit income streams are 100% asset test exempt

The Commission has made several determinations in the form of legislative instruments that regardless of its commencement day, a defined benefit income stream is 100% asset test exempt.

Asset test exempt income streams commencing before 20 September 2004 are 100% asset test exempt

An asset test exempt income stream commencing before 20 September 2004 is 100% asset test exempt.

Asset test exempt income streams commencing on or after 20 September 2004 and before 20 September 2007 are generally 50% exempt

Most asset test exempt income streams commencing on or after 20 September 2004 and before 20 September 2007 are 50% asset test exempt. However, principles have been developed allowing the Commission to determine that certain asset test exempt income streams commencing on or after 20 September 2004 and before 20 September 2007 are 100% asset test exempt. The income stream must:

• have been purchased using funds directly from an allowable commutation of an existing asset test exempt income stream, and
• have the characteristics of an asset test exempt income stream, and
• meet one of the criteria in clauses 2.2 to 2.10 of the principles.    More ?

Income streams commencing on or after 20 September 2007 are generally not asset test exempt

Most income streams commencing on or after 20 September 2007 are not asset test exempt. However, principles have been developed allowing the Commission to determine that certain income streams commencing on or after 20 September 2007 are either  50% or 100% asset test exempt. The income stream must:

• have been purchased using funds directly from an allowable commutation of an existing asset test exempt income stream,
• have the characteristics of an asset test exempt income stream, and
• meet one of the criteria in clauses 3.2 to 3.11 of the principles.    More ?

The level of asset test exemption (50% or 100%) will be the same as the asset test exemption applicable to the existing asset test exempt income stream.

Principles under which a new income stream can be asset test exempt

In general terms, the Principles under which a new income stream can retain its asset test exemption are limited to commutations made to enable:

• changes to be made to the income stream where either:

• the reversionary beneficiary predeceases the primary beneficiary, or
• the primary beneficiary and the reversionary beneficiary are no longer members of a couple,

• compliance with actuarial certification,
• a transfer to a successor fund,
• a payment split under Part VIIIB of the Family Law Act 1975,
• a Family Court order or injunction under Part VIIIAA of the Family Law Act 1975,
• payment of a superannuation contributions surcharge debt,
• payment of excess contributions tax,
• payment of a hardship amount,
• transfer of all assets supporting a market linked income stream to another market linked income stream,
• closure of a self managed superannuation fund,
• compliance with regulation 6.21 of the Superannuation Industry (Supervision) Regulations 1994, or
• payment of excess contributions tax.

The original income stream must be commuted in full, in one complete transaction, and the commuted amount rolled over to the new income stream, except for commutations made in relation to payment splits under the Family Law Act, or payment of a superannuation contributions surcharge debt, excess contributions tax or hardship amount, which can be partial commutations.  A partial commutation based on a partial transfer of assets cannot be recognised, outside of the limited allowed circumstances, including in those cases where the transfer of the remaining asset value has been delayed.

Full details of each allowable commutation event are outlined in the Veterans' Entitlements (Retention of Exemption for Asset-test Exempt Income Streams) Principles 2022 (legislation.gov.au)