﻿ Percentage Payment Splits - Asset-tested Long Term Income Streams | Compensation and Support Policy Library, Part 10 Types of Income and Assets, 10.5 Income Streams, 10.5.6 Special Provisions Regarding Family Law Affected Income Streams

# Percentage Payment Splits - Asset-tested Long Term Income Streams

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Last amended
1 July 2019
##### Calculating the asset value

This table shows how to calculate the asset value of an Asset-tested Long Term Income Stream where the superannuation agreement or court order specifies that payments from the original Family Law Affected income stream owned by the member are to be a split with the former partner (non-member) on a percentage basis.

For Asset-test Exempt Income Streams, Allocated or Account-based Income Streams, Defined Benefit Income Streams or Lifetime Income Streams, see the relevant pages under 10.5.6 Family Law Affected Income Streams.

For Asset-tested Long Term Income Streams:

 Step Action 1 Determine the percentages in the payment split for the owner (MSPROP) and the former partner (NMSPROP). 2 Calculate the notional purchase price (NPP) at the operative time for the original FLA income stream.The NPP = the purchase price of the original FLA income stream on the commencement day less any commutations made before the operative time. 3 Calculate the NPP for the primary and secondary FLA income streams by applying MSPROP and NMSPROP respectively to the NPP.NPP for the primary FLA income stream:  (MSNPP) = NPP x MSPROPNPP for the secondary FLA income stream:  (NMSNPP) = NPP x NMSPROP 4 Determine the residual capital value (RCV) for the primary and secondary FLA income streams. Unless otherwise stated, the RCV for the primary FLA income stream (MSRCV) and the secondary FLA income stream (NMSRCV) will be calculated by applying MSPROP and NMSPROP to the RCV of the original FLA income stream.MSRCV = MSPROP x RCVNMSRCV = NMSPROP x RCV. 5 Calculate the asset value of the primary FLA income stream using the formulaMSNPP – {([MSNPP – MSRCV] / relevant number) x term elapsed}Calculate the asset value of the secondary FLA income stream using the formula:NMSNPP – {([NMSNPP – NMSRCV] / relevant number) x term elapsed}MSRCV and NMSRCV are respectively the residual capital values for the owner and the former partner.Relevant number is the relevant number of the original FLA income stream on its commencement day.Term elapsed is the number of years elapsed since the commencement day of the original FLA income stream.
##### Impact of subsequent commutations on asset value

Any commutations made after the operative time are apportioned between the primary and secondary FLA income streams in the same proportion as the original percentage payment split. The commutation will affect the NPP and therefore the asset value of both the primary and secondary FLA income streams.

##### Subsequent reviews of asset value

FLA income streams are subject to the same asset value reviews as other income streams. The first six or twelve monthly review of the primary and/or secondary FLA income streams is taken from the time of the previous review date of the original FLA income stream. If the original FLA income stream has not yet had its first review, the review of the primary and/or secondary FLA income stream is taken from the commencement day of the original FLA income stream.

##### Income test assessment

This table shows how to calculate the assessable income from the income stream.

 Step Action 1 Determine the percentages in the payment split for the owner (MSPROP) and the former partner (NMSPROP).Determine the gross income for the owner and the former partner. 2 Calculate the notional purchase price (NPP) at the operative time for the original FLA income stream.The NPP = the purchase price of the original FLA income stream on the commencement day less any commutations made before the operative time. 3 Calculate the NPP for the primary and secondary FLA income streams by applying MSPROP and NMSPROP respectively to the NPP.NPP for the primary FLA income stream (MSNPP) = NPP x MSPROPNPP for the secondary FLA income stream (NMSNPP) = NPP x NMSPROP 4 Determine the residual capital value (RCV) for the primary and secondary FLA income streams. Unless otherwise stated, the RCV for the primary FLA income stream (MSRCV) and the secondary FLA income stream (NMSRCV) will be calculated by applying MSPROP and NMSPROP to the RCV of the original FLA income stream.MSRCV = MSPROP x RCV of original FLA income streamNMSRCV = NMSPROP x RCV of original FLA income stream 5 Calculate the deduction amount for the primary and secondary FLA income streams.Deduction for the owner = (MSNPP – MSRCV) / relevant numberDeduction for the former partner = (NMSNPP – NMSRCV) / relevant numberRelevant number is the relevant number of the original FLA income stream on its commencement day. 6 Reduce the gross income of the primary and secondary FLA income streams by their respective deduction amounts.
##### Impact of subsequent commutations on assessable income

Any commutations made after the operative time are apportioned between the primary and secondary FLA income streams in the same proportion as the original percentage payment split. The commutation will affect the gross income, NPP and therefore the deduction amount for both the primary and secondary FLA income streams.

Example: Henry buys a fixed term pension from XYZ super fund on 1 January 1998. His income stream is assessed by DVA as an 'asset-tested income stream (long term)'.

Purchase price = \$100,000

Term = 20 years

Pension payments = \$9,000 p.a. (paid monthly)

RCV = Nil

5 years after purchasing his income stream, Henry and Wilma get divorced.

Court orders a percentage payment split with 60% of payments going to Henry and 40% of payments going to Wilma. No commutations were made from the income stream between the commencement date and the operative time. Operative time is 1 January 2003.

Under the payment split, Henry receives a primary FLA income stream with annual payments of \$5,400 and Wilma receives a secondary FLA income stream with payments of \$3,600. These amounts are advised to DVA by the trustee.

Assets test

Step

Description

1

Henry's proportion of the payment split is 60%.

Wilma's proportion of the payment split is 40%.

2

Calculate the NPP of the original FLA income stream (original FLA) at the operative time.

As no commutations were made from the commencement date up to the operative time, the NPP of the original FLA income stream is \$100,000.

3

Calculate the NPP for the primary FLA (member) and secondary FLA (non-member) income stream at the operative time.

MNPP (Henry)

= MPROP × NPP of the member income stream at the 'operative time'

= 0.60 × 100,000

= 60,000 (Henry's NPP at the operative time)

NMNPP (Wilma)

= MPROP × NPP of the member income stream at the operative time

= 0.40 × 100,000

= 40,000 (Wilma's NPP at the operative time).

4

Calculate the asset values for the member (primary FLA income stream) and non-member (secondary FLA income stream) at the operative time:

member asset value = 60,000 − {[(60,000 − 0) ÷ 20] × 5}

= \$45,000

non-member asset value = 40,000 − {[(40,000 − 0) ÷ 20] × 5}

= \$30,000.

In the above example:

• the asset value of Henry's split income stream at the operative time is \$45,000,
• the asset value of Wilma's income stream at the operative time is \$30,000.

Income Test

Step

Description

1

As per advice by the fund trustee, Henry's new gross annual payment is \$5,400 (primary FLA). Wilma's gross annual payment (secondary FLA) is \$3,600.

2

Calculate the deduction amount for each split income stream:

Member deduction amount = \$60,000 ÷ 20 = \$3,000

Non-member deduction amount = \$40,000 ÷ 20 = \$2,000

Henry's new deduction amount is \$3,000.

Wilma's deduction amount is \$2,000.

3

Calculate the assessable income by using the formula:

Henry has assessable income of \$5,400 − \$3,000 = \$2,400

Wilma has assessable income of \$3,600 − \$2,000 = \$1,600.

On 1 January 2005, 2 years after the operative time (1 January 2003) and 7 years after the commencement date (1 January 1998), the asset value of Henry's split income stream will be \$39,000. The asset value of Wilma's income stream two years after the operative time will be \$26,000.

Term elapsed since commencement date of the original FLA income stream: 7 years.

Member asset value (Henry) = \$60,000 − {[(\$60,000 − 0) ÷ 20] × 7} = \$39,000.

Non-member asset value (Wilma) = \$40,000 − {[(\$40,000 − 0) ÷ 20] × 7} = \$26,000.

Effect of commutations after operative time

On 1 January 2006 (three years after the operative time and eight years after the commencement date), Henry made a commutation of \$10,000 from his income stream. As this is a FLA income stream, Henry is only entitled to receive 60% of the commuted amount (i.e. \$6,000), while 40% will go to Wilma (i.e. \$4,000). The 'proportional split' was originally set out in the superannuation agreement or court order.

Assets test when a commutation is made under a percentage payment split

Step

Description

1

Recalculate NPP for both the primary FLA (member) and secondary FLA (non-member) income stream by using the formula:

Adjusted MNPP = M/NPP − Proportion of the commuted amount

\$60,000 − \$6,000 = \$54,000 (Henry's adjusted NPP)

Adjusted MNPP = NM/NPP − Proportion of the commuted amount

\$40,000 − \$4,000 = \$36,000 (Wilma's adjusted NPP).

2

Using the adjusted value of both the primary FLA (member) and secondary FLA (non-member) NPPs, calculate new asset values for primary FLA and secondary FLA.

Term elapsed since the commencement date of the original FLA income stream is 8 years.

Member asset (Henry) = \$54,000 − {[(54,000 − 0) ÷ 20] × 8}

= \$32,400

Non-member asset (Wilma) = \$36,000 − {[(\$36,000 − 0) ÷ 20] × 8}

= \$21,600.

In the above example:

• the asset value of Henry's income stream is \$32,400,
• the asset value of Wilma's income stream is \$21,600.

On 1 January 2007, 4 years after the operative date (1 January 2003) and 9 years after the commencement date (1 January 1998), the asset value of Henry's FLA affected income stream will be \$29,700. The asset value of Wilma's FLA income stream will be \$19,800.

Term elapsed since the commencement date of the original FLA income stream: 9 years.

Member asset value (Henry): \$54,000 − {[(\$54,000 − 0) ÷ 20] × 9} = \$29,700.

Non-member asset value (Wilma): \$36,000 − {[(\$36,000 − 0) ÷ 20] × 9} = \$19,800.

Income test when a commutation is made under a percentage payment split.

Step

Description

1

Obtain from the fund trustee the new gross income after the commutation is made for both the member (primary FLA) and non-member (secondary FLA). In this example, Henry's new gross annual payment is \$4,320. Wilma's new gross annual payment is now \$2,880.

2

Recalculate the deduction amount for each split income stream using the formula:

Deduction amount = (NPP − RCV) ÷ RN (of the original FLA income stream)

Henry (deduction amount): \$54,000 ÷ 20 = \$2,700

Wilma (deduction amount): \$36,000 ÷ 20 = \$1,800.

3

Recalculate the assessable income of each split income stream using the formula:

Assessable income = Gross income − Deduction amount

Member assessable income (Henry) =
\$4,320 − \$2,700 = \$1,620 p.a.

Non-member assessable income (Wilma) =
\$2,880 − \$1,800 = \$1,080 p.a.

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) of the VEA

The commencement day in relation to an income stream is the first day of the period to which the first income stream payment relates. This is usually one instalment period before the date of the first income payment.

The commencement day cannot occur prior to:

• when all of the capital which is to support the income stream is available to the income stream provider;
• the day established as the commencement day in relation to the terms and conditions agreed between the income stream provider and the individual; and
• in circumstances where the individual or their beneficiary becomes entitled to the income stream as per the terms and conditions, the time at which the entitlement to start the income stream arises.

Legislative reference:  subsection 5J(1) of the Veterans' Entitlements Act 1986.

A commutation, in relation to an income stream, is the conversion of part or all of the future income stream payments into a lump sum. A commutation is similar to a withdrawal.

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.

The residual capital value is the amount (if any) remaining at the end of an income stream's term, consisting of a portion of the initial capital invested in the income stream.