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Deemed Income from Other Managed Investments

Document
Last amended 
1 July 2019
Overseas managed investments

Deeming applies to managed investments held overseas.

Non-exempt funeral bonds

Deeming applies to funeral bonds that are not exempt assets.    

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Deeming applied to private unit trusts

The following table describes the application of deeming to private unit trusts:    

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If the private unit trust is...

then it is...

a managed investment

subject to deeming.

not a managed investment, because it does not meet all of the criteria for a managed investment.

For example, if an investor in a private unit trust exercises control over the management of the invested assets then it is not a managed investment.

  • not subject to the deeming provisions, and
  • the trust distributions are assessed as income for 12 months following distribution.
Deeming applied to ostrich and emu farming investments

The following table describes the application of deeming to ostrich and emu farming investments.    

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Investment Type

Application of Deeming

Speculative

Investments of this type are not financial investments and therefore, not subject to deeming.

For assessment purposes:

  • the purchase price is held as an asset, and
  • gross profit is assessed as income for 12 months from the date of disposal of the investment.

Share farming scheme

Share farming investments are considered to be businesses, therefore assessment is made of gross income from the business, less allowable deductions.

An arrangement is subject to deeming if it is established that the:

  • investor is not carrying on a business, and
  • arrangement is a 'managed investment'.

Managed investment scheme

These schemes are managed investments and are subject to deeming.

Deeming applied to afforestation projects

The following table describes the application of deeming to afforestation projects:    

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If the investor is...

Then...

Carrying on a business alone or with other participants, with a direct investment in an identifiable area of land and associated commodities

assessment is made of gross income from the business, less allowable deductions.

Not carrying on a business

the arrangement must be examined to establish whether it is a managed investment.

NOTE: While forestry investments may be marketed as being managed investments, and may be assessed as managed investments for taxation purposes by the ATO, they have been found in the past to not satisfy the VEA  requirements.  Careful examination of the prospectus is required because if the investment remains in the name of the individual investor, with the investor being able to exercise a degree of effective control over the management of the invested asset, the investment is not considered a managed investment.

Managed investments are subject to deeming.

Lifetime Income Streams

Asset-tested lifetime income streams purchased on or after 1 July 2019 which were purchased with non-superannuation monies, are considered managed investments and deemed before the assessment day (prior to payments commencing or the owner reaching pension age).  After the assessment day, they are no longer considered managed investments and other rules apply, see 10.5.4 Means Test Assessment of Lifetime Income Streams and Glossary term 'Assessment Day'.
 

 

An investment is a managed investment if:

  • the money or property invested is paid by the investor directly or indirectly to a body corporate or into a trust fund,
  • the assets that represent the money or property invested (the invested assets) are not held in the names of investors,
  • the investor does not have effective control over the management of the invested assets, and
  • the investor has a legally enforceable right to share in any distribution of income or profits derived from the invested assets.

For a full definition see also:

Sections 5J(1A), 5J(1B) and 5J(1C) of the VEA.

 

 

An exempt asset is one that is disregarded when calculating the value of a person's assets under the assets test.  Examples of exempt assets include:

For a full legislative definition see section 52 of the VEA.

 

 

In 1990 the government introduced legislative changes called “deeming” to simplify the assessment of cash deposits and income from certain investments. These changes were made:

  • in response to pensioner concerns about complex income and assets test rules;
  • to encourage pensioners to maximise their private income.

Deemed income is the minimum rate that the government expects income support pensioners to earn from investments.

Banks created “pensioner accounts” which paid interest at the deeming rate set by the government.

On 1 July 1996 further changes meant the deeming rate was applied to all financial assets as defined in section 5J(1) of the VEA.

 

 

According to section 5H of the VEA income is:

  • an amount earned, derived or received by a person for the person's own use or benefit;
  • a periodical payment by way of gift or allowance; or
  • a periodical benefit by way of gift or allowance.

 

 

According to section 5J of the VEA, a financial investment means:

     but does not include an investment in an FHSA (within the meaning of the First Home Saver Accounts Act 2008) or a designated NDIS amount.