DATE OF ISSUE: 28 October 1992
ASSESSMENT OF PROFIT ON FRIENDLY SOCIETY AND DEFERRED INTEREST INVESTMENTS PURCHASED BEFORE 1 JANUARY 1988 AND MARKET LINKED INVESTMENTS PURCHASED BEFORE 9 SEPTEMBER 1988.
MANAGED INVESTMENTS WITHDRAWALS WORKSHEET
Summary
A change in policy has been approved for the method of assessing Friendly Society and deferred interest investments purchased before 1 January 1988 and Market Linked Investments purchased before 9 September 1988. The new method of calculation of profit on the investments for service pension purposes will:
i) Only assess profit that actually accrued while the pensioner was in receipt of a service pension ;
ii) disregard any profit that accrued during periods of non-receipt of service pension ;
iii) if the period of non-receipt of pension is 2 years or more, disregard any profit that accrued prior to reinstatement of service pension; and
iv)provide a basis for assessing profit on Compulsorily Preserved Superannuation Benefits
2. The "Managed Investments Withdrawals Worksheet" (MIWW) has replaced the "Capital Profit Apportionment Sheet" (CPAS). The MIWW form is used to calculate the amount of income which will affect service pension entitlement when the following investments are realised:
i) Friendly Society and Deferred Interest investments purchased prior to 1 January 1988,
ii) Market-linked investments purchased prior to 9 September 1988, and
iii) Preserved superannuation benefits, when a withdrawal is made prior to pension age, or after pension age.
Background
3. Certain pre 1/1/88 and 9/9/88 managed investments have income which accrues on the investment assessed on realisation, that is on the sale, maturity, surrender, transfer, gifting or withdrawal of all or part of the investment. The profit component is then calculated and held in the pension assessment for 12 months from the day on which the person became entitled to receive the amount , instead of during the term of the investments.
4. The same investments purchased after 1/1/88 and 9/9/88 have income assessed under the legislation on an ongoing basis.
5. The policy introduced in 1987 when these changes were announced required growth to be assessed over the entire life of the investment. Various discounts were then made using actuarial formulae to reduce the profit for periods when the person was not eligible to receive a pension. The calculations involved considerable manual effort in cases where numerous deposits and withdrawals were made during the life of the investment. This could be compounded if the pensioner had multiple investments. The methodology used created confusion for the pensioner and staff. Also the method was not used or understood by the investment industry.
6. The Managed Investments Withdrawals Worksheet (MIWW) has now been introduced to simplify the assessment process for managed investments and to include preserved superannuation benefits calculations. This form simplifies the process, is readily explainable to pensioners and aligns DVA with the DSS method of calculation.
7. The MIWW is to be used for all assessments. The CPAS is not to be used.
Legislation
8. The use of the MIWW applies to investments covered by VEA sections 46, 46B, 46H, 46J, 46K and 46S.
9. "Pension age" is defined in the VEA sub-section 5Q(1).
The purpose of the MIWW
10. The MIWW is used to calculate the amount of assessable income for DVA and DSS pension and DSS benefit/allowance recipients, for those managed investments which are assessable upon realisation. Profit amounts calculated through the use of the form are to be assessed as income for 12 months following the date of realisation. However, where a realisation produces a loss, that loss may be offset against profits from other realisations assessed during the same 12 month period.
11. A realisation of an investment occurs through:
. a withdrawal from the investment;
.maturity of the investment;
. gifting of the investment; or
. in some cases, transfer of the investment to another investment.
12. The MIWW is to be used in the following circumstances:
. where there is realisation of friendly society bonds or deferred interest investments purchased prior to 1 January 1988;
. where there is realisation of market-linked investments (MLIs) purchased prior to 9 September 1988;
. Compulsorily preserved superannuation benefit (CPSB) cases where there is withdrawal before pension age from superannuation bonds and funds, or from the preserved component of an approved deposit fund (ADF) or deferred annuity (DA); and
. CPSB cases where there is a realisation after pension age from superannuation bonds and funds, or from the preserved component of market-linked ADFs and DAs purchased before 9 September 1988.
Advantages of the new worksheet
13. The advantages of the MIWW are that it:
a) Maintains the concession to only assess profit that accrued while the person is a service pensioner, but is more generous than the old CPAS in that it:
i) only assesses profit that actually accrued while the person was in receipt of a pension; and
ii) disregards any profit accrued before periods of two or more years of non-receipt of a pension;
b) Is easier to explain to clients and members of the financial industry.
c) More accurately reflects the profit actually accrued over the period the person was in receipt of a pension.
d) Is simpler to use and will reduce much of the confusion still being experienced by processing staff some four years after the original worksheet was introduced.
e) Requires less information to be obtained by staff in order to perform the calculation, as there is no need to request information in relation to transactions that occurred prior to the person being granted pension (refer point i) above).
f) Provides a method with a legal basis for assessing profit on withdrawals from preserved superannuation benefits.
Procedures for using the MIWW
14. Before using the MIWW you need to check on the investment information screen (PP.II) to see if the investment is assessable on realisation.
15. Full information on the use of the MIWW is provided on the reverse of the form. (A draft copy of the form is attached for interim reference use until printing of a formal form has been completed.) A summary of this information follows:
1) Section 1 of the form is used to ascertain the start date of the assessment period. The assessment period is the time during which growth in the value of the investment is assessable for pension and DSS benefit/allowance purposes. This section has also been divided into two parts to allow for the different procedures to calculate the starting dates of the assessment periods for ordinary managed investments and compulsorily preserved superannuation benefits (CPSBs).
2) Section 2 of the form calculates the gross assessable amount of capital growth in the value of the investment. If the client was in receipt of a pension or DSS benefit/allowance for the whole of the assessment period and has realised the full amount of the investment, this will be the amount assessable for 12 months following the date of realisation.
3) Section 3 of the form is used to calculate the gross assessable amount where only part of the investment is currently being realised.
4) Section 4 of the form is used to calculate the gross assessable amount where there were gaps in the assessment period. This takes into account the principle that the growth in the value of the investment during these gaps is not assessed for pension or DSS benefit/allowance purposes.
5) The amount at box J of section 4 is the amount to be included as income for 12 months from the date of realisation.
Managed Investment ('MI') screen procedures
16. The fortnightly amount of profit to be assessed is placed on the 'MI' screen via the Investment Information 'II' screen by adding a false manager/product which has been set up as:
MANAGER : PROFIT TO BE HELD FOR 12 MONTHS DUE TO REALISATION
PRODUCT : OF A CAPITAL GROWTH INVESTMENT
17. The "DATE ACQUIRED' in these cases is the date of the realisation.
18. The MI automatic fortnightly reassessment run will identify the profit entry on the 'MI' screen and delete it from the pay-day after the 12 month anniversary of the 'DATE ACQUIRED' as recorded on the 'MI' screen.
19. Since these cases are either automatically processed or automatically listed for processing, there is no need to set manual reviews.
20. There may be cases where a MIWW assessment provides a loss (negative return) from a realisation, and that loss is offset against realised profits on similar managed investments during an overlapping period, In these cases it may still be necessary to set a manual review if the end of the overlapping period is not the same as the realisation date set in the 'DATE ACQUIRED" field on the 'MI' screen.
Reference areas
21. The new issue of the GOSP will in due course contain references to the use of the MIWW form under the headings "ASSETS AND INCOME TESTS" "Managed Investments".
22. The Investment Policy Officer in each State will organise training in the use of the new form if necessary, and will be able to provide ongoing assistance with any queries that may arise regarding the use of the MIWW.
PETER HAWKER
NATIONAL PROGRAM DIRECTOR
(BENEFITS)
ATTACHMENT TO THIS INSTRUCTION
(NOTE: This attachment has been rekeyed to enable it to be be included on the General)
MANAGED INVESTMENT WITHDRAWALS WORKSHEET
Withdrawal date
File No.___________ — Name ___________________________________ — date/ /
Fund Manaager __________________________________ Product ____________________________
Section 1 - Calculation of start date of Assessment Period
Ordinary Non Superannuation Investment — Superannuation (CPSB) Invesment
(groups a and b in Guide Note 1)(groups c and d in Guide Note 1)
Start date is the later of:Start date is the later of:
(i)date of commencement of pension (if 2
(i)date of commencement of pension (if 2 — or more years of continuous non-
or more years of continuous non-payment prior to latest
payment prior to latest grant, ignore earlier dates
grant, ignore earlier dates of grant://
of grant://
(ii)date the investment was
(ii)date the investment was — made://
made://
(iii)only if the CPSB is realised
(iii)for friendly societies, after pension age - date of
write 1 November 83://pension age://
Start date of assessment (iv)only if the CPSB was formerly
period (as calculated above) is//assessed on an ongoing basis -
date this ceased://
Start date of assessment period
(as calculated above) is//
Section 2 - Calculation of Gross Assessable Amount
AValue of investment at date of maturity/withdrawalA __________
BAll earlier amounts withdrawn from the investmentB __________
during assessment period
CValue of investment at start of assessment period
(as per start date in Section 1 above) PLUS anyTotal (A + B) __________
subsequent additions to the investment.
DProfit on previous sales/withdrawals from this
investment during the assessment period - this
is the sum of any previous positive Box GD __________
amounts on this version of the form, and any
positive Box I amounts on the old version
of this form.
Total (C + D) __________
EGross Assessale Amount = (A + B) - (C + D)E ________
Section 3 - Partial Sale/Withdrawals
Is this a partial sale/withdrawal?
Yes — complete the details below — No — transfer the figure in box E above to box G below,
then go to Section 4
FAmount now being sold/withdrawnF __________
GProportion realisedF __________XE __________=G ________
A __________(profit/loss realised on sale/withdrawal)
Section 4 - Assessment Period
Start of the assessment period as End of the assessment period (date of
per Section 1//withdrawal)//
Were there gaps in payment in the assessment period?
Yes — complete the details below — No — transfer the figure in box G above to box J below,
then complete item K
HNumber of whole months in assessment period
(not calendar months)H __________
INumber of whole months in H during whichI ___________
pension was paid (not calendar months)
JProportion assessableI __________XG ___________=J ______
H __________(assessable amount)
KFortnightly amountJ __________divided by 26=K ______
Examiner ____________________ — Date//
Guide to the Managed Investment Withdrawals Worksheet
APPLICATION OF THE SHEET
1.The worksheet is to be used in the following9.Where it becomes evident that earlier
cases:withdrawals have been made in the
arealisation of friendly society bonds or — assessment period without advising the
deferred interest investments purchased prior Department, separate withdrawal worksheets
to 1 January 1988:should be prepared for each withdrawal,
b.realisation of Market Linked Investments — beginning with the earliest. If appropriate.
(MLI's) which were purchased prior to overpayments should be raised. Details of
9 September 1988;past transactions should be requested.
OR
c.CPSB cases - withdrawals from superannuation ITEMS ON THE SHEET
funds and bonds before age pension: 10.The items on the sheet should be completed
realisation of the preserved component of an as follows:
Approved Deposit Fund (ADF) or Deferred
Annuity (DA) before pension age.Item AThis is the value of the investment at
d.CPSB cases - withdrawals from superannuation — the date of realisation, including the amount
funds and bonds after pension age; realisation — now being realised.
after pension age of the preserved component
of a pre 9 September 1988 market linked ADFItem BThis is the total amount withdrawn
or DA.from this investment during the assessable
NOTE: 'Pension age' means 55 years for a femaleperiod excluding periodical distributions of
veteran; 60 years for a male veteran; or 60 years — income or dividends.
for any other female; 65 years for any other male
Item CThis is the value of the investment at
UNDERLYING PRINCIPLESthe start of the assessable period plus any
2.The principle underlying this sheet is that increases — additional amounts invested during the
in the value of an investment while pension assessable period. Includes reinvested
(including Department of Social Security pensionsdividends but not bonuses.
or benefit/allowance) was paid, should be treated
as income for 12 months when the investment isItem DThis is the net total of all earlier
realised. The legislative basis for this procedure — realised capital profits (positive amounts)
is contained in Section 46 of the VEA.during the assessment period. It includes
amounts assessed in the past as a result of
3.The increase in the value of an investment is — calculations such as this one even though
calculated by adding the value of the investment at — 12 months may not have elapsed since the
the date of the withdrawal to all earlier amounts — calculation. It also includes amounts which
withdrawn (A+B), and deducting the value of the — should have been assessed but for
investment at the start of the assessable period (C).Departmental oversight or failure to notify
Previously realised profits, on which income has (see 9 above).
already been assessed (D) are also deducted,
otherwise those profit amounts would be countedItem EThis is the profit liable to assessment
twice. The profit to be assessed on a total withdrawal — on sale/withdrawal as per point 3 above. Even
(E), is therefore (A+B) - (C+D).if a loss has occurred the worksheet should be
completed - see Item J.
4.If only part of the investment is withdrawn, the realised
profit or loss must be scaled down proportionally ie.Item F This is the part of the investment now
if only half of the investment is cashed in only half of — being withdrawn/sold, after deducting
the capital gain (profit) is being realised.expenses such as fees or brokerage, but
before any tax has been deducted.
Item GThis is the part of the profit or loss
ASSESSABLE PERIODwhich has been realised on this withdrawal/
5.Where pension was not paid for the whole of the — sale.
assessable period, the profit or loss to be taken into
account must be reduced proportionally - if theItem HThis is the number of whole months
investor had gaps in receipt of pension resulting in — in the assessment period. Count months from
pension only being paid for 30 months out of an — date to date commencing at the start of the
assessable period of 40 months, only 3/4 of the assessment period, eg. 7 April to 6 May = one
realised profit would be treated as income.whole month; 7 April to 5 May = nil whole
months. Do not use whole calendar months
6.The assessable period does not include any period — eg. all of April or all of May.
prior to a gap of two years or more during which
pension was not paid. If the non-payment gap isItem IThis is the number of whole months
less than 2 years, use the earliest date of grant in — that pension was received during the
determining the start date of the assessment period.assessable period. Count whole months as
defined in Item H above.
7.Where a married couple who are joint owners of an
investment have different dates of grant, use theItem JThis is the assessable amount from
earliest date as the date of commencement of pension — the withdrawal. If this a profit, it should be
for both clients in determining the start date of the — held as income for 12 months from the date
assessment period.of realisation. If this is a loss (a negative
amount) it can be offset during the 12 months
8.Where one partner only is qualified for pension against any profits calculated using this form
and the other partner is the sole owner of the (or the old form D2702) but only for the
investment, the start date of the assessment period overlapping period. The profit/loss should be
was made. The exception is where the non-held even if the whole investment is realised.
qualified partner withdraws from a CPSB prior to
pensionable age. In this situation there is no Item KThis is Item J converted to a
assessable period, and this means no income can fortnightly amount.
be assessed.