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C58/2002 Assessment of Income Streams of Divorcing Couples under the Family Law Act 2002 and Consequential VEA Amendments

Document

DATE OF ISSUE:  24 DECEMBER 2002

Assessment of Income Streams of Divorcing Couples under the Family Law Act 2002 and Consequential VEA Amendments

Purpose

This DI provides an overview of the Family Law Legislation Amendment (Superannuation) (Consequential Provisions) Act 2002, which has been enacted to provide for the splitting of superannuation interests on marriage breakdown.

The DI sets out the revised income and assets treatment of the income streams of divorcing couples, which are split according to a superannuation agreement or court order under Part VIIIB of the Family Law Act 1975.

The amendment Act also removes the existing rules regarding the assessment of profit arising from early withdrawals from a superannuation fund.  These rules were applicable to a person withdrawing from a superannuation fund prior to age 55.  From 28 December 2002, the profit rules will no longer apply to any pensioner.

Background

Prior to the amendments to the Family Law Act, the determination of superannuation interests on marriage breakdown was a difficult procedure.  Problems included the lack of court authority to divide superannuation or to impose obligations on the trustees of superannuation funds, to flag (or 'freeze') superannuation until an agreement is reached, or to provide information about a member's superannuation entitlement to a spouse.

The amending Act authorises the Family Court, or the parties to a property settlement, to split a superannuation interest on marriage breakdown.  This authority is now included in Part VIIIB of the Family Law Act 1975 (the FLA), with court orders being binding on the trustees of superannuation funds.

Courts may also flag a superannuation interest for future splitting, to prevent trustees from paying out a superannuation entitlement until an agreement is reached between the divorcing parties.  This subsequent agreement (a flaglifting agreement) allows a couple to split the superannuation interest.

Trustees will also be required to provide financial information to non-member spouses, so that they may be properly informed of a superannuation interest in order to assist, where possible, with the private settlement of property division on divorce.

Additionally, the amended Superannuation Industry (Supervision) Regulations enable the parties to a marriage separation to achieve a clean financial break, for common types of superannuation (most commonly, the fully vested accumulation plans).  Trustees can now create a new interest, transfer or roll-over the benefit, or in certain circumstances make a lump sum payment to the non-member spouse where a condition of release is satisfied.

Date of effect

The amendment Act received Royal Assent on 2 December 2002.  The consequential amendments to the VEA contained within the legislation commence on 28 December 2002, immediately after the primary changes to the FLA take effect.

The legislation has no retrospective effect, and any property settlements finalised, by mutual agreement or court order, prior to 28 December 2002 will not be covered under the amended rules.

Transitional Arrangements

Specific rules exist in the amending legislation for transitional arrangements, where settlement proceedings have commenced but are yet to be finalised.  Advice may be sought from this Office as necessary, if transitional cases arise.

The scope of this Departmental Instruction

The wide variety of superannuation schemes and the many options for superannuation splitting results in some complexity, requiring that each case that arises be carefully considered and dealt with on an individual basis.   Attachment C summarises several of the most common superannuation splitting scenarios that may arise, and how they should be assessed.

This DI does not attempt to deal with every possible scenario that may be encountered.  It does however flag:

  • the need to recognise:
  • new cases; and
  • affected cases, when processing variations;
  • the need to refer certain affected cases to the appropriate area for action;
  •       in what circumstances existing cases need be referred; and
  •       the availability of policy assistance.

This DI provides information in the following areas:

  1. General information about splitting superannuation
  2. Overview of changes to the VEA
  3. Specific changes to the VEA
  4. Other general information
  5. Processing of cases
  6. Removal of profit rules
  7. System changes
  8. Guidelines

In addition, there are several Attachments.

Attachment A: provides general reference information about income streams.

Attachment B: includes some common examples, with calculations, of pension reassessments where superannuation interests are split.

Attachment C: is a Question and Answer document.

Contact

Enquiries regarding reassessments arising out of the splitting of superannuation interests as part of a property settlement on marriage breakdown can be referred to the Income Support Policy Section in National Office.

JEANETTE RICKETTS

Branch Head

Income Support

24 December 2002

1.  General Information about splitting superannuation

Splitting of superannuation by agreement of the parties or by court order

The methods by which superannuation interests can be split, for the purposes of the Act, are -

  1. The parties can agree by mutual consent to the splitting of any superannuation interests.  Failing a mutual agreement, then:

  1. Under the amended Part VIIIB of the FLA, a court may exercise jurisdiction to split a superannuation interest.

The types of superannuation splitting are –

  • A percentage payment split – this occurs where the superannuation agreement or court order specifies a percentage split to the member spouse's superannuation entitlements; or

  • A base amount payment split – where the superannuation agreement or court order specifies the dollar amount that the non-member spouse is entitled to receive from the member spouse's base amount of superannuation, that is, as a lump sum payment.

Splitting of superannuation by the fund trustee, under regulation 14G

Fund trustees are bound by a court's decision on superannuation splitting. Once a court decision is made, a trustee will have the discretion (subject to any contrary instructions), under regulation 14G of the Family Law (Superannuation) Regulations 2001, to either –

  • Pay a lump sum to the non-member spouse – the value must be at least equivalent to that agreed to or ordered by the court; or

  • Create a new interest (income stream) in the same fund in favor of the non-member spouse with a value at least equivalent to the value of that agreed to or ordered by the court; or

  • Transfer or roll-over an amount at least equivalent to the value of that agreed to or ordered by the court over to another fund or Retirement Savings Account to be held for the non-member spouse.

In the above cases, the non-member spouse would not be entitled to any further payments.

Superannuation fund trustees are provided with the above discretion under regulation 14G, in view of restrictive fund rules that frequently require that monies remain within a fund.  A trustee decision under 14G will require a DVA reassessment of a pensioner's circumstances.


The difference between percentage payment and base amount splits

A basic principle of the new rules is that the asset value and the deduction amount (the amount by which a purchased asset-test exempt or an asset-test (long-term) income stream will be reduced, for income test purposes) applying to income streams payments will be split between the spouses.  The split will be in the proportions agreed by the parties, or as decided by court order.

As outlined, a superannuation agreement or court order will specify that the non-member spouse is entitled to be paid either:

  • a percentage of each future income stream payment; or
  • a base amount.

For a percentage payment split, the member spouse's income stream will be split between both parties in the proportion resulting from the agreement or order.  In this case, the asset value and the deduction amount applying to the continuing income stream payments will be split between the spouses in the same proportion.

For a base amount split, the entitlement of the non-member spouse is specified as a dollar amount, rather than a proportion of future income stream payments.  In this case, the non-member spouse may be able to take the base amount (in whole or in part) as a commuted amount from the income stream.  Both parties will be assigned a proportion of the asset value and the deduction amount that would have applied to the continuing income stream payments of the member spouse if there had been no payment split.  For each spouse, the proportion will be equal to the proportion of these original income stream payments that are payable to that spouse.


2.  Overview of changes to the VEA

Consequential amendments to the VEA

The changes to the Family Law Act 1975 have means-test implications for both DVA and Centrelink payments.  The required consequential changes to both the VEA and the SSA were made as part of the Family Law Legislation Amendment (Superannuation)(Consequential Provisions) Act 2002.

The splitting of superannuation interests will affect the assessment of superannuation income under the income stream rules contained in both the VEA and the SSA.

The changes will also affect the existing rules in the VEA and the SSA that apply to withdrawals from superannuation funds made by persons under the age of 55 years.  The existing rules are being repealed, so as not to disadvantage divorcing couples who are required to withdraw from a superannuation fund as part of a property settlement.  Pensioners will therefore be able to make withdrawals prior to age 55 without affecting their income support payments.

Objectives of amendments

The changes to the VEA will ensure that superannuation entitlement splits will be assessed fairly and consistently under the means test, with no unintended consequences for persons who have their superannuation entitlements split as part of a property settlement.

Underlying principle of changes

An underlying principle of the amendments is that the assessment for means test purposes will be based on the actual respective legal entitlement of each party (following the application of Part VIIIB of the FLA and the Family Law (Superannuation) Regulations 2001).

3.Specific changes to the VEA

Specific changes to the VEA

The legislative changes to the VEA are:

(1)    Amendments to the definitions and to the sections relevant to income streams, to take account of superannuation interests that are income               streams subject to an agreement or court order splitting the               superannuation interest.

The new definitions include a definition of a:

  • family law affected (FLA) income stream;
  • original FLA income stream;
  • primary FLA income stream; and
  • secondary FLA income stream.

  1.                  Isolating the existing income streams rules into a new Subdivision B               of Division 4 of Part IIIB of the VEA; and

  1.               Establishing, specifically for family law affected income streams, a               new Subdivision C of Division 4 of Part IIIC.  The rules for the               adjustment of family law affected income streams will, on finalisation,

be found in guidelines to be determined by the Commission pertaining to three sections:

  • Sections 46ZA and ZB which both apply to the income test; and
  • Section 52BA, which applies to the assets test.

      All three sets of guidelines are disallowable instruments, which are legally binding instruments that are required to be tabled in both               Houses of Parliament and are subject to disallowance.  Once               promulgated, the guidelines will be available through the Legislation               library on CLIK.

The inclusion of the new subdivisions B and C of Division 4 of Part IIIB of the VEA merely clarify that the pre-existing rules for assessing               the income and asset value of income streams do not apply to family               law affected income streams.

  1.               Repeal of the rules that apply to penalties for early withdrawals from

superannuation funds by persons under the age of 55 years.

Specific changes to the VEA cont.

(5)  Guidelines determined by the Commission for dealing with family law affected income streams, that will contain the method to apply               when working out the annual rate of:

  • Ordinary income from:
  • Asset-test exempt income streams – a new section 46ZA
  • Asset-tested income stream (long term) – a new section 46ZB
  • Asset value from:
  • asset-test exempt income streams – a new section 52BA

New terminology under the legislation

The original family law affected income stream is the income stream acquired or purchased by a person (called the member) from a relevant superannuation fund.  This is the income stream that is subject to an agreement by the parties, or an order of the court, splitting it between the former parties to a marriage.

The payments resulting from the splitting order are known as:

  • the primary FLA income stream, when paid to the member; and
  • the secondary FLA income stream, when paid to the member's spouse or former spouse (the non-member).

Both the primary and secondary FLA income streams are family law affected income streams.

The diagram below indicates the resulting income streams which will require a reassessment in the light of the application of the new family law:

Other effects of the amendments

The amendments to the Act also include amendments to:

  • determine when a 'split superannuation interest' becomes assessable;
  • ensure 'split income streams' are income streams for pension purposes;
  • ensure that payments to the original owner of an asset test exempt (ATE) income stream retain their asset test exempt status following the split; and
  • include guidelines for the valuation of the assessable income and assets of a pensioner whose superannuation is split, or who receives a superannuation entitlement due to property settlement.

Sections 46Q and 46R of the VEA (relating to the treatment of superannuation fund investments, including withdrawals, before pension age) are repealed.  This will ensure that a split of a superannuation interest in the 'growth phase' is not treated as a realisation of the investment, and therefore potentially assessable as income.


4.  Other general information

Assessments will usually affect the member spouse (veteran)

It is expected that in most cases the income and assets reassessment arising out of a split income stream will reflect the proportion of the original income stream remaining with the pensioner in question.  Under the VEA, where the pensioner is a veteran receiving service pension, the necessary reassessment will be restricted to the veteran, as their partner will no longer be payable under the VEA unless the partner is also a veteran in his or her own right.

Treatment of commuted amounts

If either spouse receives a commuted amount as part of the base amount payment split and this amount is not rolled over, the commuted amount will be treated as a lump sum payment, not as income.  In accordance with normal means test rules, if the amount received is used to purchase an asset, or invested, it may be treated as an assessable asset.  Under the income test, the asset may be deemed or actual income may be assessed, depending on the nature of the asset.

If either spouse uses the amount commuted to purchase another income stream, the income stream will be treated as a new income stream (with a new commencement day and relevant number) for means test purposes.

Treatment of  continuing income stream payments

The trustee of the superannuation fund may create a new interest in the fund, transfer or roll over an amount to another superannuation fund, or pay an amount in satisfaction of the non-member spouse's entitlement.  If this occurs, the:

  • new asset value; and
  • new deduction amount,

of the reduced income stream payments of the member spouse will reduce in the same proportion as the reduction that applied to their original income stream payment.

Continuity of asset test exemption (ATE) status

For a percentage payment split:

  • both the member spouse's and the non-member spouse's split income streams will retain the asset test exempt status of the member spouse's original income stream.

For a base amount split:

  • the non-member spouse's split income stream will retain the asset test exempt status of the member spouse's original income stream.  The member spouse's split income stream will also retain the asset test exempt status of the original income stream, provided the amount commuted does not exceed the amount required to meet the entitlement of the non-member spouse under the payment split.

Treatment of funds split during the growth phase

The guidelines under section 46ZA (as well as those under section 46ZB and section 52BA) will not apply to assessments where the superannuation interest is split during the growth phase.

This is because a person's interest in a superannuation fund during the growth phase is not assessed under the income streams rules.  An interest at this stage is not an income stream, as no payments are being made by the fund to the member.  A person's investments in a superannuation fund are effectively quarantined from assessment until they reach the relevant pension age.

It is only necessary to assess the superannuation of a person not yet receiving superannuation pension or annuity (i.e. in the growth phase) if they are still making fund contributions beyond their relevant pension age.

In these cases, it will be necessary to rely upon the method of assessing the value of the superannuation investments under the Family Law (Superannuation) Regulations 2001.  Actuarial advice is likely to be required in this situation, to properly value the superannuation interest.  Revised values can be entered into a person's assessment when they satisfy the minimum conditions for release, i.e. at the earliest retirement age.  As these circumstances are expected to rarely arise, policy advice should be sought from the Income Support Policy Section before seeking actuarial advice.

Circumstances in which actuarial valuation may be required

Actuarial valuation may be required to extrapolate superannuation amounts and interests through to retirement age, where the option to flag a superannuation interest is not taken up.

The deferral of the actual splitting of payments until retirement age, whether payments are by ongoing pension or lump sum, will simplify the process of valuing the interest concerned, as it will avoid the need for costly actuarial valuations.

Treatment of the first income stream payment, for means test purposes

Where an income stream is:

  • not an allocated pension, and
  • the first income stream payment is also the first splittable payment after the payment split, and
  • a base amount split has been awarded,

then the first payment after a base amount split is treated differently from the subsequent payments from the income stream.

The first splittable payment after a base amount split has been awarded may also be:

  • the first income stream payment; or
  • a lump sum payment separate from the income stream.

Where the first splittable payment:

  • equals or exceeds the base amount awarded to the non-member spouse OR the combined base amount split, the non-member spouse is entitled to be paid the base amount from that payment.  The non-member spouse will not be entitled to any further payments.  Where the non-member spouse's base amount exceeds the first splittable payment, the non-member spouse is entitled to be paid all of the first splittable payment.  In this case the member spouse will not receive any part of the first splittable payment.  All payments will usually go to the non-member spouse until that person has been paid out in full;

  • is also the first income stream payment, no income will be assessed for either spouse before the date of the first income stream payment.  This is because the member spouse will not usually receive the first splittable payment.  The amount paid to the non-member spouse from this payment will form part of the base amount and will be assessed as an exempt lump sum, not as income;

  • is a lump sum separate from the member spouse's original income stream, the first and subsequent 'split' payments from the original income stream will be split in the proportion necessary to meet the non-member spouse's entitlement to the outstanding portion of the base amount.  The first income stream payment will be assessed in the same manner as subsequent income stream payments.

5.  Processing of cases

Frequency of cases

The number of cases of superannuation splitting following marriage breakdown is difficult to estimate.  Currently there are approximately 21,000 married DVA clients receiving income stream payments.  Australian Bureau of Statistics data indicate an annual divorce rate for married males, age 60, of 0.28%.  These figures suggest that approximately 60 cases of superannuation splitting will occur annually, across all DVA Offices.  Many of the non-member spouses will be on partner service pension, and hence will leave the repatriation system.  This level of anticipated workload will minimise the exposure of any one State Office or individual examiner to the complexities of the revised assessments.

Processing of cases centrally being canvassed

Many of the possible superannuation splitting scenarios are likely to arise infrequently, with complex features and formulas needing to be applied.  The infrequency of these cases combined with their complexity results in little opportunity to develop expertise, unless processing is undertaken within a centralized area or by specific individuals.

Input was sought from States on this issue via the Stateline issued on 13 November 2002.  Further advice on the outcome of this consultation will be provided, when all State Office responses are received.

Interim measures

In the interim, cases of superannuation splitting should be notified, as they arise, to the Income Support Policy Section.  Notification of cases will assist in developing and refining the guidelines and policy statements, for the assistance of local examiners.  The contact person for case notification is Brian Butler, Income Support Policy Section, on (02) 6289 6110.

Manual override of the PIPS income streams rules is likely to be required

For both percentage payment splits and base amount payment splits, the commencement day of the split income streams for the purpose of recording on the income streams screen will be taken to be the commencement day of the member spouse's original income stream.  However, many of these cases are likely to have the income streams rules in-built into the system turned off by use of the drop box option that disables the rules, allowing for full manual input to be undertaken without edits occurring.

Effective PIPS date for superannuation split

The operative date of the superannuation split will be contingent on:

  • the date when a superannuation fund trustee elects to exercise the splitting options available under regulation 14G; or

  • the implementation date of the court's splitting order.

Review procedure

The asset values of the split income streams will be reassessed at the usual six or twelve monthly intervals.


6.  Removal of Profit Rules

Deletion of profit rules

From 28 December 2002, the profit rules pertaining to withdrawals from superannuation investments by persons under 55 years of age will cease to apply.  Profit will still remain assessable for affected pensioners up until that date.

These changes ensure that the provisions that were only applicable to those persons aged under 55 years cease to apply to all pensioners from 28 December 2002.  It should be noted that these sections still apply to any profit on withdrawals made by persons under the age of 55 years before 28 December 2002.  Profit remains assessable up to and including 27 December 2002.

VEA amendments regarding profit calculation

The following sections of the Veterans' Entitlements Act 1986 have been repealed:

  • 46Q  - Treatment of superannuation fund investments before pension age;
  • 46R  - Early withdrawal from superannuation fund; and
  • 46S   - Adjustment of ordinary income for investment losses

The repeal of these sections ensures that a split of superannuation interest in the growth phase is not treated as the realisation of the investment, and therefore is not potentially assessable as income.

In addition, the definitions of 'assessable growth period' and 'assessable period' have been removed from section 5J(1) of the VEA.

Existing profit  assessments

As these changes become effective on 28 December 2002, there are currently some cases that will still have profit in the assessment as at that date.  These cases will require existing profit assessments to be removed from the pension assessment.  Affected cases can be identified through the Ad Hoc Inquiry System (AIS), for manual processing.  A recent AIS interrogation by this Office, using the “Profit Amount” query, identified 64 cases where held profit amounts will need to be removed.

Reassessing existing profit cases

State Office processing staff should follow these steps to reassess existing cases which are affected by these changes:

Step

Action

1

Register a DIR (Departmentally Initiated Review) using CMS screen CM.CP.

2

Create a PIPS PC worksheet, selecting 'Date of Effect Rules Do Not Apply' and enter the relevant date of effect, as specified on the lists of affected cases.

3

Delete the relevant profit entry from the PIPS PC Profit data collection screen.

4

Add the following suggested 'Free Text' to the PIPS PC Advices screen:

"Under new rules, from 28 December 2002, profit will no longer be counted as income when a withdrawal is made from a super fund investment.  As a result of these changes your existing profit income has been removed from your pension assessment."

CLIK & FACT sheets

The affected policy statements in the Consolidated Library of Information and Knowledge (CLIK), and the DVA Fact Sheets, will be examined and revised to ensure that all references to the assessment of profit for early withdrawal from superannuation fund investments by persons age 55 or over have been removed.

Pre Pension Age Super Fund Withdrawals Worksheet

The 'Pre Pension Age Super Withdrawals Worksheet' will remain in use for the time being, but will only be relevant for retrospective calculations involving withdrawals where the assessment period pre-dates the implementation date of 28 December 2002.


7.          SYSTEM CHANGES

Pending system changes

Identified systems changes at this stage are:

  • to PIPS PC to prevent the addition or inclusion of profit post 28/12/2002;

  • to $FORT Profit Delete sub program, to be removed after 28/12/2002; and

  • to Advices, to remove reference to profit being assessed or deleted.

A separate Stateline will be issued when the required system changes are identified and finalised.


8.          GUIDELINES

Guidelines to assist determinations

The guidelines set out in the following table are divided into a number of different categories, depending on:

  • the type of assessment being considered, that is, income or assets;

  • the type of superannuation product;
  • whether the product is in the growth phase or the payment phase; and

  • the type of split occurring, that is whether it is a percentage payment split or a base amount split.

The examples in Attachment B outline the common scenarios that are likely to be encountered.  Many of the other scenarios outlined in the guidelines are unlikely to be commonly encountered.

Assistance is available from the Income Support Policy Section if cases arise which do not fall within the scenarios outlined in Attachment B.  State Office advice of these cases will assist in refining the guidelines over time.

A summary of general income stream terminology and categories has been included at Attachment A, for reference purposes.


ATTACHMENT A

General reference information about income streams

What are income streams?

Under the VEA, an income stream is defined to include the following categories of superannuation:

  1. an income stream raising under arrangements that are regulated by the Superannuation Industry (Supervision) Act 1993; or
  2. an income stream arising under a public sector scheme, within the meaning of the same Act.

This means that in the majority of cases, superannuation interests that have been split by agreement or court order will be assessed under the income streams rules.

What is an Asset Test Exempt (ATE) income stream?

An income stream is an ASSET TEST EXEMPT (ATE) income stream only if it is:

  • paid for life; and
  • meets all of the characteristics listed in subsection 5JA(2) of the VEA;

OR

  • paid to life expectancy; and
  • is purchased or acquired on or after pension age; and
  • meets all of the characteristics listed in subsection 5JB(2) of the VEA

OR

  • paid for a fixed term of 15 years or more; and
  • is purchased or acquired on or after pension age; and
  • the person's life expectancy is 15 years or more; and
  • the term is not greater than the person's life expectancy; and
  • meets all of the characteristics listed in subsection 5JB(2) of the VEA.

ANY INCOME STREAM THAT DOES NOT MEET THESE CRITERIA WILL BE AN ASSET TESTED INCOME STREAM.

Types of ATE income streams

The VEA provides for two broad categories of ATE income streams:

  • Defined benefit income streams – section 46V;
  • Non-defined benefit income streams – section 46U

What is a defined benefit income stream?

An income stream is a defined benefit income stream if the amount of the payments under it:

  1. is not fully determined by the purchase price; but
  2. is determined by:
  1. reference to the purchaser's salary before retirement or the purchaser's years of service; or
  2. the governing rules.

What is a Asset Tested income stream (long term)

An income stream is an asset-tested long term income stream (ATLT) if it:

  • is not an ATE income stream; and
  • has a term greater than 5 years;

OR

  • is not an ATE income stream; and
  • has a term of 5 years or less that is equal to or greater than the person's life expectancy.

What is an Asset Tested income stream (short term)

An income stream is an asset tested short term income stream (ATST) only if it is:

  • not an ATE income stream; and
  • not an Asset Tested Long term income stream.

Allocated income streams

Allocated pensions are income streams purchased with a lump sum eligible termination payment (superannuation money) into a personal account to which investment earnings are added and from which payments are drawn regularly.

Growth phase

The growth phase of superannuation arises typically whilst a person is employed and making contributions to it, or whilst the person's investment in the fund and is not being drawn down by regular payments.

Payment phase

The payment phase arises when a person commences to receive ongoing pension payments out of the fund.


ATTACHMENT B

Examples of common scenarios requiring reassessment of  superannuation interests split under Part VIIIB of the FLA

(a)(i) ATE income streams (non-defined benefit) – split during payment phase

Prior to split

Prior to the operation of the new family law, section 46U applies to working out the income from an ATE income stream that is not a defined benefit income stream (refer example below).

Example of how rules apply prior to split

The following example from the legislation explains how section 46U operates:

Mark is 65 years old and married. He receives superannuation payments of $380.58 per fortnight from rolling over $100,000 into a non-defined benefit superannuation fund with a term based on life expectancy (i.e. 15.41 years, which he chooses to round up to 16 years).  The annual payment from the superannuation fund held in the assessment is $9,895. Mark's assessable income from this income stream prior to the operative date of the split is:

where:

  • annual payment means the amount payable to the person for the year under the income stream.
  • purchase price has the meaning given by subsection 5J(1).
  • relevant number has the meaning given by subsection 5J(1).

= the assessable income.

Application of amended procedures

The annual income from the income stream will be determined in accordance with the guidelines to be issued under section 46ZA.  The guidelines will provide that the original family law affected income stream will be reduced in accordance with the percentage payment split.

Example

In the above example Mark divorces, and in a settlement with his ex-spouse agrees to split his ATE income stream 50/50.

The guidelines then apply to determine the annual rate of income from the split income stream (known as the primary FLA affected income stream).

The annual rate of income from the primary FLA income stream is determined by multiplying the amount of the “annual payment” and the “purchase price” held in the assessment under section 46U by 0.5 to reflect the percentage of the original family law affected income stream retained by Mark, as follows:

The relevant number remains unchanged in the assessment.

Comments

This scenario is likely to be the most common type of split likely to arise.

Procedures

Follow the steps below to reassess the income stream for the member spouse (MS) and non-member spouse (NMS) (if necessary) below:

Steps

Actions

1.

Determine the percentage split awarded to the MS and the NMS by agreement or court order.

2.

Adjust the “annual payment” and the “purchase price” held in the assessment on PIPS PC to take account of the proportion awarded to the MS (and the NMS if necessary).


(a)(ii) ATE income streams (defined benefit) – split during payment phase

Prior to split

The value of a defined benefit ATE income stream is worked out in accordance with section 46V of the VEA.

Section 46V states that if the asset-test exempt income stream is a defined benefit income steam, the amount that the person is taken to receive from the income stream each year is worked out as follows:

The deductible amount is defined in subsection 5J(1) and is the amount that would be a deductible amount calculated under subsection 27H(2) of the Income Tax Assessment Act. 1936 (ITAA).

The deductible amount is an amount by which the gross income payments from a defined benefits income stream are reduced in order to determine the assessable income for pension purposes.

The deductible amount is worked out by using the ITAA definition, being –

Undeducted Purchase Price (UPP) ? Relevant Number ? 26 = deductible amount per fortnight.

Example of how rules apply prior to split

Mark is 65 years old and married to Betty. He received superannuation payments of $200 per fortnight ($5,200 pa) from a defined benefit income stream prior to his divorce.  The relevant number is in this case 20, and the Undeducted Purchase Price is $10,000.  The deductible amount is therefore 500.

Section 46V states that if the asset-test exempt income stream is a defined benefit income steam, the amount that the person is taken to receive from the income stream each year is worked out as follows:

Mark's assessable income for pension purposes from this income stream is:

$

                      = $ 4,700 ($180.77 per fortnight)

Application of amended procedures

Mark and Betty divorce, and in a property settlement they agree to a 50/50 split of the income from the above ATE defined benefits income stream.

The guidelines under section 46ZA are applicable.

Example

The new income streams are:

$100 pf to the member spouse (MS)

$100 pf to the non-member spouse (NMS)

Therefore the assessable income from the above income stream attributed to member spouse (Mark) is -

$100 per fortnight ? 26

Comment

(1). This example scenario is also likely to occur.

(2) The income stream created as a consequence of the splitting order for the non-member spouse (NMS), Betty, is a defined benefits income stream by definition and should be assessed as either a ATE or an ATLT income stream depending upon its relevant number.

(3) The Australian Taxation Office is determining, under section 27H of the ITAA 1936, the deductible amounts for a new pension that is deemed to have commenced when a pension is split on divorce or separation.

Procedures

Follow the steps below to assess an ATE defined benefits income stream that has been subject to a splitting order:

Step

Action

1.

Confirm the percentage payment split made to the MS and the NMS (if necessary).

2.

Determine the assessable income for pension purposes by entering the new deductible amount and revised pension payments from the defined benefit income stream into PIPS PC.


(b)(i) ATE income streams (non-defined benefit) split during payment phase – base amount split

Example

The only difference between this scenario and scenario (a)(i) is that the agreement or court order will specify an amount to be paid to the non-member spouse.

Application of guidelines

The treatment of this case is similar to that of scenario (a)(i), with adjustments being made to the “purchase price” to reflect the payment to the ex-spouse.  The annual payment to be held in the assessment for the MS can be determined by dividing this new revised purchase price by the same relevant number held in the assessment.

Full range of possible scenarios

The three example scenarios outlined above are expected to most commonly occur.  The full range of possible superannuation splitting permutations is summarised in the following table.


INCOME TEST guidelines

Guidelines under section 46ZA, VEA

Asset Test Exempt (ATE) income stream

(a)

(b)

(c)

(d)

Split during Payment Phase:

Percentage payment split;

(i) Non-defined benefit income streams

            (ii) Defined benefit income streams

Base amount split;

(i) Non-defined benefit income streams

            (ii) Defined benefit income streams

Split during Growth Phase:

Percentage payment split;

(i) Non-defined benefit income streams

            (ii) Defined benefit income streams

Base amount split;

(i) Non-defined benefit income streams

            (ii) Defined benefit income streams

Guidelines under section 46ZB, VEA

Asset Test Long Term (ATLT) income stream

(e)

(f)

(g)

(h)

Split during Payment Phase:

Percentage payment split;

(i) Non-defined benefit income streams

            (ii) Defined benefit income streams

Base amount split;

(i) Non-defined benefit income streams

            (ii) Defined benefit income streams

Split during Growth Phase:

Percentage payment split;

(i) Non-defined benefit income streams

            (ii) Defined benefit income streams

Base amount split;

(i) Non-defined benefit income streams

            (ii) Defined benefit income streams

Asset Tested Short Term (ATST) income stream

(i)

(j)

Split during Payment Phase:

Percentage payment split.

Base amount split.

(k)

(l)

Split during Growth Phase:

Percentage payment split.

Base amount split.


ASSET TEST guidelines

Guidelines under section 52BA, VEA

Asset Tested Long Term (ATLT) income stream

(m)

(n)

Split during PAYMENT PHASE:

Percentage payment split;

Base amount split;

(o)

(p)

Split during GROWTH PHASE:

Percentage payment split

Base amount split.

Asset Tested Short Term (ATST) income stream

(q)

Split during PAYMENT PHASE:

Percentage payment split.

ATTACHMENT C

MEANS TEST TREATMENT OF SUPERANNUATION FOLLOWING A FAMILY LAW PROPERTY SETTLEMENT

Questions and Answers

  1. What are the new super splitting laws?

Legislation has been passed to deal with the problem of division of superannuation, on marriage separation.  The new laws give the Family Court, or the parties to a property settlement, the power to split superannuation interest on marriage breakdown.  It also provides the Court with the power to flag a superannuation interest for future splitting, in order to prevent trustees from paying out any superannuation entitlement until a further agreement is reached.

  1. What does this mean for income support purposes?

The Veterans' Entitlements Act 1986 has been amended to ensure that there are no unfair outcomes or unintended consequences for veterans who receive superannuation, or have their superannuation entitlements split, as part of a property settlement following divorce.

  1. When will these changes take effect?

The changes come into effect on 28 December 2002.

  1. What changes have been made to the Veterans' Entitlements Act 1986 (the Act) as a result of the new super splitting laws?

The changes to the Veterans' Entitlements Act 1986 (the Act) will ensure that superannuation entitlement splits will be assessed fairly and consistently under the means test.  The Act has been altered to:

  • determine when a 'split superannuation interest' becomes assessable in the hands of the recipients following the split of a superannuation interest;

  • ensure that 'split income streams' are themselves income streams for income support purposes;

  • allow for the valuation of the assessable income and assets of a veteran whose superannuation is split, or who receives a superannuation entitlement due to property settlement;

  • ensure that, where payments to the original owner of an asset test exempt (ATE) income stream are commuted or reduced following the 'split' of a superannuation interest, the payments to the divorcing or separating parties retain their asset test exempt status;

  • repeal sections 46Q, 46R and 46S of the Act, to ensure that the 'split' of a superannuation interest in the 'growth phase' is not considered to be a realisation of a superannuation investment by a fund member.

  1. How will superannuation interests be split under the new super splitting laws?

A superannuation split can be a 'percentage payment split' or a 'base amount payment split'.

  • A 'percentage payment split' is where the superannuation agreement or court order specifies that a percentage split is to be applied to the member spouse's superannuation entitlements. 
  • A 'base amount payment split' is where the superannuation agreement or court order specifies the entitlement of the non-member spouse in terms of a base (dollar) amount. 

Following the split, in order to satisfy the entitlement of the non-member spouse, the trustee of the superannuation fund may –

  • create a new interest in the fund for the non-member spouse;
  • transfer or rollover to another superannuation fund an amount to be held for the non-member spouse; or
  • pay an amount to the non-member spouse.  In this case, the non-member spouse would not be entitled to any further payments.

  1. If the member spouse's income stream payments are to be split between the member spouse and the non-member spouse as a result of the payment split, how will the split income stream payments be treated for means test purposes?

    The superannuation agreement or court order will specify whether the non-member spouse is entitled to be paid a percentage of each future income stream payment, or whether the entitlement of the non-member spouse will be defined in terms of a base amount.

    The basic principle is that the asset value and the deduction amount applying to the continuing income streams payments will be split between the spouses in the proportions resulting from the agreement or court order.

    For a percentage payment split, the member spouse's income stream will be split between the member spouse and the non-member spouse in the proportion resulting from the agreement or order.  In this case the asset value and the deduction amount applying to the continuing income stream payments will be split between the spouses in the same proportion.

    For a base amount split, the entitlement of the non-member spouse is specified as a dollar amount, rather than a proportion of future income stream payments.  In this case, the non-member spouse may be able to take the base amount (in whole or in part) as a commuted amount from the income stream.  Each spouse will be assigned a proportion of the asset value and the deduction amount that would have applied to the continuing income stream payments of the member spouse if there had been no payment split.  For each spouse, the proportion will be equal to the proportion of the original income stream payments that are payable to that spouse.

    For both percentage payment splits and base amount payment splits, the commencement day of the split income streams will be taken to be the commencement day of the member spouse's original income stream.  The asset values of the split income streams will be reassessed at the usual six or twelve monthly intervals.
     
  2. If either spouse receives a commuted amount as part of the base amount payment split, how will that commuted amount be treated for means test purposes?

    The commuted amount will be treated as a lump sum payment, not as income.  In accordance with normal means test rules, if the amount received is used to purchase an asset, or invested, it may be treated as an assessable asset.  Under the income test, the asset may be deemed or actual income may be assessed, depending on the nature of the asset.

If either spouse uses the amount commuted to purchase another income stream, the income stream will be treated as a new income stream (with a new commencement day and relevant number) for means test purposes.

  1. If the trustee of the superannuation fund creates a new interest in the fund, transfers or rolls over an amount to another superannuation fund or pays an amount in satisfaction of the non member spouse's entitlement, how are the continuing income stream payments to the member spouse to be treated?
     

The asset value and deduction amount applying to the member spouse's reduced income stream payments will be reduced in the same proportion as the member spouse's income stream payments are reduced.

  1. If the member spouse's original income stream is asset test exempt, will the split income streams also be asset test exempt?

    For a percentage payment split, the member spouse's and the non-member spouse's split income streams will retain the asset test exempt status of the member spouse's original income stream.

    For a base amount split, the non-member spouse's split income stream will retain the asset test exempt status of the member spouse's original income stream.  The member spouse's split income stream will also retain the asset test exempt status of the original income stream providing the amount commuted does not exceed the amount required to meet the entitlement of the non member spouse under the payment split.

     
  2. Who is the contact for further details?

Queries regarding the Family Law Act changes to the splitting of superannuation interests on divorce can be directed to the Income Support Policy Section in National Office, at the email address of NAT Policy Advisings Income Support.

Telephone enquiries can be directed to –

Brian ButlerPolicy Section02 6289 6110

Joel KittoPolicy Section02 6289 6658

1


AGREEMENT OR ORDER SPECIFIES “PERCENTAGE PAYMENT SPLIT” OF A FLA INCOME STREAM

PURCHASED

SUPER PENSION

OR

ALLOCATED PENSION

Definition of MS PROP & NMS PROP

MS PROP

Member Spouse Proportion is:

  • the proportion of the member spouse's income stream awarded to the member spouse (eg.  60%).

NMS PROP

Non-Member Spouse Proportion is:

  • the proportion of the member spouse's income stream awarded to the non-member spouse (eg.  40%).

Member Spouse

Primary FLA Income Stream

Retain member's original income stream:

  • Classification
  • Commencement Date
  • Relevant Number

Adjust member's original income stream:

  • Gross Payment x MS PROP
  • Purchase Price x MS PROP
  • RCV x MS PROP (if applicable)
  • CAB X MS PROP (if applicable)

Income Test:

  • Apply existing income formula using the new combination of original and adjusted details.

Asset Test:

  • Apply existing asset formula using the new combination of original & adjusted details.

Non-Member Spouse

Secondary FLA Income Stream

Retain member's original income stream:

  • Classification
  • Commencement Date
  • Relevant Number

Adjust member's original income stream:

  • Gross Payment x NMS PROP
  • Purchase Price x NMS PROP
  • RCV x NMS PROP (if applicable)
  • CAB X NMS PROP (if applicable)

Income Test:

  • Apply existing income formula using the new combination of original and adjusted details.

Asset Test:

  • Apply existing asset formula using the new combination of original & adjusted details.

Effective Date

Record:

  • Primary FLA Income Stream in the member assessment

and

  • Secondary FLA Income Stream in the non-member assessment

From

  • Operative Time

Future Commutations

If the member spouse commutes an amount in the future, then that amount is also apportioned between the member and non-member as per the MS PROP and NMS PROP.

Review

  • Gross income (ie. if it changes).
  • Asset Value (ie. ? yrly or yrly using existing depletion formula).
  • Commutation (ie. by subtracting the amount commuted in relation to the member spouse from the  adjusted purchase price).

Review

  • Gross income (ie. if it changes).
  • Asset Value (ie. ? yrly or yrly using existing depletion formula).
  • Commutation (ie. by subtracting the amount commuted in relation to the non-member spouse from the adjusted purchase price).


AGREEMENT OR ORDER SPECIFIES “PERCENTAGE PAYMENT SPLIT” OF A FLA INCOME STREAM

DEFINED BENEFIT SUPER PENSION

Definition of MS PROP & NMS PROP

MS PROP

Member Spouse Proportion is:

  • the proportion of the member spouse's income stream awarded to the member spouse (eg.  60%).

NMS PROP

Non-Member Spouse Proportion is:

  • the proportion of the member spouse's income stream awarded to the non-member spouse (eg.  40%).

Member Spouse

Primary FLA Income Stream

Retain member's original income stream:

  • Classification
  • Commencement Date
  • Relevant Number

Adjust member's original income stream:

  • Gross Payment x MS PROP
  • UPP x MS PROP

*** Check ATO ruling / position on UPP and relevant number ? ***

Income Test:

  • Apply existing income formula using the new combination of original and adjusted details.

Asset Test:

  • Not required, as all defined benefit income streams are asset test exempt under a disallowable instrument.

  • If disallowable instrument was repealed, calculate asset value using existing PVF asset formula and the member's PVF at the operative time.

Non-Member Spouse

Secondary FLA Income Stream

Retain member's original income stream:

  • Classification
  • Commencement Date
  • Relevant Number

Adjust member's original income stream:

  • Gross Payment x NMS PROP
  • UPP x NMS PROP

*** Check ATO ruling / position on UPP and relevant number ? ***

Income Test:

  • Apply existing income formula using the new combination of original and adjusted details.

Asset Test:

  • Not required, as all defined benefit income streams are asset test exempt under a disallowable instrument.

  • If disallowable instrument was repealed, calculate asset value using existing PVF asset formula and the member's PVF at the operative time.

Effective Date

Record:

  • Primary FLA Income Stream in the member assessment

and

  • Secondary FLA Income Stream in the non-member assessment

From

  • Operative Time

Future Commutations

If the member spouse commutes an amount in the future, then that amount is also apportioned between the member and non-member as per the MS PROP and NMS PROP.

Review

  • Gross income (ie. if it changes).
  • Asset value (ie. only if disallowable instrument was ever repealed) every 12 months on anniversary of commencement date, using the member's PVF.

Review

  • Gross income (ie. if it changes).
  • Asset value (ie. only if disallowable instrument was ever repealed) every 12 months on anniversary of commencement date, using the member's PVF.


AGREEMENT OR COURT ORDERS “BASE AMOUNT SPLIT” OF A FLA INCOME STREAM

INTERIM ASSESSMENT FROM OPERATIVE TIME TO FIRST SPLITTABLE PAYMENT

ALLOCATED PENSION

Definition of MS PROP & NMS PROP

NMS PROP

Non-Member Spouse Proportion is:

  • the base amount divided by the  value of the superannuation interest obtained from the Court or Trustee.

  • eg.  (            base amount             )

                    value of super interest

MS PROP

Member Spouse Proportion is:

  • 1 minus the NMSPROP as calculated above.

  • eg.  (1 – NMSPROP)

  • The Base Amount is the total dollar amount of the super interest awarded to the non-member spouse as specified in the agreement or court order.

Member Spouse

Primary FLA Income Stream

Retain member's original income stream:

  • Classification
  • Commencement Date
  • Relevant Number
  • Purchase Price

Adjust member's original income stream:

  • Gross Payment = 0.00

Income Test:

  • record 0.00 income as an interim assessment until the first splittable payment.

Asset Test:

  • MS PROP x CAB as an interim assessment until the first splittable payment.

Non-Member Spouse

Secondary FLA Income Stream

Retain member's original income stream:

  • Classification
  • Commencement Date
  • Relevant Number
  • Purchase Price

Adjust member's original income stream:

  • Gross Payment = 0.00

Income Test:

  • record 0.00 income as an interim assessment until the first splittable payment.

Asset Test:

  • NMS PROP x CAB as an interim assessment until the first splittable payment.

Effective Date

Record:

  • Primary FLA Income Stream in the member assessment

and

  • Secondary FLA Income Stream in the non-member assessment

From

  • Operative Time

Review

  • on the date of the first splittable payment.  Interim income and asset assessment must cease.

Review

  • on the date of the first splittable payment.  Interim income and asset assessment must cease.


AGREEMENT OR COURT ORDERS “BASE AMOUNT SPLIT” OF A FLA INCOME STREAM

INTERIM ASSESSMENT FROM OPERATIVE TIME TO FIRST SPLITTABLE PAYMENT

PURCHASED SUPER PENSION

Definition of MS PROP & NMS PROP

NMS PROP

Non-Member Spouse Proportion is:

  • the base amount divided by the  value of the superannuation interest obtained from the Court or Trustee.

  • eg.  (            base amount             )

                    value of super interest

MS PROP

Member Spouse Proportion is:

  • 1 minus the NMSPROP as calculated above.

  • eg.  (1 – NMSPROP)

The Base Amount is the total dollar amount of the super interest awarded to the non-member spouse as specified in the agreement or court order.

Member Spouse

Primary FLA Income Stream

Retain member's original income stream:

  • Classification
  • Commencement Date
  • Relevant Number
  • Purchase Price
  • RCV

Adjust member's original income stream:

  • Gross Payment = 0.00

Income Test:

  • record 0.00 income as an interim assessment until the first splittable payment.

Asset Test:

  • MS PROP x Asset Value as calculated under existing asset formula. This is an interim assessment using the member's original income stream details.

Non-Member Spouse

Secondary FLA Income Stream

Retain member's original income stream:

  • Classification
  • Commencement Date
  • Relevant Number
  • Purchase Price
  • RCV

Adjust member's original income stream:

  • Gross Payment = 0.00

Income Test:

  • record 0.00 income as an interim assessment until the first splittable payment.

Asset Test:

  • NMS PROP x Asset Value as calculated under existing asset formula. This is an interim assessment using the member's original income stream details.

Effective Date

Record:

  • Primary FLA Income Stream in the member assessment

and

  • Secondary FLA Income Stream in the non-member assessment

From

  • Operative Time

*** Check Application of Deeming Exemption provisions where Original Member's FLA income stream was Asset Tested Short Term (ATST) ***

Review

  • on the date of the first splittable payment.  Interim income and asset assessment must cease.

Review

  • on the date of the first splittable Payment.  Interim income and assessment must cease.


AGREEMENT OR COURT ORDERS “BASE AMOUNT SPLIT” OF A FLA INCOME STREAM

INTERIM ASSESSMENT FROM OPERATIVE TIME TO FIRST SPLITTABLE PAYMENT

DEFINED BENEFIT SUPER PENSION

Definition of MS PROP & NMS PROP

NMS PROP

Non-Member Spouse Proportion is:

  • the base amount divided by the  value of the superannuation interest obtained from the Court or Trustee.

  • eg.  (            base amount             )

                    value of super interest

MS PROP

Member Spouse Proportion is:

  • 1 minus the NMSPROP as calculated above.

  • eg.  (1 – NMSPROP)

The Base Amount is the total dollar amount of the superannuation interest awarded to the non-member spouse as specified in the agreement or court order.

Member Spouse

Primary FLA Income Stream

Retain member's original income stream:

  • Classification
  • Commencement Date
  • Relevant Number
  • UPP (if applicable)

Adjust member's original income stream:

  • Gross Payment = 0.00

Income Test:

  • record 0.00 income as an interim assessment until the first splittable payment.

Asset Test:

  • Not required, as all defined benefit income streams are asset test exempt under a disallowable instrument.

  • If disallowable instrument was repealed, calculate asset value using MSPROP x Asset Value as calculated using existing PVF formula and the member's PVF at the operative time.

  • This is an interim assessment until the first splittable payment.

Non-Member Spouse

Secondary FLA Income Stream

Retain member's original income stream:

  • Classification
  • Commencement Date
  • Relevant Number
  • UPP (if applicable)

Adjust member's original income stream:

  • Gross Payment = 0.00

Income Test:

  • record 0.00 income as an interim assessment until the first splittable payment.

Asset Test:

  • Not required, as all defined benefit income streams are asset test exempt under a disallowable instrument.

  • If disallowable instrument was repealed, calculate asset value using NMSPROP x Asset Value as calculated using existing PVF formula and the member's PVF at the operative time.

  • This is an interim assessment until the first splittable payment.

Effective Date

Record:

  • Primary FLA Income Stream in the member assessment

and

  • Secondary FLA Income Stream in the non-member assessment

From

  • Operative Time

Review

  • on the date of the first splittable payment.  Interim income and asset assessment must cease.

Review

  • on the date of the first splittable payment.  Interim income and asset assessment must cease.


AGREEMENT OR COURT ORDERS “BASE AMOUNT SPLIT” OF A FLA INCOME STREAM

ASSESSMENT FROM FIRST SPLITTABLE PAYMENT – PAYMENTS ARE SPLIT TO SATISFY THE BASE AMOUNT

PURCHASED

SUPER PENSION

Definition of MS PROP

MS PROP

Member Spouse Proportion is:

  • the member spouse's first split income stream payment after the first splittable payment divided by the member spouse's original income stream payment assuming the split had not occurred:

  • eg.  (    member's split payment     )                                

                 original member's payment

NMS PROP

Non-Member Spouse Proportion is:

  • the non-member spouse's first split income stream payment after the first splittable payment divided by the member spouse's original income stream payment assuming the split had not occurred:

  • eg.  ( non-member's split payment )                                

                 original member's payment

Member Spouse

Primary FLA Income Stream

Retain member's original income stream:

  • Classification
  • Commencement Date
  • Relevant Number

Adjust member's original income stream:

  • Gross Payment x MS PROP
  • Purchase Price x MS PROP
  • RCV x MS PROP (if applicable)

Income Test:

  • Apply existing income formula using the new combination of original and adjusted details.

Asset Test:

  • Apply existing asset formula using the new combination of original & adjusted details.

Non-Member Spouse

Secondary FLA Income Stream

Retain member's original income stream:

  • Classification
  • Commencement Date
  • Relevant Number

Adjust member's original income stream:

  • Gross Payment x NMS PROP
  • Purchase Price x NMS PROP
  • RCV x NMS PROP (if applicable)

Income Test:

  • Apply existing income formula using the new combination of original and adjusted details.

Asset Test:

  • Apply existing asset formula using the new combination of original & adjusted details.

Effective Date

Record:

  • Primary FLA Income Stream in the member assessment

and

  • Secondary FLA Income Stream in the non-member assessment

From

  • Date of the first splittable payment

Future Commutations

If the member spouse commutes an amount in the future, then that amount is also apportioned between the member and non-member as per the MS PROP and NMS PROP.

Review

  • Gross income (ie. if it changes).
  • Asset Value (ie. ? yrly or yrly using existing depletion formula).
  • Commutation (ie. by subtracting the amount commuted in relation to the member spouse from the  adjusted purchase price).

Review

  • Gross income (ie. if it changes).
  • Asset Value (ie. ? yrly or yrly using existing depletion formula).
  • Commutation (ie. by subtracting the amount commuted in relation to the non-member spouse from the adjusted purchase price).


AGREEMENT OR COURT ORDERS “BASE AMOUNT SPLIT” OF A FLA INCOME STREAM

ASSESSMENT FROM FIRST SPLITTABLE PAYMENT – BASE AMOUNT COMMUTED FROM ALLOCATED PENSION

ALLOCATED

PENSION

(in all cases the non-member will be paid the base amount commuted from the member account balance from the date of the 1st  Splittable Payment)

Definition of MS PROP

MS PROP

Member Spouse Proportion is:

  • 1 minus the base amount payable from the allocated pension divided by the account balance immediately before the first splittable payment.

  • eg.  ( 1 -        base amount      )                                

                         account balance

  • The Base Amount is the total dollar amount of the superannuation interest awarded to the non-member spouse as specified in the agreement or court order.)

Member Spouse

Primary FLA Income Stream

Retain member's original income stream:

  • Classification
  • Commencement Date
  • Relevant Number

Adjust member's original income stream:

  • Gross Payment to new amount
  • Purchase Price x MS PROP
  • CAB x MS PROP

Income Test:

  • Apply existing income formula using the new combination of original and adjusted details.

Asset Test:

  • Adjust CAB to reflect new amount (ie. CAB x MS PROP)

Non-Member Spouse

Investigate how base amount was re-invested or disposed of ?

As the non-member spouse has been paid the base amount as a lump sum, there is no Secondary FLA Income Stream.

The base amount lump sum payment itself is not assessed as income as it is an exempt lump sum payment.

Effective Date

Record the Primary and FLA Income Stream details in the member spouse assessment from the:

  • Date of the first splittable payment

Record the re-invested or disposed base amount proceeds in the non- member spouse assessment from the:

  • Date of the first splittable payment

Review

  • Gross income (ie. if it changes).
  • Asset Value (ie. ? yrly or yrly on current account balance review.
  • Commutation (ie. by subtracting the amount commuted in relation to the member spouse from their  adjusted purchase price).

Review

  • Not applicable – base amount fully paid out as a lump sum.


AGREEMENT OR COURT ORDERS “BASE AMOUNT SPLIT” OF A FLA INCOME STREAM

ASSESSMENT FROM FIRST SPLITTABLE PAYMENT – PAYMENTS ARE SPLIT TO SATISFY THE BASE AMOUNT

DEFINED BENEFIT SUPER PENSION

Definition of MS PROP

MS PROP

Member Spouse Proportion is:

  • the member spouse's first split income stream payment after the first splittable payment divided by the member spouse's original income stream payment assuming the split had not occurred:

  • eg.  (    member's split payment     )                                

                 original member's payment

NMS PROP

Non-Member Spouse Proportion is:

  • the non-member spouse's first split income stream payment after the first splittable payment divided by the member spouse's original income stream payment assuming the split had not occurred:

  • eg.  ( non-member's split payment )                                

                 original member's payment

Member Spouse

Primary FLA Income Stream

Retain member's original income stream:

  • Classification
  • Commencement Date
  • Relevant Number

Adjust member's original income stream:

  • Gross Payment x MS PROP
  • UPP x MS PROP

*** Check ATO ruling / position on UPP and relevant number ? ***

Income Test:

  • Apply existing income formula using the new combination of original and adjusted details.

Asset Test:

  • Not required, as all defined benefit income streams are asset test exempt under a disallowable instrument.

  • If disallowable instrument was repealed, calculate asset value using existing PVF asset formula and the member's PVF at the operative time.

Non-Member Spouse

Secondary FLA Income Stream

Retain member's original income stream:

  • Classification
  • Commencement Date
  • Relevant Number

Adjust member's original income stream:

  • Gross Payment x NMS PROP
  • UPP x NMS PROP

*** Check ATO ruling / position on UPP and relevant number ? ***

Income Test:

  • Apply existing income formula using the new combination of original and adjusted details.

Asset Test:

  • Not required, as all defined benefit income streams are asset test exempt under a disallowable instrument.

  • If disallowable instrument was repealed, calculate asset value using existing PVF asset formula and the member's PVF at the operative time.

Effective Date

Record:

  • Primary FLA Income Stream in the member assessment

And

  • Secondary FLA Income Stream in the non-member assessment

From

  • Date of the first splittable payment

Future Commutations

If the member spouse commutes an amount in the future, then that amount is also apportioned between the member and non-member as per the MS PROP and NMS PROP.

Review

  • Gross income (ie. if it changes).
  • Asset value (ie. only if disallowable instrument was ever repealed) every 12 months on anniversary of commencement date, using the member's PVF.

Review

  • Gross income (ie. if it changes).
  • Asset value (ie. only if disallowable instrument was ever repealed) every 12 months on anniversary of commencement date, using the member's PVF.


TRUSTEE SETTLES NON-MEMBER ENTITLEMENT (WHETHER OR NOT IT WAS A % SPLIT OR BASE AMOUNT) BY CREATING A NEW INTEREST, TRANSFERRING / ROLLING OVER or PAYING AN AMOUNT FROM TO FLA INCOME STREAM

PURCHASEDSUPER PENSION

Definition of MS PROP

MS PROP

Member Spouse Proportion is:

  • the member spouse's first income stream payment after the creation of the new interest, transfer, roll over  or payment to the non-member spouse divided by the member spouse's original income stream payment assuming the split had not occurred:

  • eg.  (    new payment     )                                

                 original payment

Member Spouse

Primary FLA Income Stream

Retain member's original income stream:

  • Classification
  • Commencement Date
  • Relevant Number

Adjust member's original income stream:

  • Gross Payment to new amount
  • Purchase Price x MS PROP
  • RCV x MS PROP (if applicable)

Income Test:

  • Apply existing income formula using the new combination of original and adjusted details.

Asset Test:

  • Apply existing asset formula using the new combination of original & adjusted details.

Non-Member Spouse

Investigate how base amount was re-invested or disposed of ?

As the non-member spouse has been paid an amount as a lump sum, there is no Secondary FLA Income Stream.

The lump sum payment itself is not assessed as income as it is an exempt lump sum payment.

Effective Date

Record the Primary and FLA Income Stream details in the member spouse assessment from the:

  • Date of the creation of the new interest, transfer, roll over or payment was made to the non-member spouse

Record the re-invested or disposed lump sum proceeds in the non- member spouse assessment from the:

  • Date of the creation of the new interest, transfer, roll over or payment was made to the non-member spouse

Review

  • Gross income (ie. if it changes).
  • Asset Value (ie. ? yrly or yrly using existing depletion formula).
  • Commutation (ie. by subtracting the amount commuted in relation to the member spouse from their  adjusted purchase price).

Review

  • Not applicable – base amount fully paid out as a lump sum.


TRUSTEE SETTLES NON-MEMBER ENTITLEMENT (WHETHER OR NOT IT WAS A % SPLIT OR BASE AMOUNT) BY CREATING A NEW INTEREST, TRANSFERRING / ROLLING OVER or PAYING AN AMOUNT FROM TO FLA INCOME STREAM

ALLOCATED

PENSION

Definition of MS PROP

MS PROP

Member Spouse Proportion is:

  • the portion of the account balance on which the member spouse's income stream payments will be based immediately after the creation of the new interest, transfer, roll over or payment to the non-member spouse divided by the account balance the member spouse's income stream payments were based assuming the split had not occurred.

  • eg.  (       new account balance      )                                

                   original account balance

Member Spouse

Primary FLA Income Stream

Retain member's original income stream:

  • Classification
  • Commencement Date
  • Relevant Number

Adjust member's original income stream:

  • Gross Payment to new amount
  • Purchase Price x MS PROP
  • CAB x MS PROP

Income Test:

  • Apply existing income formula using the new combination of original and adjusted details.

Asset Test:

  • Adjust CAB to reflect new amount (ie. CAB x MS PROP)

Non-Member Spouse

Investigate how base amount was re-invested or disposed of ?

As the non-member spouse has been paid an amount as a lump sum, there is no Secondary FLA Income Stream.

The lump sum payment itself is not assessed as income as it is an exempt lump sum payment.

Effective Date

Record the Primary and FLA Income Stream details in the member spouse assessment from the:

  • Date of the creation of the new interest, transfer, roll over or payment was made to the non-member spouse

Record the re-invested or disposed lump sum proceeds in the non- member spouse assessment from the:

  • Date of the creation of the new interest, transfer, roll over or payment was made to the non-member spouse

Review

  • Gross income (ie. if it changes).
  • Asset Value (ie. ? yrly or yrly on current account balance review.
  • Commutation (ie. by subtracting the amount commuted in relation to the member spouse from their  adjusted purchase price).

Review

  • Not applicable – base amount fully paid out as a lump sum.


TRUSTEE SETTLES NON-MEMBER ENTITLEMENT (WHETHER OR NOT IT WAS A % SPLIT OR BASE AMOUNT) BY CREATING A NEW INTEREST, TRANSFERRING / ROLLING OVER or PAYING AN AMOUNT FROM TO FLA INCOME STREAM

DEFINED BENEFIT SUPER PENSION

Definition of MS PROP

MS PROP

Member Spouse Proportion is:

  • the member spouse's new income stream payment immediately after the creation of the new interest, transfer, roll over or payment to the non-member spouse divided by the old income stream payment assuming the split had not occurred:

  • eg.  (     new  payment     )                                

                     old payment

Member Spouse

Primary FLA Income Stream

Retain member's original income stream:

  • Classification
  • Commencement Date
  • Relevant Number

Adjust member's original income stream:

  • Gross Payment to new amount
  • UPP x MS PROP

*** Check ATO ruling / position on UPP and relevant number ? ***

Income Test:

  • Apply existing income formula using the new combination of original and adjusted details.

Calculate Asset:

  • Not required, as all defined benefit income streams are asset test exempt under a disallowable instrument.

  • If disallowable instrument was repealed, calculate asset value using existing PVF asset formula and the member's PVF.

Non-Member Spouse

Investigate how base amount was re-invested or disposed of ?

As the non-member spouse has been paid the as a lump sum, there is no Secondary FLA Income Stream.

The lump sum payment itself is not assessed as income as it is an exempt lump sum payment.

Effective Date

Record the Primary and FLA Income Stream details in the member spouse assessment from the:

  • Date of the creation of the new interest, transfer, roll over or payment was made to the non-member spouse

Record the re-invested or disposed base amount proceeds in the non- member spouse assessment from the:

  • Date of the creation of the new interest, transfer, roll over or payment was made to the non-member spouse

Review

  • Gross income (ie. if it changes).
  • Asset value (ie. only if disallowable instrument was ever repealed) every 12 months on anniversary of commencement date, using the member's PVF.

Review

  • Not applicable – base amount fully paid out as a lump sum.