Apart from the exceptions in this section, self managed superannuation funds (SMSFs) and Small APRA Funds (SAFs) are assessed in the same manner as other income streams.
Last amended: 10 March 2011
The Superannuation Industry (Supervision) Act 1993 defines a self managed superannuation fund (SMSF) as a superannuation fund [3] meeting the following criteria:
The following exceptions apply to certain SMSFs and trustees:
A Small APRA Fund (SAF) is a superannuation fund with less than five members that does not meet the criteria for an SMSF. The trustee of an SAF must be a corporate trustee approved by APRA. The trustee may receive remuneration for acting as trustee.
Prior to 1 January 2006, SMSFs and SAFs were able to provide any type of income stream [3] except for a defined benefit income stream [3]. From 1 January 2006, SMSFs and SAFs may only offer allocated income streams and market linked income streams. However, any lifetime or life expectancy asset test exempt income streams that commenced prior to that date may continue to be paid.
A superannuation fund is defined in the VEA as being:
According to subsection 5J(1) of the VEA [5], an income stream includes:
but does not include any of the following:
A defined benefit income stream is an income stream [3] where the payments are not fully determined by a purchase price [3]. Instead, payments are made with reference to a set formula based on:
Last amended: 10 March 2011
In addition to the income stream schedule, a self managed superannuation fund (SMSF) or small APRA fund (SAF) must supply the following documentation to determine whether an income stream is an asset test exempt income stream [3][glossary:.:]:
Actuarial certificates are valid for one year, ending on 30 June. The first actuarial certificate issued for an income stream will be valid for the period between the commencement day [3] and 30 June. When the actuarial certificate expires, a 26 week grace period applies, during which, the income stream retains asset test exempt status. If a new certificate has still not been supplied at the end of the grace period, the income stream is reassessed as if it had never been asset test exempt. Any resulting overpayment should be recovered under existing policy.
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If the actuarial certificate does not express a positive opinion (or a high probability that the fund will be able to meet the income stream payments required) under Guidance Note 465, the income stream will retain asset test exempt status for 12 weeks to allow time for the income stream to be rolled over to a new asset test exempt income stream, or in the case of an error in the certificate, to obtain a new certificate expressing a positive opinion.
If no action is taken, the income stream will lose its asset test exempt status and become asset tested at the end of the 12 week period. The pensioner will be assessed as if the income stream never had asset test exempt status from the commencement day. This may result in a debt being raised.
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In recognition of the global financial crisis of 2008 and 2009, temporary relief has been provided for holders of 100% asset test exempt income streams sourced from a SMSF or SAF who fail to meet the high probability test.
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Waiver of debt under temporary debt relief arrangements
10.5.5/Assessment where Fund Closes or is in Financial Difficulty [16]
An income stream is an asset-test exempt income stream if it is purchased before 20 September 2007 and must be:
and:
Legislative reference:
Veterans' Entitlements Act 1986:
The commencement day in relation to an income stream [3] is the first day of the period to which the first income stream payment relates. This is usually one instalment period before the date of the first income payment.
The commencement day cannot occur prior to:
Legislative reference: subsection 5J(1) of the Veterans' Entitlements Act 1986.
Last amended: 10 March 2011
For lifetime and life expectancy income streams paid by self managed superannuation funds (SMSFs) and small APRA funds (SAFs) to be asset test exempt, the purchase price [3] must be wholly converted to income. The Australian Government Actuary (AGA) will estimate the total payments to be paid under the income stream. The total must be equal to or greater than the purchase price for the income stream to be asset test exempt. If the total payments are less than the purchase price, the income stream cannot be asset test exempt.
The income stream must also be investigated to ensure no deprivation has occurred. Deprivation occurs where the income stream's purchase price exceeds its net present value, as calculated by the AGA. An income stream may still be asset test exempt where deprivation has occurred, but the deprived amount is included in the person's assessment as a deprived asset.
$100,000 is paid for a 10 year income stream which paid $6,000 per annum as income, not indexed. The total payments paid by the income stream are $60,000, but the net present value of the income stream as determined by an actuary is only $53,000.
The deprived amount is therefore $100,000 less $53,000 = $47,000.
The amount assessed as a deprived asset [3] is therefore $47,000, less $10,000 allowed limit per pension year = $37,000.
The deprived amount is treated as a financial asset [3] for pension assessment purposes for 5 years.
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SMSFs and SAFs may hold unallocated reserves. This represents assets of the fund that have not been attributed to a specific member. Unallocated reserves should be attributed to each member of the fund in proportion to their interest in the fund. If it is not possible to attribute unallocated reserves in this manner, they should be attributed equally between all members.
The purchase price of an income stream is the nominal sum of the paymetns made to purchase the income stream (including amounts paid by way of employer and employee contributions) less any commuted amounts.
Note: In determining the means test assessment of asset-tested income streams (lifetime), the purchase price is not used. Rather, the grossed up purchase amount.
Legislation: Section 5J(1) [5]of the VEA [5]
A deprived asset is an asset:
According to section 5J(1) [5] of the VEA a financial asset means;
Last amended: 10 March 2011
Where a self managed superannuation fund (SMSF) or small APRA fund (SAF) is wound up, the income ceases to be paid on the date that the fund is wound up. Any remaining assets in the fund are assessable in the same manner as superannuation from that date.
It is important that the department is informed when a SMSF or SAF is experiencing financial difficulty. A trustee's report should be provided, which should outline details on action being taken to either wind up the fund or restore the fund to viability and the expected date for finalising actions,
If an income stream [3] ceases to make payments for a period of more than twelve months, it ceases to exist as an income stream. This is because it no longer meets the criterion of making payments at least annually. Any remaining assets in the fund are assessable as superannuation from the date that the income stream ceases to exist.
The income stream is reassessed as if it was never an asset test exempt income stream from the commencement date. This may result in a debt being raised. Any resulting overpayment is recoverable under existing policy.
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Loss of asset test exempt status can be avoided by commuting the income stream to a new asset test exempt income stream [3] prior to the end of the twelve month period since the last payment, that is, before the original stream loses asset test exempt status. When this happens, the debt provisions will not apply. Principles have been established to determine whether the new income stream is 100% or 50% asset test exempt.
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Where payments under an asset test exempt income stream are reduced below the amount specified in the contract, the income stream will lose its asset test exemption and is treated as though it was never an asset test exempt income stream. This may result in a debt. Any overpayment resulting from loss of asset test exempt status is recoverable under existing policy. Loss of asset test exempt status can be avoided by commuting the income stream to a new asset test exempt income stream prior to the reduction in payments.
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Where a 100% asset test exempt income stream fails to meet the high probability requirements for actuarial certification and loses its asset test exemption, the income stream owner will have the option to either:
Under normal circumstances if the income stream is restructured to form a market linked income stream, the income stream would be retrospectively reclassified as an asset tested (long term) income stream. A debt to the Commonwealth would be raised if the pension the person received exceeds what they should have received if the income stream had always been assessed as asset-tested (long term). Under the temporary relief arrangements, the debt will be waived if it meets the terms outlined in the Veterans' Entitlements (Class of Debts – Self Managed Superannuation and Small APRA Funds) Specification 2010. All such cases should be referred to the DVA Investment Database Unit, Sydney Office.
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The temporary debt relief arrangements apply only to actuarial opinions given in the 2008-2009 and 2009-2010 financial years and expired on 30 June 2010.
Income streams commencing on or after 20 September 07 are generally not asset test exempt
10.5.3/Determining what proportion of an asset test exempt income stream is exempt [31]
Legislation Library – Income Support
Veterans' Entitlements (Retention of Exemption for Asset-test Exempt Income Streams) Principles 2007 [34]
According to subsection 5J(1) of the VEA [5], an income stream includes:
but does not include any of the following:
An income stream is an asset-test exempt income stream if it is purchased before 20 September 2007 and must be:
and:
Legislative reference:
Veterans' Entitlements Act 1986:
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[3] https://clik.dva.gov.au/%23
[4] http://clik.dva.gov.au/glossary/foreign-superannuation-fund
[5] http://clik.dva.gov.au/legislation-library
[6] https://clik.dva.gov.au/user/login?destination=node/16448%23comment-form
[7] https://clik.dva.gov.au/book/export/html/16325#tgt-cspol_part10_ftn665
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[9] https://clik.dva.gov.au/book/export/html/16325#tgt-cspol_part10_ftn667
[10] https://clik.dva.gov.au/book/export/html/16325#tgt-cspol_part10_ftn668
[11] http://www.actuaries.asn.au
[12] http://WWW.actuaries.asn.au
[13] https://clik.dva.gov.au/book/export/html/16325#ref-cspol_part10_ftn665
[14] https://clik.dva.gov.au/compensation-and-support-reference-library/overpayment-management-manual/ch-7-recovery-and-other-methods-finalising-debts
[15] https://clik.dva.gov.au/book/export/html/16325#ref-cspol_part10_ftn666
[16] https://clik.dva.gov.au/compensation-and-support-policy-library/part-10-types-income-and-assets/105-income-streams/1055-special-provisions-regarding-self-managed-superannuation-funds-and-small-apra-funds/assessment-where-fund-closes-or-financial-difficulty
[17] https://clik.dva.gov.au/book/export/html/16325#ref-cspol_part10_ftn667
[18] https://clik.dva.gov.au/book/export/html/16325#ref-cspol_part10_ftn668
[19] http://www.comlaw.gov.au/Series/C2004A03268
[20] https://clik.dva.gov.au/user/login?destination=node/16334%23comment-form
[21] https://clik.dva.gov.au/book/export/html/16325#tgt-cspol_part10_ftn669
[22] https://clik.dva.gov.au/compensation-and-support-policy-library/part-9-principles-determining-pension-rate/96-deprivation-income-and-assets
[23] https://clik.dva.gov.au/book/export/html/16325#ref-cspol_part10_ftn669
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[27] https://clik.dva.gov.au/book/export/html/16325#tgt-cspol_part10_ftn672
[28] https://clik.dva.gov.au/book/export/html/16325#tgt-cspol_part10_ftn673
[29] https://clik.dva.gov.au/book/export/html/16325#tgt-cspol_part10_ftn674
[30] https://clik.dva.gov.au/book/export/html/16325#ref-cspol_part10_ftn670
[31] https://clik.dva.gov.au/compensation-and-support-policy-library/part-10-types-income-and-assets/105-income-streams/1053-general-provisions-assessing-income-streams/determining-what-proportion-asset-test-exempt-income-stream-exempt
[32] https://clik.dva.gov.au/book/export/html/16325#ref-cspol_part10_ftn671
[33] https://clik.dva.gov.au/book/export/html/16325#ref-cspol_part10_ftn672
[34] https://clik.dva.gov.au/legislation-library
[35] https://clik.dva.gov.au/book/export/html/16325#ref-cspol_part10_ftn673
[36] https://clik.dva.gov.au/book/export/html/16325#ref-cspol_part10_ftn674