VEA [2]
To be an asset-test exempt income stream [5], a market linked income stream must have been purchased before 20 September 2007, unless certain conditions are met.
More [6]
An asset-test exempt market linked income stream has all of the following characteristics:
An asset-test exempt market linked income stream's commencement day is the first day of the period to which the first payment relates, even if the payment is made at the end of a twelve month period. The commencement day is usually the day the income stream was purchased.
The term of the income stream is a fixed term specified in the income stream contract and is also known as its relevant number [5]. To comply as an asset-test exempt income stream the relevant number must meet the criteria in the table below. The relevant number is always calculated using the person's age on the income stream's commencement day, which is the same date as the purchase day.
More [7]
Purchase date of income stream | Relevant number requirements | Rounding |
On or after 20/09/2004 and before 01/01/2006 |
| If not a whole number, must be rounded up to the next whole number. |
On or after 01/01/2006 |
| If not a whole number, must be rounded up to the next whole number. |
The annual payment is calculated on the commencement day of the income stream and on 1 July each year. The annual payment made under the income stream for a financial year [5] must be at least 90% and not more than 110% of the default annual payment worked out by the formula:
Default annual payment = Account balance / payment factor
For the purposes of the formula:
The payment factor used in calculating the annual payment depends on the remaining term of the income stream. The remaining term of the income stream is rounded using the following rules:
If | then |
the income stream commences or is fully commuted midway through the financial year | the annual payment under the income stream must be reduced on a pro-rata basis, however, the assessable income is the annualised amount |
the income stream is partly commuted midway through the financial year | the annual payment, and therefore the assessable income, does not change for that financial year |
the income stream commences in June | payments under the income stream need not commence until the following 1 July |
the amount worked out under the formula exceeds the income stream balance on that day | the amount payable for the period is the balance of the income stream |
the balance of the income stream at the end of the term is greater than $0 | the balance must be paid out within 28 days of the end of the term |
For the period commencing on 1 July 2008 and ending 30 June 2013, temporary relief measures were applied by the Government in response to the Global Financial Crisis to allow all account-based income stream recipients to elect to reduce their minimum annual payment to :
These temporary relief measures ceased to apply from 1 July 2013.
Temporary relief was again applied over the period 1 July 2019 to 30 June 2022 in response to the Coronavirus pandemic. Income stream recipients were able to elect to reduce their minimum annual payment to 50% of the required minimum payment for the periodcommencing 1 July 2019 to 30 June 2022.
The purchase price is the amount invested to purchase the income stream, less any allowable commutations. The income stream must have no residual capital value.
In order to be assessed as asset-test exempt, the income stream must be non-commutable except in limited circumstances. The benefit payable after the commutation cannot be greater than the benefit payable before the commutation. Commutation is allowed in the following circumstances:
For an income stream to be asset-test exempt, neither of the following can be used as security for borrowing:
The income stream continues to be asset-test exempt if the reversionary beneficiary was the partner of the primary beneficiary on the day of the primary beneficiary's death. In all other cases, the income stream ceases to be asset-test exempt on reversion. In any case, the income stream retains the same commencement day, gross payment, purchase price and relevant number as the original income stream.
Payments will be made to the reversionary beneficiary for the remainder of the contract term. To ensure that no income [5] is deferred, the reversionary benefit cannot be greater than the payment the account balance immediately before reversion.
Relevant number
Section 10.5.7 Life Expectancy Tables, Pension Valuation Factors and Payment Factors [11]
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 [5] 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.
According to subsection 5J(1) of the VEA [16], an income stream includes:
but does not include any of the following:
Life expectancy is the length of time a person is expected to live and has the same meaning as 'life expectancy factor' under section 27H of the Income Tax Assessment Act 1936.
The residual capital value is the amount (if any) remaining at the end of an income stream's term, consisting of a portion of the initial capital invested in the income stream [5].
A commutation, in relation to an income stream [5], is the conversion of part or all of the future income stream payments into a lump sum. A commutation is similar to a withdrawal.
An income stream's relevant number is the length of time an income stream is paid for. It can be a fixed term or the life expectancy factor of the payee or reversionary beneficiary.
Financial year, in relation to a company, means:
Superannuation contributions surcharge has the meaning that it has in the Superannuation Contributions Tax (Assessment and Collection) Act 1997.
A person may apply to the Commission in writing to be allowed to commute the whole or part of an income stream because of extreme financial hardship. According to s.5JA of the VEA, the Commission may determine an amount as allowable commutation if these conditions are satisfied:
According to section 5H of the VEA [17] income is:
Links
[1] https://clik.dva.gov.au/user/login?destination=node/16347%23comment-form
[2] https://clik.dva.gov.au/book/export/html/16347#tgt-cspol_part10_ftn627
[3] https://clik.dva.gov.au/service-eligibility-assistant-updates/all-determinations-order-date-signed-oldest-most-recent/determinations-under-vea
[4] https://clik.dva.gov.au/book/export/html/16347#ref-cspol_part10_ftn627
[5] https://clik.dva.gov.au/%23
[6] https://clik.dva.gov.au/book/export/html/16347#tgt-cspol_part10_ftn628
[7] https://clik.dva.gov.au/book/export/html/16347#tgt-cspol_part10_ftn629
[8] https://clik.dva.gov.au/book/export/html/16347#tgt-cspol_part10_ftn630
[9] 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
[10] https://clik.dva.gov.au/book/export/html/16347#ref-cspol_part10_ftn628
[11] https://clik.dva.gov.au/compensation-and-support-policy-library/part-10-types-income-and-assets/105-income-streams/1057-life-expectancy-tables-pension-valuation-factors-and-payment-factors
[12] https://clik.dva.gov.au/book/export/html/16347#ref-cspol_part10_ftn629
[13] https://clik.dva.gov.au/legislation-library
[14] https://clik.dva.gov.au/book/export/html/16347#ref-cspol_part10_ftn630
[15] http://www.comlaw.gov.au/Series/C2004A03268
[16] http://clik.dva.gov.au/legislation-library
[17] http://clik/health-procedure-library/health-information-and-management-notes-himn/vhc/072014-vhc-veterans-home-care