Last amended: 13 May 2008
VEA → [2]
The following formula is used to determine the amount of annual ordinary income [3] from a defined benefit income stream [3]:
Annual ordinary income = gross annual payment [3] - deductible amount [3]
The deductible amount is a term defined in the VEA as an amount calculated under the taxation law [3], and referred to as the tax free component [3] under the taxation law. The gross annual payment excludes any abatements.
VEA → [4]
If the income stream [3] contract specifies that part of the income stream is made for dependent children, that amount is exempt from the income test [3].
More → [5]
The method of calculating the deductible amount/tax free component depends on the person's individual circumstances. The available methods are:
Income stream providers determine whether the pre 1 July 2007 rules method or the new 1 July 2007 rules method applies to the defined benefit income stream. DVA determines whether the saving provision applies. DVA cannot determine whether the pre 1 July 2007 rules method or the new 1 July 2007 rules method applies.
Commencement day of the income stream |
Conditions |
Method to apply |
On or after 1 July 2007 |
N/A |
New 1 July 2007 rules method |
Before 1 July 2007 |
The owner:
|
Pre 1 July 2007 rules method |
Before 1 July 2007 |
The owner:
|
New 1 July 2007 rules method (the saving provision may apply) |
Before 1 July 2007 |
The owner has made a commutation between 1 July 2007 and their 60 — th birthday |
New 1 July 2007 rules method |
Before 1 July 2007 |
The owner is the reversionary beneficiary of a person who died after 30 June 2007 and the income stream does not include payments from elements untaxed within the fund |
New 1 July 2007 rules method |
Before 1 July 2007 |
The income stream includes payments from elements untaxed within the fund, and the owner:
|
Pre 1 July 2007 rules method |
Under the new 1 July 2007 rules method, the income stream provider calculates the deductible amount/tax free component under tax law. The provider then notifies DVA of the deductible amount/tax free component and the calculation method.
The deductible amount/tax free component is based on a proportion of the total value of the superannuation interest. As the tax free component is a proportion of the gross payment, the deductible amount/tax free component may increase as payments from the income stream are increased with indexation.
Under the pre 1 July 2007 rules method, the income stream provider notifies DVA of the person's undeducted purchase price [3] (UPP), the deductible amount/tax free component, and the calculation method.
The deductible amount/tax free component calculated under the pre 1 July 2007 rules method is fixed and cannot increase as the income stream payment increases with indexation. However, the deductible amount/tax free component may reduce if the person makes a commutation from their income stream that includes a part of the UPP.
A saving provision applies where all of the following conditions are met:
The trigger day is the later of 1 July 2007 and the person's 60 — th birthday.
The saving provision ceases to apply when any of the following events occur:
An abatement occurs when an employee elects to take additional units of superannuation, but cannot pay the full amount due at the time of their retirement. The amount is repaid over a number of years after retirement by annually deducting a lump sum before the superannuation is made available. During the abatement period the abatement amount is not income [3] and not included in the gross payment for income test [3] purposes.
The ordinary income of a person for a period means, as described in section 46 of VEA [13], the gross ordinary income from all sources for that period without any reduction, other than a reduction of business income.
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:
Annual payment means the amount payable to the person for the year under the income stream.
According to section 5J of the VEA [14], a deductible amount, in relation to an income stream, means the sum of the amounts that are the tax free component [3], worked out under the tax law, of the payments received from the DBIS [3].
The taxation law includes the following acts:
It also includes regulations and determinations made under the taxation law.
The tax free component is an amount calculated by the income stream provider under either Subdivision 307-C of the Income Tax Assessment Act 1997 or section 307-125 of the Income Tax (Transitional Provisions) Act 1997. The tax free component is the same as the deductible amount [3] for DVA purposes and reduces the amount of assessable income from a defined benefit income stream.
According to subsection 5J(1) of the VEA [14], an income stream includes:
but does not include any of the following:
One element of the means test [3] for income support pensions whereby the rate of pension payable to a pensioner reduces progressively as their income increases above a certain threshold known as the income free area (IFA) [3].
A commutation, in relation to an income stream [3], is the conversion of part or all of the future income stream payments into a lump sum. A commutation is similar to a withdrawal.
The Undeducted Purchase Price (UPP) is that part of the amount contributed towards a pension or annuity which was not and will not be allowed as a tax deduction. The UPP is one of the factors used to determine the tax free component [3]. The person's income stream provider calculates the UPP.
Income support pension is:
According to section 5H of the VEA [15] income is:
One element of the means test [3] for income support pensions whereby the rate of pension payable to a pensioner reduces progressively as their income increases above a certain threshold known as the income free area (IFA) [3].
Links
[1] https://clik.dva.gov.au/user/login?destination=node/16369%23comment-form
[2] https://clik.dva.gov.au/book/export/html/16369#tgt-cspol_part10_ftn655
[3] https://clik.dva.gov.au/%23
[4] https://clik.dva.gov.au/book/export/html/16369#tgt-cspol_part10_ftn656
[5] https://clik.dva.gov.au/book/export/html/16369#tgt-cspol_part10_ftn657
[6] clik://LEGIS/VEA/section 46V
[7] clik://LEGIS/VEA/section 46Y
[8] https://clik.dva.gov.au/book/export/html/16369#ref-cspol_part10_ftn655
[9] clik://LEGIS/VEA/section 5H(8)
[10] https://clik.dva.gov.au/book/export/html/16369#ref-cspol_part10_ftn656
[11] https://clik.dva.gov.au/compensation-and-support-policy-library/part-10-types-income-and-assets/101-ordinary-income
[12] https://clik.dva.gov.au/book/export/html/16369#ref-cspol_part10_ftn657
[13] http://www.comlaw.gov.au/Series/C2004A03268
[14] http://clik.dva.gov.au/legislation-library
[15] http://clik/health-procedure-library/health-information-and-management-notes-himn/vhc/072014-vhc-veterans-home-care