To be an asset-test exempt income stream [3], the income stream [3] must have been purchased before 20 September 2007, unless certain conditions are met. The purchase date also determines whether the income stream is 100% or 50% asset-test exempt.
More [4]
An asset-test exempt life expectancy income stream has all of the following characteristics:
Where an income stream is jointly owned, the characteristics of the income stream must be satisfied in relation to each owner.
An asset-test exempt life expectancy income stream's commencement day [3] 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, as specified in the income stream contract, and is also known as its relevant number [3]. 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 as the purchase date for purchased income streams.
More [6]
Purchase date of income stream |
Relevant number requirements |
Rounding |
Before 20/09/2004 |
|
If not a whole number, may be rounded up at the person's option to the next whole number. |
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. |
Payments must be made at least annually. The contract must specify the total amount of payments that may be made in the first year after the commencement day, excluding allowable commutations. In any other year the payments may only vary by:
The yearly indexation cannot be a negative value and must be capped at the larger of:
The purchase price is the amount invested to purchase the income stream, less any allowable commutations. The amount paid as the purchase price must be wholly converted into income. 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 [3] cannot be greater than the benefit payable before the commutation. Commutation is allowed in the following circumstances:
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 are forced to restructure after failing to meet the high probability test.
More [7]
For an income stream to be asset-test exempt, neither of the following can be used as security for borrowing:
In order for a life expectancy income stream to qualify for asset-test exempt status, the contract or governing rules [3] must specify that the income stream can only be transferred to a reversionary beneficiary or to the person's estate on the death of the primary beneficiary. To ensure that no income [3] is deferred, the payment to a reversionary beneficiary cannot be greater than the payment the primary beneficiary received immediately before death.
If the primary beneficiary or owner of a:
dies and the income stream reverts to the nominated reversionary beneficiary, the income stream must be re-tested for asset-test exempt status as at the date of reversion using the age and life expectancy of the reversionary beneficiary and remaining term of the income stream on that date.
If, on the date of reversion:
the income stream would no longer meet the characteristics of an asset-test exempt income stream and would instead be assessed as an asset-tested income stream (long term) [3]. The income stream retains the same commencement day, purchase price and relevant number regardless of whether it is assessed as asset-test exempt or as asset-tested. The gross payment may reduce as specified in the income stream contract.
More [8]
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, purchase price and relevant number. The gross payment may reduce as specified in the income stream contract.
The reversionary benefit for life expectancy income streams is the balance of payments that would have been paid to the primary beneficiary under the contract terms.
Removing or changing the reversionary beneficiary has no impact on the asset test exempt status of the income stream.
Actuarial Certificate
10.5.5/Additional Documentation Required from Self managed Superannuation Funds and Small APRA Funds [13]
Relevant number
Section 10.5.7 Life Expectancy Tables, Pension Valuation Factors and Payment Factors [15]
Waiver of debt under temporary debt relief arrangements
10.5.5/Assessment where Fund Closes or is in Financial Difficulty [17]
Asset-tested income streams
10.5.2/Asset tested income streams [19]
Determining the relevant number for an assets test exempt life expectancy or 15 year minimum term income stream
Section 10.5.7 Life Expectancy Tables, Pension Valuation Factors and Payment Factors [15]
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:
According to subsection 5J(1) of the VEA [21], an income stream includes:
but does not include any of the following:
Currently, the pension age for a veteran is 60 years of age (VEA 5QA).
The pension age for a non-veteran is determined by the table below:
Date of birth (both dates inclusive) | Age Pension age |
1 July 1952 to 31 December 1953 | 65 years and 6 months |
1 January 1954 to 30 June 1955 | 66 years |
1 July 1955 to 31 December 1956 | 66 years and 6 months |
On or after 1 January 1957 | 67 years |
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 consumer price index (CPI) provides the official measure of inflation in Australia. The CPI measures quarterly changes in the price of a 'basket' of goods and services which account for a high proportion of expenditure by the CPI population group (i.e. metropolitan households).
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) [21]of the VEA [21]
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 [3].
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.
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.
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.
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:
The governing rules of an income stream are either:
governing the establishment and operation of the income stream.
According to section 5H of the VEA [22] income is:
An income stream is an asset-tested long term income stream if it is:
Note: income streams that pay for the life of an individual or individuals, purchased or acquired on or after 1 July 2019, are assessed as asset-tested lifetime income streams.
Legislative reference: subsection 5J(1) Veterans' Entitlements Act 1986
Links
[1] https://clik.dva.gov.au/user/login?destination=node/16380%23comment-form
[2] https://clik.dva.gov.au/book/export/html/16380#tgt-VEA_ftn1
[3] https://clik.dva.gov.au/%23
[4] https://clik.dva.gov.au/book/export/html/16380#tgt-cspol_part10_ftn622
[5] https://clik.dva.gov.au/book/export/html/16380#tgt-cspol_part10_ftn623
[6] https://clik.dva.gov.au/book/export/html/16380#tgt-cspol_part10_ftn624
[7] https://clik.dva.gov.au/book/export/html/16380#tgt-cspol_part10_ftn625
[8] https://clik.dva.gov.au/book/export/html/16380#tgt-cspol_part10_ftn626
[9] http://www.comlaw.gov.au/Series/C2004A03268
[10] https://clik.dva.gov.au/book/export/html/16380#ref-VEA_ftn1
[11] 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
[12] https://clik.dva.gov.au/book/export/html/16380#ref-cspol_part10_ftn622
[13] 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/additional-documentation-required-self-managed-superannuation-funds-and
[14] https://clik.dva.gov.au/book/export/html/16380#ref-cspol_part10_ftn623
[15] 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
[16] https://clik.dva.gov.au/book/export/html/16380#ref-cspol_part10_ftn624
[17] 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
[18] https://clik.dva.gov.au/book/export/html/16380#ref-cspol_part10_ftn625
[19] https://clik.dva.gov.au/compensation-and-support-policy-library/part-10-types-income-and-assets/105-income-streams/1052-description-income-streams/asset-tested-income-streams
[20] https://clik.dva.gov.au/book/export/html/16380#ref-cspol_part10_ftn626
[21] http://clik.dva.gov.au/legislation-library
[22] http://clik/health-procedure-library/health-information-and-management-notes-himn/vhc/072014-vhc-veterans-home-care