VEA ? [2]
Private annuities [3] do not satisfy the definition of an income stream [3], as they do not meet the requirements for prudential regulation. Private annuities [3] are assessed under the ordinary income [3] and assets test. To be classed as a private annuity the arrangement must be in the form of a legally binding contract between the two parties. Each private annuity must be assessed on its particular merits and an actuarial value is required in all cases.
More ? [4]
An actuarial valuation of a person's private annuity is required to determine:
An actuarial valuation is required because private annuities are usually family or private arrangements where one party provides regular income payments in exchange for a lump sum payment, or other valuable consideration [3]. The arrangements are normally not determined by financial markets. For example, a pensioner who is a landowner in the rural industry may exchange the title to a farming property for a series of payments over a defined period of time.
An initial actuarial valuation of a person's private annuity is required when the:
Additional actuarial valuations of a person's private annuity are required when the:
The Australian Government Actuary can supply an actuarial value. The Actuary must be supplied with all the relevant details of the annuity including:
The following table shows additional information requirements.
More ? [5]
If one of the parties is a... |
also provide... |
Trust |
a copy of the trust deed. |
Company |
|
Partnership |
a copy of the partnership agreement and accounts. |
For private annuity payments made before 20 September 1998, the gross annuity payments is reduced by a deductible amount [3] using the income assessment rules which applied at that time.
From 20 September 1998, private annuities do not satisfy the new definition of an income stream [3] and are assessable under the ordinary income [3] and assets test. The gross annuity payments as specified in the annuity contract are fully assessable under the income test from the commencement date of the annuity contract. No deductible amount [3] is allowed
More ? [6]
One-year, one-payment private annuities are not classified as annuities for DVA purposes. They are assessed as a financial asset [3] assessed using the deeming provisions [3].
More ? [7]
A pensioner is assessed for deprivation of income if they have elected to forgo a payment to which they were entitled to receive from the private annuity under the annuity contract.
This can occur where the pensioner either gifts the annuity payment to a third party, or 'forgives' the annuity payment. The term 'forgiving a payment' refers to circumstances where the annuitant does not require that the annuity provider make the annuity payment as specified in the annuity contract.
More ? [8]
A pensioner receives $10,000 per year from a private annuity, in the form of two payments of $5,000 each at 6 monthly intervals. The pensioner decides to forgo the first payment, but keeps the annuity contract in force. An amount of $5,000 should be assessed as deprived income under the normal rules. If the pensioner also decides to forgo the second payment, the amount of deprived income should be increased to $10,000 from the date of the second payment specified in the annuity contract.
Generally when a person acquires or disposes of an income producing asset without [glossary:adequate:] [glossary:financial:] [glossary:consideration:] [9], the deprived amount is maintained and deemed. It would be 'double-dipping' to also assess the forgone income as income deprivation. Therefore assets deprivation provisions only are applied if a person:
A private annuity is a legally binding contract between two parties where one party provides an income in exchange for payment or valuable consideration. An example of this is where a person agrees to “sell” a property holding .As payment for receipt of the property the purchaser agrees to pay the person individual annuities which usually have a total stated purchase price equivalent to the value of the transferred property.
According to subsection 5J(1) of the VEA [23], an income stream includes:
but does not include any of the following:
A private annuity is a legally binding contract between two parties where one party provides an income in exchange for payment or valuable consideration. An example of this is where a person agrees to “sell” a property holding .As payment for receipt of the property the purchaser agrees to pay the person individual annuities which usually have a total stated purchase price equivalent to the value of the transferred property.
The ordinary income of a person for a period means, as described in section 46 of VEA [24], the gross ordinary income from all sources for that period without any reduction, other than a reduction of business income.
Valuable consideration is defined as receipts not in money form but capable of being valued in money terms.
According to section 5J of the VEA [23], 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].
According to subsection 5J(1) of the VEA [23], an income stream includes:
but does not include any of the following:
The ordinary income of a person for a period means, as described in section 46 of VEA [24], the gross ordinary income from all sources for that period without any reduction, other than a reduction of business income.
According to section 5J of the VEA [23], 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].
According to section 5J(1) [23] of the VEA a financial asset means;
In 1990 the government introduced legislative changes called “deeming” to simplify the assessment of cash deposits and income from certain investments. These changes were made:
Deemed income is the minimum rate that the government expects income support pensioners to earn from investments.
Banks created “pensioner accounts” which paid interest at the deeming rate set by the government.
On 1 July 1996 further changes meant the deeming rate was applied to all financial assets as defined in section 5J(1) of the VEA [23].
Links
[1] https://clik.dva.gov.au/user/login?destination=node/16416%23comment-form
[2] https://clik.dva.gov.au/book/export/html/16416#tgt-cspol_part10_ftn211
[3] https://clik.dva.gov.au/%23
[4] https://clik.dva.gov.au/book/export/html/16416#tgt-cspol_part10_ftn212
[5] https://clik.dva.gov.au/book/export/html/16416#tgt-cspol_part10_ftn213
[6] https://clik.dva.gov.au/book/export/html/16416#tgt-cspol_part10_ftn214
[7] https://clik.dva.gov.au/book/export/html/16416#tgt-cspol_part10_ftn215
[8] https://clik.dva.gov.au/book/export/html/16416#tgt-cspol_part10_ftn216
[9] clikpopup://DEF/Adequate financial consideration
[10] https://clik.dva.gov.au/service-eligibility-assistant-updates/all-determinations-order-date-signed-oldest-most-recent/determinations-under-vea
[11] https://clik.dva.gov.au/legislation-library
[12] https://clik.dva.gov.au/book/export/html/16416#ref-cspol_part10_ftn211
[13] https://clik.dva.gov.au/compensation-and-support-policy-library/part-10-types-income-and-assets/105-income-streams
[14] https://clik.dva.gov.au/book/export/html/16416#ref-cspol_part10_ftn212
[15] https://clik.dva.gov.au/compensation-and-support-policy-library/part-10-types-income-and-assets/103-business-structures-and-trusts
[16] https://clik.dva.gov.au/book/export/html/16416#ref-cspol_part10_ftn213
[17] https://clik.dva.gov.au/compensation-and-support-policy-library/part-10-types-income-and-assets/102-assets/1024-assessing-personal-assets-and-investments/assessing-private-annuities
[18] https://clik.dva.gov.au/book/export/html/16416#ref-cspol_part10_ftn214
[19] https://clik.dva.gov.au/compensation-and-support-policy-library/part-9-principles-determining-pension-rate/95-deeming-provisions
[20] https://clik.dva.gov.au/book/export/html/16416#ref-cspol_part10_ftn215
[21] https://clik.dva.gov.au/compensation-and-support-policy-library/part-9-principles-determining-pension-rate/96-deprivation-income-and-assets
[22] https://clik.dva.gov.au/book/export/html/16416#ref-cspol_part10_ftn216
[23] http://clik.dva.gov.au/legislation-library
[24] http://www.comlaw.gov.au/Series/C2004A03268