Legislation [5]
An income stream is Family Law Affected if it is split between a person and their former partner under Part VIIB or VIIIAA of the Family Law Act 1975. The table below describes the different types.
Type | Description |
Original FLA income stream | The income stream that is the subject of a property settlement between the owner and the former partner |
The portion of the original FLA income stream awarded to the owner of the original FLA income stream | |
The portion of the original FLA income stream awarded to the former partner of the owner of the original FLA income stream |
The original FLA income stream is split into the primary and secondary FLA income streams according to the terms of a superannuation agreement or a court order. The split may take one of two forms:
Under a percentage payment split, the asset value, income stream payments and deduction in respect of return of capital applying to the original FLA income stream is the same as the sum of the portions of those amounts applying to the primary FLA income stream and the secondary FLA income stream.
Before the first income stream payment is paid under the split, the income stream provider may exercise their discretion under regulation 14G of the Family Law (Superannuation) Regulations 2001 to pay out the entitlement of the former partner as a lump sum. This can be done by either:
In each case, the former partner's claim is finalised and there is no further entitlement to any payments in respect of the original FLA income stream.
The income stream provider will generally seek to pay out the former partner's base amount interest in full immediately after the operative date by transfer, rollover or commutation to a lump sum. When this is done, the former partner is not entitled to receive any further payments in respect of the income stream. In some cases, this is not possible and the income stream is split into primary and secondary FLA income streams.
The former partner does not need to decide how they want to receive the base amount until the date of the first splittable payment. The assessable income from the primary and secondary FLA income streams cannot be calculated until the decision is made. Therefore, no income is assessed from either the primary or secondary FLA income streams between the operative time and the date of the first splittable payment. However, the asset value is still assessed in respect of income streams that are not 100 per cent asset test exempt.
The operative time is the date from which assessment of the split payments commences. This table describes how the operative time is calculated.
If the payment split occurs under | then the operative time is |
a court order | the time specified in the court order |
a superannuation agreement and the income stream provider is not a self managed superannuation fund (SMSF) | the beginning of the fourth business day after the day on which a copy of the agreement is served on the income stream provider |
a superannuation agreement and the income stream provider is an SMSF | the time when a copy of the agreement is served on the trustee |
Generally, superannuation fund trustees will seek to pay out the non-member's 'base amount' interest immediately after the operative time via the transfer, roll-over or commutation to a lump sum. However, in some cases, the payment of the base amount will be more complex.
The notional purchase price (NPP) refers to the purchase price of an FLA income stream at the time that the FLA income stream is assessed. The NPP is different from the purchase price of the original FLA income stream on its commencement day [9].
The commencement day in relation to an income stream [9] 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.
This table shows how to calculate the asset value of an asset-test exempt income stream where the superannuation agreement or court order specified that payments from the original Family Law Affected income stream owned by the member are to be split with the former partner (non-member) on a percentage basis.
For Allocated or Account-based Income Streams, Defined Benefit Income Streams, Asset-tested Long Term Income Streams or Lifetime Income Streams, see the relevant pages under 10.5.6 Family Law Affected Income Streams.
Note that the assets test assessment for asset-test exempt income streams depends on the purchase date of the income stream:
Step | Action |
1 | Determine the percentages in the payment split for the owner (MSPROP) and the former partner (NMSPROP). |
2 | Calculate the notional purchase price (NPP) at the operative time for the original FLA income stream. The NPP = the purchase price of the original FLA income stream on the commencement day [9] less any commutations made before the operative time. |
3 | Calculate the NPP for the primary and secondary FLA income streams by applying MSPROP and NMSPROP respectively to the NPP. NPP for the primary FLA income stream: [7] (MSNPP) = NPP x MSPROP NPP for the secondary FLA income stream: [8] (NMSNPP) = NPP x NMSPROP |
4 | Calculate the asset value of the primary FLA income stream using the formula MSNPP – ([MSNPP / relevant number] x term elapsed) Calculate the asset value of the secondary FLA income stream using the formula: NMSNPP – ([NMSNPP / relevant number] x term elapsed) Relevant number is the relevant number of the original FLA income stream on its commencement day. Term elapsed is the number of years elapsed since the commencement day of the original FLA income stream. |
Any commutation [9] made after the operative time is apportioned between the primary and secondary FLA income streams in the same proportion as the original percentage payment split. The commutation will affect the NPP and therefore the asset value of both the primary and secondary FLA income streams.
FLA income streams are subject to the same asset value reviews as other income streams. The first six or twelve monthly review of the primary and/or secondary FLA income streams is taken from the time of the previous review date of the original FLA income stream. If the original FLA income stream has not yet had its first review, the review of the primary and/or secondary FLA income stream is taken from the commencement day of the original FLA income stream.
This table shows how to calculate the assessable income from the income stream.
Step | Action |
1 | Determine the percentages in the payment split for the owner (MSPROP) and the former partner (NMSPROP). Determine the gross income for the owner and the former partner. |
2 | Calculate the notional purchase price (NPP) at the operative time for the original FLA income stream. The NPP = the purchase price of the original FLA income stream on the commencement day less any commutations made before the operative time. |
3 | Calculate the NPP for the primary and secondary FLA income streams by applying MSPROP and NMSPROP respectively to the NPP. NPP for the primary FLA income stream (MSNPP) = NPP x MSPROP NPP for the secondary FLA income stream (NMSNPP) = NPP x NMSPROP |
4 | Calculate the deduction amount for the primary and secondary FLA income streams. Deduction for the owner = MSNPP / relevant number [9] Deduction for the former partner = NMSNPP / relevant number Relevant number is the relevant number of the original FLA income stream on its commencement day. |
5 | Reduce the gross income of the primary and secondary FLA income streams by their respective deduction amounts. |
Any commutation made after the operative time is apportioned between the primary and secondary FLA income streams in the same proportion as the original percentage payment split. The commutation will affect the gross income, NPP and therefore the deduction amount for both the primary and secondary FLA income streams.
The commencement day in relation to an income stream [9] 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.
A commutation, in relation to an income stream [9], 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.
This table shows how to calculate the asset value of an Asset-tested Long Term Income Stream where the superannuation agreement or court order specifies that payments from the original Family Law Affected income stream owned by the member are to be a split with the former partner (non-member) on a percentage basis.
For Asset-test Exempt Income Streams, Allocated or Account-based Income Streams, Defined Benefit Income Streams or Lifetime Income Streams, see the relevant pages under 10.5.6 Family Law Affected Income Streams.
For Asset-tested Long Term Income Streams:
Step | Action |
1 | Determine the percentages in the payment split for the owner (MSPROP) and the former partner (NMSPROP). |
2 | Calculate the notional purchase price (NPP) at the operative time for the original FLA income stream. The NPP = the purchase price [9] of the original FLA income stream on the commencement day [9] less any commutation [9]s made before the operative time. |
3 | Calculate the NPP for the primary and secondary FLA income streams by applying MSPROP and NMSPROP respectively to the NPP. NPP for the primary FLA income stream: [7] (MSNPP) = NPP x MSPROP NPP for the secondary FLA income stream: [8] (NMSNPP) = NPP x NMSPROP |
4 | Determine the residual capital value (RCV) for the primary and secondary FLA income streams. Unless otherwise stated, the RCV for the primary FLA income stream (MSRCV) and the secondary FLA income stream (NMSRCV) will be calculated by applying MSPROP and NMSPROP to the RCV of the original FLA income stream. MSRCV = MSPROP x RCV NMSRCV = NMSPROP x RCV. |
5 | Calculate the asset value of the primary FLA income stream using the formula MSNPP – {([MSNPP – MSRCV] / relevant number [9]) x term elapsed} Calculate the asset value of the secondary FLA income stream using the formula: NMSNPP – {([NMSNPP – NMSRCV] / relevant number) x term elapsed} MSRCV and NMSRCV are respectively the residual capital value [9]s for the owner and the former partner. Relevant number is the relevant number of the original FLA income stream on its commencement day. Term elapsed is the number of years elapsed since the commencement day of the original FLA income stream. |
Any commutations made after the operative time are apportioned between the primary and secondary FLA income streams in the same proportion as the original percentage payment split. The commutation will affect the NPP and therefore the asset value of both the primary and secondary FLA income streams.
FLA income streams are subject to the same asset value reviews as other income streams. The first six or twelve monthly review of the primary and/or secondary FLA income streams is taken from the time of the previous review date of the original FLA income stream. If the original FLA income stream has not yet had its first review, the review of the primary and/or secondary FLA income stream is taken from the commencement day of the original FLA income stream.
This table shows how to calculate the assessable income from the income stream.
Step | Action |
1 | Determine the percentages in the payment split for the owner (MSPROP) and the former partner (NMSPROP). Determine the gross income for the owner and the former partner. |
2 | Calculate the notional purchase price (NPP) at the operative time for the original FLA income stream. The NPP = the purchase price of the original FLA income stream on the commencement day less any commutations made before the operative time. |
3 | Calculate the NPP for the primary and secondary FLA income streams by applying MSPROP and NMSPROP respectively to the NPP. NPP for the primary FLA income stream (MSNPP) = NPP x MSPROP NPP for the secondary FLA income stream (NMSNPP) = NPP x NMSPROP |
4 | Determine the residual capital value (RCV) for the primary and secondary FLA income streams. Unless otherwise stated, the RCV for the primary FLA income stream (MSRCV) and the secondary FLA income stream (NMSRCV) will be calculated by applying MSPROP and NMSPROP to the RCV of the original FLA income stream. MSRCV = MSPROP x RCV of original FLA income stream NMSRCV = NMSPROP x RCV of original FLA income stream |
5 | Calculate the deduction amount for the primary and secondary FLA income streams. Deduction for the owner = (MSNPP – MSRCV) / relevant number Deduction for the former partner = (NMSNPP – NMSRCV) / relevant number Relevant number is the relevant number of the original FLA income stream on its commencement day. |
6 | Reduce the gross income of the primary and secondary FLA income streams by their respective deduction amounts. |
Any commutations made after the operative time are apportioned between the primary and secondary FLA income streams in the same proportion as the original percentage payment split. The commutation will affect the gross income, NPP and therefore the deduction amount for both the primary and secondary FLA income streams.
Example: Henry buys a fixed term pension from XYZ super fund on 1 January 1998. His income stream is assessed by DVA as an 'asset-tested income stream (long term)'.
Purchase price = $100,000
Term = 20 years
Pension payments = $9,000 p.a. (paid monthly)
RCV = Nil
5 years after purchasing his income stream, Henry and Wilma get divorced.
Court orders a percentage payment split with 60% of payments going to Henry and 40% of payments going to Wilma. No commutations were made from the income stream between the commencement date and the operative time. Operative time is 1 January 2003.
Under the payment split, Henry receives a primary FLA income stream with annual payments of $5,400 and Wilma receives a secondary FLA income stream with payments of $3,600. These amounts are advised to DVA by the trustee.
Assets test
Step | Description |
---|---|
1 | Henry's proportion of the payment split is 60%. Wilma's proportion of the payment split is 40%. |
2 | Calculate the NPP of the original FLA income stream (original FLA) at the operative time. As no commutations were made from the commencement date up to the operative time, the NPP of the original FLA income stream is $100,000. |
3 | Calculate the NPP for the primary FLA (member) and secondary FLA (non-member) income stream at the operative time. MNPP (Henry) = MPROP × NPP of the member income stream at the 'operative time' = 0.60 × 100,000 = 60,000 (Henry's NPP at the operative time) NMNPP (Wilma) = MPROP × NPP of the member income stream at the operative time = 0.40 × 100,000 = 40,000 (Wilma's NPP at the operative time). |
4 | Calculate the asset values for the member (primary FLA income stream) and non-member (secondary FLA income stream) at the operative time: member asset value = 60,000 − {[(60,000 − 0) ÷ 20] × 5} = $45,000 non-member asset value = 40,000 − {[(40,000 − 0) ÷ 20] × 5} = $30,000. |
In the above example:
Income Test
Step | Description |
---|---|
1 | As per advice by the fund trustee, Henry's new gross annual payment is $5,400 (primary FLA). Wilma's gross annual payment (secondary FLA) is $3,600. |
2 | Calculate the deduction amount for each split income stream: Member deduction amount = $60,000 ÷ 20 = $3,000 Non-member deduction amount = $40,000 ÷ 20 = $2,000 Henry's new deduction amount is $3,000. Wilma's deduction amount is $2,000. |
3 | Calculate the assessable income by using the formula: Henry has assessable income of $5,400 − $3,000 = $2,400 Wilma has assessable income of $3,600 − $2,000 = $1,600. |
On 1 January 2005, 2 years after the operative time (1 January 2003) and 7 years after the commencement date (1 January 1998), the asset value of Henry's split income stream will be $39,000. The asset value of Wilma's income stream two years after the operative time will be $26,000.
Term elapsed since commencement date of the original FLA income stream: 7 years.
Member asset value (Henry) = $60,000 − {[($60,000 − 0) ÷ 20] × 7} = $39,000.
Non-member asset value (Wilma) = $40,000 − {[($40,000 − 0) ÷ 20] × 7} = $26,000.
Effect of commutations after operative time
On 1 January 2006 (three years after the operative time and eight years after the commencement date), Henry made a commutation of $10,000 from his income stream. As this is a FLA income stream, Henry is only entitled to receive 60% of the commuted amount (i.e. $6,000), while 40% will go to Wilma (i.e. $4,000). The 'proportional split' was originally set out in the superannuation agreement or court order.
Assets test when a commutation is made under a percentage payment split
Step | Description |
---|---|
1 | Recalculate NPP for both the primary FLA (member) and secondary FLA (non-member) income stream by using the formula: Adjusted MNPP = M/NPP − Proportion of the commuted amount $60,000 − $6,000 = $54,000 (Henry's adjusted NPP) Adjusted MNPP = NM/NPP − Proportion of the commuted amount $40,000 − $4,000 = $36,000 (Wilma's adjusted NPP). |
2 | Using the adjusted value of both the primary FLA (member) and secondary FLA (non-member) NPPs, calculate new asset values for primary FLA and secondary FLA. Term elapsed since the commencement date of the original FLA income stream is 8 years. Member asset (Henry) = $54,000 − {[(54,000 − 0) ÷ 20] × 8} = $32,400 Non-member asset (Wilma) = $36,000 − {[($36,000 − 0) ÷ 20] × 8} = $21,600. |
In the above example:
On 1 January 2007, 4 years after the operative date (1 January 2003) and 9 years after the commencement date (1 January 1998), the asset value of Henry's FLA affected income stream will be $29,700. The asset value of Wilma's FLA income stream will be $19,800.
Term elapsed since the commencement date of the original FLA income stream: 9 years.
Member asset value (Henry): $54,000 − {[($54,000 − 0) ÷ 20] × 9} = $29,700.
Non-member asset value (Wilma): $36,000 − {[($36,000 − 0) ÷ 20] × 9} = $19,800.
Income test when a commutation is made under a percentage payment split.
Step | Description |
---|---|
1 | Obtain from the fund trustee the new gross income after the commutation is made for both the member (primary FLA) and non-member (secondary FLA). In this example, Henry's new gross annual payment is $4,320. Wilma's new gross annual payment is now $2,880. |
2 | Recalculate the deduction amount for each split income stream using the formula: Deduction amount = (NPP − RCV) ÷ RN (of the original FLA income stream) Henry (deduction amount): $54,000 ÷ 20 = $2,700 Wilma (deduction amount): $36,000 ÷ 20 = $1,800. |
3 | Recalculate the assessable income of each split income stream using the formula: Assessable income = Gross income − Deduction amount Member assessable income (Henry) = Non-member assessable income (Wilma) = |
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) [12]of the VEA [12]
The commencement day in relation to an income stream [9] 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.
A commutation, in relation to an income stream [9], 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.
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 [9].
This table shows how to calculate the asset value of Allocated (Account-based) and Market Linked Income Streams where the superannuation agreement or court order specifies that payments from the original Family Law Affected Income Stream, owned by the member, are to be split with the former partner (non-member) on a percentage basis.
For Asset-test Exempt Income Streams, Defined Benefit Income Streams, Asset-tested Long Term Income Streams or Lifetime Income Streams, see the relevant pages under 10.5.6 Family Law Affected Income Streams.
For Allocated (Account-based) or Market Linked Income Streams:
Step | Action |
1 | Determine the percentages in the payment split for the owner (MSPROP) and the former partner (NMSPROP). |
2 | Calculate the asset value of the primary FLA income stream [7] using the formula: MSPROP x account balance of original FLA income stream at the operative time Calculate the asset value of the secondary FLA income stream [8] using the formula: NMSPROP x account balance of original FLA income stream at the operative time |
Although there are two separate income streams (the primary and secondary FLA income streams), there is only one account balance. The account balance is only notionally split between the primary and secondary income streams.
Any commutation [9] made after the operative time is apportioned between the primary and secondary FLA income streams in the same proportion as the original percentage payment split. The commutation will affect the account balance and therefore the asset value of both the primary and secondary FLA income streams.
FLA income streams are subject to the same asset value reviews as other income streams. The first six or twelve monthly review of the primary and/or secondary FLA income streams is taken from the time of the previous review date of the original FLA income stream. If the original FLA income stream has not yet had its first review, the review of the primary and/or secondary FLA income stream is taken from the commencement day of the original FLA income stream.
This table shows how to calculate the assessable income from the income stream.
Step | Action |
1 | Determine the percentages in the payment split for the owner (MSPROP) and the former partner (NMSPROP). Determine the gross income for the owner and the former partner. |
2 | Calculate the notional purchase price (NPP) at the operative time for the original FLA income stream. The NPP = the purchase price of the original FLA income stream on the commencement day less any commutations made before the operative time. |
3 | Calculate the NPP for the primary and secondary FLA income streams by applying MSPROP and NMSPROP respectively to the NPP. NPP for the primary FLA income stream (MSNPP) = NPP x MSPROP NPP for the secondary FLA income stream (NMSNPP) = NPP x NMSPROP |
4 | Calculate the deduction amount for the primary and secondary FLA income streams. Deduction for the owner = MSNPP ÷ relevant number Deduction for the former partner = NMSNPP ÷ relevant number Relevant number is the relevant number of the original FLA income stream on its commencement day. |
5 | Reduce the gross income of the primary and secondary FLA income streams by their respective deduction amounts. |
Any commutations made after the operative time are apportioned between the primary and secondary FLA income streams in the same proportion as the original percentage payment split. The commutation will affect the gross income, NPP and therefore the deduction amount for both the primary and secondary FLA income streams.
A commutation, in relation to an income stream [9], is the conversion of part or all of the future income stream payments into a lump sum. A commutation is similar to a withdrawal.
Defined benefit income streams are not included in a person's assessable assets.
All required information for the primary and secondary Family Law Affected (FLA) income streams is calculated by the income stream provider. The assessable income is the gross income less the deductible amount [9].
For Asset-test Exempt Income Streams, Allocated or Account-based Income Streams, Asset-tested Long Term Income Streams or Lifetime Income Streams, see the relevant pages under 10.5.6 Family Law Affected Income Streams.
According to section 5J of the VEA [12], a deductible amount, in relation to an income stream, means the sum of the amounts that are the tax free component [9], worked out under the tax law, of the payments received from the DBIS [9].
For Asset-test Exempt Income Streams, Defined Benefit Income Streams, Asset Tested Long Term Income Streams, Allocated (Account-based) or Market Linked Income Streams, see the relevant pages under 10.5.6 Family Law Affected Income Streams.
This table shows how to calculate the asset value of a Lifetime Income Stream where the superannuation agreement or court order specifies that payments from the original Family Law Affected (FLA) income stream, owned by the member, are to be split with the former partner (non‑member) on a percentage basis.
Calculating the asset value
To calculate the Lifetime Income Stream assessable asset values for the member (primary FLA) and non-member (secondary FLA) respectively:
Step | Description |
---|---|
1 | Ascertain the percentages awarded to the member and the non-member in the payment split (e.g. 60% - 40%). The percentages indicate the proportions (MPROP, NMPROP) in which the member's original interest is apportioned respectively between the member and the non-member. |
2 | Calculate the purchase amount of original FLA at operative time. |
3 | Calculate the purchase amount at the operative time for the primary FLA and secondary FLA respectively using the formula: Purchase amount of primary FLA at operative time = Purchase amount of secondary FLA at operative time = Where:
|
4 | Calculate asset values for the primary FLA and secondary FLA as per the assets test rules for asset-tested income streams (lifetime), noting that:
|
Subsequent commutations made by member (assets test assessment)
The member may commute part of the original income stream after the operative time. The family law provisions require that such commuted amounts be apportioned between the primary FLA and the secondary FLA in the proportions resulting from the original percentage payment split.
The purchase amount for each member and non-member’s FLA will be reduced by their share of the commutation, with consequent adjustments to the member's and non-member's asset value.
Income test assessment
Calculate assessable income for member (primary FLA) and non-member (secondary FLA) respectively as follows:
Step | Description |
---|---|
1 | Obtain gross annual payment for primary FLA and secondary FLA respectively. |
2 | The assessable income from the primary FLA and the secondary FLA is 60 per cent of the gross annual payment for each income stream. |
Subsequent commutations made by member (income test assessment)
The member may commute part of the original income stream after the operative time. The family law provisions require that such commuted amounts be apportioned between the primary FLA and the secondary FLA in the percentages specified in the original percentage payment split.
After the commutation is made, the new gross annual payment amount must be obtained from the fund trustee for both the member (primary FLA) and non-member (secondary FLA). The purchase amount for each member and non-member must be reduced by his or her share of the commutation.
Example: Paris buys a fixed term pension from XYZ super fund on 1 January 2020. Paris’ income stream is assessed by DVA as an 'asset-tested income stream (lifetime)'.
Purchase amount = $200,000
Pension payments = $9,000 p.a
Assessment day = 1 January 2020
Threshold day = 1 July 2040
The income stream was purchased in one lump sum, and no commutations or additional payments were made after the assessment day.
5 years after purchasing the income stream, Paris and Sydney get divorced.
Court orders a percentage payment split with 60% of payments going to Paris and 40% of payments going to Sydney. Operative time is 1 January 2025.
Under the payment split, Paris receives a primary FLA income stream with annual payments of $5,400 and Sydney receives a secondary FLA income stream with payments of $3,600. These amounts are advised to DVA by the trustee.
Assets test
Step | Description |
---|---|
1 | Paris’ proportion of the payment split is 60%. Sydney’s proportion of the payment split is 40%. |
2 | Calculate the purchase amount of the original FLA income stream (original FLA) at the operative time. As the income stream was purchased in one lump sum, and no commutations or additional payments were made after the assessment day, the purchase amount of the original FLA is $200,000. |
3 | Calculate the purchase amount for the primary FLA (member) and secondary FLA (non‑member) income stream at the operative time. MNPP (Paris) = MPROP × Purchase amount of the original FLA at the 'operative time' = 0.60 × $200,000 = $120,000 (Paris’ NPP at the operative time) NMNPP (Sydney) = MPROP × Purchase amount of the original FLA at the operative time = 0.40 × $200,000 = $80,000 (Sydney’s NPP at the operative time). |
4 | Calculate asset values for the primary FLA and secondary FLA as per the assets test rules for asset-tested income streams (lifetime), using purchase amounts of $120,000 for Paris, and $80,000 for Sydney, noting the threshold day of the original FLA was 1 July 2039, and the assessment day of the original FLA was 1 January 2020. The assessment day and threshold day for the primary FLA and the secondary FLA will depend on Paris and Sydney’s individual circumstances (e.g. their age, when they meet a condition of release, when they reach pension age). |
Income Test
Step | Description |
---|---|
1 | As per advice by the fund trustee, Paris’ new gross annual payment is $5,400 (primary FLA). Sydney’s gross annual payment (secondary FLA) is $3,600. |
2 | Calculate the assessable income by using the formula: Paris has assessable income of $5,400 x 0.6 = $3,240 Sydney has assessable income of $3,600 x 0.6 = $2,160 |
Effect of commutations after operative time
On 1 January 2028 (3 years after the operative time and 8 years after the assessment day), Paris made a commutation of $10,000 from the income stream. As this is a FLA income stream, Paris is only entitled to receive 60% of the commuted amount (i.e. $6,000), while 40% will go to Sydney (i.e. $4,000). The 'proportional split' was originally set out in the superannuation agreement or court order.
Assets test when a commutation is made under a percentage payment split
Step | Description |
---|---|
1 | Recalculate purchase amount for both the primary FLA (member) and secondary FLA (non‑member) income stream by using the formula: Adjusted purchase amount of primary FLA = $120,000 − $6,000 = $114,000 (Paris’ adjusted purchase amount) Adjusted purchase amount of secondary FLA = $80,000 − $4,000 = $76,000 (Sydney’s adjusted purchase amount). |
2 | Calculate asset values for the primary FLA and secondary FLA as per the assets test rules for asset-tested income streams (lifetime), using purchase amounts of $114,000 for Paris, and $76,000 for Sydney. The assessment day and threshold day for the primary and secondary FLAs would not change due to the commutation. |
Income test when a commutation is made under a percentage payment split
Step | Description |
---|---|
1 | Obtain from the fund trustee the new gross annual payments after the commutation is made for both the member (primary FLA) and non-member (secondary FLA). In this example, Paris’ new gross annual payment is $4,320. Sydney’s new gross annual payment is now $2,880. |
2 | Calculate the assessable income by using the formula: Paris has assessable income of $4,320 x 0.6 = $2,592 Sydney has assessable income of $2,880 x 0.6 = $1,728 |
This table shows how to calculate the asset value of an Asset-test Exempt Income Stream where the superannuation agreement or court order specifies a base payment amount, rather than a percentage, from the original Family Law Affected income stream, owned by the member.
For Allocated or Account-based Income Streams, Defined Benefit Income Streams, Asset-tested Long Term Income Streams or Lifetime Income streams, see the relevant pages under 10.5.6 Family Law Affected Income Streams.
Note that the assets test [9] assessment depends on the purchase date of the income stream:
Step | Action |
1 | Establish the value of the base amount paid to the former partner (BA) and the value (V) of the relevant superannuation interest at the operative time. |
2 | Determine the proportions for the former partner (NMSPROP) and the owner (MSPROP). NMSPROP = BA / V MSPROP = 1 - NMSPROP |
3 | Calculate the notional purchase price (NPP) at the operative time for the original FLA income stream. The NPP = the purchase price [9] of the original FLA income stream on the commencement day [9] less any commutation [9]s made before the operative time. |
4 | Calculate the NPP for the primary and secondary FLA income streams by applying MSPROP and NMSPROP respectively to the NPP. NPP for the primary FLA income stream [7]: (MSNPP) = NPP x MSPROP NPP for the secondary FLA income stream [8]: (NMSNPP) = NPP x NMSPROP |
5 | Calculate the asset value of the primary FLA income stream using the formula: MSNPP – MSNPP / relevant number [9] x term elapsed Calculate the asset value of the secondary FLA income stream using the formula: NMSNPP – NMSNPP / relevant number x term elapsed Relevant number is the relevant number of the original FLA income stream on its commencement day. Term elapsed is the number of years elapsed since the commencement day of the original FLA income stream. |
The asset value calculated between the operative time and the date of the first splittable payment is generally not reviewed until the date of the first splittable payment. However, the value is reviewed if the former partner's base value amount is paid out in full prior to the date of the first splittable payment.
This table shows how to calculate the asset value of the income stream. Note that the assets test assessment depends on the purchase date of the income stream:
Step | Action |
1 | Determine the proportions in which the original FLA income stream is split for the owner (MSPROP) and the former partner (NMSPROP). MSPROP = primary FLA income stream payment / original FLA income stream payment NMSPROP = secondary FLA income stream payment / original FLA income stream payment The primary and secondary FLA income stream payments are calculated from the payment after the first splittable payment. The original FLA income stream payment is the payment at the time of the first splittable payment as if the payment split had not occurred. |
2 | Calculate the notional purchase price (NPP) at the operative time for the original FLA income stream. The NPP = the purchase price of the original FLA income stream on the commencement day less any commutations made before the operative time. |
3 | Calculate the NPP for the primary and secondary FLA income streams by applying MSPROP and NMSPROP respectively to the NPP. NPP for the primary FLA income stream (MSNPP) = NPP x MSPROP NPP for the secondary FLA income stream (NMSNPP) = NPP x NMSPROP |
4 | Calculate the asset value of the primary FLA income stream using the formula: MSNPP – MSNPP / relevant number x term elapsed Calculate the asset value of the secondary FLA income stream using the formula: NMSNPP – NMSNPP / relevant number x term elapsed Relevant number is the relevant number of the original FLA income stream on its commencement day. Term elapsed is the number of years elapsed since the commencement day of the original FLA income stream. |
Any commutation made after the operative time is apportioned between the primary and secondary FLA income streams in the same proportion as the original percentage payment split. The commutation will affect the NPP and therefore the asset value of both the primary and secondary FLA income streams.
FLA income streams are subject to the same asset value reviews as other income streams. The first six or twelve monthly review of the primary and/or secondary FLA income streams is taken from the time of the previous review date of the original FLA income stream. If the original FLA income stream has not yet had its first review, the review of the primary and/or secondary FLA income stream is taken from the commencement day of the original FLA income stream.
This table shows how to calculate the assessable income from the income stream.
Step | Action |
1 | Any income paid between the operative time and the date of the first splittable payment is an exempt lump sum. Any amount paid out of the first splittable payment is also an exempt lump sum. Any income stream payments after the first splittable payment are assessable income. |
2 | Obtain the gross income for the primary and secondary FLA income streams. |
3 | Determine the proportions in which the original FLA income stream is split for the owner (MSPROP) and the former partner (NMSPROP). MSPROP = primary FLA income stream payment / original FLA income stream payment NMSPROP = secondary FLA income stream payment / original FLA income stream payment The primary and secondary FLA income stream payments are calculated from the payment after the first splittable payment. The original FLA income stream payment is the payment at the time of the first splittable payment as if the payment split had not occurred. |
4 | Calculate the notional purchase price (NPP) immediately before the date of the first splittable payment. The NPP = the purchase price of the original FLA income stream on the commencement day less any commutations made before the date of the first splittable payment. |
5 | Calculate the NPP for the primary and secondary FLA income streams by applying MSPROP and NMSPROP respectively to the NPP. NPP for the primary FLA income stream (MSNPP) = NPP x MSPROP NPP for the secondary FLA income stream (NMSNPP) = NPP x NMSPROP |
6 | Calculate the deduction amount for the primary and secondary FLA income streams. Deduction for the owner = MSNPP / relevant number Deduction for the former partner = NMSNPP / relevant number Relevant number is the relevant number of the original FLA income stream on its commencement day. |
7 | Reduce the gross income of the primary and secondary FLA income streams by their respective deduction amounts. |
Any commutation made after the operative time is apportioned between the primary and secondary FLA income streams in the same proportion as the proportions of the regular splittable payments. The commutation will affect the gross income, NPP and therefore the deduction amount for both the primary and secondary FLA income streams.
One element of the means test for income support pensions whereby the rate of pension payable to a pensioner reduces progressively as their assets increase above a certain threshold known as the assets value limit (AVL). [17]
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) [12]of the VEA [12]
The commencement day in relation to an income stream [9] 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.
A commutation, in relation to an income stream [9], 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.
This table shows how to calculate the asset value of Long Term Income Streams where the superannuation agreement or court order specifies a base payment amount, rather than a percentage, from the original Family Law Affected income stream owned by the member.
For Asset-test Exempt Income Streams, Defined Benefit Income Streams, Asset-tested Allocated (Account-based) and Market Linked Income Streams or Lifetime Income Streams, see the relevant pages under 10.5.6 Family Law Affected Income Streams.
Calculating the asset value between the operative time and the date of the first splittable payment
Note that the assets test [9] assessment depends on the purchase date of the income stream:
Step | Action |
1 | Establish the value of the base amount paid to the former partner (BA) and the value (V) of the relevant superannuation interest at the operative time. |
2 | Determine the proportions for the former partner (NMSPROP) and the owner (MSPROP). NMSPROP = BA / V MSPROP = 1 - NMSPROP |
3 | Calculate the notional purchase price (NPP) at the operative time for the original FLA income stream. The NPP = the purchase price [9] of the original FLA income stream on the commencement day [9] less any commutation [9]s made before the operative time. |
4 | Calculate the NPP for the primary and secondary FLA income streams by applying MSPROP and NMSPROP respectively to the NPP. NPP for the primary FLA income stream: [7] (MSNPP) = NPP x MSPROP NPP for the secondary FLA income stream: [8] (NMSNPP) = NPP x NMSPROP |
5 | Determine the residual capital value [9] (RCV) for the primary and secondary FLA income streams. Unless otherwise stated, the RCV for the primary FLA income stream (MSRCV) and the secondary FLA income stream (NMSRCV) will be calculated by applying MSPROP and NMSPROP to the RCV of the original FLA income stream. MSRCV = MSPROP x RCV of original FLA income stream NMSRCV = NMSPROP x RCV of original FLA income stream |
6 | Calculate the asset value of the primary FLA income stream using the formula: MSNPP – (MSNPP – MSRCV) / relevant number [9] x term elapsed Calculate the asset value of the secondary FLA income stream using the formula: NMSNPP – (NMSNPP – NMSRCV) / relevant number x term elapsed Relevant number is the relevant number of the original FLA income stream on its commencement day. Term elapsed is the number of years elapsed since the commencement day of the original FLA income stream. |
The asset value calculated between the operative time and the date of the first splittable payment is generally not reviewed until the date of the first splittable payment. However, the value is reviewed if the former partner's base value amount is paid out in full prior to the date of the first splittable payment.
This table shows how to calculate the asset value of the income stream. Note that the assets test assessment depends on the purchase date of the income stream:
Step | Action |
1 | Determine the proportions in which the original FLA income stream is split for the owner (MSPROP) and the former partner (NMSPROP). MSPROP = primary FLA income stream payment / original FLA income stream payment NMSPROP = secondary FLA income stream payment / original FLA income stream payment The primary and secondary FLA income stream payments are calculated from the payment after the first splittable payment. The original FLA income stream payment is the payment at the time of the first splittable payment as if the payment split had not occurred. |
2 | Calculate the notional purchase price (NPP) at the operative time for the original FLA income stream. The NPP = the purchase price of the original FLA income stream on the commencement day less any commutations made before the operative time. |
3 | Calculate the NPP for the primary and secondary FLA income streams by applying MSPROP and NMSPROP respectively to the NPP. NPP for the primary FLA income stream (MSNPP) = NPP x MSPROP NPP for the secondary FLA income stream (NMSNPP) = NPP x NMSPROP |
4 | Determine the residual capital value (RCV) for the primary and secondary FLA income streams. Unless otherwise stated, the RCV for the primary FLA income stream (MSRCV) and the secondary FLA income stream (NMSRCV) will be calculated by applying MSPROP and NMSPROP to the RCV of the original FLA income stream. MSRCV = MSPROP x RCV of original FLA income stream NMSRCV = NMSPROP x RCV of original FLA income stream |
5 | Calculate the asset value of the primary FLA income stream using the formula: MSNPP – (MSNPP –MSRCV) / relevant number x term elapsed Calculate the asset value of the secondary FLA income stream using the formula: NMSNPP – (NMSNPP – NMSRCV) / relevant number x term elapsed Relevant number is the relevant number of the original FLA income stream on its commencement day. Term elapsed is the number of years elapsed since the commencement day of the original FLA income stream. |
Any commutations made after the operative time are apportioned between the primary and secondary FLA income streams in the same proportion as the original percentage payment split. The commutation will affect the NPP and therefore the asset value of both the primary and secondary FLA income streams.
FLA income streams are subject to the same asset value reviews as other income streams. The first six or twelve monthly review of the primary and/or secondary FLA income streams is taken from the time of the previous review date of the original FLA income stream. If the original FLA income stream has not yet had its first review, the review of the primary and/or secondary FLA income stream is taken from the commencement day of the original FLA income stream.
This table shows how to calculate the assessable income from the income stream.
Step | Action |
1 | Any income paid between the operative time and the date of the first splittable payment is an exempt lump sum. Any amount paid out of the first splittable payment is also an exempt lump sum. Any income stream payments after the first splittable payment are assessable income. |
2 | Obtain the gross income for the primary and secondary FLA income streams. |
3 | Determine the proportions in which the original FLA income stream is split for the owner (MSPROP) and the former partner (NMSPROP). MSPROP = primary FLA income stream payment / original FLA income stream payment NMSPROP = secondary FLA income stream payment / original FLA income stream payment The primary and secondary FLA income stream payments are calculated from the payment after the first splittable payment. The original FLA income stream payment is the payment at the time of the first splittable payment as if the payment split had not occurred. |
4 | Calculate the notional purchase price (NPP) immediately before the date of the first splittable payment. The NPP = the purchase price of the original FLA income stream on the commencement day less any commutations made before the date of the first splittable payment. |
5 | Calculate the NPP for the primary and secondary FLA income streams by applying MSPROP and NMSPROP respectively to the NPP. NPP for the primary FLA income stream (MSNPP) = NPP x MSPROP NPP for the secondary FLA income stream (NMSNPP) = NPP x NMSPROP |
6 | Determine the residual capital value (RCV) for the primary and secondary FLA income streams. Unless otherwise stated, the RCV for the primary FLA income stream (MSRCV) and the secondary FLA income stream (NMSRCV) will be calculated by applying MSPROP and NMSPROP to the RCV of the original FLA income stream. MSRCV = MSPROP x RCV of original FLA income stream NMSRCV = NMSPROP x RCV of original FLA income stream |
7 | Calculate the deduction amount for the primary and secondary FLA income streams. Deduction for the owner = (MSNPP – MSRCV) / relevant number Deduction for the former partner = (NMSNPP – NMSRCV) / relevant number Relevant number is the relevant number of the original FLA income stream on its commencement day. |
8 | Reduce the gross income of the primary and secondary FLA income streams by their respective deduction amounts. |
Any commutation made after the operative time is apportioned between the primary and secondary FLA income streams in the same proportion as the proportions of the regular splittable payments. The commutation will affect the gross income, NPP and therefore the deduction amount for both the primary and secondary FLA income streams.
Example: Henry buys a fixed term pension from the ZYX Super Fund on 1 January 1998 that makes the first income payment on 1 February 1998. His income stream is assessed by DVA as an 'asset tested income stream (long term) (ATLT)'.
Purchase price = $500,000
Term = 20 years
Pension payments = $45,000pa (payable once a year)
RCV = nil
Henry commutes $50,000 on 1 January 2003 and his pension payments are reduced to $39,500 pa.
Henry and Wilma subsequently divorce and on 2 January 2005, the court awards a base amount of $200,000 from Henry's income stream. The operative time is 1 January 2005.
As a result of the court order, Wilma receives the full amount of the first payment from the income stream (the first splittable payment) of $39,500 on 1 February 2005. Wilma then requests 25% of the remaining base amount as a lump sum. The remainder of the base amount will then be paid to Wilma as a secondary FLA, determined in accordance with Division 6.3 of the Family Law (Superannuation) Regulations 2001.
The superannuation fund paying Henry's pension notifies Wilma that she will receive a lump sum of $38,120 and a secondary FLA of $16,530 pa.
Note: The figure of $38,120 that Wilma receives is not 25% of $200,000 reduced by $39,500, i.e. $40,125. The difference between the two figures arises because of the need to take account of the pension valuation factors that apply to the commutation. Further details on these factors are contained in Regulation 58(5) of the Family Law (Superannuation) Regulations 2001.
Henry's annual payments (the primary FLA) will be $18,200 pa. The first of the split payments to Henry and Wilma commence on 1 February 2006.
Assets test: Stage 1 - assessment between operative time and date of first splittable payment, i.e. 2 January 2005 to 1 February 2005.
Step | Description |
---|---|
1 | Obtain: Base amount (BA) = $200,000, and Value of member's superannuation interest (V) = $332,630. |
2 | Calculate proportions in which the asset backing the original FLA is split between the member (MPROP) and the non-member (NMPROP) at the operative time. NMPROP = BA ÷ V = $200,000 ÷ $332,630 = 0.601. MPROP = 1 − NMPROP = 1 − 0.601 = 0.399. |
3 | Calculate NPP for original FLA at operative time. NPP of original FLA at operative time (NPP) = Purchase price of original FLA at commencement day − any commutations prior to operative time = $500,000 − $50,000 = $450,000. |
4 | Calculate NPP at operative time for primary FLA and secondary FLA as follows: M notional purchase price (MNPP) = MPROP × NPP of original FLA at operative time = 0.399 × $450,000 = $179,550. NM notional purchase price (NMNPP) = NMPROP × NPP of original FLA at operative time = 0.601 × $450,000 = $270,450. |
5 | Calculate asset values for primary FLA (M asset) and secondary FLA (NM asset) as follows: M asset = MNPP − [(MNPP − MRCV) ÷ RN] × term elapsed = 179,550 − [(179,550 − 0) ÷ 20] × 7} = $116,708. NM asset = NPP − [(NMNPP − NMRCV) ÷ RN] × term elapsed = 270,450 − [(270,450 − 0) ÷ 20] × 7 = $175,793. |
Note: There will be no further reassessment of asset values for the primary FLA and secondary FLA prior to the date of the first splittable payment unless the non-member's interest is paid out in full.
Assets test: stage 2 (assessment from date of first splittable payment)
At the date of the first splittable payment, Wilma receives the full amount of the payment that would have gone to Henry if the payment split had not occurred plus a lump sum of $38,120.
The remainder of Wilma's base amount is paid via a split income stream payment of $16,530 pa. Henry receives a split income stream payment of $18,200 pa.
Step | Description |
---|---|
1 | Calculate proportions in which the asset backing the original FLA is split between member (MPROP) and non-member (NMPROP) at the date of the first splittable payment. MPROP = primary FLA income stream payment (member) ÷ original FLA income stream payment = 18,200 ÷ 39,500 = 0.461. NMPROP = secondary FLA income stream payment (non-member) ÷ original FLA income stream payment = 16,530 ÷ 39,500 = 0.418. |
2 | Calculate NPP for original FLA immediately before date of first splittable payment. NPP of original FLA immediately before date of first splittable payment (NPP) = Purchase price of original FLA at commencement day − any commutations prior to date of first splittable payment = $500,000 − $50,000 = $450,000. Note: The lump sum payment to Wilma of $38,120 is not included in this calculation as payment does not occur until the time of the first splittable payment. |
3 | Calculate NPP for primary FLA (MNPP) and secondary FLA (NMNPP) as follows: MNPP = MPROP × NPP = 0.461 × $450,000 = $207,450. NMNPP = NMPROP × NPP = 0.418 × $450,000 = $188,100. |
4 | Calculate asset values for primary FLA (M asset) and secondary FLA (NM asset) as follows: M asset = MNPP − [(MNPP − MRCV) ÷ RN] × term elapsed = 207,450 − [(207,450 − 0) ÷ 20] × 8 = $124,470. NM asset = NMNPP − [(NMNPP − NMRCV) ÷ RN] × term elapsed = 188,100 - [(188,100 − 0) ÷ 20] × 8 = $112,860. Note: The values for M asset, NM asset will apply only for the period from 1 February 2005 to 31 December 2005, as the commencement day of the income stream was 1 January 1998. Therefore, assuming an 'annual payment frequency', the next annual depletion will occur on 1 January 2006 (the annual anniversary of the commencement day). The adjustment will be in accordance with the standard depletion formula for asset-tested income streams (long term). |
Income test: stage 1 (assessment between operative time and date of first splittable payment)
Income Test: stage 2 (assessment from date of first splittable payment).
Step | Description |
---|---|
1 | Obtain new gross income for primary FLA and secondary FLA, i.e. $18,200pa for Henry and $16,530 for Wilma. |
2 | Calculate deduction amount for the primary FLA (MDA) and the secondary FLA (NMDA) using the formula: MDA = (MNPP − MRCV) ÷ RN = (207,450 − 0) ÷ 20 = $10,373. NMDA = (NMNPP − NMRCV) ÷ RN = (188,100 − 0) ÷ 20 = $9,405. |
3 | Reduce gross income for primary FLA and secondary FLA by the respective deduction amounts to determine assessable income. Assessable income (Henry) = $18,200 − $10,373 = $7,827. Assessable income (Wilma) = $16,530 − $9,405 = $7,125 |
One element of the means test for income support pensions whereby the rate of pension payable to a pensioner reduces progressively as their assets increase above a certain threshold known as the assets value limit (AVL). [17]
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) [12]of the VEA [12]
The commencement day in relation to an income stream [9] 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.
A commutation, in relation to an income stream [9], 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 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 [9].
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.
This table shows how to calculate the asset value of Allocated (Account-based) or Market Linked income streams where the superannuation agreement or court order specifies a base payment split, rather than a percentage, from the original Family Law Affected income stream owned by the member.
For Asset-test Exempt Income Streams, Defined Benefit Income Streams, Asset-tested Long Term Income Streams or Lifetime Income Streams, see the relevant pages under 10.5.6 Family Law Affected Income Streams.
Note that the assets test [9] assessment depends on the purchase date of the income stream:
Step | Action |
1 | Establish the value of the base amount paid to the former partner (BA) and the value (V) of the relevant superannuation interest at the operative time. |
2 | Determine the proportions for the former partner (NMSPROP) and the owner (MSPROP). NMSPROP = BA / V MSPROP = 1 - NMSPROP |
3 | Determine the account balance of the original FLA income stream at the operative time. |
4 | Calculate the asset value of the primary FLA income stream [7] using the formula: MSNPP x account balance of original FLA income stream Calculate the asset value of the secondary FLA income stream [8] using the formula: NMSNPP x account balance of original FLA income stream |
The asset value calculated between the operative time and the date of the first splittable payment is not reviewed until the date of the first splittable payment.
The asset value is the account balance remaining after the base amount has been paid out in full to the former partner. Note that the assets test [9] assessment depends on the purchase date of the income stream:
Any commutation [9]s made after the operative time are reduce the account balance and therefore the asset value of the primary FLA income stream.
FLA income streams are subject to the same asset value reviews as other income streams. The first six or twelve monthly review of the primary and/or secondary FLA income streams is taken from the time of the previous review date of the original FLA income stream. If the original FLA income stream has not yet had its first review, the review of the primary and/or secondary FLA income stream is taken from the commencement day of the original FLA income stream.
This table shows how to calculate the assessable income from the income stream.
Step | Action |
1 | Any income paid between the operative time and the date of the first splittable payment is an exempt lump sum. Any amount paid out of the first splittable payment is also an exempt lump sum. Any income stream payments after the first splittable payment are assessable income. |
2 | Obtain the gross income for the primary FLA income stream. |
3 | Determine the proportions in which the original FLA income stream is split for the owner (MSPROP) and the former partner (NMSPROP). NMSPROP = base amount payment / account balance of original FLA income stream immediately before the date of the first splittable payment. MSPROP = 1 - NMSPROP |
4 | Calculate the notional purchase price (NPP) immediately before the date of the first splittable payment. The NPP = the purchase price [9] of the original FLA income stream on the commencement day [9] less any commutations made before the date of the first splittable payment. |
5 | Calculate the NPP for the primary FLA income stream by applying MSPROP to the NPP. NPP for the primary FLA income stream (MSNPP) = NPP x MSPROP NPP for the secondary FLA income stream (NMSNPP) = NPP x NMSPROP |
6 | Calculate the deduction amount for the primary and secondary FLA income streams. Deduction for the owner = MSNPP / relevant number Deduction for the former partner = NMSNPP / relevant number Relevant number is the relevant number of the original FLA income stream on its commencement day. |
7 | Reduce the gross income of the primary and secondary FLA income streams by their respective deduction amounts. |
Any commutation made after the operative time is apportioned between the primary and secondary FLA income streams in the same proportion as the proportions of the regular splittable payments. The commutation will affect the gross income, NPP and therefore the deduction amount for both the primary and secondary FLA income streams.
One element of the means test for income support pensions whereby the rate of pension payable to a pensioner reduces progressively as their assets increase above a certain threshold known as the assets value limit (AVL). [17]
One element of the means test for income support pensions whereby the rate of pension payable to a pensioner reduces progressively as their assets increase above a certain threshold known as the assets value limit (AVL). [17]
A commutation, in relation to an income stream [9], 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 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) [12]of the VEA [12]
The commencement day in relation to an income stream [9] 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.
Defined benefit income streams are not included in a person's assessable assets.
This table shows how to calculate the assessable income from the income stream.
Step | Action |
1 | Any income paid between the operative time and the date of the first splittable payment is an exempt lump sum. Any amount paid out of the first splittable payment is also an exempt lump sum. Any income stream payments after the first splittable payment are assessable income. |
2 | All required information for the primary and secondary Family Law Affect (FLA) income streams is calculated by the income stream provider. The assessable income is the gross income less the deductible amount [9]. |
For Asset-test Exempt Income Streams, Allocated or Account-based Income Streams, Asset-tested Long Term Income Streams or Lifetime Income Streams, see the relevant pages under 10.5.6 Family Law Affected Income Streams.
According to section 5J of the VEA [12], a deductible amount, in relation to an income stream, means the sum of the amounts that are the tax free component [9], worked out under the tax law, of the payments received from the DBIS [9].
This table shows how to calculate the asset value of Asset-tested Lifetime Income Streams where the superannuation agreement or court order specifies a base payment amount, rather than a percentage, from the original Family Law Affected income stream owned by the member.
For Asset-test Exempt Income Streams, Defined Benefit Income Streams, Asset-tested Allocated (Account-based) and Market Linked Income Streams or Long Term Income Streams, see the relevant pages under 10.5.6 Family Law Affected Income Streams.
Calculating the asset value between the operative time and the date of the first splittable payment
Assets test assessment
Stage 1 - assessment of Lifetime Income Stream between operative time and date of first splittable payment:
Step | Description |
---|---|
1 | Ascertain value of base amount, and value of member's superannuation interest that is subject to payment split, as determined by court order or superannuation agreement at the operative time. |
2 | Calculate proportions in which the asset backing the original FLA is split between the member (MPROP) and non-member (NMPROP) at the operative time. NMPROP = BA ÷ V Where:
MPROP = 1 – NMPROP |
3 | Calculate purchase amount for original FLA at operative time. |
4 | Calculate purchase amount at the operative time for the primary FLA and secondary FLA respectively as follows: Member purchase amount = MPROP × Purchase amount of original FLA at operative time Non-Member purchase amount = NMPROP × Purchase amount of original FLA at operative time. |
5 | Calculate asset values for the primary FLA and secondary FLA as per the assets test rules for asset-tested income streams (lifetime), noting that:
|
Stage 2 - assessment of income streams from date of first splittable payment onwards:
Step | Description |
---|---|
1 | Calculate proportions in which the asset backing the original FLA is split between member and non-member at the date of the first splittable payment. These proportions are respectively MPROP and NMPROP. They are calculated in the same manner as for ATE income streams, i.e.: MPROP = primary FLA income stream payment (member) ÷ original FLA income stream payment, NMPROP = secondary FLA income stream payment (non-member) ÷ original FLA income stream payment, Where:
|
2 | Calculate purchase amount for original FLA immediately before date of first splittable payment. |
3 | Calculate purchase amount for member's primary FLA and non-member's secondary FLA as follows: Purchase amount for primary FLA = MPROP × Purchase amount for original FLA immediately prior to the date of the first splittable payment. Purchase amount for secondary FLA = NMPROP × Purchase amount for original FLA immediately prior to the date of the first splittable payment. |
4 | Calculate asset values for the primary FLA and secondary FLA as per the assets test rules for asset-tested income streams (lifetime) in 10.5.4 Means Test Assessment of Asset-tested Income Streams (lifetime), noting that the assessment day and threshold day should remain the same as previously calculated at the operative time. |
Subsequent commutations made by member (assets test assessment)
The member may commute part of the remaining portion of the member's original superannuation interest after the operative time.
The purchase amount for each member and non-member should be reduced by his or her share of the commutation. This variation to the purchase amount will necessitate consequent adjustments to the asset value held for each member and non-member.
Income test assessment
Stage 1 - assessment of income stream between operative time and date of first splittable payment:
Stage 2 - assessment of income streams from date of first splittable payment onwards:
Step | Description |
---|---|
1 | Obtain new gross annual payment for primary FLA and secondary FLA. |
2 | The assessable income from the primary FLA and the secondary FLA is 60 per cent of the gross annual payment for each income stream. |
Subsequent commutations made by member (income test assessment)
The member may commute part of the original income stream after the operative time. The family law provisions treat such commutations in the same way as for a percentage payment split, i.e. any commuted amounts must be apportioned between the primary FLA and the secondary FLA. The apportionment will be determined in accordance with the percentage of the split payment that goes to the primary FLA, and the percentage of the split payment that goes to the secondary FLA.
After the commutation is made, the new gross annual payment amount must be obtained from the fund trustee for both the member (primary FLA) and non-member (secondary FLA). The purchase amount for each member and non-member must be reduced by his or her share of the commutation.
Links
[1] https://clik.dva.gov.au/user/login?destination=node/16435%23comment-form
[2] https://clik.dva.gov.au/book/export/html/16435#tgt-cspol_part10_ftn675
[3] https://clik.dva.gov.au/legislation-library
[4] https://clik.dva.gov.au/user/login?destination=node/16361%23comment-form
[5] https://clik.dva.gov.au/book/export/html/16435#tgt-cspol_part10_ftn676
[6] https://clik.dva.gov.au/book/export/html/16435#ref-cspol_part10_ftn676
[7] clikpopup://DEF/Primary FLA income stream
[8] clikpopup://DEF/Secondary FLA income stream
[9] https://clik.dva.gov.au/%23
[10] https://clik.dva.gov.au/user/login?destination=node/16453%23comment-form
[11] https://clik.dva.gov.au/user/login?destination=node/16351%23comment-form
[12] http://clik.dva.gov.au/legislation-library
[13] https://clik.dva.gov.au/user/login?destination=node/16503%23comment-form
[14] https://clik.dva.gov.au/user/login?destination=node/16511%23comment-form
[15] http://guides.dss.gov.au/guide-social-security-law/1/1/t/101
[16] https://clik.dva.gov.au/user/login?destination=node/16410%23comment-form
[17] http://clik.dva.gov.au/glossary/assets-value-limit-avl
[18] https://clik.dva.gov.au/user/login?destination=node/16485%23comment-form
[19] https://clik.dva.gov.au/user/login?destination=node/16357%23comment-form
[20] https://clik.dva.gov.au/user/login?destination=node/16507%23comment-form