VEA [2]
To be an asset-test exempt income stream [5], the income stream 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 [6]
An asset-test exempt income stream, paid for life has all of the following characteristics:
The commencement day [5] is the first day of the period to which the first payment under the income stream 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:
Although the term of a lifetime income stream is for the life of the beneficiary, the relevant number [5] is either the:
When determining the relevant number the actual life expectancy factors are used (ie there is no rounding). If there is a guaranteed period [5], the relevant number will be based on the life expectancy, not the guaranteed period. 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 [8]
The asset-test exemption for a lifetime income stream is not affected if the income stream provides the following guarantee conditions:
The maximum guarantee period for an income stream purchased:
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 [5]. In any other year the payments may only vary:
The yearly indexation cannot be a negative value and must be no greater than:
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 an asset-test exempt income stream, the income stream must be non-commutable except in limited circumstances. The benefit payable after the commutation cannot be greater than the benefit payable before the commutation. Commutation is allowed in the following circumstances:
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 [9]
For an income stream to be asset-test exempt, neither of the following can be used as security for borrowing:
Payments may only decrease as a result of:
In order for a lifetime income stream to qualify for asset-test exempt status, the contract or governing rules [5] must specify that the income stream cannot be transferred to another person, apart from:
To ensure that no income is deferred, the payment to a reversionary beneficiary cannot be greater than the primary beneficiary received immediately before death.
On reversion to a reversionary beneficiary upon the death of the primary beneficiary or the death of one of the owners of a jointly owned income stream, the income stream is treated as a continuation of the original income stream. The asset-test exempt status, purchase price, commencement day and relevant number remain unchanged. The gross payment may be reduced in accordance with the contract.
Payments to a reversionary beneficiary must be paid at least annually, either:
Where the reversionary beneficiary is removed or is changed, the income stream is treated as a new income stream from that date. The commencement day is the date that the reversionary beneficiary changed and the purchase price is the net present value of the future income stream payments as calculated by the income stream provider. The relevant number is calculated on the person's circumstances on the new commencement day.
Actuarial Certificate
10.5.5/Additional Documentation Required from Self managed Superannuation Funds and Small APRA Funds [12]
Determining the relevant number for an asset-test exempt lifetime income stream
Section 10.5.7 Life Expectancy Tables, Pension Valuation Factors and Payment Factors [14]
Waiver of debt under temporary debt relief arrangements
10.5.5/Assessment where Fund Closes or is in Financial Difficulty [16]
An income stream is an asset-test exempt income stream if it is purchased before 20 September 2007 and must be:
and:
Legislative reference:
Veterans' Entitlements Act 1986:
The 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) [19]of the VEA [19]
The residual capital value is the amount (if any) remaining at the end of an income stream's term, consisting of a portion of the initial capital invested in the income stream [5].
The commencement day in relation to an income stream [5] is the first day of the period to which the first income stream payment relates. This is usually one instalment period before the date of the first income payment.
The commencement day cannot occur prior to:
Legislative reference: subsection 5J(1) of the Veterans' Entitlements Act 1986.
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.
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.
A guaranteed period ensures that the pension payments will continue to the estate should the owner and the reversionary beneficiary die during the guaranteed period.
A commutation, in relation to an income stream [5], is the conversion of part or all of the future income stream payments into a lump sum. A commutation is similar to a withdrawal.
Superannuation contributions surcharge has the meaning that it has in the Superannuation Contributions Tax (Assessment and Collection) Act 1997.
A person may apply to the Commission in writing to be allowed to commute the whole or part of an income stream because of extreme financial hardship. According to s.5JA of the VEA, the Commission may determine an amount as allowable commutation if these conditions are satisfied:
According to section 5H of the VEA [20] income is:
The governing rules of an income stream are either:
governing the establishment and operation of the income stream.
Links
[1] https://clik.dva.gov.au/user/login?destination=node/16526%23comment-form
[2] https://clik.dva.gov.au/book/export/html/16526#tgt-cspol_part10_ftn616
[3] https://clik.dva.gov.au/service-eligibility-assistant-updates/all-determinations-order-date-signed-oldest-most-recent/determinations-under-vea
[4] https://clik.dva.gov.au/book/export/html/16526#ref-cspol_part10_ftn616
[5] https://clik.dva.gov.au/%23
[6] https://clik.dva.gov.au/book/export/html/16526#tgt-cspol_part10_ftn617
[7] https://clik.dva.gov.au/book/export/html/16526#tgt-cspol_part10_ftn618
[8] https://clik.dva.gov.au/book/export/html/16526#tgt-cspol_part10_ftn619
[9] https://clik.dva.gov.au/book/export/html/16526#tgt-cspol_part10_ftn620
[10] 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
[11] https://clik.dva.gov.au/book/export/html/16526#ref-cspol_part10_ftn617
[12] 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
[13] https://clik.dva.gov.au/book/export/html/16526#ref-cspol_part10_ftn618
[14] 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
[15] https://clik.dva.gov.au/book/export/html/16526#ref-cspol_part10_ftn619
[16] 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
[17] https://clik.dva.gov.au/book/export/html/16526#ref-cspol_part10_ftn620
[18] http://www.comlaw.gov.au/Series/C2004A03268
[19] http://clik.dva.gov.au/legislation-library
[20] http://clik/health-procedure-library/health-information-and-management-notes-himn/vhc/072014-vhc-veterans-home-care