Last amended: 13 May 2008
VEA ? [2]
When a partial commutation [3] is made from a purchased income stream the:
The assessable income must be reviewed when a partial commutation is made from a defined benefit income stream [3] as the:
may all change as a result of a partial commutation.
If the deductible amount was calculated under the saving provision immediately before the commutation, the saving provision will continue to apply, however the deductible amount may be recalculated.
More ? [5]
Pensioners may commute a non-commutation funded asset test exempt income stream [3] within six months of the commencement day [3] of the income stream. They can use this provision at least twice within the first 6 months for one or more income streams after they first receive an income support pension [3] without the income stream losing asset test exempt status. On the third commutation, the Commission may determine that any further income streams owned by the person do not qualify for asset test exemption.
A transfer of all the funds in one asset test exempt income stream directly to the purchase of another asset test exempt income stream is not a commutation for the purposes of the three strikes policy. A commutation does occur, when part, or all, of the funds in an asset test exempt product are accessed or not directly transferred to the purchase of another asset test exempt product.
VEA ? [7]
If a person commutes (in whole or in part) an asset test exempt income stream contrary to the contract or governing rules [3] as specified under subsection 5JA(2), 5JB(2) or 5JBA(2), section 52ZMA will be applied to retrospectively reclassify the commuted income stream as an asset tested income stream (long term) [3] from later of the:
Retrospectively reclassifying the income stream as an asset tested income stream (long term) has the effect of including the assessable asset value of the income stream in the pension assessment for the relevant period, with provision for asset depletion under subsection 52A(4).
Retrospective reclassification of an asset test exempt income stream to an asset tested income stream may result in an overpayment. The overpaid amount must be recovered under existing policy.
More ? [8]
VEA ? [9]
Section 52ZMA [10] of the VEA provides for the calculation of a debt if an overpayment arises following the commutation of an asset test exempt income stream in contravention to the contract or governing rules under which the income stream was provided. However, subsection 52ZMA(11) provides that section 52ZMA is not applicable to income streams where a determination under subsection 5JA(5), 5JB(4), or 5JBA(11) is in force. As there is a Commission determination under subsection 5JA(5) for all existing defined benefit income streams, section 52ZMA cannot be applied when a defined benefit income stream is commuted.
Section 5JA(2) (h) [10] VEA - Commuting assets test exempt income streams lifetime
Section 5JB(2) (h) [10] VEA - Commuting other assets test exempt income streams
Asset assessment of an income stream after a partial commutation
10.5.4/Assets Assessment of Defined Benefit and Purchased Income Streams [12]
Section 5JA(4) [10] VEA - three strike policy on assets test exempt income stream commutations – income streams payable for life
Section 5JB(3) [10] VEA - three strike policy on assets test exempt income stream commutations – income streams payable for life expectancy or 15 year minimum
Section 5JBA(10)
Section 52ZMA [10] VEA – Debt resulting from commutation of asset-test exempt income stream contrary to subsection 5JA(2), 5JB(2) or 5JBA(2)
Section 52ZMA(11) [10] VEA – Section 52ZMA does not apply if a 5JA(5) [10] or 5JB(4) [10] determination is in force
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.
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 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].
A defined benefit income stream is an income stream [3] where the payments are not fully determined by a purchase price [3]. Instead, payments are made with reference to a set formula based on:
According to section 5J of the VEA [21], 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].
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 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.
Income support pension is:
The governing rules of an income stream are either:
governing the establishment and operation of the income stream.
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/16527%23comment-form
[2] https://clik.dva.gov.au/book/export/html/16527#tgt-cspol_part10_ftn638
[3] https://clik.dva.gov.au/%23
[4] https://clik.dva.gov.au/book/export/html/16527#tgt-cspol_part10_ftn639
[5] https://clik.dva.gov.au/book/export/html/16527#tgt-cspol_part10_ftn640
[6] https://clik.dva.gov.au/book/export/html/16527#tgt-cspol_part10_ftn641
[7] https://clik.dva.gov.au/book/export/html/16527#tgt-cspol_part10_ftn642
[8] https://clik.dva.gov.au/book/export/html/16527#tgt-cspol_part10_ftn643
[9] https://clik.dva.gov.au/book/export/html/16527#tgt-cspol_part10_ftn644
[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/book/export/html/16527#ref-cspol_part10_ftn638
[12] https://clik.dva.gov.au/compensation-and-support-policy-library/part-10-types-income-and-assets/105-income-streams/1054-income-and-assets-assessment-income-streams/assets-assessment-defined-benefit-and-purchased-income-streams
[13] https://clik.dva.gov.au/book/export/html/16527#ref-cspol_part10_ftn639
[14] https://clik.dva.gov.au/compensation-and-support-policy-library/part-10-types-income-and-assets/105-income-streams/1054-income-and-assets-assessment-income-streams
[15] https://clik.dva.gov.au/book/export/html/16527#ref-cspol_part10_ftn640
[16] https://clik.dva.gov.au/book/export/html/16527#ref-cspol_part10_ftn641
[17] https://clik.dva.gov.au/book/export/html/16527#ref-cspol_part10_ftn642
[18] https://clik.dva.gov.au/compensation-and-support-reference-library/overpayment-management-manual/ch-7-recovery-and-other-methods-finalising-debts
[19] https://clik.dva.gov.au/book/export/html/16527#ref-cspol_part10_ftn643
[20] https://clik.dva.gov.au/book/export/html/16527#ref-cspol_part10_ftn644
[21] http://clik.dva.gov.au/legislation-library
[22] http://www.comlaw.gov.au/Series/C2004A03268