The following explains how asset-tested lifetime income streams are assessed under the income test and the assets test, and explains the additional rules pertaining to high surrender values or death benefits.
Note: grandfathering provisions are applied to lifetime income streams purchased before 1 July 2019, which are assessed as asset-tested income streams (long term) and could be asset-test exempt if purchased before 20 September 2007.
Before the assessment day (see Glossary) in relation to the income stream:
On or after the assessment day in relation to the income stream, 60 per cent of the annual payments from an asset-tested income stream (lifetime) are assessed as income.
For deferred income streams (i.e. income streams that do not make payments for a set period of time after purchase), income is only assessed when the income stream is making payments (i.e. after the deferral period).
Example: Tom receives an annual payment of $5,000 from his lifetime income stream. Upon reaching his assessment day, 60 per cent ($3,000) is assessable income. As his payments increase due to indexation, 60 per cent of the payments will continue to be assessed under the income test for the duration of the lifetime income stream.
VEA: section 46YB Income – asset-tested income stream (lifetime),
section 52BAA Value of asset-tested income streams (lifetime) that are managed investments,
section 52BAB Value of asset-tested income streams (lifetime) that are not managed investments
Before the assessment day (see Glossary) in relation to the income stream:
On or after the assessment day in relation to the income stream, up to and including the threshold day (see Glossary) for the income stream, 60 per cent of the purchase amount of the asset-tested income stream (lifetime) is assessed, provided the income stream does not have high surrender values or death benefits (see below).
After the person’s threshold day, 30 per cent of the purchase amount will be assessed for the remaining duration of the lifetime income stream, provided the income stream does not have high surrender values or death benefits (see below).
If the income stream has a surrender value or death benefit above the limits outlined below in any current or future year, then the assessable asset value is the higher of:
Note: deferred income streams are assessed under the assets test from the assessment day. This can include the income stream being assessed under the assets test in the deferral period if payments commence after the assessment day.
Example: Tiffany purchases a lifetime income stream at age 70 (birthday 20 March 1949) on 1 July 2019.
Initially, 60 per cent of the purchase amount ($120,000) is assessed under the assets test. 60 per cent continues to be assessed until 19 March 2033. From 20 March 2033, 30 per cent ($60,000) of the purchase price is assessed as an asset under the assets test. 30 per cent is then assessed for the rest of the duration of Tiffany’s lifetime income stream.
Example: Tamara purchases a deferred lifetime income stream at age 83 on 1 July 2019.
Initially, 60 per cent of the purchase amount ($120,000) is assessed under the assets test. 60 per cent continues to be assessed until 30 June 2024. From 1 July 2024, 30 per cent ($60,000) of the purchase price is assessed as an asset under the assets test. 30 per cent is then assessed for the rest of the duration of Tamara’s lifetime income stream. The deferral period for Tamara’s lifetime income stream does not impact her assets test assessment.
VEA: section 52BA Value of asset-tested income streams (lifetime) that are managed investments,
section 52BAB Value of asset-tested income streams (lifetime) that are not managed investments.
To determine Threshold Day, see Veterans’ Entitlements (Number of expected years) Instrument 2019.
The assets test rules for asset-tested income streams (lifetime) have additional provisions for products with surrender values or death benefits above the limits imposed by the Capital Access Schedule in the Superannuation Industry (Supervision) Regulations 1994.
The limits are outlined in a graph in the Explanatory Statement [1] of the Veterans' Entitlements (Value of Asset-tested Income Streams (Lifetime)) Determination 2019.
On a given day (the access day), the limit for surrender values is:
[(access amount ÷ life expectancy period for the income stream) ×
remaining life expectancy],
less any commuted amounts.
On a given day (the access day), the limit for death benefits is:
[(access amount ÷ life expectancy period for the income stream) ×
remaining life expectancy],
less any commuted amounts.
Where:
Example: Tamotsu purchases an asset-tested income stream (lifetime) at age 70 (birthday 20 September 1949) on 1 January 2020.
Under the terms of the contract, for the year when Tamotsu is 80, the income stream has a surrender value. The surrender value limit when Tamotsu is 80 is:
($200,000 ÷ 5,475) × 1,924 = $70,283.11
as there are 1,924 days remaining in the life expectancy period.
The surrender value of Tamotsu’s income stream is $200,000, which is greater than the surrender value limit. For all days before Tamotsu turns 81, the standard assets test assessment is compared against the $200,000 surrender value. The higher value is assessed as an asset.
The assessable value of Tamotsu’s income stream is as follows:
Example: Tegan purchases an asset-tested income stream (lifetime) at age 70 (birthday 1 November 1949) on 1 January 2020.
Tegan’s income stream has a consistent death benefit of $40,000. This is less than 60 per cent of the purchase amount ($120,000), and will therefore not affect her assessable asset value prior to the threshold day for the income stream.
After the threshold day, the death benefit limit for the income stream is:
($200,000 ÷ 6,205) × 1,153 = $37,163.58
As the death benefit for Tegan’s income stream is $40,000, it is greater than the death benefit limit after the threshold day.
The assessable value of Tegan’s income stream is therefore:
Legislation: VEA section 52BAB, Veterans’ Entitlements (Value of asset-tested income streams (lifetime)) Determination 2019
Some products combine account-based income streams with lifetime income streams. In these cases, the product will be assessed as two separate income streams. The account-based component will be assessed as an asset-tested income stream (long term), and the lifetime component will be assessed as an asset-tested income stream (lifetime).
Types of hybrid products include those below.
VEA: Veterans’ Entitlements (Kind, Extent and Purchase Amount for Asset-tested Income Streams (Lifetime)) Determination 2019.
Links
[1] https://www.legislation.gov.au/Details/F2019L00846/Explanatory%20Statement/Text
[2] http://guides.dss.gov.au/guide-social-security-law/4/9/5