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This topic covers:
Note:
Income assessment for an asset-tested income stream (long term) uses the following formula:
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AP = |
Annual payment (1.1.A.155) |
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PP = |
Purchase price (1.1.P.500) |
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RCV = |
Residual capital value (section 9(1)-'residual capital value') |
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RN = |
Relevant number (section 9(1)-'relevant number') For account-based (allocated) income streams where there is a reversionary beneficiary go to 4.9.3.40. |
Note: Purchase price (PP) is defined as the purchase price at commencement less any commutations since commencement.
This formula applies both to income streams with a specified term and to account-based income streams. In the case of account-based income streams, the RCV will be zero.
Example 1: Sally is 65 years old and single. She purchases a 10-year annuity with a RCV of $20,000 for $150,000. Her total annuity payment for the first year is $18,337. Her assessable income from this income stream = $18,337 - [($150,000 - $20,000) ÷ 10 years] = $5,337 per annum.
Example 2: Adam is 65 years old and single. He purchases a 20-year annuity with no RCV for $400,000. His total annuity payment for the first year is $34,400. His assessable income from this income stream =$34,400 - ($400,000 ÷ 20 years) = $14,400 per annum.
Act reference: SSAct section 9(1)-'residual capital value', section 9(1)-'relevant number', section 1099C Income-income stream not a defined benefit income stream
Policy reference: SS Guide 4.9.3.40 Allocated Income Streams - Relevant Number where Reversionary Beneficiary Exists
The income test assessment for market-linked income streams is the same irrespective of whether it is ATE or asset-tested.
Note: Market-linked income streams are also referred to as term allocated pensions.
Policy reference: SS Guide 4.9.2.30 Income Test Assessment of Asset-Test Exempt Income Streams, 4.9.5.70 Payment Factors for Market-Linked Income Streams
The income test assessment for defined benefit income streams is the same irrespective of whether it is ATE or asset-tested.
Policy reference: SS Guide 4.9.2.30 Income Test Assessment of Asset-Test Exempt Income Streams
As asset-tested income streams (short term) (section 9(1)-'asset-tested income stream (short term)') are included in the definition of financial investments (section 9(1)-'financial investment'), they are assessed for income under the deeming rules.
Act reference: SSAct section 9(1)-'asset-tested income stream (short term)', section 9(1)-'financial investment', section 1076 Deemed income from financial assets-persons other than members of couples, section 1077 Deemed income from financial assets-members of pensioner couples, section 1078 Deemed income from financial assets-members of non-pensioner couples
Policy reference: SS Guide 4.4 Deeming Provisions
Note: Account-based income streams were previously referred to as allocated income streams.
An income support recipient must receive one or more payments during the financial year from their account-based income stream.
The annual payment must not be less than the minimum amount calculated according to the limits specified in the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations) (4.9.5.60). There are no provisions under the SIS Regulations to cease income payments from the income stream product; at least the minimum pension payment amount must be taken. The relevant minimum pension payment amount is calculated as follows:
Note: For the financial years commencing on 1 July 2008 and ending 30 June 2012, temporary relief measures reducing the minimum annual amounts apply. Refer to 'pension drawdown relief' on the Australian Taxation Office website.
Note: Account-based (allocated) income streams with commencement days before 1 July 2007 may still use the Pension Valuation Factors (PVF) being used before that date. However, if the income support recipient wishes, they may use the new PVFs that apply from that date.
The payment period is the whole financial year, except where the income stream is purchased during that financial year, in which case it is the period from the income stream's commencement date to the end of the first financial year.
Note: For the income test assessment of account-based income streams, refer to 'Income test assessment of asset-tested income streams (long term)'.
For Centrelink reporting purposes, the 'gross annual nominated payment' is the sum of all payments the recipient has received and is expected to receive (excluding commutations) for the current whole financial year. The amount reported must always be above the relevant minimum pension payment amount.
Where an income support recipient specifies an annual amount for the current financial year that is below the relevant minimum pension payment amount, Centrelink will still assess an amount equivalent to the relevant minimum annual amount as required for the financial year.
Where the income stream commences during a financial year, the income support recipient will receive a pro-rated payment amount to reflect the number of days remaining in the financial year. The pro-rated payment amount MUST NOT be reported to Centrelink (see formula below).
For Centrelink reporting purposes the 'gross annual nominated payment' will be equal to the sum of actual payments received, plus payments to be received, (excluding commutations) in the financial year grossed-up to reflect an annual amount (i.e. an amount which reflects what the client would have received for a full financial year had their payments not been pro-rated). It is calculated as follows:
= [Sum of all payments already received and to be received (excluding commutations) during the financial year] x [number of days in financial year ÷ number of days from commencement until 30 June]
Example 1: George, who turns 65 on 1 January 2009, commences an account-based income stream from that date based on an initial account balance of $300,000.
George elects to receive 6 monthly payments of $2,000 commencing on 1 January 2009 for the remainder of 2008-09. George will receive $12,000 for the 6-month period. This amount is above the relevant minimum pension payment amount.
For Centrelink reporting purposes, the gross annual nominated payment is calculated as follows:
= [Sum of all payments already received and to be received (excluding commutations) during the financial year] x [number of days in financial year ÷ number of days from commencement until 30 June]
= $12,000 x (365 ÷ 181)
= $24,198.89
Example 2: Fred turns 65 on 1 January 2008 and commences an account-based income stream from that date based on an initial account balance of $300,000. Fred elects to receive 6 monthly payments of $2,000 commencing on 1 January 2008 for the remainder of 2007-08. Fred will receive $12,000 for the 6 month period. This amount is above the relevant minimum pension payment amount.
For Centrelink reporting purposes, the gross annual nominated payment is calculated as follows:
= [Sum of all payments already received and to be received (excluding commutations) during the financial year] x [number of days in financial year ÷ number of days from commencement until 30 June]
= $12,000 x (366 ÷ 182)
= $24,131.87
On 1 April 2008, Fred elects to vary his monthly payment to $3,000. He has already received $6,000 (between January and March) and wants to receive an additional $9,000 from April to June.
Fred will receive $15,000 in 2007-08 (1 January 2008 to 30 June 2008).
For Centrelink reporting purposes, the gross annual nominated payment is calculated as follows:
= (Sum of all payments already received and to be received (excluding commutations) during the financial year) x (number of days in financial year ÷ number of days from commencement until 30 June)
= $15,000 x (366 ÷ 182)
= $30,164.84
For subsequent financial years after an income stream's commencement date, for Centrelink reporting purposes the 'gross annual nominated payment' will be equal to the sum of actual payments received, plus payments to be received, (excluding commutations) in the relevant financial year. It is calculated as follows:
= [Sum of all payments already received and to be received (excluding commutations) during the financial year from 1 July to 30 June]
Example 3: Bill, who turns 65 on 1 July 2008, commences an account-based income stream from that date based on an initial account balance of $300,000.
Bill elects to receive $2,000 per month for the financial year, which is an annual amount of $24,000 (12 payments of $2,000). This amount is above the relevant minimum pension payment amount.
For Centrelink reporting purposes, the gross annual nominated payment to be reported on the Centrelink schedule is $24,000.
Example 4: On 1 January 2009, Bill elects to vary his monthly payments to $1,000. He has already received $12,000 (between July to December) and wants to receive an additional $6,000 from January to June.
Bill will receive $18,000 for the financial year comprising of the payments received and expected to be received for the full financial year, which is above the relevant minimum pension payment amount.
For Centrelink reporting purposes, the gross annual nominated payment to be reported on the Centrelink schedule from 1 January 2009 is $18,000.
Act reference: SSAct section 1099C Income-income stream not a defined benefit income stream, section 1099DAA Income from certain low-payment asset-tested income streams
Policy reference: SS Guide 4.9.5.60 Pension Valuation Factors & Percentage Factors for Allocated & Account Based Income Streams
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Last reviewed: 20 September 2011
