This topic contains a historical overview of the treatment of income streams with the major changes occurring on 20 September 1998. It covers:
Note: ALL income streams (1.1.I.70) are assessable under the 20 September 1998 provisions. The ONLY income streams that are assessed under the pre-September 1998 rules are those that have been exempted by the Minister under the special rules outlined below.
Details of the means test treatment of income streams prior to 20 September 1998 can be found under the next 7 headings.
Before 20 September 1998, if an income support recipient was due to have a birthday around the time that income stream payments start, it was ESSENTIAL to establish clearly the commencement day for social security purposes.
Explanation: If the income stream was a lifetime pension or annuity, the commencement day was important in determining the income support recipient's life expectancy (the relevant number) in any deductible amount for income test purposes.
If an income support recipient purchased an income stream the commencement day was generally the date of purchase. The exception to this is that the date of purchase for income test purposes was 1 July, if an income support recipient:
For assets test purposes the commencement day was generally the date of purchase.
The relevant number for fixed term superannuation pensions with a term of one year or less was 1. If an income support recipient had an allocated pension, the relevant number was the recipient's life expectancy (section 9(1)-'life expectancy') at the original purchase date if the recipient:
Act reference: SSAct section 9(1)-'life expectancy'
The definition of UPP applying to fixed term superannuation pensions was as follows:
This definition also applied to the following income streams purchased with ETPs:
The formula for determining the deductible amount for a fixed term superannuation pension was:
Act reference: SSAct section 9(1)-'relevant number'
Before 26 April 1990 the full amount of regular superannuation payments was treated as income, EXCLUDING amounts for children. There was NO allowance for the return of the recipient's own contributions to the superannuation fund (section 9(1)-'superannuation fund').
From 26 April 1990 to 20 September 1998, a deductible amount was allowed for income streams generally. The formula used varied according to:
Act reference: SSAct section 9(1)-'superannuation fund'
For lifetime superannuation pensions, the deductible amount before 20 September 1998 was UPP divided by relevant number.
The deductible amount for a fixed term superannuation pension was determined differently from that of a lifetime superannuation pension, because fixed term superannuation pensions are:
The deductible amount was affected by:
Act reference: SSAct section 9(1)-'residual capital value'
Before 20 September 1998, the deductible amount for allocated pensions purchased with an ETP or from a roll-over fund was determined using the same formula as lifetime superannuation pension.
Income streams (1.1.I.70) purchased before 20 September 2004 are assessable under the 20 September 1998 provisions, except for those income streams that have been exempted by the Minister under the special rules outlined below.
SSAct subclause 120A of Schedule 1A gives the Minister the power to exempt income support recipients from the new rules if they:
The exemption applies to an income support recipient's investment rather than to certain product types. If a recipient has 2 products, then each product held by that recipient will need to be considered separately against the exemption criteria.
As most products affected by the legislation can be commuted, and contracts can generally be renegotiated with the agreement of the parties involved, it is expected that few income support recipients will meet the criteria for a binding arrangement.
Act reference: SSAct section 23(1)-'social security payment', Schedule 1A clause 120A Amendments relating to treatment of income streams
An income support recipient MUST be in continuous receipt of a social security payment to continue to have the benefit of an exemption.
Act reference: SSAct Schedule 1A clause 120A Amendments relating to treatment of income streams
The Family and Community Services Legislation (Simplification and Other Measures) Act 2001 introduced some minor amendments to the existing income streams provisions.
These involve minor technical amendments to close off some loopholes and provide clearer guidance to the intent of the 1998 rules. They came into effect on 20 September 2001, and include:
In 2002, the Family Law Act was changed to allow superannuation to be split following marriage breakdown by the Family Court or a superannuation agreement. The SSAct was also amended to ensure that the social security means test is applied consistently and fairly to income support recipients who have their superannuation entitlements split as part of a property settlement on marriage breakdown. These changes came into effect on 28 December 2002. Refer to 4.9.6 for a detailed description of the assessment process.
Policy reference: SS Guide 4.9.6 Assessment of Divorce Property Settlements
The Family and Community Services Legislation (Income Streams) Act 2004 (no.116) introduced a range of changes relating to income streams, which included:
Policy reference: SS Guide 220.127.116.11 Characteristics of Asset-Test Exempt Income Streams Purchased from 20/9/2004 & before 20/09/2007, 18.104.22.168 Retention of Asset Test Exemption for ATE Income Streams Purchased from 20/09/2004, or from 20/09/2007
The Tax Laws Amendment (Simplified Superannuation) Act 2007 (no.9) introduced a range of changes relating to superannuation. One of these changes affected income streams, which was the removal of the social security assets test exemption for ATE income streams purchased on or after 20 September 2007. In effect, the exemption was reduced from 50% to 0%.
Policy reference: SS Guide 22.214.171.124 Retention of Asset Test Exemption for ATE Income Streams Purchased from 20/9/2004, or from 20/9/2007
Last reviewed: 9 February 2012