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4.9.6.30 Percentage Payment Splits - Non-Defined Benefit Income Streams (Non-Allocated)

Summary

This topic covers:

ATE income streams purchased pre-20 September 2004 - asset test assessment,
ATE income streams purchased pre-20 September 2004 - income test assessment,
ATE income streams purchased pre-20 September 2004 - subsequent commutation made by member (income test assessment),
ATE income streams purchased from 20 September 2004 to 19 September 2007 - assets test assessment,
ATE income streams purchased from 20 September 2004 to 19 September 2007 - subsequent reviews of primary and secondary FLA income stream asset values,
ATE income streams purchased from 20 September 2004 to 19 September 2007 - subsequent commutations made by member (assets test assessment),
ATE income streams purchased on or after 20 September 2004 - income test assessment,
ATE income streams purchased on or after 20 September 2004 - subsequent commutation made by member (income test assessment),
ATLT - asset test assessment,
ATLT - subsequent review of primary and secondary FLA income stream asset values,
ATLT - subsequent commutations made by member (assets test assessment),
ATLT - income test assessment, and
ATLT - subsequent commutations made by member (income test assessment).

ATE income streams purchased pre-20 September 2004 - assets test assessment

ATE income streams purchased prior to 20 September 2004 are eligible for a 100 per cent asset test exemption. Therefore, no asset is assessed for ATE income streams purchased pre-20 September 2004.

ATE income streams purchased pre-20 September 2004 - income test assessment

Calculate assessable income for member (1.1.M.118) (primary FLA) and non-member (1.1.N.115) (secondary FLA) as follows:

Step	Description
1	Ascertain the percentages in the payment split (e.g. 60%-40%). Also ascertain gross income for member (primary FLA) and non-member (secondary FLA) respectively. The percentages indicate the proportions (MPROP, NMPROP) in which the member's original interest is apportioned respectively between the member and the non-member.
2	Calculate NPP (1.1.N.135) of original FLA at operative time (1.1.O.25). NPP of original FLA at operative time = purchase price of original FLA at commencement day - any commutations prior to operative time.
3	Calculate NPP at operative time for primary FLA (1.1.P.385) and secondary FLA (1.1.S.65) respectively as follows: NPP of primary FLA at operative time (MNPP) = MPROP x NPP of original FLA at operative time. NPP of secondary FLA at operative time (NMNPP)= NMPROP x NPP of original FLA at operative time. Where: - MPROP is the proportion of original FLA awarded to the member at the operative time, and - NMPROP is the proportion of original FLA awarded to the non-member at the operative time.
4	Calculate deduction amounts for primary FLA and secondary FLA respectively as follows: Member (deduction amount) = NPP of primary FLA at operative time relevant number Non-member (deduction amount) = NPP of secondary FLA at operative time relevant number Where: - relevant number is the relevant number of the original FLA at its commencement day (1.1.C.205).
5	Reduce gross income from primary FLA and secondary FLA by the respective deduction amounts.

ATE income streams purchased pre-20 September 2004 - subsequent commutation made by member (income test assessment)

The member may commute part of the original income stream after the operative time. The family law provisions require that such commuted amounts be apportioned between the primary FLA (1.1.P.385) and the secondary FLA (1.1.S.65) in the percentages specified in the original 'percentage payment split'.

After the commutation is made, the new gross income amount must be obtained from the fund trustee for both the member (primary FLA) and non-member (secondary FLA). The NPP (1.1.N.135) for each member and non-member must be reduced by his or her share of the commutation. This variation to NPP will mean that the deduction amount (and assessable income) for each member and non-member will also have to be adjusted.

ATE income stream purchased from 20 September 2004 to 19 September 2007 - assets test assessment

Where income streams purchased from 20 September 2004 to 19 September 2007 satisfy section 9A or 9B of the SSAct, they will receive a 50 per cent asset test exemption unless they are granted relief as specified in 4.9.2.17.

Calculate assessable asset values for member (1.1.M.118) (primary FLA) and non-member (1.1.N.115) (secondary FLA) respectively using the formula below.

Step	Description
1	Ascertain the percentages awarded to the member and the non-member in the payment split (e.g. 60% - 40%). The percentages indicate the proportions (MPROP, NMPROP) in which the member's original superannuation interest is apportioned respectively between the member and the non-member.
2	Calculate NPP (1.1.N.135) of original FLA at operative time (1.1.O.25). NPP of original FLA at operative time = purchase price of original FLA at commencement day - any commutations prior to operative time.
3	Calculate NPP at the operative time for the primary FLA (1.1.P.385) and secondary FLA (1.1.S.65) respectively using the formula: NPP of primary FLA at operative time (MNPP) = MPROP x NPP of original FLA at operative time NPP of secondary FLA at operative time (NMNPP)= NMPROP x NPP of original FLA at operative time Where: - MPROP is the proportion of original FLA (1.1.O.35) awarded to the member at the operative time, and - NMPROP is the proportion of original FLA awarded to the non-member at the operative time.
4	Calculate asset values for the primary FLA and secondary FLA respectively as follows: M asset = MNPP - {[MNPP/relevant number] x term elapsed} x 50% NM asset = NMNPP - {[NMNPP/relevant number] x term elapsed} x 50% Where: - MNPP, NMNPP are the NPPs for each split income stream, - relevant number is the relevant number of the original FLA at its commencement day (1.1.C.205), and - term elapsed is the number of years that have elapsed since the commencement day of the member's original FLA income stream, rounded down, in accordance with section 1119(4) of the SSAct: - in the case of an income stream that makes only one payment annually, to the nearest whole year, or - in the case of an income stream that makes 2 or more payments annually, to the nearest half year.

ATE income streams purchased from 20 September 2004 to 19 September 2007 - subsequent reviews of primary & secondary FLA income stream asset values

As with income streams that are not subject to a divorce property split, the asset values for the member's primary FLA (1.1.P.385) and the non-member's secondary FLA (1.1.S.65) will need to be reassessed at 6 or 12 month intervals depending on whether the income stream payments are received either:

once a year only (12 monthly intervals), or
2 or more times annually (6 monthly intervals).

The first 6 (or 12) monthly interval for the new primary and/or secondary FLA income streams is dated from the previous review date for the original FLA (1.1.O.35), i.e. not the operative time (1.1.O.25) when the payment split occurred.

Note: For ATE income streams purchased from 20 September 2004 to 19 September 2007 the asset value of both member and non-member should be halved, (i.e. only 50 per cent is assets test exempt).

ATE income streams purchased from 20 September 2004 to 19 September 2007 - subsequent commutations made by member (assets test assessment)

The member may commute part of the original income stream after the operative time. The family law provisions require that such commuted amounts be apportioned between the primary FLA (1.1.P.385) and the secondary FLA (1.1.S.65) in the percentages resulting from the original percentage payment split.

The NPP (1.1.N.135) for each member and non-member will be reduced by his or her share of the commutation, with consequent adjustments to the member's and non-member's asset value.

ATE income streams purchased on or after 20 September 2004 - income test assessment

The calculation of the assessable income for member (1.1.M.118) (primary FLA) and non-member (1.1.N.115) (secondary FLA) is the same as for 'ATE income streams purchased pre-20 September 2004'.

ATE income streams purchased on or after 20 September 2004 - subsequent commutation made by member (income test assessment)

ATLT - assets test assessment

Calculate assessable asset values for member (1.1.M.118) (primary FLA) and non-member (1.1.N.115) (secondary FLA) respectively as follows:

Step	Description
1	Ascertain the percentages awarded to the member and the non-member in the payment split (e.g. 60% - 40%). The percentages indicate the proportions (MPROP, NMPROP) in which the member's original interest is apportioned respectively between the member and the non-member.
2	Calculate NPP (1.1.N.135) of original FLA at operative time (1.1.O.25). NPP of original FLA at operative time = purchase price of original FLA at commencement day - any commutations prior to operative time.
3	Calculate NPP at the operative time for the primary FLA (1.1.P.385) and secondary FLA (1.1.S.65) respectively using the formula: NPP of primary FLA at operative time (MNPP) = MPROP x NPP of original FLA at operative time NPP of secondary FLA at operative time (NMNPP)= NMPROP x NPP of original FLA at operative time Where: - MPROP is the proportion of original FLA (1.1.O.35) awarded to the member at the operative time, and - NMPROP is the proportion of original FLA awarded to the non-member at the operative time.
4	Calculate asset values for the primary FLA and secondary FLA respectively as follows: M asset = MNPP - {[(MNPP - MRCV)/relevant number] x term elapsed} NM asset = NMNPP - {[ (NMNPP - NMRCV)/relevant number] x term elapsed} Where: - MNPP, NMNPP are the NPPs for each split income stream, - MRCV, NMRCV are the RCVs for each split income stream (unless advised otherwise, RCVs for each income stream will be calculated by splitting the RCV for the original FLA in the proportions resulting from the percentage payment split, e.g. 60%-40%), - relevant number is the relevant number of the original FLA at its commencement day (1.1.C.205), and - term elapsed is the number of years that have elapsed since the commencement day of the member's original FLA income stream, rounded down, in accordance with section 1119(4) of the SSAct: - in the case of an income stream that makes only one payment annually, to the nearest whole year, or - in the case of an income stream that makes 2 or more payments annually, to the nearest half year.

ATLT - subsequent review of primary & secondary FLA income stream asset values

once a year only (12 monthly intervals), or
2 or more times annually (6 monthly intervals).

ATLT - subsequent commutations made by member (assets test assessment)

The member may commute part of the original income stream after the operative time. The family law provisions require that such commuted amounts be apportioned between the primary FLA and the secondary FLA in the proportions resulting from the original percentage payment split.

The NPP (1.1.N.135) for each member and non-member will be reduced by his or her share of the commutation, with consequent adjustments to the member's and non-member's asset value.

ATLT - income test assessment

Calculate assessable income for member (1.1.M.118) (primary FLA) and non-member (1.1.N.115) (secondary FLA) respectively as follows:

Step	Description
1	Obtain gross income for primary FLA (1.1.P.385) and secondary FLA (1.1.S.65) respectively.
2	Calculate deduction amount for primary FLA and secondary FLA respectively using the formula: Member (deduction amount) = NPP of primary FLA at operative time relevant number Non-member (deduction amount) = NPP of secondary FLA at operative time relevant number Where relevant number is the relevant number of the original FLA (1.1.O.35) at its commencement day (1.1.C.205).
3	Reduce gross income from primary FLA and secondary FLA respectively by the deduction amount calculated for each income stream.

ATLT - subsequent commutations made by member (income test assessment)

Example: Henry buys a fixed term pension from XYZ super fund on 1 January 1998. His income stream is assessed by Centrelink as an 'assets tested long term income stream' (ATLT).

Purchase price = $100,000

Term = 20 years

Pension payments = $9,000 p/a (paid monthly)

RCV = Nil

5 years after purchasing his income stream, Henry and Wilma get divorced.

Court orders a percentage payment split with 60 per cent of payments going to Henry and 40 per cent of payments going to Wilma. No commutations were made from the income stream between the commencement date and the operative time. Operative time is 1 January 2003.

Under the payment split, Henry receives a primary FLA income stream with annual payments of $5,400 and Wilma receives a secondary FLA income stream with payments of $3,600. These amounts are advised to Centrelink by the trustee.

Assets test

Step	Description
1	Henry's proportion of the payment split is 60%. Wilma's proportion of the payment split is 40%.
2	Calculate the NPP of the original FLA income stream (original FLA) at the operative time. As no commutations were made from the commencement date up to the operative time, the NPP of the original FLA income stream is $100,000.
3	Calculate the NPP for the primary FLA (member) and secondary FLA (non-member) income stream at the operative time. MNPP (Henry) = MPROP x NPP of the M income stream at the 'operative time' = 0.60 x 100,000 = 60,000 (Henry's NPP at the operative time) NMNPP (Wilma) = MPROP x NPP of the M income stream at the operative time = 0.40 x 100,000 = 40,000 (Wilma's NPP at the operative time).
4	Calculate the asset values for the M (primary FLA income stream) and NM (secondary FLA income stream) at the operative time: M asset value = 60,000 - {[(60,000 - 0)/20] x 5} = $45,000 NM asset value = 40,000 - {[(40,000 -0) /20] x 5} = $30,000.

In the above example:

the asset value of Henry's split income stream at the operative time is $45,000,
the asset value of Wilma's income stream at the operative time is $30,000.

Income Test

Step	Description
1	As per advice by the fund trustee, Henry's new gross annual payment is $5,400 (primary FLA). Wilma's gross annual payment (secondary FLA) is $3,600.
2	Calculate the deduction amount for each split income stream: Member deduction amount = $60,000 / 20 = $3,000 Non-member deduction amount = $40,000 / 20 = $2,000 Henry's new deduction amount is $3,000. Wilma's deduction amount is $2,000.
3	Calculate the assessable income by using the formula: Henry has assessable income of $5,400 - $3,000 = $2,400 Wilma has assessable income of $3,600 - $2,000 = $1,600.

On 1 January 2005, 2 years after the operative time (1 January 2003) and 7 years after the commencement date (1 January 1998), the asset value of Henry's split income stream will be $39,000. The asset value of Wilma's income stream 2 years after the operative time will be $26,000.

Term elapsed since commencement date of the original FLA income stream: 7 years.

M asset value (Henry) = $60,000 - {[($60,000 - 0) / 20] x 7} = $39,000.

NM asset value (Wilma) = $40,000 - {[($40,000 - 0) / 20] x 7} = $26,000.

Effect of commutations after operative time

On 1 January 2006 (3 years after the operative time and 8 years after the commencement date), Henry made a commutation of $10,000 from his income stream. As this is a FLA income stream (1.1.F.50), Henry is only entitled to receive 60 per cent of the commuted amount (i.e. $6,000), while 40 per cent will go to Wilma (i.e. $4,000). The 'proportional split' was originally set out in the superannuation agreement or court order (1.1.C.355).

Assets test when a commutation is made under a percentage payment split

Step

Description

Recalculate NPP for both the primary FLA (member) and secondary FLA (non-member) income stream by using the formula:

Adjusted MNPP = M/NPP - Proportion of the commuted amount

$60,000 - $6,000 = $54,000 (Henry's adjusted NPP)

Adjusted MNPP = NM/NPP - Proportion of the commuted amount

$40,000 - $4,000 = $36,000 (Wilma's adjusted NPP).

Using the adjusted value of both the primary FLA (member) and secondary FLA (non-member) NPPs, calculate new asset values for primary FLA and secondary FLA.

Term elapsed since the commencement date of the original FLA income stream is 8 years.

M asset (Henry) = $54,000 - {[(54,000 - 0)/20] x 8}

= $32,400

NM asset (Wilma) = $36,000 - {[($36,000 - 0)/20] x 8}

= $21,600.

In the above example:

the asset value of Henry's income stream is $32,400,
the asset value of Wilma's income stream is $21,600.

On 1 January 2007, 4 years after the operative date (1 January 2003) and 9 years after the commencement date (1 January 1998), the asset value of Henry's FLA affected income stream will be $29,700. The asset value of Wilma's FLA income stream will be $19,800.

Term elapsed since the commencement date of the original FLA income stream: 9 years.

M asset value (Henry): $54,000 -{[($54,000 - 0)/20] x 9} = $29,700.

NM asset value (Wilma): $36,000 - {[($36,000 - 0) / 20] x 9} = $19,800.

Income test when a commutation is made under a percentage payment split.

Step	Description
1	Obtain from the fund trustee the new gross income after the commutation is made for both the member (primary FLA) and non-member (secondary FLA). In this example, Henry's new gross annual payment is $4,320. Wilma's new gross annual payment is now $2,880.
2	Recalculate the deduction amount for each split income stream using the formula: DA = (NPP - RCV) / RN (of the original FLA income stream) Henry (deduction amount): $54,000 / 20 = $2,700 Wilma (deduction amount): $36,000 / 20 = $1,800.
3	Recalculate the assessable income of each split income stream using the formula: Assessable income = Gross income - Deduction amount M assessable income (Henry) = $4,320 - $2,700 =$1,620 p/a NM assessable income (Wilma) =$2,880 - $1,800 =$1,080 p/a.

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Last reviewed: 1 February 2010

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