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3.9.3.31 Account-based income streams

Introduction

From 1 January 2015, and in line with Age, account-based income streams come under the income test for the CSHC. Account-based income streams include account-based pensions and account-based annuities.

The balance of an account-based income stream is assessed under the deeming provisions using the person's latest superannuation statement (4.4.1.20).

Act reference: SSAct section 1071-13 Long-term financial asset, section 9(1) Financial assets and income streams definitions

What is an account-based pension?

An account-based pension (also known as an allocated pension or transition to retirement pension):

  • is a flexible retirement income stream product purchased with superannuation money
  • requires the person to draw a minimum pension payment amount each year or elect to draw an amount of pension payment above the required minimum amount
  • gives a person access to withdraw some or all of the account balance
  • may be purchased from a financial provider or paid from an SMSF or SAF
  • is tax free from age 60.

Act reference: SSAct section 1071-13 Long-term financial asset, section 9(1) Financial assets and income streams definitions

Superannuation Industry (Supervision) Regulations 1994

What is an account-based annuity?

Certain annuity products may also be included in the CSHC income test if it is an equivalent product to an account-based pension and meets the standards in an instrument under SSAct paragraph 9(1EA).

Act reference: SSAct section 1071-13 Long-term financial asset, section 9 Financial assets and income streams definitions

Grandfathering provisions

A person who is an owner of an account-based pension purchased before 1 January 2015 and held a CSHC on 31 December 2014 will not have their account-based pension included in the income test for as long as they:

  • continue to hold a CSHC, and
  • retain the same account-based pension.

If the person ceases to be the holder of a CSHC for any period of time, their account-based pension will be subject to the income test if they become a CSHC holder again.

If they purchase a new account-based pension after 31 December 2014, or roll over an existing account-based pension into a new account-based pension after 31 December 2014, their new account-based pension will be subject to the income test (see examples below).

Example 1: Irene is the holder of a CSHC on 31 December 2014. Her account-based income stream was purchased prior to 1 January 2015.
Irene is 75 years old, married, and the holder of a CSHC on 31 December 2014. Irene has an account-based income stream, which was purchased before 1 January 2015. Because of the grandfathering provisions, Irene is NOT affected by the changes to the treatment of account-based income streams in the CSHC income test, which came into effect from 1 January 2015.

Example 2: Jasmin claims CSHC on or after 1 January 2015.
Jasmin is single, aged 64, and turned 65 on 15 January 2015. Jasmin is a self-funded retiree and is drawing down on her account-based income stream. Under the CSHC income test that began on 1 January 2015, Jasmin's account-based income stream is assessed under the deeming rules.

Example 3: Sachin changes his account-based income stream after 1 January 2015.
Sachin is 80 years old, single and the holder of a CSHC. Sachin has an account-based income stream, which he purchased in 2008. Because of the grandfathering provisions, there is no income assessed against this product. However, on 20 February 2015 Sachin decided to move his existing account-based income stream to another account-based income stream product. As a result he loses his grandfathering status for this product, and the account balance of his new account-based income stream is assessed under the deeming rules.

Example 4: David is a member of a couple. Both own an account-based income stream.
David is aged 68 and the holder of a CSHC on 31 December 2014. David has an account-based income stream. Under the CSHC income test, David's account-based income stream is NOT assessed and is grandfathered. However, his partner Deb, who turned 65 in February 2015, has an account-based income stream which is not grandfathered and is assessed under the deeming rules.

Note: When claiming a CSHC, the combined couple income test applied to Deb does not include the value of David's grandfathered account-based income stream.

Example 5: Ron has an account-based income stream with a reversionary provision.
Ron is aged 85 and is the holder of a CSHC on 31 December 2014. Ron has an account-based income stream. Ron's account-based income stream is grandfathered and not included in the CSHC income test.

Ron's account-based income stream has a reversionary provision, which means his account-based income stream will revert to Julie on his death. If Julie is a CSHC holder at the date of reversion, the account-based income stream will continue to be excluded from the CSHC income test.

Act reference: Social Services and Other Legislation Amendment (2014 Budget Measures No. 6) Act 2014 Schedule 7 item 5 Application provisions

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