4.9.6.80 Base amount payment splits - non-defined benefit income streams (non-account-based)

Summary

This topic covers:

Note: Income streams purchased with eligible annuities cannot be subject to base amount payment splits. Eligible annuities are income streams that are contractually based and which are purchased with rolled over superannuation monies.

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

No asset assessed.

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

Stage 1 - assessment of income stream between operative time & date of 'first splittable payment'

No income assessed.
Any income paid out during this period is treated as an 'exempt lump sum'.

Stage 2 - assessment of income streams from date of first splittable payment onwards (i.e. after the first splittable payment)

First splittable payment is assessed as an exempt lump sum and therefore does not feature in the income test.

If only part of the 'base amount payment' is satisfied via the first splittable payment, and the remaining portion of the base amount is paid via 'split' income stream payments, then 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 Obtain new gross income for primary FLA (1.1.P.385) and secondary FLA (1.1.S.65) respectively.
2

Calculate proportions in which original FLA is awarded to member (MPROP) and non-member (NMPROP) at date of first splittable payment as follows:
MPROP = Primary FLA income stream payment (member) ÷ Original FLA income stream payment
NMPROP = Secondary FLA income stream payment (non-member) ÷ Original FLA income stream payment

Where:

  • primary FLA income stream payment = first split income stream payment (annualised) from primary FLA after date of first splittable payment
  • secondary FLA income stream payment = first split income stream payment (annualised) from secondary FLA after date of first splittable payment, and
  • original FLA income stream payment = payment from original FLA income stream (annualised) at time of first splittable payment if the payment split had not occurred.
3

Calculate NPP for original FLA immediately before date of first splittable payment.

NPP of original FLA immediately before date of first splittable payment (NPP) = Purchase price of original FLA at commencement day − any commutations prior to date of first splittable payment

4

Calculate a NPP for member's primary FLA (MNPP) and non-member's secondary FLA (NMNPP) as follows:
MNPP = MPROP × NPP
NMNPP = NMPROP × NPP

Where:

  • NPP is the NPP of the original FLA immediately prior to date of first splittable payment.
5

Calculate the deduction amount for both the primary and secondary FLAs as follows:
MDA = MNPP ÷ RN
NMDA = NMNPP ÷ RN

Where:

  • RN is the relevant number of the original FLA at its commencement day.
6

Reduce gross income for primary FLA and secondary FLA by the respective deduction amounts.

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

The member may commute part of the original income stream after the operative time. The family law provisions treat such commutations in the same way as for a 'percentage payment split' (4.9.6.30), i.e. any commuted amounts must be apportioned between the primary FLA and the secondary FLA. The apportionment will be determined in accordance with the percentage of the split payment that goes to the primary FLA, and the percentage of the split payment that goes to the secondary FLA.

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 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 streams purchased from 20 September 2004 to 19 September 2007 - assets test assessment

The calculation of asset values for ATE income streams purchased on or after 20 September 2004 is undertaken as follows:

  • Calculate asset values using the methodology specified in the section 'Asset-tested income stream (long term) - assets test assessment' below.
  • Take 50% of these asset values.

Note: As ATE income streams do not have a RCV, any reference to the calculation of a RCV should be ignored.

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

The calculation of assessable income is the same as for ATE income streams purchased pre-20 September 2004.

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

The calculation of assessable income is the same as for ATE income streams purchased pre-20 September 2004 - (income test assessment) subsequent commutations made by member.

Asset-tested income streams (long term) & asset-tested income streams (lifetime)

The following methodology assumes that the full base amount is paid from the income stream product. Where the member's original superannuation interest includes other superannuation components (i.e. other income streams, superannuation lump sums, etc.), and part of the base amount is paid from those components, the values of BA (base amount) and V (value of member's superannuation interest) below will need to be adjusted accordingly.

Asset-tested income stream (long term) - assets test assessment

Stage 1 - assessment of income stream between operative time & date of first splittable payment

Calculate asset value for member (primary FLA) and non-member (secondary FLA) as follows.

Step Description
1 Ascertain value of base amount, and value of member's superannuation interest that is subject to payment split, as determined by court order or superannuation agreement at the operative time.
2

Calculate proportions in which the asset backing the original FLA is split between the member (MPROP) and non-member (NMPROP) at the operative time.

NMPROP = BA ÷ V

Where:

  • BA = base amount, and
  • V = value of the superannuation interest determined by the court, (for court orders) or notified by the trustee (for superannuation agreements) at the operative time.

MPROP = 1 − NMPROP

3

Calculate NPP for original FLA at operative time.

NPP of original FLA at operative time (NPP) = Purchase price of original FLA at commencement day − any commutations prior to operative time.

4

Calculate NPP at the operative time for the primary FLA and secondary FLA respectively as follows:
M notional purchase price (MNPP) = MPROP × NPP of original FLA at operative time
NM notional purchase price (NMNPP) = NMPROP × NPP of original FLA at operative time

5

Calculate asset values for primary FLA (M asset) and secondary FLA (NM asset) as follows:
M asset = MNPP − [(MNPP − MRCV) ÷ RN] × term elapsed
NM asset = NMNPP − [(NMNPP − NMRCV) ÷ RN] × term elapsed

Where:

  • RN is the relevant number of the original FLA at its commencement day (1.1.C.205),
  • MRCV and NMRCV are the RCVs for the primary and secondary FLAs and, unless advised otherwise, are calculated according to the following formulae:
    • MRCV = MPROP × RCV of original FLA
    • NMRCV = NMPROP × RCV of original FLA
  • term elapsed is the number of years that have elapsed since the commencement day of the member's original FLA income stream (1.1.O.35), rounded down, in accordance with section 1119(4) of the SSAct:
    • in the case of an income stream that makes only 1 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.

There will be no further reassessment of asset values for the primary FLA and secondary FLA prior to the date of the first splittable payment unless the non-member's interest is paid out in full.

Stage 2 - assessment of income streams from date of first splittable payment onwards

Note: The value calculated for MPROP, NMPROP in stage 2 will be different from that calculated in stage 1 because part, or all, of the base amount will have been paid out in the first splittable payment.

At the date of the first splittable payment after the operative time, both the member and the non-member may be entitled to receive a commuted amount from the income stream.

Any remaining unsatisfied portion of the base amount may then be split as primary and secondary FLA payments between the member and non-member, or may be payable as a single income stream to one of the members.

Step Description
1

Calculate proportions in which the asset backing the original FLA is split between member and non-member at the date of the first splittable payment. These proportions are respectively MPROP and NMPROP.

They are calculated in the same manner as for ATE income streams, that is:
MPROP = primary FLA income stream payment (member) ÷ original FLA income stream payment
NMPROP = secondary FLA income stream payment (non-member) ÷ original FLA income stream payment

Where:

  • primary FLA income stream payment = first split income stream payment (annualised) from primary FLA after date of first splittable payment
  • secondary FLA income stream payment = first split income stream payment (annualised) from secondary FLA after date of first splittable payment, and
  • original FLA income stream payment = payment from original FLA income stream (annualised) at time of first splittable payment, if the payment split had not occurred.
2

Calculate NPP for original FLA immediately before date of first splittable payment.

NPP of original FLA immediately before date of first splittable payment (NPP) = Purchase price of original FLA at commencement day - any commutations prior to date of first splittable payment

3

Calculate NPP for member's primary FLA (MNPP) and non-member's secondary FLA (NMNPP) as follows:
MNPP = MPROP × NPP
NMNPP = NMPROP × NPP

Where:

  • NPP is the NPP of the original FLA immediately prior to the date of the first splittable payment.
4

Calculate asset values for primary FLA (M asset) and secondary FLA (NM asset) as follows:
M asset = MNPP − [(MNPP − MRCV) ÷ RN] × term elapsed
NM asset = NMNPP − [(NMNPP − NMRCV) ÷ RN] × term elapsed

Where:

  • NPP is the NPP of the original FLA immediately prior to the date of the first splittable payment
  • RN is the relevant number of the original FLA at its commencement day, and
  • MRCV and NMRCV are the RCVs for the primary and secondary FLAs and, unless advised otherwise, are calculated according to the following formulae
    • MRCV = MPROP × RCV of original FLA
    • NMRCV = NMPROP × RCV of original FLA
  • 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 1 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.

Asset-tested income stream (long term) - subsequent review of primary & secondary FLA income streams (assets test assessment)

As is the case with income streams that are not subject to a divorce property split, the asset values for the member's primary FLA and the non-member's secondary FLA 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 primary and/or secondary FLA is dated from the previous review date for the original FLA, i.e. not the operative time when the payment split occurred.

Asset-tested income stream (long term) - subsequent commutations made by member (assets test assessment)

The member may commute part of the remaining portion of the member's original superannuation interest after the operative time.

The NPP for each member and non-member should be reduced by his or her share of the commutation. This variation to NPP will necessitate consequent adjustments to the asset value held for each member and non-member.

Asset-tested income stream (long term) - income test assessment

Stage 1 - assessment of income stream between operative time & date of first splittable payment

No income assessed.
Any income paid out during this period is treated as an exempt lump sum.

Stage 2 - assessment of income streams from date of first splittable payment onwards

First splittable payment is assessed as an exempt lump sum and therefore does not feature in the income test. If base amount is not satisfied by the first splittable payment then, once the first splittable payment has been made, subsequent split income stream payments will be determined using the following method.

Calculate assessable income for member (primary FLA) and non-member (secondary FLA) as follows:

Step Description
1 Obtain new gross income for primary FLA and secondary FLA.
2

Calculate deduction amount for the member's primary FLA (MDA) and the non-member's secondary FLA (NMDA) using the formula:
MDA = (MNPP − MRCV) ÷ RN
NMDA = (NMNPP − NMRCV) ÷ RN

Where:

  • MNPP, NMNPP, MRCV, NMRCV and RN have the same meaning as in the calculation of asset value.
3 Reduce gross income for primary FLA and secondary FLA by the respective deduction amounts.

Asset-tested income stream (long term) - subsequent commutations made by member (income test assessment)

The member may commute part of the original income stream after the operative time. The family law provisions treat such commutations in the same way as for a percentage payment split (4.9.6.30), i.e. any commuted amounts must be apportioned between the primary FLA and the secondary FLA. The apportionment will be determined in accordance with the percentage of the split payment that goes to the primary FLA, and the percentage of the split payment that goes to the secondary FLA.

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 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.

Example

Henry buys a fixed term pension from the ZYX Super Fund on 1 January 1998 that makes the first income payment on 1 February 1998. His income stream is assessed by Centrelink as an 'asset tested income stream (long term)'.

Purchase price = $500,000

Term = 20 years

Pension payments = $45,000 p.a. (payable once a year)

RCV = nil

Henry commutes $50,000 on 1 January 2003 and his pension payments are reduced to $39,500 p.a.

Henry and Wilma subsequently divorce and on 2 January 2005, the court awards a base amount of $200,000 from Henry's income stream. The operative time is 1 January 2005.

As a result of the court order, Wilma receives the full amount of the first payment from the income stream (the first splittable payment) of $39,500 on 1 February 2005. Wilma then requests 25% of the remaining base amount as a lump sum. The remainder of the base amount will then be paid to Wilma as a secondary FLA, determined in accordance with Division 6.3 of the Family Law (Superannuation) Regulations 2001.

The superannuation fund paying Henry's pension notifies Wilma that she will receive a lump sum of $38,120 and a secondary FLA of $16,530 p.a.

Note: The figure of $38,120 that Wilma receives is not 25% of $200,000 reduced by $39,500, i.e. $40,125. The difference between the 2 figures arises because of the need to take account of the pension valuation factors that apply to the commutation. Further details on these factors are contained in Regulation 58(5) of the Family Law (Superannuation) Regulations 2001.

Henry's annual payments (the primary FLA) will be $18,200 p.a. The first of the split payments to Henry and Wilma commence on 1 February 2006.

Assets test: stage 1 - assessment between operative time and date of first splittable payment, i.e. 2 January 2005 to 1 February 2005

Step Description
1

Obtain:

Base amount (BA) = $200,000, and

Value of member's superannuation interest (V) = $332,630.

2

Calculate proportions in which the asset backing the original FLA is split between the member (MPROP) and the non-member (NMPROP) at the operative time.

NMPROP = BA ÷ V
= $200,000 ÷ $332,630
= 0.601

MPROP = 1 − NMPROP
= 1 − 0.601
= 0.399

3

Calculate NPP for original FLA at operative time.

NPP of original FLA at operative time (NPP) = Purchase price of original FLA at commencement day − any commutations prior to operative time
= $500,000 − $50,000
= $450,000

4

Calculate NPP at operative time for primary FLA and secondary FLA as follows:

M notional purchase price (MNPP) = MPROP × NPP of original FLA at operative time
= 0.399 × $450,000
= $179,550

NM notional purchase price (NMNPP) = NMPROP × NPP of original FLA at operative time
= 0.601 × $450,000
= $270,450

5

Calculate asset values for primary FLA (M asset) and secondary FLA (NM asset) as follows:

M asset = MNPP − [(MNPP − MRCV) ÷ RN] × term elapsed
= 179,550 − [(179,550 − 0) ÷ 20] × 7}
= $116,708

NM asset = NPP − [(NMNPP − NMRCV) ÷ RN] × term elapsed
= 270,450 − [(270,450 − 0) ÷ 20] × 7
= $175,793

Note: There will be no further reassessment of asset values for the primary FLA and secondary FLA prior to the date of the first splittable payment unless the non-member's interest is paid out in full.

Assets test: stage 2 (assessment from date of first splittable payment)

At the date of the first splittable payment, Wilma receives the full amount of the payment that would have gone to Henry if the payment split had not occurred plus a lump sum of $38,120.

The remainder of Wilma's base amount is paid via a split income stream payment of $16,530 p.a. Henry receives a split income stream payment of $18,200 p.a.

Step Description
1

Calculate proportions in which the asset backing the original FLA is split between member (MPROP) and non-member (NMPROP) at the date of the first splittable payment.

MPROP = primary FLA income stream payment (member) ÷ original FLA income stream payment
= 18,200 ÷ 39,500
= 0.461

NMPROP = secondary FLA income stream payment (non-member) ÷ original FLA income stream payment
= 16,530 ÷ 39,500
= 0.418

2

Calculate NPP for original FLA immediately before date of first splittable payment.

NPP of original FLA immediately before date of first splittable payment (NPP)
= Purchase price of original FLA at commencement day − any commutations prior to date of first splittable payment
= $500,000 − $50,000
= $450,000

Note: The lump sum payment to Wilma of $38,120 is not included in this calculation as payment does not occur until the time of the first splittable payment.

3

Calculate NPP for primary FLA (MNPP) and secondary FLA (NMNPP) as follows:

MNPP = MPROP × NPP
= 0.461 × $450,000
= $207,450

NMNPP = NMPROP × NPP
= 0.418 × $450,000
= $188,100

4

Calculate asset values for primary FLA (M asset) and secondary FLA (NM asset) as follows:

M asset = MNPP − [(MNPP − MRCV) ÷ RN] × term elapsed
= 207,450 − [(207,450 − 0) ÷ 20] × 8
= $124,470

NM asset = NMNPP − [(NMNPP − NMRCV) ÷ RN] × term elapsed
= 188,100 - [(188,100 − 0) ÷ 20] × 8
= $112,860

Note: The values for M asset, NM asset will apply only for the period from 1 February 2005 to 31 December 2005, as the commencement day of the income stream was 1 January 1998. Therefore, assuming an 'annual payment frequency', the next annual depletion will occur on 1 January 2006 (the annual anniversary of the commencement day). The adjustment will be in accordance with the standard depletion formula for asset-tested income streams (long term).

Income test: stage 1 (assessment between operative time and date of first splittable payment)

No income assessed.
Any income payments assessed as exempt lump sums.

Income test: stage 2 (assessment from date of first splittable payment)

Step Description
1 Obtain new gross income for primary FLA and secondary FLA, i.e. $18,200 p.a. for Henry and $16,530 for Wilma.
2

Calculate deduction amount for the primary FLA (MDA) and the secondary FLA (NMDA) using the formula:

MDA = (MNPP − MRCV) ÷ RN
= (207,450 − 0) ÷ 20
= $10,373

NMDA = (NMNPP − NMRCV) ÷ RN
= (188,100 − 0) ÷ 20
= $9,405

3

Reduce gross income for primary FLA and secondary FLA by the respective deduction amounts to determine assessable income.

Assessable income (Henry)
= $18,200 − $10,373
= $7,827

Assessable income (Wilma)
= $16,530 − $9,405
= $7,125

Asset-tested income stream (lifetime) - assets test assessment

Stage 1 - assessment of income stream between operative time & date of first splittable payment

Calculate asset value for member (primary FLA) and non-member (secondary FLA) as follows

Step Description
1 Ascertain value of base amount, and value of member's superannuation interest that is subject to payment split, as determined by court order or superannuation agreement at the operative time.
2 Calculate proportions in which the asset backing the original FLA is split between the member (MPROP) and non-member (NMPROP) at the operative time.

NMPROP = BA ÷ V

Where:

  • BA = base amount
  • V = value of the superannuation interest determined by the court, (for court orders) or notified by the trustee (for superannuation agreements) at the operative time.

MPROP = 1 − NMPROP

3 Calculate purchase amount (1.1.P.495) for original FLA at operative time.
4

Calculate purchase amount at the operative time for the primary FLA and secondary FLA respectively as follows:
Member purchase amount = MPROP × Purchase amount of original FLA at operative time
Non-Member purchase amount = NMPROP × Purchase amount of original FLA at operative time

5

Calculate asset values for the primary FLA and secondary FLA as per the assets test rules for asset-tested income streams (lifetime) in 4.9.3.35, noting that:

The assessment day for the member and the non-member, in relation to the primary and secondary FLAs respectively, should be calculated separately. The method for calculating the assessment day for a person can be found at 1.1.A.280. In a case where the assessment day calculation would result in an assessment day for a person prior to the operative time, the operative time is the assessment day.

IF the assessment day for the original FLA had occurred, then the threshold day (1.1.T.101) for the member and the non-member, in relation to the primary and secondary FLAs respectively, should be the same as the threshold day for the original FLA. If such a calculation results in a threshold day prior to the income stream's assessment day, then the threshold day for the income stream is the income stream' assessment day.

IF the assessment day for the original FLA had not yet occurred, then the threshold day for the member and the non-member is calculated separately under the method outlined in 1.1.T.101.

There will be no further reassessment of asset values for the primary FLA and secondary FLA prior to the date of the first splittable payment unless the non-member's interest is paid out in full.

Stage 2 - assessment of income streams from date of first splittable payment onwards

Note: The value calculated for MPROP, NMPROP in stage 2 will be different from that calculated in stage 1 because part, or all, of the base amount will have been paid out in the first splittable payment.

At the date of the first splittable payment after the operative time, both the member and the non-member may be entitled to receive a commuted amount from the income stream.

Any remaining unsatisfied portion of the base amount may then be split as primary and secondary FLA payments between the member and non-member, or may be payable as a single income stream to one of the members.

Step Description
1

Calculate proportions in which the asset backing the original FLA is split between member and non-member at the date of the first splittable payment. These proportions are respectively MPROP and NMPROP.

They are calculated in the same manner as for ATE income streams, that is:

MPROP = primary FLA income stream payment (member) ÷ original FLA income stream payment
NMPROP = secondary FLA income stream payment (non-member) ÷ original FLA income stream payment

Where:

  • primary FLA income stream payment = first split income stream payment (annualised) from primary FLA after date of first splittable payment
  • secondary FLA income stream payment = first split income stream payment (annualised) from secondary FLA after date of first splittable payment, and
  • original FLA income stream payment = payment from original FLA income stream (annualised) at time of first splittable payment, if the payment split had not occurred.
2 Calculate purchase amount for original FLA immediately before date of first splittable payment.
3

Calculate purchase amount for member's primary FLA and non-member's secondary FLA as follows:
Purchase amount for primary FLA = MPROP × Purchase amount for original FLA immediately prior to the date of the first splittable payment
Purchase amount for secondary FLA = NMPROP × Purchase amount for original FLA immediately prior to the date of the first splittable payment

4 Calculate asset values for the primary FLA and secondary FLA as per the assets test rules for asset-tested income streams (lifetime) in 4.9.3.35, noting that the assessment day and threshold day should remain the same as previously calculated at the operative time.

Asset-tested income stream (lifetime) - subsequent commutations made by member (assets test assessment)

The member may commute part of the remaining portion of the member's original superannuation interest after the operative time.

The purchase amount for each member and non-member should be reduced by his or her share of the commutation. This variation to the purchase amount will necessitate consequent adjustments to the asset value held for each member and non-member.

Asset-tested income stream (lifetime) - income test assessment

Stage 1 - assessment of income stream between operative time & date of first splittable payment

No income assessed.
Any income paid out during this period is treated as an exempt lump sum.

Stage 2 - assessment of income streams from date of first splittable payment onwards

First splittable payment is assessed as an exempt lump sum and therefore does not feature in the income test. If base amount is not satisfied by the first splittable payment then, once the first splittable payment has been made, subsequent split income stream payments will be determined using the following method.

Calculate assessable income for member (primary FLA) and non-member (secondary FLA) as follows:

Step Description
1 Obtain new gross annual payment for primary FLA and secondary FLA.
2 The assessable income from the primary FLA and the secondary FLA is 60% of the gross annual payment for each income stream.

Asset-tested income stream (lifetime) - subsequent commutations made by member (income test assessment)

The member may commute part of the original income stream after the operative time. The family law provisions treat such commutations in the same way as for a percentage payment split (4.9.6.30), i.e. any commuted amounts must be apportioned between the primary FLA and the secondary FLA. The apportionment will be determined in accordance with the percentage of the split payment that goes to the primary FLA, and the percentage of the split payment that goes to the secondary FLA.

After the commutation is made, the new gross annual payment amount must be obtained from the fund trustee for both the member (primary FLA) and non-member (secondary FLA). The purchase amount for each member and non-member must be reduced by their share of the commutation.

Last reviewed: 1 July 2019