4.9.6.90 Base amount payment splits - non-defined benefit income streams (account-based income streams & market-linked income streams)

Summary

This topic covers:

  • 'first splittable payment' (treatment of account-based income streams and market-linked income streams)
  • assets test assessment (stage 1)
    • assessment of income stream between operative time and date of first splittable payment
    • subsequent review of primary and secondary FLA income streams
  • assets test assessment (stage 2)
    • assessment of income stream from date of first splittable payment
    • subsequent review of primary FLA income stream
    • subsequent commutations made by member
  • income test assessment (stage 1) - assessment of income stream between operative time and date of first splittable payment
  • income test assessment (stage 2) - assessment of income stream from date of first splittable payment
  • income test assessment - subsequent commutations by member.

Note 1: This section applies only to income streams purchased with superannuation monies.

Note 2: Income streams purchased with eligible annuities, i.e. annuities that are treated as being purchased with rolled over superannuation monies, cannot be subject to base amount payment splits.

First splittable payment (treatment of account-based income streams & market-linked income streams)

Where the first splittable payment is made from an account-based income stream or market-linked income stream, the full base amount must be paid out, if possible, at the time of the first splittable payment.

Where the first payment from an account-based income stream or market-linked income stream is not the first splittable payment from the superannuation fund but is in satisfaction of the remaining portion of the base amount, the full amount must be paid from the account-based income stream or market-linked income stream.

Under this arrangement, only the member can be left with an income stream (the primary FLA), i.e. assuming that the account balance is not exhausted in satisfying the remainder of the base amount.

Where the base amount is to be satisfied from both an account-based income stream and a market-linked income stream, the base amount must first be satisfied from the account-based income stream. If the base amount exceeds the account balance backing the account-based income stream, the unsatisfied portion of the base amount is then satisfied from the market-linked income stream.

Note: The following methodology assumes that the full base amount is paid from the account-based 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.

Assets test assessment (stage 1): assessment of income stream between operative time & date of first splittable payment

Step Description
1

Calculate proportion of member's original superannuation interest that is paid to the member via the primary FLA (MPROP).

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).

MPROP = 1 − NMPROP

2

Calculate asset values for primary FLA and secondary FLA as follows:

  • M asset = MPROP × Account balance of original FLA at operative time
  • NM asset = NMPROP × Account balance of original FLA at operative time

Note: The asset value for the secondary FLA will be maintained until the non-member's interest is paid out from the account balance backing the original FLA.

Assets test assessment (stage 1): subsequent review of primary & secondary FLA income streams

There will be NO review of asset values between the operative time and the date of the first splittable payment.

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

For an account-based income stream, the asset value is the account balance remaining after the base amount has been paid out in full to the non-member.

For a market-linked income stream, the asset value is 50% of the account balance remaining after the base amount has been paid out in full to the non-member.

Assets test assessment (stage 2): subsequent review of primary FLA income stream

As is the case with those income streams that are not subject to a divorce property split, the value for M asset will need to be adjusted at subsequent 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.

For an account-based income stream, the value of M asset is the value of the account balance of the primary FLA income stream on the last day of the latest 6 (or 12) monthly interval.

For a market-linked income stream, the value of M assets is 50% of the value of the account balance of the primary FLA income stream on the last day of the latest 6 (or 12) monthly interval.

Assets test assessment (stage 2): subsequent commutations made by member

If there are commutations from the primary FLA, M asset for an account-based income stream will be the account balance immediately prior to the commutation reduced by the amount of the commutation.

If there are commutations from the primary FLA, M asset for a market-linked income stream will be 50% of the account balance immediately prior to the commutation reduced by the amount of the commutation.

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.

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

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.

The base amount is paid out in full to the non-member. The following methodology assumes that the member's account balance is not exhausted in satisfying the base amount payment.

Step Description
1 Obtain gross income for primary FLA.
2

Calculate the proportion of assets backing the original FLA at the operative time that go to:

  • the member (MPROP)
  • the non-member (NMPROP).

NMPROP = base amount payable from original FLA/Account balance of original FLA immediately before date of first splittable payment

MPROP = 1 − NMPROP

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 the member's primary FLA (MNPP) using the formula:

  • MNPP = MPROP × NPP

Where NPP is the NPP of the original FLA immediately before the date of the first splittable payment.

5

Calculate the deduction amount for the member's primary FLA (MDA) using the formula:

  • MDA = MNPP ÷ RN

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

6

Reduce gross income from primary FLA by the deduction amount.

Income test assessment - subsequent commutations by member

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' (4.9.6.40), i.e. any commuted amounts must be apportioned between the primary FLA (1.1.P.385) and the secondary FLA (1.1.S.65). 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 (1.1.N.135) for each 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 the member and non-member will also have to be adjusted.

Example

Henry purchases an account-based income stream from the 'Whodunit' super fund on 1 January 1998 with the first payment being made on 1 February 1998. His income stream is assessed by Centrelink as an 'asset-tested income stream (long term)'.

Purchase price = $400,000
Gross annual income = $25,500
Relevant number = 15.41

5 years after purchasing the income stream, Henry and Wilma divorce. The court orders a base amount payment of $180,000 to be made to Wilma. Henry has made no commutations between the commencement day and the operative time. Operative time is 1 January 2003. Account balance at the operative time is $340,000.

As a result of the court order, Wilma is paid the full base amount and receives it at the time of the first splittable payment. As the base amount is greater than the first splittable payment of $25,500, the first splittable payment will comprise part of the base amount payment to Wilma. Henry continues with an annual account-based income stream payment of $12,700.

Assets test assessment (stage 1): assessment between operative time and date of first splittable payment, i.e. 2 January 2003 to 1 February 2003

Step Description
1

Calculate proportion of member's original superannuation interest that is paid to the member via the primary FLA (MPROP).

NMPROP = BA ÷ V
= $180,000 ÷ $340,000
= 0.53

(Note: While the value of BA, V may have increased since the court order, they will have increased in the same proportions so that the expression BA/V remains the same. Consequently, it is legitimate to use the amounts of $180,000 and $340,000 to calculate BA/V.)

MPROP = 1 − NMPROP
= 1 − 0.53
= 0.47

2

Calculate asset values for primary FLA and asset paid to NM:

M asset = MPROP × Account balance of original FLA at operative time
= 0.47 × 340,000
= $159,800

NM asset = NMPROP × Account balance of original FLA at operative time
= 0.53 × 340,000
= $180,200

Note: There will be no review of asset values between the operative time and the date of the first splittable payment.

Note: If the income stream in the above example had been a market-linked income stream, then the asset values maintained for the member would be 50% of the value calculated for M asset calculated above.

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

Obtain member's account balance after non-member's account balance has been paid out in full.

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

No income assessed.

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

Step Description
1 Obtain gross income for primary FLA, i.e. $12,700.
2

Calculate the proportion of assets backing the original FLA at the operative time that go to:

  • member
  • non-member.

NMPROP = base amount payable from original FLA/Account balance of original FLA immediately before date of first splittable payment
= $182,118 ÷ $344,000
= 0.53

(Note: The figures for the base amount ($182,118, up from $180,000) and account balance ($344,000, up from $340,000) have increased in the same proportion between the operative time and the date of the first splittable payment because of increases in the account balance of the account-based product.)

MPROP = 1 − 0.53
= 0.47

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
= $400,000 − 0
= $400,000

4

Calculate NPP of primary FLA (MNPP) as follows:

MNPP = MPROP × NPP
= 0.47 × 400,000
= $188,000

5

Calculate deduction amount for member's primary FLA (MDA) as follows:
MDA = MNPP ÷ RN
= 188,000 ÷ 15.41
= $12,200

6

Assessable income (Henry)
= $12,700 − $12,200
= $500

Last reviewed: 1 July 2019