4.9.8.10 Specific provisions for assessing income streams

Introduction

This topic contains specific provisions for assessing income streams. It covers:

• transfer of an income stream to a reversionary beneficiary
• treatment of lump sum arrears payments where the person's notifiable event is the date of claim
• treatment of lump sum arrears payments where the person's notifiable event is the date of notice of the arrears payment
• waiver of debt incurred from the assessment of a lump sum arrears payment during a bereavement period
• regular disability benefits paid from superannuation funds
• pre-assessment payments from the Commonwealth Superannuation Corporation (ComSuper)
• treatment of an income stream paid into, and subsequently paid from a trust
• treatment of an income stream following a change in ownership structure
• successor funds
• abatements
• transition to retirement income streams
• commutation from an income stream.

For information on joint income streams refer to 4.9.2.50.

Transfer of an income stream to a reversionary beneficiary

Income stream products may allow benefits to transfer to specified beneficiaries, called reversionary beneficiaries. Each product provider or fund has its own rules covering:

• who can be a reversionary beneficiary
• whether the benefit can be paid as a lump sum or an income stream to that beneficiary
• when payments can commence to the reversionary beneficiary, and
• the process for verifying that the primary beneficiary has died.

Generally, the 'transferred' or 'reverted' income stream will be assessed in the hands of the new 'owner' based on their characteristics and the characteristics of the income stream.

Where an income stream continues to be paid to a reversionary beneficiary after the death of the primary beneficiary, it will continue to have the same commencement day, purchase price and relevant number as the original income stream. Asset-tested income streams (lifetime) that revert may have a different assessment day (1.1.A.280) or threshold day (1.1.T.101) from the original income stream.

The reversionary beneficiary will begin to receive payments from the income stream from the date that they become entitled to it, and it is from this date that they will be assessed for social security purposes as receiving payments. In effect, this will be from when the product provider/trustee determines that the reversionary beneficiary is entitled to the income stream under the trust deed, governing rules or contract. For social security means test purposes, this will take effect in accordance with the date of effect provisions of the SS(Admin)Act.

Note: Generally, the reversionary beneficiary will receive lump sum payment of the arrears that have accrued between the death of the primary beneficiary and when the reversionary beneficiary starts to receive payments. For social security purposes, these lump sum payments are assessed as income over the period to which it relates (to the extent that the reversionary beneficiary expects to receive those payments, and the relevant notification rules apply).

For spouses, bereavement provisions apply.

Treatment of lump sum arrears payments where the person's notifiable event is the date of claim

A lump sum arrears payment from a superannuation fund prior to commencing regular ongoing income stream payments is assessed as income over the period in which it relates, under SSAct Part 3.10 Division 1C. The period in which the income stream assessment applies starts from the date that the person applied to start receiving their income stream. This is because the person would be eligible for their income stream payment from the date of their application and this constitutes a notifiable event or change of circumstances that might affect the person's social security payment. This may result in a debt for that period if the recipient has been in receipt of an income support payment during that period.

Exception: Where the income stream is an invalidity or total and permanent disability (TPD) benefit, the date from which the income assessment applies is the date the person was notified by their superannuation fund about the approval of their invalidity or TPD pension. It is not the date that they applied for the invalidity or TPD benefit. See 'Treatment of lump sum arrears payments where the person's notifiable event is the date of notice of the arrears payment'

Treatment of lump sum arrears payments where the person's notifiable event is the date of notice of the arrears payment

A lump sum payment may arise where a person is back paid for past periodic payments, for example, a lump sum back payment of income stream relating to a period the income stream was suspended.

Such lump sum payments that are made up of past periodic payments, where the recipient did not have notification obligations during the relevant past period, are apportioned, going forward, over a period the Secretary determines, not exceeding 12 months, in equal daily amounts. The Secretary will usually determine the period over which the lump sum is apportioned with reference to the past period to which the lump sum relates. The lump sum is apportioned from the day the person receives the lump sum until the end of the relevant period going forward, not exceeding 12 months.

This does not apply to lump sums that are remunerative, one-off, non-periodical, or an exempt lump sum.

Waiver of debt incurred from the assessment of a lump sum arrears payment during a bereavement period

Where an income stream transfers from a deceased income support recipient to their partner or spouse and the surviving partner or spouse receives lump sum arrears for the period between death and when the income stream ongoing regular payments commence, the lump sum arrears payment is assessed as income stream income over the period to which it relates. This may result in a debt for that period for the surviving partner or spouse if they have been in receipt of an income support payment.

Where bereavement provisions apply, such debts arising during the bereavement period for the surviving partner or spouse can be waived under the Social Security (Waiver of Debts - Bereavement Period) Specification 2017.

Note: Any debt outside the 14 week bereavement period cannot be waived under the legislative instrument.

Regular disability benefits paid from superannuation funds

Salary continuance or income protection benefits

A regular disability benefit paid as a series of ongoing payments by a superannuation fund where the payment is based on a person's entitlement from an insurance policy (whether purchased by the superannuation fund on the person's behalf, by their union, or by their employer) is NOT an income stream and is assessed as ordinary income. These benefits are also known as salary continuance benefits or income protection benefits.

Where an income protection payment is offset, the amount to be assessed as ordinary income is the 'gross amount, including tax but less any offset/s, payable to the person'.

Invalidity or TPD benefits

An invalidity or TPD benefit paid as a lifetime pension is assessed as an income stream. Payments from the income stream are assessed from the date the person was notified by their superannuation fund about the approval of their invalidity or TPD pension. It is not the date that the person applied for the invalidity or TPD benefit.

Pre-assessment payments from the Commonwealth Superannuation Corporation (ComSuper)

Pre-assessment payments are paid to injured workers who have exhausted all paid personal leave and have submitted his or her invalidity retirement request to ComSuper, but are awaiting a decision from ComSuper.

These payments, whether paid by way of lump sum or paid periodically, are assessed under the compensation rules.

Treatment of an income stream paid into & subsequently paid from a trust

An income stream paid to a trust (e.g. discretionary or testamentary trust) is NOT an income stream for social security purposes. It is assessed under the Trusts and Companies rules (4.12) where the payments from the income stream are assessed as trust income and no income deduction is allowed for the income stream.

Note: This assessment will not change if the superannuation fund or product provider pays the income stream payments directly to the income support recipient because the trust still retains ownership of the income stream.

Treatment of an income stream following a change in ownership structure

Where an income support recipient was previously receiving income from an income stream through an entity (or some other structure) and the ownership structure changes so that the income support recipient now owns the income stream and starts to receive the income payments directly, the income support recipient will be assessed as commencing a new income stream from the date the ownership changed. In effect, the income stream will be treated as if there was a commutation into a new income stream from the date of the ownership change. The income stream will be assessed as having a commencement day on the date of the ownership change. The income stream provider will need to advise Services Australia (Centrelink) of a new purchase price equal to the present value of the income stream on the new commencement day (4.9.3.10). The relevant number (1.1.R.135) will be determined on the basis of the new commencement day.

Note: Where the life office pays the income stream payments directly to the income support recipient, but the trust still retains ownership of the income stream, the income payments will be assessed as being income from the trust.

Successor funds

A successor fund, in relation to a transfer of benefits of a member from one superannuation fund to another, means a fund which satisfies the following conditions:

• the fund confers on the member equivalent rights to the rights that the member had under the original fund in respect of the benefits, and
• before the transfer, the trustee of the new fund has agreed with the trustee of the original fund that the fund will confer on the member equivalent rights to the rights that the member had under the original fund in respect of the benefits.

Where the fund is a successor fund, then the transfer of the right to an income stream continues with the same commencement day, relevant number and deduction amount. This is on the basis that the person in receipt of the income stream has not exercised any right in relation to the income stream at the time of transfer. The original purchase price also remains unchanged. Successor fund transfers would also not impact any grandfathering arrangements applied to the income stream.

Abatements

An abatement occurs when an employee (1.1.E.87) takes additional units of superannuation, but CANNOT pay the full amount due at the time of their retirement. The amount is repaid over a number of years after retirement by annually deducting a lump sum before the superannuation is made available. During the time an abatement is in effect, the abatement amount is NOT income and NOT included in the gross payment for income test purposes.

Transition to retirement income streams

From 1 July 2005, SIS Regulations allow a person who has reached their preservation age to access their superannuation through an income stream without having to retire permanently from the workforce. Access to superannuation benefits may only be allowed as:

• a non-commutable complying income stream (complying lifetime, life expectancy, or market-linked income stream), or
• a non-commutable allocated (or account based) income stream (with restrictions on the ability to commute a lump sum).

These income streams are also known as transition to retirement income streams.

Services Australia (Centrelink) and DVA are not required to take any special action with regard to the processing of income streams purchased before retirement by income support recipients. These income streams will be assessed under the same rules and processed in the same way as income streams purchased after retirement.

Consequently, if the income support recipient purchases a transition to retirement account based income stream, it is assessed like a normal account based income stream. For the means test assessment, refer to 4.9.3.30.

Commutation from an income stream

Any lump sum amounts commuted from an income stream are not assessed as income. Further means test assessment may be necessary depending on how the income support recipient uses the withdrawn amount.

Lump sum amounts commuted from an income stream that do not meet the requirements at section 9(1) (e.g. income streams from overseas) are assessable as income for 12 months under section 1073 unless the person can show that the amount withdrawn consists ENTIRELY of the person's own contributions and returns on those contributions.

• For information about assessment of overseas income streams, see 4.3.9.70.
• For information about arrears and lump sums from comparable foreign payments, see 4.3.6.10.