4.9.2.17 Retention of asset test exemption for ATE income streams purchased from 20/09/2004, or from 20/09/2007

Summary

This topic explains the relief granted to certain ATE lifetime, life expectancy or market-linked income streams purchased from 20 September 2007, from the commutation of an ATE income stream purchased prior to 20 September 2007 under the conditions outlined below.

This topic covers:

• overview
• conditions for relief
• additional sets of conditions.

Overview

ATE income streams purchased prior to 20 September 2004 are eligible for a 100% asset test exemption. However, from 20 September 2004 to 19 September 2007, purchased ATE income streams are only eligible for a 50% asset test exemption. Income streams purchased from 20 September 2007 will not receive an asset test exemption.

There are a LIMITED number of situations, where a recipient who commutes an income stream and uses the commuted amount to purchase a new income stream may retain the 100% or 50% exemptions held by the original income stream. To qualify for the 100% or 50% asset test exemption, the original income stream must satisfy the 'PRIMARY CONDITIONS FOR RELIEF' as well as one of the 'ADDITIONAL SETS OF CONDITIONS', set out below.

Note:

• Pre-20 September 2004 ATE income streams must satisfy the conditions outlined in 4.9.2.10, ATE income streams purchased from 20 September 2004 and before 20 September 2007 must satisfy the conditions outlined in 4.9.2.15.
• Along with other ATE income streams purchased from 20 September 2004 and before 20 September 2007, market-linked income streams may qualify for retention of the 50% exemption.
• Treatment of joint ATE income streams will be consistent with that for 'single' ATE income streams. A joint ATE income stream will be eligible for relief where it satisfies the requirements specified below for ONE of the joint beneficiaries.
• Where a new income stream does not meet the requirements for retention of the exemption, the income stream will become fully asset tested.
• The original income stream must be commuted in full and the entire commuted amount rolled over to the new income stream. A partial commutation can only be made to effect an income stream payment split, to pay a superannuation contributions surcharge debt or to pay a hardship amount. Where an existing income stream is commuted in full to meet these payments, that part of the commuted amount not used to meet the liability must be rolled over to the new income stream.

Primary conditions for relief - 100% exemption

To be eligible for relief, (i.e. for the new income stream to continue to receive a 100% asset test exemption), the original income stream must be:

• a lifetime or life expectancy ATE income stream (satisfies SSAct section 9A or 9B), AND
• purchased prior to 20 September 2004, AND
• commuted in full to purchase a new income stream that satisfies SSAct section 9A or 9B (4.9.2.15), as they applied before 20 September 2007.

Note: A partial commutation is only allowed for payment due to income stream payment split (Additional condition 6), payment of a superannuation contribution surcharge debt (Additional condition 7), or payment for a hardship amount (Additional condition 8). Where an existing income stream is commuted in full to meet these payments, that part of the commuted amount not used to meet the liability must be rolled over to the new income stream.

Primary conditions for relief - 50% exemption

There are 2 sets of primary conditions depending on the type of income stream.

Condition 1

To be eligible for relief, (i.e. for the new income stream to continue to receive a 50% asset test exemption), the original income stream must be:

• a lifetime or life expectancy ATE income stream (satisfies SSAct section 9A or 9B), AND
• purchased from 20 September 2004 and before 20 September 2007, AND
• commuted in full to purchase a new income stream that satisfies SSAct section 9A , 9B, or 9BA (4.9.2.15), as they applied before 20 September 2007.

Condition 2

To be eligible for relief, the income stream must be:

• a market-linked partially ATE income stream (satisfies SSAct section 9BA), AND
• commuted in full to purchase a new income stream that satisfies SSAct section 9BA, as it applies before 20 September 2007.

Note:

• A partial commutation is only allowed for payment due to income stream payment split (Additional condition 6), payment of a superannuation contribution surcharge debt (Additional condition 7), or payment for a hardship amount (Additional condition 8). Where an existing income stream is commuted in full to meet these payments, that part of the commuted amount not used to meet the liability must be rolled over to the new income stream.
• An exception to the primary condition (Additional condition 11) applies where a market-linked partially ATE income stream (satisfies SSAct section 9BA) is fully commuted to purchase a lifetime or life expectancy ATE income stream (satisfies SSAct section 9A or 9B) due to the closure of an SMSF.

Additional sets of conditions for ATE lifetime, life expectancy & market-linked income streams

In ADDITION to the above, ONE of the following sets of conditions must also be met.

Additional condition 1

For lifetime, life expectancy or market-linked income streams where the reversionary beneficiary dies before the primary beneficiary, the original income stream must:

• have been purchased by the primary beneficiary for the benefit of the primary and reversionary beneficiary, AND
• have had its payments calculated on the basis of the life expectancy of the reversionary beneficiary.

Note 1: The original income stream must be fully commuted and rolled over to the new income stream.

Note 2: This exemption is ONLY allowed ONCE, except in circumstances where an original ATE income stream purchased before 20 September 2004 has been commuted between 20 September 2004 and 19 September 2007 (inclusive) on the death of the reversionary partner. If the primary beneficiary subsequently re-partners, and then commutes the second income stream on or after 20 September 2007 to purchase a new income stream based on the new reversionary partner's life expectancy, the assets test exemption held by the third income stream can be retained.

Additional condition 2

For lifetime, life expectancy or market-linked income streams where the primary and reversionary beneficiary divorce or separate, the original income stream must:

• have been purchased by the primary beneficiary for the benefit of the primary beneficiary and a reversionary beneficiary who, at the time of purchase, are members of a couple together (as defined in the SSAct), AND
• the primary beneficiary and reversionary beneficiary are no longer members of a couple together.

Note 1: The original income stream must be fully commuted and rolled over to the new income stream.

Note 2: This exemption is ONLY allowed ONCE, except in circumstances where an original ATE income stream purchased before 20 September 2004 has been commuted between 20 September 2004 and 19 September 2007 (inclusive) where the partners are no longer together. If the primary beneficiary subsequently re-partners, and then commutes the second income stream on or after 20 September 2007 to purchase a new income stream based on the new reversionary partner's life expectancy, the assets test exemption held by the third income stream can be retained.

Note 3: Unless the original income stream is subject to a payment split arising from a Family Court order or a superannuation agreement under Family Law Act 1975 Part VIIIAA or Part VIIIB, the original income stream must be commuted in full and all of the commuted amount must be used to purchase the new income stream.

Note 4: For income streams affected by payment splitting following partnership breakdown by the Family Court or a superannuation agreement under Family Law Act 1975 Part VIIIAA or Part VIIIB, please refer to Additional condition 6 below.

Additional condition 3

For lifetime and life expectancy income streams paid from SMSFs and SAFs where the original income stream is:

• a defined benefit pension as defined in the Superannuation Industry (Supervision) Act 1993, BUT
• does not satisfy SSAct section 9A(1)(b) or 9B(1A)(b) (i.e. the income stream does not satisfy the high probability requirements specified in 4.9.4.40).

Note 1: The original income stream must be fully commuted and rolled over to the new income stream.

Note 2: This exemption is ONLY allowed ONCE.

Note 3: SSAct section 9A(1)(b) and 9B(1A)(b) require, in relation to an income stream, that there be in force a current actuarial certificate stating that in the actuary's opinion there is a high probability that the provider of the income stream will be able to pay the income stream as required under the income stream's contract or the funds governing rules.

Note 4: Lifetime and life expectancy ATE income streams sourced from an SMSF or SAF, that are purchased prior to 20 September 2004 and subsequently are fully commuted including the reserves and rolled over from 1 January 2006 as a result of failure to meet the high probability requirement will retain the 100% exemption only if the commuted assets including the reserves are used to purchase:

• a lifetime or life expectancy ATE annuity (from the statutory fund of a life office or the benefit fund of a friendly society) that is used to source the income stream payments from the SMSF or SAF, or
• a lifetime or life expectancy ATE income stream from a retail superannuation fund that meets the requirements specified for offering these products.

Note 5: Lifetime and life expectancy ATE income streams, sourced from an SMSF or SAF, that are purchased from 20 September 2004 and before 20 September 2007, and are subsequently fully commuted including the reserves and rolled over from 1 January 2006 as a result of failure to meet the high probability requirement will retain the 50% exemption only if the commuted assets including the reserves are used to purchase:

• a market-linked income stream, or a lifetime or life expectancy ATE annuity (from the statutory fund of a life office or the benefit fund of a friendly society) that is used to source the income stream payments from the SMSF or SAF, or
• a market-linked income stream, or a lifetime or life expectancy ATE income stream from a retail superannuation fund that meets the requirements specified for offering these products, or
• a market-linked income stream from the SMSF or SAF.

Additional condition 4

For lifetime and life expectancy income streams paid from life companies where the income stream:

• is an immediate annuity under a statutory fund established by a life company, or under a benefit fund established by a friendly society, BUT
• does not satisfy SSAct sections 9A(1)(b) or 9B(1A)(b), OR fails to satisfy the standards set out in Actuarial Standard 4.02 published by the Life Insurance Actuarial Standards Board.

Note 1: The original income stream must be fully commuted and rolled over to the new income stream.

Note 2: The exemption is ONLY allowed ONCE.

Note 3: SSAct section 9A(1)(b) and 9B(1A)(b) require, in relation to an income stream, that there be in force a current actuarial certificate stating that in the actuary's opinion there is a high probability that the provider of the income stream will be able to pay the income stream as required under the income stream's contract or governing rules. This is mirrored by the requirements of the Life Insurance Actuarial Standard Board.

Additional condition 5

For lifetime, life expectancy or market-linked income streams transferred to a successor fund (4.9.8.10), the original income stream must:

• not be paid from an SMSF or SAF, AND
• be transferred, on or after 20 September 2004 to a successor fund, and a new income stream results from the transfer.

Note: If the original income stream meets this condition, there is no limitation to the number of times that it can be commuted for this purpose and still receive:

• a 100% exemption, provided the original ATE income stream is purchased or acquired before 20 September 2004
• a 50% exemption, provided the original ATE income stream is purchased or acquired from 20 September 2004 and before 20 September 2007.

Additional condition 6

For lifetime, life expectancy or market-linked income streams where the primary beneficiary and their spouse or partner divorce or separate, the ORIGINAL income stream was commuted to give effect to:

• an entitlement of the partner (or former partner) of the primary beneficiary in respect of the original income stream under a payment split under Family Law Act 1975 Part VIIIB, OR
  • Explanation: Family Law Act 1975 Part VIIIB refers to income streams that have been purchased or acquired from a superannuation fund, or from a life office or friendly society, using superannuation money.
• a court order made under Family Law Act 1975 section 79 or 114, or an injunction granted under Family Law Act 1975 section 114, that is binding on a third party under Family Law Act 1975 Part VIIIAA.
  • Explanation: This refers to income streams that are purchased with non-superannuation money or income streams that are paid directly from a life office or friendly society statutory fund.

Note 1: The original income stream can be commuted partially to make the payment split.

Note 2: If the original income stream meets this condition, there is no limitation to the number of times that it can be commuted to meet this payment and still receive:

• a 100% exemption, provided the original ATE income stream is purchased or acquired before 20 September 2004
• a 50% exemption, provided the original ATE income stream is purchased or acquired from 20 September 2004 and before 20 September 2007.

Additional condition 7

The ORIGINAL income stream was commuted to pay a superannuation contributions surcharge debt.

Note 1: The original income stream can be commuted partially to make this payment.

Note 2: If the original income stream meets this condition, there is no limitation to the number of times that it can be commuted to meet this payment and still receive:

• a 100% exemption, provided the original ATE income stream is purchased or acquired before 20 September 2004
• a 50% exemption, provided the original ATE income stream is purchased or acquired from 20 September 2004 and before 20 September 2007.

Additional condition 8

The ORIGINAL income stream was commuted to pay a hardship amount.

Note 1: The original income stream can be commuted partially to make this payment.

Note 2: If the original income stream meets this condition, there is no limitation to the number of times that it can be commuted to meet this payment and still receive:

• a 100% exemption, provided the original ATE income stream is purchased before 20 September 2004
• a 50% exemption, provided the original ATE income stream is purchased from 20 September 2004 and before 20 September 2007.

Additional condition 9

The ORIGINAL income stream was commuted, or the contract or governing rules covering the income stream, are altered to meet the requirements specified in 6.21(2A) of the Superannuation Industry (Supervision) Regulations 1994 that from 1 July 2007 an income stream may revert only to a dependant of the income stream recipient and, in the case of a child, the child must:

• be less than 18 years old, or
• if 18 years or older
  • be financially dependent on the member and less than 25 years of age, or
  • have a disability as described in Disability Services Act 1986 subsection 8(1).

The following conditions must also apply:

• the original ATE income stream was purchased before 1 July 2007, and
• the income stream is being fully commuted to purchase a new income stream that satisfies SSAct section 9A, 9B or 9BA (4.9.2.15), as they applied before 20 September 2007.

Note: This exemption is ONLY allowed ONCE. The new income stream receives:

• a 100% exemption, provided it was purchased from the commutation of an original ATE income stream purchased before 20 September 2004
• a 50% exemption, provided it was purchased from the commutation of an original ATE income stream purchased from 20 September 2004 and before 20 September 2007.

Additional condition 10

For an asset-test exempt market-linked income stream resulting from the commutation and rollover of ALL the assets supporting another asset-test exempt market-linked income stream, where the new income stream is covered by SSAct section 9BA or would have been covered by that section if SSAct subparagraph 9BA(1)(a)(i) did not apply.

The original income stream must also have been covered by SSAct section 9BA.

Note: Market-linked income streams are limited to a 50% exemption only.

Additional condition 11

The ORIGINAL income stream was commuted by the provider AND a new income stream has been purchased or acquired because of the commutation AND satisfies the following conditions:

• the original income stream was sourced from a regulated superannuation fund or sub-fund, AND
• the newly purchased income stream satisfies the definitions in sections 9A or 9B of the SSAct, or would have satisfied section 9A or 9B of the SSAct if paragraph 9A(1)(aa) or subparagraph 9B(1)(a)(i) of the SSAct did not apply.

Note 1: This condition does not apply in instances where the original income stream has been commuted as a result of the closure of a self-managed superannuation fund.

Note 2: This condition does not apply where an individual chooses to commute or close their account. It is for where the person has had no agency over the closure of their fund and their circumstances have not otherwise changed.

Note 3: If the original income stream meets this condition, there is no limitation to the number of times that it can be commuted to meet this payment and still receive:

• a 100% exemption, provided the original ATE income stream is purchased or acquired before 20 September 2004
• a 50% exemption, provided the original ATE income stream is purchased or acquired from 20 September 2004 and before 20 September 2007.

Additional condition 12

Where a primary beneficiary purchases a new asset-test exempt income stream following the closure of an SMSF because:

• a member of the fund supporting the original income stream has died, or
• the administrative responsibilities of the fund supporting the original income stream have become too onerous due to the age or incapacity of a trustee, and
• the new income stream
  • is purchased using ALL the assets, including reserves, from the commutation of the original asset-test exempt income stream sourced from the self-managed superannuation fund that has been closed, and
  • is covered by
    • SSAct section 9A or 9B (if the original ATE income stream was purchased prior to 20 September 2004), or would have been covered by those sections if paragraph 9A(1)(aa) or subparagraph 9B(1)(a)(i) of the SSAct did not apply, or
    • SSAct section 9A or 9B or 9BA (if the original ATE income stream was purchased from 20 September 2004 and before 20 September 2007), or would have been covered by those sections if SSAct paragraph 9A(1)(aa), or subparagraph 9B(1)(a)(i), or 9BA(1)(a)(i), did not apply.

Note: This exemption is ONLY allowed ONCE. The new income stream receives:

• a 100% exemption, provided it was purchased from the commutation of an original ATE income stream purchased before 20 September 2004
• a 50% exemption, provided it was purchased from the commutation of an original ATE income stream purchased from 20 September 2004 and before 20 September 2007.