4.9.2.25 Asset Test Assessment of ATE Income Streams Purchased from 20/09/2004 & before 20/09/2007
Summary
This topic explains the assets test assessment of ATE income streams purchased on or after 20 September 2004 and before 20 September 2007. It covers:
- general assets test rules,
- asset value of lifetime and life expectancy income streams, and
- asset value of market-linked income streams.
General assets test rules
Lifetime and life expectancy ATE income streams purchased on or after 20 September 2004 and before 20 September 2007 receive a 50% asset test exemption, unless they are granted relief as specified in 4.9.2.17.
Market-linked ATE income streams purchased on or after 20 September 2004 and before 20 September 2007 can only receive a 50% asset test exemption.
Note: Lifetime, life expectancy and market-linked ATE income streams purchased on or after 20 September 2007 will not receive an asset test exemption, unless they are granted relief under provisions specified in 4.9.2.17.
The following table shows when the asset value is determined:
| If an income stream pays a recipient… | Then the asset value is determined… |
|---|---|
| once per income year, | once a year at the start of the contract year. |
| MORE than once per income year, | twice a year at the start of each 6 month period. |
Note: Purchase price is the sum of payments made to purchase the income stream LESS any commutations.
Asset value of lifetime & life expectancy income streams
The asset value is determined using the following formula:
- 50% of [purchase price (1.1.P.500) − [purchase price × (term elapsed ÷ relevant number)]
Where the term 'elapsed' is the number of years that have elapsed since the income stream's commencement day. The number of years is rounded down to the nearest:
- half-year, when the asset value is determined on a 6 monthly basis, OR
- whole year when the asset value is determined annually.
Example 1: Sally is 65 years old and single. On 1 January 2005, she purchases a lifetime ATE annuity for $100,000. Her life expectancy at purchase is 21.15 based on 2000-02 ALT. Monthly payments commence on 1 January. Her assessable asset is shown in the table below.
| Assessment date | Assessable asset |
|---|---|
| 1 January 2005 |
= 50% × $100,000 = $50,000 |
| 1 July 2005 |
= 50% × [$100,000 − [$100,000 × (0.5 ÷ 21.15)]] = 50% × $97,636 = $48,818 |
| 1 January 2006 |
= 50% × [$100,000 − [$100,000 × (1 ÷ 21.15)]] = 50% × $95,272 = $47,636 |
| 1 July 2006 |
= 50% × [$100,000 − [$100,000 × (1.5 ÷ 21.15)]] = 50% × $92,908 = $46,454 |
Example 2: Paul is 67 years old and single. On 1 January 2005, he purchases a life expectancy ATE annuity for $100,000. He selects a term of 20 years, which is the maximum term allowed. Monthly payments commence on 1 January. His assessable asset is shown in the table below.
| Assessment date | Assessable asset |
|---|---|
| 1 January 2005 |
= 50% × $100,000 = $50,000 |
| 1 July 2005 |
= 50% × [$100,000 − [$100,000 × (0.5 ÷ 20)]] = 50% × $97,500 = $48,750 |
| 1 January 2006 |
= 50% × [$100,000 − [$100,000 × (1 ÷ 20)]] = 50% × $95,000 = $47,500 |
| 1 July 2006 |
= 50% × [$100,000 − [$100,000 × (1.5 ÷ 20)]] = 50% × $92,500 = $46,250 |
Act reference: SSAct section 9(1)-'commencement day'
Policy reference: SS Guide 1.1.P.500 Purchase price, 4.9.2.15 Characteristics of Asset-Test Exempt Income Streams Purchased from 20/09/2004 & before 20/09/2007, 4.9.5.46 Table of life expectancy - payments commenced on or after 01/01/2005 to 31/12/2009
Asset value of market-linked income streams
For a market-linked ATE income stream, the assessable asset is 50% of the current account balance.
Note: If a market-linked income stream loses ATE status then it will be 100% asset tested as specified in 4.9.3.20.
Policy reference: SS Guide 1.1.P.500 Purchase price, 4.9.2.15 Characteristics of Asset-Test Exempt Income Streams Purchased from 20/09/2004 & before 20/09/2007, 4.9.3.20 Assets test assessment of asset-tested income streams, 4.9.5.46 Table of life expectancy - payments commenced on or after 01/01/2005 to 31/12/2009