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4.9.6.30 Percentage payment splits - non-defined benefit income streams (non-account-based)

Summary

This topic covers:

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

ATE income streams purchased prior to 20 September 2004 are eligible for a 100% assets test exemption. Therefore, no asset is assessed for ATE income streams purchased pre-20 September 2004.

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

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

Ascertain the percentages in the payment split (e.g. 60%-40%).

Also ascertain gross income for member (primary FLA) and non-member (secondary FLA) respectively.

The percentages indicate the proportions (member proportion (MPROP), non-member proportion (NMPROP)) in which the member's original interest is apportioned respectively between the member and the non-member.
2

Calculate NPP (1.1.N.135) of original FLA (1.1.O.35) at operative time (1.1.O.25).

  • NPP of original FLA at operative time = purchase price of original FLA at commencement day − any commutations prior to operative time.
3

Calculate NPP at operative time for primary FLA (1.1.P.385) and secondary FLA (1.1.S.65) respectively as follows:

  • NPP of primary FLA at operative time (member notional purchase price (MNPP)) = MPROP × NPP of original FLA at operative time
  • NPP of secondary FLA at operative time (non-member notional purchase price (NMNPP)) = NMPROP × NPP of original FLA at operative time

Where:

  • MPROP is the proportion of original FLA awarded to the member at the operative time, and
  • NMPROP is the proportion of original FLA awarded to the non-member at the operative time.
4

Calculate deduction amounts for primary FLA and secondary FLA respectively as follows:

  • Member (deduction amount) = NPP of primary FLA at operative time ÷ RN
  • Non-member (deduction amount) = NPP of secondary FLA at operative time ÷ RN

Where:

  • RN is the relevant number (1.1.R.135) of the original FLA at its commencement day (1.1.C.205).
5 Reduce gross income from primary FLA and secondary FLA by the respective deduction amounts.

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

The member may commute part of the original income stream after the operative time. The family law provisions require that such commuted amounts be apportioned between the primary FLA and the secondary FLA in the percentages specified in the original 'percentage payment split'.

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

Where income streams purchased from 20 September 2004 to 19 September 2007 satisfy SSAct section 9A or 9B, they will receive a 50% assets test exemption unless they are granted relief as specified in 4.9.2.17.

Calculate assessable asset values for member (primary FLA) and non-member (secondary FLA) respectively using the formula below.

Step Description
1

Ascertain the percentages awarded to the member and the non-member in the payment split (e.g. 60% - 40%).

The percentages indicate the proportions (MPROP, NMPROP) in which the member's original superannuation interest is apportioned respectively between the member and the non-member.
2

Calculate NPP of original FLA at operative time.

  • NPP of original FLA at operative time = purchase price of original FLA at commencement day − any commutations prior to operative time.
3

Calculate NPP at the operative time for the primary FLA and secondary FLA respectively using the formula:

  • NPP of primary FLA at operative time (MNPP) = MPROP × NPP of original FLA at operative time
  • NPP of secondary FLA at operative time (NMNPP) = NMPROP × NPP of original FLA at operative time

Where:

  • MPROP is the proportion of original FLA awarded to the member at the operative time, and
  • NMPROP is the proportion of original FLA awarded to the non-member at the operative time.
4

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

  • Member asset = MNPP − {[MNPP ÷ RN] × term elapsed} × 50%
  • Non-member asset = NMNPP − {[NMNPP ÷ RN] × term elapsed} × 50%

Where:

  • MNPP, NMNPP are the NPPs for each split income stream
  • RN is the relevant number of the original FLA at its commencement day, and
  • 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 SSAct section 1119(4)
    • in the case of an income stream that makes only one 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.

ATE income streams purchased from 20 September 2004 to 19 September 2007 - subsequent reviews of primary & secondary FLA income stream asset values

As 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 new primary and/or secondary FLA income streams is dated from the previous review date for the original FLA, i.e. not the operative time when the payment split occurred.

Note: For ATE income streams purchased from 20 September 2004 to 19 September 2007 the asset value of both member and non-member should be halved, (i.e. only 50% is assets test exempt).

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

The member may commute part of the original income stream after the operative time. The family law provisions require that such commuted amounts be apportioned between the primary FLA and the secondary FLA in the percentages resulting from the original percentage payment split.

The NPP for each member and non-member will be reduced by his or her share of the commutation, with consequent adjustments to the member's and non-member's asset value.

ATE income streams purchased on or after 20 September 2004 - income test assessment

The calculation of the assessable income for member (primary FLA) and non-member (secondary FLA) is the same as for 'ATE income streams purchased pre-20 September 2004'.

ATE income streams purchased on or after 20 September 2004 - subsequent commutation made by member (income test assessment)

The member may commute part of the original income stream after the operative time. The family law provisions require that such commuted amounts be apportioned between the primary FLA and the secondary FLA in the percentages specified in the original percentage payment split.

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.

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

Calculate assessable asset values for member (primary FLA) and non-member (secondary FLA) respectively as follows:

Step Description
1

Ascertain the percentages awarded to the member and the non-member in the payment split (e.g. 60% - 40%).

The percentages indicate the proportions (MPROP, NMPROP) in which the member's original interest is apportioned respectively between the member and the non-member.
2

Calculate NPP of original FLA at operative time.

  • NPP of original FLA at operative time = purchase price of original FLA at commencement day − any commutations prior to operative time.
3

Calculate NPP at the operative time for the primary FLA and secondary FLA respectively using the formula:

  • NPP of primary FLA at operative time (MNPP) = MPROP × NPP of original FLA at operative time
  • NPP of secondary FLA at operative time (NMNPP) = NMPROP × NPP of original FLA at operative time

Where:

  • MPROP is the proportion of original FLA awarded to the member at the operative time, and
  • NMPROP is the proportion of original FLA awarded to the non-member at the operative time.
4

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

  • Member asset = MNPP − {[(MNPP − MRCV) ÷ RN] × term elapsed}
  • Non-member asset = NMNPP − {[ (NMNPP − NMRCV) ÷ RN] × term elapsed}

Where:

  • MNPP, NMNPP are the NPPs for each split income stream
  • MRCV, NMRCV are the RCVs for each split income stream (unless advised otherwise, RCVs for each income stream will be calculated by splitting the RCV for the original FLA in the proportions resulting from the percentage payment split, e.g. 60%-40%)
  • RN is the relevant number of the original FLA at its commencement day, and
  • 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 SSAct section 1119(4)
    • in the case of an income stream that makes only one 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 streams (long term) - subsequent review of primary & secondary FLA income stream asset values

As 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 new primary and/or secondary FLA income streams 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 streams (long term) - subsequent commutations made by member (assets test assessment)

The member may commute part of the original income stream after the operative time. The family law provisions require that such commuted amounts be apportioned between the primary FLA and the secondary FLA in the proportions resulting from the original percentage payment split.

The NPP for each member and non-member will be reduced by his or her share of the commutation, with consequent adjustments to the member's and non-member's asset value.

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

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

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

Calculate deduction amount for primary FLA and secondary FLA respectively using the formula:

  • Member (deduction amount) = NPP of primary FLA at operative time ÷ RN
  • Non-member (deduction amount) = NPP of secondary FLA at operative time ÷ RN

Where:

  • RN is the relevant number of the original FLA at its commencement day.
3 Reduce gross income from primary FLA and secondary FLA respectively by the deduction amount calculated for each income stream.

Asset-tested income streams (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 require that such commuted amounts be apportioned between the primary FLA and the secondary FLA in the percentages specified in the original percentage payment split.

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 XYZ super fund on 1 January 1998. His income stream is assessed by Centrelink as an 'asset-tested income stream (long term)'.

Purchase price = $100,000

Term = 20 years

Pension payments = $9,000 p.a. (paid monthly)

RCV = Nil

5 years after purchasing his income stream, Henry and Wilma get divorced.

Court orders a percentage payment split with 60% of payments going to Henry and 40% of payments going to Wilma. No commutations were made from the income stream between the commencement date and the operative time. Operative time is 1 January 2003.

Under the payment split, Henry receives a primary FLA income stream with annual payments of $5,400 and Wilma receives a secondary FLA income stream with payments of $3,600. These amounts are advised to Centrelink by the trustee.

Assets test

Step Description
1

Henry's proportion of the payment split is 60%.

Wilma's proportion of the payment split is 40%.
2

Calculate the NPP of the original FLA income stream (original FLA) at the operative time.

As no commutations were made from the commencement date up to the operative time, the NPP of the original FLA income stream is $100,000.
3

Calculate the NPP for the primary FLA (member) and secondary FLA (non-member) income stream at the operative time.

MNPP (Henry)
= MPROP × NPP of the member income stream at the 'operative time'
= 0.60 × 100,000
= 60,000 (Henry's NPP at the operative time)

NMNPP (Wilma)
= MPROP × NPP of the member income stream at the operative time
= 0.40 × 100,000
= 40,000 (Wilma's NPP at the operative time).
4

Calculate the asset values for the member (primary FLA income stream) and non-member (secondary FLA income stream) at the operative time:

member asset value = 60,000 − {[(60,000 − 0) ÷ 20] × 5}
= $45,000

non-member asset value = 40,000 − {[(40,000 − 0) ÷ 20] × 5}
= $30,000.

In the above example:

  • the asset value of Henry's split income stream at the operative time is $45,000,
  • the asset value of Wilma's income stream at the operative time is $30,000.

Income Test

Step Description
1 As per advice by the fund trustee, Henry's new gross annual payment is $5,400 (primary FLA). Wilma's gross annual payment (secondary FLA) is $3,600.
2

Calculate the deduction amount for each split income stream:

Member deduction amount = $60,000 ÷ 20 = $3,000

Non-member deduction amount = $40,000 ÷ 20 = $2,000

Henry's new deduction amount is $3,000.

Wilma's deduction amount is $2,000.
3

Calculate the assessable income by using the formula:

Henry has assessable income of $5,400 − $3,000 = $2,400

Wilma has assessable income of $3,600 − $2,000 = $1,600.

On 1 January 2005, 2 years after the operative time (1 January 2003) and 7 years after the commencement date (1 January 1998), the asset value of Henry's split income stream will be $39,000. The asset value of Wilma's income stream 2 years after the operative time will be $26,000.

Term elapsed since commencement date of the original FLA income stream: 7 years.

Member asset value (Henry) = $60,000 − {[($60,000 − 0) ÷ 20] × 7} = $39,000.

Non-member asset value (Wilma) = $40,000 − {[($40,000 − 0) ÷ 20] × 7} = $26,000.

Effect of commutations after operative time

On 1 January 2006 (3 years after the operative time and 8 years after the commencement date), Henry made a commutation of $10,000 from his income stream. As this is a FLA income stream (1.1.F.50), Henry is only entitled to receive 60% of the commuted amount (i.e. $6,000), while 40% will go to Wilma (i.e. $4,000). The 'proportional split' was originally set out in the superannuation agreement or court order (1.1.C.355).

Assets test when a commutation is made under a percentage payment split

Step Description
1

Recalculate NPP for both the primary FLA (member) and secondary FLA (non-member) income stream by using the formula:

Adjusted MNPP = M/NPP − Proportion of the commuted amount

$60,000 − $6,000 = $54,000 (Henry's adjusted NPP)

Adjusted MNPP = NM/NPP − Proportion of the commuted amount

$40,000 − $4,000 = $36,000 (Wilma's adjusted NPP).
2

Using the adjusted value of both the primary FLA (member) and secondary FLA (non-member) NPPs, calculate new asset values for primary FLA and secondary FLA.

Term elapsed since the commencement date of the original FLA income stream is 8 years.

Member asset (Henry) = $54,000 − {[(54,000 − 0) ÷ 20] × 8}
= $32,400

Non-member asset (Wilma) = $36,000 − {[($36,000 − 0) ÷ 20] × 8}
= $21,600.

In the above example:

  • the asset value of Henry's income stream is $32,400,
  • the asset value of Wilma's income stream is $21,600.

On 1 January 2007, 4 years after the operative date (1 January 2003) and 9 years after the commencement date (1 January 1998), the asset value of Henry's FLA affected income stream will be $29,700. The asset value of Wilma's FLA income stream will be $19,800.

Term elapsed since the commencement date of the original FLA income stream: 9 years.

Member asset value (Henry): $54,000 − {[($54,000 − 0) ÷ 20] × 9} = $29,700.

Non-member asset value (Wilma): $36,000 − {[($36,000 − 0) ÷ 20] × 9} = $19,800.

Income test when a commutation is made under a percentage payment split

Step Description
1

Obtain from the fund trustee the new gross income after the commutation is made for both the member (primary FLA) and non-member (secondary FLA). In this example, Henry's new gross annual payment is $4,320. Wilma's new gross annual payment is now $2,880.
2

Recalculate the deduction amount for each split income stream using the formula:

Deduction amount = (NPP − RCV) ÷ RN (of the original FLA income stream)

Henry (deduction amount): $54,000 ÷ 20 = $2,700

Wilma (deduction amount): $36,000 ÷ 20 = $1,800.
3

Recalculate the assessable income of each split income stream using the formula:

Assessable income = Gross income − Deduction amount

Member assessable income (Henry) = $4,320 − $2,700
= $1,620 p.a.

Non-member assessable income (Wilma) = $2,880 − $1,800
= $1,080 p.a.

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

Calculate assessable asset values for member (primary FLA) and non-member (secondary FLA) respectively as follows:

Step Description
1

Ascertain the percentages awarded to the member and the non-member in the payment split (e.g. 60% - 40%).

The percentages indicate the proportions (MPROP, NMPROP) in which the member's original interest is apportioned respectively between the member and the non-member.
2 Calculate the purchase amount (1.1.P.495) of original FLA at operative time.
3

Calculate the purchase amount at the operative time for the primary FLA and secondary FLA respectively using the formula:

  • Purchase amount of primary FLA at operative time = MPROP × Purchase amount of original FLA at operative time
  • Purchase amount of secondary FLA at operative time = NMPROP × Purchase amount of original FLA at operative time

Where:

  • MPROP is the proportion of original FLA awarded to the member at the operative time, and
  • NMPROP is the proportion of original FLA awarded to the non-member at the operative time.
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 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's assessment day.
  • IF the assessment day for the original FLA had not yet occurred, then the threshold days for the member and the non-member are calculated separately.

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

The member may commute part of the original income stream after the operative time. The family law provisions require that such commuted amounts be apportioned between the primary FLA and the secondary FLA in the proportions resulting from the original percentage payment split.

The purchase amount for each member and non-member's FLA will be reduced by their share of the commutation, with consequent adjustments to the member's and non-member's asset value.

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

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

Step Description
1 Obtain gross annual payment for primary FLA and secondary FLA respectively.
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 streams (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 require that such commuted amounts be apportioned between the primary FLA and the secondary FLA in the percentages specified in the original percentage payment split.

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 his or her share of the commutation.

Example

Paris buys a fixed term pension from XYZ super fund on 1 January 2020. Paris' income stream is assessed by Centrelink as an 'asset-tested income stream (lifetime)'.

Purchase amount = $200,000

Pension payments = $9,000 p.a

Assessment day = 1 January 2020

Threshold day = 1 July 2040

The income stream was purchased in one lump sum, and no commutations or additional payments were made after the assessment day.

5 years after purchasing the income stream, Paris and Sydney get divorced.

Court orders a percentage payment split with 60% of payments going to Paris and 40% of payments going to Sydney. Operative time is 1 January 2025.

Under the payment split, Paris receives a primary FLA income stream with annual payments of $5,400 and Sydney receives a secondary FLA income stream with payments of $3,600. These amounts are advised to Centrelink by the trustee.

Assets test

Step Description
1

Paris' proportion of the payment split is 60%.

Sydney's proportion of the payment split is 40%.
2

Calculate the purchase amount of the original FLA income stream (original FLA) at the operative time.

As the income stream was purchased in one lump sum, and no commutations or additional payments were made after the assessment day, the purchase amount of the original FLA is $200,000.
3

Calculate the purchase amount for the primary FLA (member) and secondary FLA (non-member) income stream at the operative time.

MNPP (Paris)
= MPROP × Purchase amount of the original FLA at the 'operative time'
= 0.60 × $200,000
= $120,000 (Paris' NPP at the operative time)

NMNPP (Sydney)
= MPROP × Purchase amount of the original FLA at the operative time
= 0.40 × $200,000
= $80,000 (Sydney's NPP at the operative time).
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, using purchase amounts of $120,000 for Paris, and $80,000 for Sydney, noting the threshold day of the original FLA was 1 July 2039, and the assessment day of the original FLA was 1 January 2020.

The assessment day and threshold day for the primary FLA and the secondary FLA will depend on Paris and Sydney's individual circumstances (e.g. their age, when they meet a condition of release, when they reach pension age).

Income Test

Step Description
1 As per advice by the fund trustee, Paris' new gross annual payment is $5,400 (primary FLA). Sydney's gross annual payment (secondary FLA) is $3,600.
2

Calculate the assessable income by using the formula:

Paris has assessable income of $5,400 x 0.6 = $3,240

Sydney has assessable income of $3,600 x 0.6 = $2,160

Effect of commutations after operative time

On 1 January 2028 (3 years after the operative time and 8 years after the assessment day), Paris made a commutation of $10,000 from the income stream. As this is a FLA income stream, Paris is only entitled to receive 60% of the commuted amount (i.e. $6,000), while 40% will go to Sydney (i.e. $4,000). The 'proportional split' was originally set out in the superannuation agreement or court order.

Assets test when a commutation is made under a percentage payment split

Step Description
1

Recalculate purchase amount for both the primary FLA (member) and secondary FLA (non-member) income stream by using the formula:

Adjusted purchase amount of primary FLA = Purchase amount of primary FLA − Proportion of the commuted amount
$120,000 − $6,000 = $114,000 (Paris' adjusted purchase amount)

Adjusted purchase amount of secondary FLA = Purchase amount of secondary FLA − Proportion of the commuted amount
$80,000 − $4,000 = $76,000 (Sydney's adjusted purchase amount).
2 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, using purchase amounts of $114,000 for Paris, and $76,000 for Sydney. The assessment day and threshold day for the primary and secondary FLAs would not change due to the commutation.

Income test when a commutation is made under a percentage payment split

Step Description
1 Obtain from the fund trustee the new gross annual payments after the commutation is made for both the member (primary FLA) and non-member (secondary FLA). In this example, Paris' new gross annual payment is $4,320. Sydney's new gross annual payment is now $2,880.
2

Calculate the assessable income by using the formula:

Paris has assessable income of $4,320 x 0.6 = $2,592

Sydney has assessable income of $2,880 x 0.6 = $1,728

Last reviewed: