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

Summary

This topic covers:

  • asset test assessment
  • subsequent reviews of primary and secondary FLA income stream asset values
  • subsequent commutations made by member (asset test assessment)
  • income test assessment
  • subsequent commutations made by member (income test assessment).

Asset test assessment

Calculate assessable asset values for member (1.1.M.118) (primary FLA) and non-member (1.1.N.115) (secondary FLA) respectively as follows:

Step Description
1

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

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 the asset values for both primary FLA (1.1.P.385) and secondary FLA (1.1.S.65) using the formula:

  • Asset value (primary FLA) = MPROP × Account balance of original FLA at the operative time
  • Asset value (secondary FLA) = NMPROP × Account balance of original FLA at the operative time

Although there are 2 FLA income streams (1.1.F.50) (i.e. the primary FLA and secondary FLA), effectively there is only 1 account balance backing both FLA income streams. The asset value for each FLA income stream is the portion of the account balance at that time which backs the primary and/or secondary FLA.

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 FLA and/or secondary FLA is dated from the previous review date for the original FLA (1.1.O.35), i.e. not the operative time (1.1.O.25) when the payment split occurred.

Subsequent commutations made by member (asset 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 asset value maintained for each FLA income stream will be the portion of the remaining account balance that backs each FLA income stream immediately after the commutation.

Income test assessment

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

Step Description
1

Calculate NPP (1.1.N.135) of original FLA respectively at operative time as follows:

NPP of original FLA at operative time
= NPP of original FLA at commencement day − any commutations prior to operative time
2

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

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

Where:

  • MPROP is the proportion of the original FLA awarded to the member
  • NMPROP is the proportion of the original FLA awarded to the non-member.
3

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

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

Where relevant number is the relevant number of the original FLA at its commencement day (1.1.C.205).
4 Obtain gross income for primary FLA and secondary FLA respectively at the time of the assessment.
5 Reduce gross income from the primary FLA and secondary FLA respectively by the respective deduction amounts.

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 an account-based pension from XYZ superannuation fund on 1 January 1998.

Purchase price: $100,000
Gross annual income: $12,050
Relevant no: 15.41

5 years after purchasing his account-based pension (1 January 2003), Henry and Wilma 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 between the commencement date and the operative time. Operative time is 1 January 2003. Account balance at the operative time was $80,000.

Assets test

Step Description
1

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

Henry's proportion of the payment split is 60%. Wilma's proportion of the payment split is 40%.
2

Calculate the asset value for both primary FLA and secondary FLA using the formula:

  • Asset value (primary FLA) = MPROP × Account balance of original FLA at the operative time
  • Asset value (secondary FLA) = NMPROP × Account balance of original FLA at the operative time

Asset value (Henry) = 0.60 × $80,000 = $48,000

Asset value (Wilma) = 0.40 × $80,000 = $32,000

Henry's asset value at the operative time is $48,000.

Wilma's asset value at the operative time is $32,000.

Income test

Step Description
1

Obtain from the provider the new gross income for the primary FLA (member) and secondary FLA (non-member).

In this example: Henry's new annual gross income as advised by the provider is $6,300. Wilma's annual income is $4,200.
2

Calculate the NPP of the original FLA income stream (original FLA) at the operative time using the formula:

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

In the example above, 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 NPP for both primary FLA (member) and secondary FLA (non-member) at the operative time:

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

Where:

  • MPROP is the proportion of the original FLA awarded to the member
  • NMPROP is the proportion of the original FLA awarded to the non-member.

MNPP (Henry) = 0.60 × $100,000
= $60,000 (Henry's NPP at the operative time)

NMNPP (Wilma) = 0.40 × $100,000
= $40,000 (Wilma's NPP at the operative time)
4

Calculate deduction amount for each split income stream:

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

MDA (Henry): $60,000 ÷ 15.41 = $3,894

NMDA (Wilma): $40,000 ÷ 15.41 = $2,596
5

Calculate assessable income by reducing the gross income of both the primary FLA (member) and secondary FLA (non-member) by the deduction amount calculated for each income stream.

Member assessable income (Henry): $6,300 − $3,894 = $2,406

Non-member assessable income (Wilma): $4,200 − $2,596 = $1,604

Last reviewed: