18.104.22.168 Specific provisions for assessing income streams
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
- transition to retirement income streams
- commutation from an income stream.
For information on joint income streams refer to 22.214.171.124.
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.
Act reference: SSAct section 1207A-'spouse'
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'
Example: Peter applies to his superannuation fund on 1 August 2017 to start his defined benefit income stream. Peter is eligible to receive his defined benefit income stream from 1 August 2017. The superannuation fund starts Peter's ongoing income stream on 1 October 2017, and pays him a lump sum arrears payment of $4,000 for the period from 1 August to 30 September. For social security means test purposes, the $4,000 is assessed as income from the income stream over the period from 1 August to 30 September. When he applied for his defined benefit income stream on 1 August, this was a change in circumstances and the income from the income stream is assessed from 1 August.
Act reference: SSAct section 8(11A)-'Periodic amount'
SS(Admin)Act section 66A General requirement to inform of a change in circumstances etc., section 118 Date of effect of adverse determinations-general rules
Policy reference: SS Guide 126.96.36.199 General notification period - 14 days
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.
Example: Dom was receiving income from his defined benefit pension until it was suspended on 1 January 2021. While his defined benefit is suspended, Dom applies for the Age, and begins receiving the maximum rate of pension because he has no other income and his assets are below the assets test threshold.
On 1 July 2021, his defined benefit pension is reinstated. On 1 August 2021, Dom also receives a lump sum arears payment of the income he was entitled to while his defined benefit income stream was suspended. The Secretary determined that the lump sum payment is apportioned over 6 months from 1 August 2021, which means that one-thirteenth of the lump sum is added to Dom's other assessable income each fortnight for the next 6 months.
Act reference: SSAct section 8(8) Excluded amounts-general, section 8(11) An amount received by a person is an exempt lump sum …, section 9(1) Financial assets and income streams definitions, section 1072A Treatment of certain lump sum payments
Policy reference: SS Guide 188.8.131.52 Income exempt from assessment - s 8(11) exempt lump sums
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.
Example: Mrs Jones advises Services Australia (Centrelink) on 5 October that her partner died 1 October. On 1 November, her husband's lifetime annuity is transferred to her and she receives a lump sum payment of $4,000. Services Australia (Centrelink) assesses the lump sum arrears payment from 2 October to 31 October, which is the period it relates to. As a result of the assessment, a debt is generated for Mrs Jones during the bereavement period. The legislative instrument allows Services Australia (Centrelink) to waive the debt.
Act reference: SSAct section 1237AB(1) Secretary may waive debts of a particular class
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.
Act reference: SSAct section 8 Income test definitions, section 9(1)-'income stream'
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.
Act reference: SSAct section 17(2) Compensation
Policy reference: SS Guide 184.108.40.206 Overview of Periodic Compensation Payments
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.
Example: John purchased a life expectancy income stream with a term of 17 years. John died 2 years after the commencement of the income stream. He did not specify a reversionary beneficiary, so it was paid to his estate. Through John's will, a testamentary trust was established and this trust continued to receive the payments from the income stream. The income stream payments became the property of the trust and were then paid from the trust to John's surviving partner, Beryl.
For social security purposes, the income received by Beryl is not an income stream for social security purposes. This is because the payments are made as a disbursement from the testamentary trust. As such, the income disbursements from the trust become an asset of the trust and, upon disbursement to Beryl, will be assessed under the Trust and Company rules.
Policy reference: SS Guide 4.12 Means Test Treatment of Private Trusts & Private Companies from 01/01/2002
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 (220.127.116.11). 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.
Example: On 1 January 2000 the Gambler Family Trust purchased a lifetime annuity from a life office on behalf of Greg when he retired at age 65 years. The annuity had a purchase price of $200,000 and paid $13,800 annually through the Trust. On 1 January 2002 Greg commenced receiving the annual payments of $13,800 directly. This is treated by Services Australia (Centrelink) as a commutation to a new income stream, with a commencement day of 1 January 2002. The life office will need to advise Services Australia (Centrelink) of the new purchase price of, for example, $180,600. The relevant number would be 14.79. Greg is assessed as receiving gross income of $13,800 less the deduction amount of $12,210.
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.
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.
Example: The New South Wales Railway Superannuation Scheme contains an abatement.
Policy reference: SS Guide 1.1.E.87 Employee, private contractor
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 18.104.22.168.
Policy reference: SS Guide 22.214.171.124 Means test assessment of asset-tested income streams (long term)
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 126.96.36.199.
- For information about arrears and lump sums from comparable foreign payments, see 188.8.131.52.
Act reference: SSAct section 8(8)(b) any return on a person's investment in …, and section 9(1)-'income stream', section 1073 Certain amounts taken to be received over 12 months