The Guides to Social Policy Law is a collection of publications designed to assist decision makers administering social policy law. The information contained in this publication is intended only as a guide to relevant legislation/policy. The information is accurate as at the date listed at the bottom of the page, but may be subject to change. To discuss individual circumstances please contact Services Australia.

4.9.8.30 History of the treatment of income streams

Introduction

This topic contains a historical overview of the treatment of income streams with the major changes occurring on 20 September 1998. It covers:

Note: ALL income streams (1.1.I.70) are assessable under the post-20 September 1998 provisions. The ONLY income streams that are assessed under the pre-20 September 1998 rules are those that have been exempted by the Minister under SSAct pre-1 July 2014 Schedule 1A subclause 120A.

Means test treatment of income streams prior to 20 September 1998

Details of the means test treatment of income streams prior to 20 September 1998 can be found below.

Commencement day of payments

Before 20 September 1998, if an income support recipient was due to have a birthday around the time that income stream payments start, it was ESSENTIAL to establish clearly the commencement day for social security purposes.

Explanation: If the income stream was a lifetime pension or annuity, the commencement day was important in determining the income support recipient's life expectancy (the relevant number) in any deductible amount for income test purposes.

If an income support recipient purchased an income stream the commencement day was generally the date of purchase. The exception to this is that the date of purchase for income test purposes was 1 July, if an income support recipient:

  • purchased an allocated pension, allocated annuity or eligible termination payment (ETP) between 1 April and 30 June, AND
  • chose to receive the first payment after 30 June.

For assets test purposes the commencement day was generally the date of purchase.

Relevant number for fixed term superannuation pensions

The relevant number for fixed term superannuation pensions with a term of one year or less was one. If an income support recipient had an allocated pension, the relevant number was the recipient's life expectancy at the original purchase date if the recipient:

  • exercised an option to convert the allocated pension to a superannuation pension for a set period, AND
  • reverted to receiving the original allocated pension at the end of the superannuation pension's term.

Act reference: SSAct section 9(1)-'life expectancy'

Undeducted purchase price (UPP)

The definition of UPP applying to fixed term superannuation pensions was as follows:

  • the pre-1 July 1983 component, AND
  • the post-30 June 1983 undeducted contributions, AND
    • the concessional component for ETPs made pre-1 July 1994, OR
    • the post-30 June 1994 invalidity component.

This definition also applied to the following income streams purchased with ETPs:

  • ETP annuities, also called roll-over annuities
  • allocated annuities, AND
  • allocated pensions.

The formula for determining the deductible amount for a fixed term superannuation pension was:

  • UPP − RCV ÷ relevant number

Act reference: SSAct section 9(1)-'relevant number'

Deductible amount for superannuation pensions in general

Before 26 April 1990 the full amount of regular superannuation payments was treated as income, EXCLUDING amounts for children. There was NO allowance for the return of the recipient's own contributions to the superannuation fund.

From 26 April 1990 to 20 September 1998, a deductible amount was allowed for income streams generally. The formula used varied according to:

  • the type of income stream, AND
  • whether it was
    • paid as a defined benefit, or
    • purchased by the recipient.

Act reference: SSAct section 9(1)-'superannuation fund'

Deductible amount for lifetime superannuation pensions

For lifetime superannuation pensions, the deductible amount before 20 September 1998 was UPP divided by relevant number.

Deductible amount for fixed term superannuation pensions

The deductible amount for a fixed term superannuation pension was determined differently from that of a lifetime superannuation pension, because fixed term superannuation pensions are:

  • a relatively recent development, AND
  • purchased with ETPs from superannuation funds.

The deductible amount was affected by:

  • the components of the ETP that determine the UPP, AND
  • any RCV in the fixed term superannuation pension.

Act reference: SSAct section 9(1)-'residual capital value'

Deductible amount for allocated pension

Before 20 September 1998, the deductible amount for allocated pensions purchased with an ETP or from a roll-over fund was determined using the same formula as lifetime superannuation pension.

Family and Community Services Legislation (Simplification and Other Measures) Act 2001

The Family and Community Services Legislation (Simplification and Other Measures) Act 2001 introduced some minor amendments to the existing income streams provisions.

These involve minor technical amendments to close off some loopholes and provide clearer guidance to the intent of the 1998 rules. They came into effect on 20 September 2001, and include:

  • required characteristics that must be met by an income stream if it is to remain an ATE income stream
  • limits to the ability of a person to circumvent the requirement that cash commutations occur only within the first 6 months of an ATE income stream
  • easing of provisions to permit commutation for hardship purposes, and
  • asset test exemption to be retained by all jointly owned lifetime income streams when one of the owners dies.

Policy reference: SS Guide 4.9.2.40 Commuting an asset-test exempt income stream, 4.9.2.50 Joint income streams

Superannuation & divorce - Family Law Legislation Amendment (Superannuation) (Consequential Provisions) Act 2002

In 2002, the Family Law Act was changed to allow superannuation to be split following marriage breakdown by the Family Court or a superannuation agreement. The SSAct was also amended to ensure that the social security means test is applied consistently and fairly to income support recipients who have their superannuation entitlements split as part of a property settlement on marriage breakdown. These changes came into effect on 28 December 2002. Refer to 4.9.6 for a detailed description of the assessment process.

Policy reference: SS Guide 4.9.6 Assessment of divorce property settlements

Family and Community Services and Veterans' Affairs Legislation Amendment (Income Streams) Act 2004

The Family and Community Services and Veterans' Affairs Legislation Amendment (Income Streams) Act 2004 (no.116) introduced a range of changes relating to income streams, which included:

  • introduction of market-linked income streams
  • changing the social security assets test exemption from 100% to 50% for ATE income streams purchased on or after 20 September 2004
  • changing the characteristics of life expectancy products to align them with the market-linked products, and
  • amending the guarantee period for ATE lifetime products.

Policy reference: SS Guide 4.9.2.15 Characteristics of asset-test exempt income streams purchased from 20/9/2004 & before 20/09/2007, 4.9.2.17 Retention of asset test exemption for ATE income streams purchased from 20/09/2004, or from 20/09/2007

Tax Laws Amendment (Simplified Superannuation) Act 2007

The Tax Laws Amendment (Simplified Superannuation) Act 2007 (no. 9) introduced a range of changes relating to superannuation. One of these changes affected income streams, which was the removal of the social security assets test exemption for ATE income streams purchased on or after 20 September 2007. In effect, the exemption was reduced from 50% to 0%.

Policy reference: SS Guide 4.9.2.17 Retention of asset test exemption for ATE income streams purchased from 20/9/2004, or from 20/9/2007

Social Services and Other Legislation (Supporting Retirement Incomes) Act 2019

The Social Services and Other Legislation (Supporting Retirement Incomes) Act 2019 (no. 5):

  • introduced new rules for lifetime income streams, establishing the 'asset-tested income stream (lifetime)' category of income stream (1.1.A.304)
  • clarified that payments of compensation, or payments under an insurance scheme in relation to a person's inability to earn income or the person's total and permanent disability or incapacity, are not an income stream
  • introduced new rules for the assets test assessment of investment-type life insurance products (4.6.5.70).

Policy reference: SS Guide 1.1.A.304 Asset-tested income streams (long term, lifetime, short term), 4.6.5.70 Assessing insurance bonds & policies

Social Services and Other Legislation Amendment (Military Invalidity Payments Means Testing) Act 2024

The Social Services and Other Legislation Amendment (Military Invalidity Payments Means Testing) Act 2024 introduced amendments to clarify the assessment of certain military invalidity benefits affected by the Full Federal Court decision in Commissioner of Taxation v Douglas (2020) FCAFC 220 (the Douglas decision). These amendments introduced a new income stream category of military invalidity pension income stream and a new income test assessment to include the affected military invalidity benefits. All military invalidity pension income streams are ATE.

Previously, the affected military invalidity benefits had been assessed as defined benefit income streams and ATE income streams under section 1099A of the SSAct. The amendments also introduced validation provisions under which, if an affected invalidity benefit was previously assessed under section 1099A of the SSAct on the basis that it was then considered to be an ATE income stream that is a defined benefit income stream, such assessments are taken to be valid and effective.

Act reference: SSAct section 9(1G) An income stream is a military invalidity pension income stream if …, section 9BB Meaning of asset-test exempt income stream—military invalidity pension income stream, section 1099AAA Income—income stream is a military invalidity pension income stream

Social Services and Other Legislation Amendment (Military Invalidity Payments Means Testing) Act 2024

Policy reference: SS Guide 4.9.2.30 Income test assessment of asset-test exempt income streams, 1.1.M.138 Military invalidity pension income stream, 4.9.6.50 Percentage payment splits - defined benefit income streams & military invalidity pension income streams, 4.9.6.100 Base amount payment splits - defined benefit income streams & military invalidity pension income streams

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