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Retaining assets test exemption on rollover

Section: 9.9

100% assets test exempt and 50% asset test exempt income streams that are voluntarily rolled over after 20 September 2007 become fully asset tested unless they meet specific exemption criteria as stated below.

The criteria differ depending on whether the income stream is 100% or 50% asset test exempt.

Note: this criteria does not apply to non-purchased defined benefit income streams (eg. Comsuper).

Retaining 100% assets test exemption

The following income streams receive a 100% assets test exemption:

Income streams Date of commencement
Asset test exempt lifetime income stream Prior to 20 September 2004
Asset test exempt life expectancy income stream Prior to 20 September 2004
Caution!

If a 100% assets test exempt life expectancy income stream was acquired before 20 September 2004 and the primary beneficiary dies on or after 20 September 2004, the 100% assets test exemption will only continue to a reversionary beneficiary if the remaining term of the original pension (in years) at the time of death is equal to the life expectancy (in years) of the reversionary beneficiary.

Commutation and rollover

Only in limited circumstances will a 100% assets test exemption continue upon commutation or rollover.

Upon commutation or rollover, the resulting new income stream will continue to receive a 100% assets test exemption only if:

  • all the 'primary conditions' are met, and
  • one of the 'additional sets of conditions' is met.

Primary conditions for retaining 100% assets test exemption:

  • the original income stream is a lifetime or life expectancy assets test exempt income stream, and
  • the original income stream was purchased prior to 20 September 2004, and
  • the original income stream is commuted to purchase a new lifetime or life expectancy assets test exempt income stream on or after 20 September 2004, and
  • at least one of the additional sets of conditions is met.
Note:

A partial commutation is only allowed for payment due to an income stream payment split (additional condition no. 6), payment of a superannuation contribution surcharge debt (additional condition no. 7), or payment for a hardship amount (additional condition no. 8). Where an existing income stream is commuted in full to meet these payments, that part of the commuted amount not used to meet the liability must be rolled over to the new income stream.

Additional sets of conditions for retaining 100% assets test exemption

In addition to the primary conditions, one of the following sets of conditions must also be met to retain a 100% assets test exemption upon a commutation and rollover:

1. Commutation resulted from reversionary beneficiary pre-deceasing primary beneficiary

Where:

  • the original income stream was reversionary (ie income stream payments were calculated on the basis of the life expectancy of the reversionary beneficiary), and
  • the reversionary beneficiary died before the primary beneficiary, the new income stream will continue to be 100% assets test exempt.

Note: This exemption is only allowed once.

2. Commutation resulted from divorce or separation of primary and reversionary beneficiaries

Where:

  • the original income stream was reversionary (ie income stream payments were calculated on the basis of the life expectancy of the reversionary beneficiary), and the reversionary beneficiary and primary beneficiary were members of a couple (as defined in the Social Security Act 1991) together at the commencement of the pension, and
  • the primary beneficiary and reversionary beneficiary are no longer members of a couple together, the new income stream will continue to be 100% assets test exempt.

Note 1: This exemption is only allowed once.

Note 2: For income streams affected by payment splitting following marriage breakdown by the Family Court or a super agreement, refer to number 6 in this section.

3. Commutation resulted from SMSF defined benefit pension without actuarial certificate

Where:

  • the original income stream was a defined benefit pension, and
  • the original income stream was provided by a SMSF, and
  • does not have a current actuarial certificate satisfying the high probability requirements of SSAct section 9A(1)(b) and 9B(1A)(b), the new income stream will continue to be 100% asset test exempt where the commuted assets including reserves are used to purchase:
  • a lifetime or life expectancy asset test exempt annuity from a life office or friendly society that is used to source the income stream payments from the SMSF, or
  • a lifetime or life expectancy asset test exempt income stream from a retail superannuation fund that meets the requirements specified for offering these products.

Note: This exemption is only allowed once.

4. Commutation resulted from immediate annuity paid from a life company failing to meet requirements

Where:

  • the original income stream was an immediate annuity paid by a life office, and
  • the annuity does not satisfy SSAct sections 9A(1)(b) or 9B(1A)(b), or fails the high probability requirements to satisfy the standards set out in Actuarial Standard 4.02 published by the Life Insurance Actuarial Standards Board, the new income stream will continue to be 100% assets test exempt.

Note: This exemption is only allowed once.

5. Commutation resulted from transfer to successor fund

Where:

  • the original income stream was transferred on or after 20 September 2004 to a successor fund, and
  • the original income stream was provided by a regulated super fund, the new income stream will continue to be 100% assets test exempt.

6. Commutation resulted from a payment split or court order

Where the original income stream was commuted to pay an amount to the spouse or former spouse of the primary beneficiary under a payment split or a court order or injunction under the Family Law Act 1975, the new income stream will continue to be 100% assets test exempt.

7. Commutation resulted from payment of super contributions surcharge debt

Where the original income stream was commuted to pay a super contributions surcharge debt, the new income stream will continue to be 100% assets test exempt.

8. Commutation resulted from payment of hardship amount

Where the original income stream was commuted to pay a hardship amount, the new income stream will continue to be 100% assets test exempt.

9. Commutation resulting from altering income stream to allow reversion to a dependant

Where the original income stream was commuted to allow reversion to a dependant as per the requirements of section 6.21(2A) of the SIS regulations 1994, the new income stream will continue to be 100% asset test exempt.

Where the dependant is a child, the child must:

  • be less than 18 years old, or
  • if 18 years or older,
  • be financially dependent on the member and less than 25 years of age, or
  • have a disability as described in Disability Services Act 1986 subsection 8(1).

10. Commutation resulted from closure of SMSF

Where:

  • the original income stream was provided by a SMSF, and
  • the commutation resulted from the closure of the SMSF, and
  • the closure of the SMSF was due to:
  • the death of the primary beneficiary of the original income stream, or
  • the administrative responsibilities of the SMSF were too onerous due to the age or incapacity of a trustee,

the new income stream will continue to be 100% assets test exempt.

note: This exemption is only allowed once.

Retaining 50% assets test exemption

The following income streams receive a 50% assets test exemption:

Income stream Date of commencement
Asset test exempt lifetime income stream On or after 20 September 2004 and before 20 September 2007
Asset test exempt life expectancy income stream On or after 20 September 2004 and before 20 September 2007
Asset test exempt allocated income stream (eg. term allocated pension) On or after 20 September 2004 and before 20 September 2007

Commutation and rollover

The 50% assets test exemption will continue for the life of a pension unless it is commuted or rolled over.

Upon commutation or rollover, the resulting new income stream will continue to receive a 50% assets test exemption only if:

  • all the 'primary conditions' are met, and
  • one of the 'additional sets of conditions' is met.

Primary conditions for retaining 50% assets test exemption

To retain 50% assets test exemption, the original income stream must be:

  • a lifetime, life expectancy or term allocated assets test exempt income stream, and
  • purchased from 20 September 2004 and before 20 September 2007, and
  • commuted, in full (except if 6, 7, 8 or 9 applies), to purchase a new income stream on or after 20 September 2007, and
  • if the original income stream is a lifetime or life expectancy 50% asset test exempt income stream, the new income stream must meet the requirements for a lifetime, life expectancy or market linked (term allocated pension) income stream (satisfies SSAct section 9A, 9B or 9BA), or
  • if the original income stream is a market linked (term allocated pension) 50% asset test exempt income stream, the new income stream must meet the requirements for a market linked (term allocated pension) income stream (satisfies SSAct section 9BA), and
  • meet one of the additional sets of conditions (see below).
Note:

A partial commutation is only allowed for payment due to income stream payment split (additional condition no. 6), payment of a superannuation contribution surcharge debt (additional condition no. 7), or payment for a hardship amount (additional condition no. 8). Where an existing income stream is commuted in full to meet these payments, that part of the commuted amount not used to meet the liability must be rolled over to the new income stream.

Additional sets of conditions for retaining 50% assets test exemption

In addition to the primary conditions, one of the following sets of conditions must also be met:

1. Commutation resulted from reversionary beneficiary pre-deceasing primary beneficiary

Where:

  • the original income stream was reversionary (ie income stream payments were calculated on the basis of the life expectancy of the reversionary beneficiary), and
  • the reversionary beneficiary died before the primary beneficiary,

the new income stream will continue to be 50% assets test exempt.

Note: This exemption is only allowed once.

2. Commutation resulted from divorce or separation of primary and reversionary beneficiaries

Where:

  • the original income stream was reversionary (ie income stream payments were calculated on the basis of the life expectancy of the reversionary beneficiary), and
  • the reversionary beneficiary and primary beneficiary were members of a couple (as defined in the Social Security Act 1991) together at the commencement of the pension, and
  • the primary beneficiary and reversionary beneficiary are no longer members of a couple together, the new income stream will continue to be 50% assets test exempt.

Note 1: This exemption is only allowed once.

Note 2: For income streams affected by payment splitting following marriage breakdown by the Family Court or a super agreement.

3. Commutation resulted from SMSF defined benefit pension without actuarial certificate

Where:

  • the original income stream was a defined benefit pension, and
  • the original income stream was provided by a SMSF, and
  • does not have a current actuarial certificate satisfying the high probability requirements of SSAct section 9A(1)(b) and 9B(1A)(b),

the new income stream will continue to be 50% asset test exempt where the commuted assets including reserves are used to purchase:

  • a market linked (term allocated pension), lifetime or life expectancy asset test exempt annuity from a life office or friendly society that is used to source the income stream payments from the SMSF, or
  • a market linked (term allocated pension), lifetime or life expectancy asset test exempt income stream from a retail superannuation fund that meets the requirements specified for offering these products, or
  • a market linked (term allocated pension) from a SMSF.

Note: This exemption is only allowed once.

4. Commutation resulted from immediate annuity paid by a life office failing to meet requirements

Where:

  • the original income stream was an immediate annuity, and
  • the annuity does not satisfy SSAct sections 9A(1)(b) or 9B(1A)(b), or fails the high probability requirements to satisfy the standards set out in Actuarial Standard 4.02 published by the Life Insurance Actuarial Standards Board, the new income stream will continue to be 50% assets test exempt.

Note: This exemption is only allowed once.

5. Commutation resulted from transfer to successor fund

Where:

  • the original income stream was transferred on or after 20 September 2004 to a successor fund, and
  • the original income stream was provided by a regulated super fund, the new income stream will continue to be 50% assets test exempt.

6. Commutation resulted from a payment split or court order

Where the original income stream was commuted to pay an amount to the spouse or former spouse of the primary beneficiary under a payment split or a court order or injunction under the Family Law Act 1975, the new income stream will continue to be 50% assets test exempt.

7. Commutation resulted from payment of super contributions surcharge debt

Where the original income stream was commuted to pay a super contributions surcharge debt, the new income stream will continue to be 50% assets test exempt.

8. Commutation resulted from payment of hardship amount

Where the original income stream was commuted to pay a hardship amount, the new income stream will continue to be 50% assets test exempt.

9. Commutation result from altering income stream to allow reversion to a dependant

Where the original income stream was commuted to allow reversion to a dependant as per the requirements of section 6.21(2A) of the SIS regulations 1994, the new income stream will continue to be 50% asset test exempt.

Where the dependant is a child, the child must:

  • be less than 18 years old, or
  • if 18 years or older,
    • be financially dependent on the member and less than 25 years of age, or
    • have a disability as described in Disability Services Act 1986 subsection 8(1).

10. Commutation resulted from closure of SMSF

Where:

  • the original income stream was provided by a SMSF, and
  • the commutation resulted from the closure of the SMSF, and
  • the closure of the SMSF was due to:
    • the death of the primary beneficiary of the original income stream, or
    • the administrative responsibilities of the SMSF were too onerous due to the age or incapacity of a trustee,

the new income stream will continue to be 50% assets test exempt.

11. Commutation of market linked (term allocated pension) income stream

Where:

  • A market linked (term allocated pension) income stream is fully commuted to purchase another market linked (term allocated pension) income stream, the new term allocated income stream will continue to be 50% assets test exempt.
Caution!

When commuting a term allocated income stream it is very important that 100% of the account balance is commuted if the client wants to maintain the 50% asset test exemption. Term allocated income streams purchased with partial commutations will no longer be eligible for the 50% asset test exemption and the original income stream will be treated as if it was never a complying income stream and a debt may be raised. If 100% of the account balance cannot be commuted, for example due to frozen funds, consideration should be given to delaying commuting the term allocated income stream until the funds are unfrozen.

Permanent extension of Centrelink debt relief measures for 100% assets test exempt income streams within SMSFs

Under normal social security rules, where a 100% assets test exempt (ATE) defined benefit pension paid by a SMSF fails an annual 'high probability' test, it is then treated as if it had never been an ATE income stream. This can lead to a substantial debt being raised against a client by Centrelink.

To provide relief during the global financial crisis, the Government announced that for 2008-09 and 2009-10, a 100% ATE pension that fails the high probability test will become fully asset tested, but any social security debt as a result of failing this test will be waived.

Further relief was provided for SMSFs from 27 November 2009, which allows any social security debt created to also be waived where:

  • the client's SMSF is paying a 100% ATE pension, and
  • the client provides an actuarial certificate confirming that the income stream does not satisfy the high probability test, and
  • the client rolls over their pension in full (including any reserves) into a term allocated pension within the SMSF.

This new term allocated pension will be fully asset tested.

The Government has made the above debt relief a permanent measure. Similar measures also apply for members of Small APRA Funds (SAFs). This permanent debt relief does not apply to members of large super funds or SMSF pension members who roll their benefit over to a large super fund to commence a term allocated pension.

Last modified: Friday, January 12, 2018