5JAMeaning of asset‑test exempt income stream—lifetime income streams

#### 5JA Meaning of asset‑test exempt income stream—lifetime income streams General requirements (1) An income stream provided to a person is an asset‑test exempt income stream for the purposes of this Act if: (aa) subject to subsection (1AA), the income stream’s commencement day happens before 20 September 2007; and (a) it is an income stream arising under a contract, or governing rules, that meet the requirements of subsection (2) and the Commission has not made a determination under subsection (4) in respect of the income stream; and (b) subject to subsections (1B), (1C) and (1D), the Commission is satisfied that in relation to an income stream, provided by a class of provider specified by the Commission for the purposes of this paragraph, there is in force a current actuarial certificate that states that the actuary is of the opinion that, for the financial year in which the certificate is given, there is a high probability that the provider of the income stream will be able to pay the income stream as required under the contract or governing rules; and (c) the Commission is satisfied that the requirements of subsection (2) are being given effect to from the commencement day of the income stream. > Note: For paragraph (b), financial year means a period of 12 months commencing on 1 July: see the Acts Interpretation Act 1901. Determination under subsection (5) (1A) An income stream provided to a person is an asset‑test exempt income stream for the purposes of this Act if the Commission has made a determination under subsection (5) in respect of the income stream. Defined benefit income streams (1AA) Paragraph (1)(aa) does not apply if the income stream is a defined benefit income stream. Guidelines relating to actuarial certificates (1B) The Commission may determine, by legislative instrument, guidelines to be complied with when determining whether an actuarial certificate is in force. Exception to paragraph (1)(b) (1C) If, on 30 June in a financial year, an actuarial certificate referred to in paragraph (1)(b) is in force in relation to an income stream, then paragraph (1)(b) does not apply in relation to the next financial year (the later year) for the period: (a) beginning on 1 July of the later year; and (b) ending at the earlier of the following: (i) the start of the first day in the later year on which any actuarial certificate is given to the Commission in relation to that income stream; (ii) the end of the period of 26 weeks beginning on 1 July of the later year. One certificate a financial year (1D) For the purposes of paragraph (1)(b), if an actuarial certificate is given to the Commission in a financial year in relation to an income stream, then any actuarial certificate given to the Commission later in that financial year in relation to that income stream has no effect. Requirements of contract/governing rules for provision of income stream (2) A contract, or the governing rules, for the provision of an income stream to a person meet the requirements of this subsection if the contract or governing rules specify: (a) that payments under the income stream are to be made at least annually throughout the life of the person and, if there is a reversionary beneficiary: (i) throughout the reversionary beneficiary’s life; or (ii) if the reversionary beneficiary is a child of the person or of a former reversionary beneficiary under the income stream—at least until he or she turns 16; or (iii) if the child referred to in subparagraph (ii) is a full‑time student who has turned 16—at least until the end of his or her full‑time studies or until he or she turns 25, whichever occurs sooner; and (b) the total amount of the payments that may be made under the income stream in the first year after the commencement day of the income stream (not taking commuted amounts into account); and (c) that the total amount of the payments that may be made under the income stream in any other year (not taking commuted amounts into account) may not fall below the total amount of the payments made under the income stream in the immediately preceding year (the previous total), and may not exceed the previous total: (i) if subparagraph (ii) does not apply—by more than 5% of the previous total; or (ii) if the index number for the second last quarter before the day on which the first of those payments is to be made (recent index number) exceeds the index number for the same quarter in the immediately preceding year (base index number) by more than 4% of the base index number—by more than such percentage of the previous total as is worked out under the formula:  (d) if the income stream is purchased by or for the primary beneficiary—that the first payment under the income stream relates to the period commencing on the day of that purchase; and (e) if the income stream is not purchased, but acquired, by or for the primary beneficiary—that the first payment under the income stream relates to the period commencing on the day of that acquisition; and (f) if the income stream is not a defined benefit income stream—that the amount paid as the purchase price for the income stream is wholly converted into income; and (g) that the income stream has no residual capital value; and (h) that the income stream cannot be commuted except: (i) if the income stream is a non‑commutation funded income stream and the commutation is made within 6 months after the commencement day of the income stream; or (ii) if the commutation is made to the benefit of a reversionary beneficiary or of the person’s estate, on the death of the person within the life expectancy period for the income stream; or (iii) if the payment resulting from the commutation is transferred directly to the purchase of another income stream that is an asset‑test exempt income stream; or (iv) to the extent necessary to cover any superannuation contributions surcharge relating to the income stream; or (iva) to the extent necessary to give effect to an entitlement of the person’s partner or former partner under a payment split under Part VIIIB or VIIIC of the Family Law Act 1975; or (ivb) to the extent necessary to give effect to an order under Part VIIIAA of the Family Law Act 1975; or (v) to the extent necessary to pay a hardship amount; and (i) that the income stream cannot be transferred to a person except: (i) on the death of the primary beneficiary, to a reversionary beneficiary; or (ii) on the death of a reversionary beneficiary, to another reversionary beneficiary; and (j) that neither the capital value of the income stream, nor the income from it, can be used as security for a borrowing; and (k) that, if the income stream reverts, it must not have a reversionary component greater than the benefit that was payable immediately before the reversion; and (l) that, if the income stream is commuted, the commuted amount must not be greater than the benefit that was payable immediately before the commutation. > Note: For paragraph (h), hardship amount, life expectancy period and non‑commutation funded income stream are defined in subsection (7) and asset‑test exempt income stream is defined in section 5J. (2A) A contract, or the governing rules, for the provision to a person of an income stream that meets all of the requirements of subsection (2), except the requirement of paragraph (2)(c), are taken to meet the requirements of subsection (2) if the contract or governing rules specify that any provision included in the contract or governing rules in accordance with paragraph (2)(c) does not apply in any year in which: (a) the person ceases to receive income under an income stream jointly and begins to receive income under a single income stream; and (b) the total amount received in the year under the single income stream is less than the total amount received by the person in the previous year but is not nil. Matters not required of income stream (3) For the purpose of determining whether an income stream meets the requirements of subsection (2), it is immaterial that: (a) if the primary beneficiary dies within the life expectancy period for the income stream, a surviving reversionary beneficiary may be paid an amount equal to the total of the payments that the primary beneficiary would (if he or she had not died) have received from the day of the death until the end of that period; and (b) if: (i) the primary beneficiary dies within the life expectancy period for the income stream; and (ii) there is no surviving reversionary beneficiary; an amount, not exceeding the difference between: (iii) the sum of the amounts that would have been so payable to the primary beneficiary in that period; and (iv) the sum of the amounts paid to the primary beneficiary; is payable to the primary beneficiary’s estate, and (c) if: (i) the primary beneficiary dies within the life expectancy period for the income stream; and (ii) there is a surviving reversionary beneficiary who also dies within that period; there is payable to the reversionary beneficiary’s estate an amount determined as described in paragraph (b) as if that paragraph applied to the reversionary beneficiary. Determination that income stream not asset‑test exempt (4) The Commission may determine that an income stream that meets the requirements of subsection (2) is not an asset‑test exempt income stream if the Commission is satisfied that the person who has purchased the income stream has commuted an asset‑test exempt income stream within 6 months after its commencement day on at least 3 occasions since the person first received a service pension, income support supplement, a veteran payment or a social security payment. Determination that income stream is asset‑test exempt (5) The Commission may determine, in writing, that an income stream is an asset‑test exempt income stream for the purposes of this Act. In making the determination, the Commission is to have regard to the guidelines (if any) determined under subsection (6). (5A) To avoid doubt, a determination under subsection (5) may be made in respect of an income stream regardless of the income stream’s commencement day. (5B) A determination under subsection (5) is not a legislative instrument. Guidelines to be complied with in making determination (6) The Commission may determine, by legislative instrument, guidelines to be complied with when making a determination under subsection (5). Definitions (7) In this section: > hardship amount, in relation to a person, means an amount determined by the Commission for the purposes of this definition if: (a) the person applies in writing to the Commission to be allowed to commute the whole or part of an income stream because of extreme financial hardship; and (b) the Commission is satisfied that: (i) the person’s circumstances are exceptional and could not be reasonably foreseen at the time the person purchased the income stream; and (ii) the person has insufficient liquid assets or other assets (excluding the person’s principal home) that could be realised to avoid the extreme financial hardship; and (iii) that amount is required to meet unavoidable expenditure. > life expectancy period, for an income stream, means: (a) in a case where: (i) there was only one primary beneficiary on the commencement day; and (ii) the primary beneficiary has decided not to round up his or her life expectancy for the purposes of this definition; the period starting on the income stream’s commencement day, and equal to the shorter of: (iii) the primary beneficiary’s life expectancy on the commencement day; and (iv) 20 years; or (b) in a case where: (i) there was only one primary beneficiary on the commencement day; and (ii) paragraph (a) does not apply; the period starting on the income stream’s commencement day, and equal to the shorter of: (iii) the primary beneficiary’s life expectancy (rounded up, if not consisting of a whole number of years, to the next whole number) on the commencement day; and (iv) 20 years; or (c) in a case where: (i) there were 2 primary beneficiaries on the commencement day; and (ii) those primary beneficiaries have decided not to round up their life expectancies for the purposes of this definition; the period starting on the income stream’s commencement day, and equal to the shorter of: (iii) the greater of the life expectancies, on the commencement day, of the primary beneficiaries; and (iv) 20 years; or (d) in a case where: (i) there were 2 primary beneficiaries on the commencement day; and (ii) paragraph (c) does not apply; the period starting on the income stream’s commencement day, and equal to the shorter of: (iii) the greater of the life expectancies (rounded up, if not consisting of a whole number of years, to the next whole number), on the commencement day, of the primary beneficiaries; and (iv) 20 years. > liquid assets, in relation to a person, means the person’s cash and readily realisable assets, and includes: (a) the person’s shares and debentures in a public company within the meaning of the Corporations Act 2001; and (b) managed investments; and (c) insurance policies that can be surrendered for money; and (d) amounts deposited with, or lent to, a bank or other financial institution by the person (whether or not the amount can be withdrawn or repaid immediately); and (e) amounts due, and able to be paid, to the person by, or on behalf of, a former employer of the person; but does not include the sum of NDIS amounts paid to the person and any return on those amounts that the person earns, derives or receives, less the sum of amounts spent by the person in accordance with an NDIS plan under which the amounts were paid. > non‑commutation funded income stream means an income stream that has not been purchased by transferring directly to the purchase of the income stream a payment resulting from the commutation of another asset‑test exempt income stream. > unavoidable expenditure, in relation to a person, means one or more of the following: (a) essential medical expenses of the person, or the person’s partner, to the extent that the expenses are not covered by health insurance or other contracts or arrangements; (b) the cost of: (i) replacing the person’s principal home; or (ii) essential repairs to the person’s principal home; to the extent that the cost of the replacement or repairs is not covered by an insurance policy; (c) expenditure to buy replacement essential household goods because of the loss of those goods to the extent that the cost of replacement is not covered by an insurance policy.