5JBAMeaning of asset‑test exempt income stream—market‑linked income streams

#### 5JBA Meaning of asset‑test exempt income stream—market‑linked income streams General requirements (1) An income stream provided to a person is also an asset‑test exempt income stream for the purposes of this Act if: (a) all of the following criteria are satisfied: (i) the income stream’s commencement day happens during the period from 20 September 2004 to 19 September 2007 (both dates inclusive); (ii) the person to whom the income stream is being provided is the primary beneficiary or the primary beneficiary’s reversionary partner (if any) on the day of the primary beneficiary’s death; (iii) the income stream is an income stream arising under a contract, or governing rules, that meets the requirements of subsection (2); (iv) the Commission has not made a determination under subsection (10) in respect of the income stream; (v) the Commission is satisfied that the requirements of subsection (2) have been given effect to from the day the income stream commenced to be paid; or (b) the Commission has made a determination under subsection (11) in respect of the income stream. > Note: For paragraph (a), reversionary partner is defined in subsection (14). 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 meets the requirements of this subsection if the contract or governing rules specify: (a) the income stream’s term, which must comply with subsection (3) or (4); and (b) obligations for the making of payments under the income stream that satisfy the requirements of subsections (5) to (9); and (c) 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 (d) 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 (e) that the income stream has no residual capital value; and (f) 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 payment resulting from the commutation is transferred directly to the purchase of another income stream that is an asset‑test exempt income stream; or (iii) if the primary beneficiary’s reversionary partner (if any) on the day of the primary beneficiary’s death survives the primary beneficiary—on or after the partner’s death; or (iv) if subparagraph (iii) does not apply—on or after the primary beneficiary’s death; or (v) to the extent necessary to cover any superannuation contributions surcharge relating to the income stream; or (vi) 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 of the Family Law Act 1975; or (via) to the extent necessary in order to comply with section 136‑80 in Schedule 1 to the Taxation Administration Act 1953; or (vii) to the extent necessary to pay a hardship amount; and (g) that the income stream cannot be transferred except on death; and (h) that neither the capital value of the income stream, nor the income from it, can be used as security for a borrowing; and (i) that, if the income stream reverts, it must not have a reversionary component greater than the account balance immediately before the reversion; and (j) that, if the income stream is commuted, the commuted amount must not be greater than the account balance immediately before the commutation. > Note: For paragraph (f), hardship amount, non‑commutation funded income stream and reversionary partner are defined in subsection (14) and asset‑test exempt income stream is defined in section 5J. Term of the income stream (3) An income stream’s term complies with this subsection if it is a period of whole years that: (a) starts on the income stream’s commencement day; and (b) is at least as long as 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 (c) is at most as long as the greater of: (i) what would be 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 if the primary beneficiary were 5 years younger; and (ii) the period (rounded up, if not consisting of a whole number of years, to the next whole number) starting on the commencement day and ending on the day on which the primary beneficiary reaches age 100 (assuming that the primary beneficiary lives until then). (4) An income stream’s term complies with this subsection if it is a period of whole years that: (a) starts on the income stream’s commencement day; and (b) is at least as long as 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: (i) the primary beneficiary; and (ii) the primary beneficiary’s reversionary partner on that day; and (c) is at most as long as the period worked out under subsection (4A). (4A) For the purposes of paragraph (4)(c), the period is the greater of: (a) the greater of what would be the life expectancies (rounded up, if not consisting of a whole number of years, to the next whole number), on the commencement day, of: (i) the primary beneficiary, if the primary beneficiary were 5 years younger; and (ii) the primary beneficiary’s reversionary partner on that day, if the partner were 5 years younger; and (b) the greater of: (i) the period (rounded up, if not consisting of a whole number of years, to the next whole number) starting on the commencement day and ending on the day on which the primary beneficiary reaches age 100 (assuming that the primary beneficiary lives until then); and (ii) the period (rounded up, if not consisting of a whole number of years, to the next whole number) starting on the commencement day and ending on the day on which the primary beneficiary’s reversionary partner on the commencement day reaches age 100 (assuming that the partner lives until then). Total amount payable in each financial year—general rule (5) For each financial year wholly or partly within the income stream’s term, the total amount of the payments to be made under the income stream must not be less than 90%, nor greater than 110%, of the amount worked out under the formula:  where: > account balance means: (a) if the financial year includes the income stream’s commencement day—the opening account balance for the income stream; or (b) otherwise—the account balance for the income stream at the start of the financial year. > PF means the payment factor for the income stream for the financial year, worked out under principles determined by the Commission under subsection (5A). (5A) The Commission must, by legislative instrument, determine principles for the purposes of the definition of PF in subsection (5). Other rules about payments under the income stream (6) If the income stream’s commencement day is not a 1 July, a total amount worked out under subsection (5) for the financial year starting on the preceding 1 July must be reduced on a pro‑rata basis by reference to the number of days in the financial year that are on and after the commencement day. (7) If: (a) the income stream’s commencement day happens in June; and (b) no payment is made under the income stream for the financial year in which the commencement day happens; subsections (5) and (6) do not apply to the income stream for that financial year. (8) If the amount (the test amount) of a payment to be made under the income stream on a day in a financial year: (a) is worked out by reference to a total amount worked out under subsection (5) (and subsection (6), if applicable) for the financial year; and (b) exceeds the income stream’s account balance on that day; then: (c) the account balance (if any) must be paid instead of the test amount; and (d) that total amount described in paragraph (a) must be reduced by the amount of the excess. (9) If the income stream has a positive account balance at the end of its term, a payment equal to that account balance must be made within 28 days after the end of the term. Determination that income stream not asset‑test exempt (10) 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: (a) the primary beneficiary has commuted an asset‑test exempt income stream on at least 3 occasions since the person first received a service pension, income support supplement, a veteran payment or a social security payment; and (b) on at least 3 of those occasions, the commutation happened within 6 months after the commencement day of the income stream concerned. Determination that income stream is asset‑test exempt (11) 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 must have regard to the guidelines (if any) determined under subsection (12). (11A) To avoid doubt, a determination under subsection (11) may be made in respect of an income stream regardless of the income stream’s commencement day. (11B) A determination under subsection (11) is not a legislative instrument. Guidelines to be complied with in making determination (12) The Commission may determine, by legislative instrument, guidelines to be complied with when making a determination under subsection (11). Definitions (14) In this section: > hardship amount has the same meaning as in section 5JA (see subsection 5JA(7)). > 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. > reversionary partner, in relation to the primary beneficiary of an income stream and a particular day, means another person who, on that day: (a) is a member of a couple with the primary beneficiary; and (b) is the person to whom the income stream will revert on the primary beneficiary’s death. > Note: For paragraph (a), member of a couple is defined in section 5E.