Adding or updating a term income stream 108-05060050

A term income stream is a set of regular payments payable for a set period. The term can be from 1 year to up to 35 years. Note: a life expectancy income stream is not a term product for social security purposes. A Self-Managed Superannuation Fund (SMSF) or Small APRA Fund (SAF) could only offer a life expectancy product.

One of the options available with fixed term income streams is for the purchaser to receive back part, or all, of the purchase price on completion of the term.

For example, a 10 year term annuity purchased for $100,000 may have $100,000 returned as a lump sum at the end of the 10 years.

This amount returned is called the residual capital value (RCV). The RCV may be less than 100% of the purchase price and can even be zero. If the income stream product held by the customer or their partner has an RCV amount greater than zero recorded, the system will send a letter to the customer on the expiry of the product term for the review of income stream products with a residual capital value.

Term income streams are non-complying and asset-tested. If the term of the income stream is:

• greater than 5 years, or is less than 5 years and equal to or greater than the owner's life expectancy, it is an asset-tested (long term) income stream (category 2)
• five years, or is less than 5 years and not equal to or greater than the owner's life expectancy, it is an asset-tested (short term) income stream (category 3)

The income stream provider must provide details of the income stream on a Details of income stream product (SA330) or a similar schedule.

Note: do not accept a schedule for a non-SMSF sourced income stream if completed by a financial adviser, accountant, or any other person.

Term income streams can never be asset-test exempt, as they do not comply with sections 9A, 9B or 9BA of the Social Security Act. This means they are fully assessed using an asset assessment rule. The asset value is recalculated in arrears annually if the payment frequency is annual; otherwise, it is reviewed every 6 months.

• For an asset-tested (long term) income stream, gross income - deduction amount = assessed income
• An asset-tested (short term) income stream is treated as a financial investment with deeming applied to the assessable asset value to determine assessable income

Joint income streams can only be purchased with ordinary money, and not superannuation money. Term income streams purchased with ordinary money can be jointly owned. The income stream payments are made to each owner of the joint income stream. An income stream that has a single owner with a reversionary beneficiary is not a joint income stream.

The purchase price, gross income and any residual capital value, must be halved and recorded on the customer's and the partner's record. The relevant number is the term of the income stream and will be the same for both. The product name field must include the term 'joint income stream' or 'jointly held' to identify the product as a jointly owned income stream.

When one of the owners dies, the surviving partner will start getting the full gross income from the income stream. The existing income stream must be:

• cancelled, and
• recoded with the total original purchase price and gross income amount

The original purchaser of the income stream may nominate a person to receive the income after their death, for example their spouse or partner. This person is the reversionary beneficiary.

When an income stream is passed on to a reversionary beneficiary:

• Income is assessed from the day after the death of the primary beneficiary (deceased spouse or partner), which is the date the customer (reversionary) is entitled to receive the payments
• The income stream is treated as a continuation of the original income stream. If it was originally purchased before 1 July 2019, but reverted after 1 July 2019, the pre 1 July 2019 assessment will continue
• The purchase price, purchase date and relevant number remain unchanged
• The gross income may be reduced as specified in the income stream contract

There may be a gap between the death of the original beneficiary and the date the reversionary beneficiary starts to receive regular payments. A lump sum arrears payment is made to the reversionary beneficiary to cover the gap. The lump sum is assessed as income from an income stream for the period to which it relates. This may result in a debt if the person has been receiving an income support payment.

Waiver provisions came into effect from 9 May 2018:

• where the lump sum arrears results in a debt during the bereavement period for the surviving spouse, and certain conditions are met
• only debts within the 14 week bereavement period can be waived under these rules

The 9 May rules are not retrospective. Any of these debts occurring before 9 May 2018 cannot be waived using these rules.

See the References page for a link to the legislation.

The customer can invest the proceeds from the sale of the principal home in an income stream. If the customer intends to use some or all of the purchased income stream to buy their new home, see Sale of principal home.

Customers can advise of new term income streams via their Centrelink online account; however, they cannot make changes to existing term income streams online. Manual handoff will occur where the customer advises a new term income stream, a DOC with keyword OIAICS will start on the customer's record and a Work item for staff manual action will be generated on the customer's record containing details provided by the customer. Staff can select the Work Item to process the update in Process Direct.