The defined benefit income stream schedule for Centrelink assessment purposes is determined by the tax free component of the income stream.

Unlike other types of retirement income streams, a defined benefit pension does not use a formula to calculate the deductible amount of the income stream.

In fact, even account based pensions don’t use the deductible amount formula anymore, unless the pension was commenced prior to 1 January 2015 and the recipient was eligible for income support payments at that time. Account based pensions commenced after 1 January 2015 are deemed for Centrelink income assessment purposes.

Providers of non-defined benefit income streams make available a Centrelink Schedule which includes the purchase price of the pension, any commutations made since it commenced, the pension income being paid and the relevant number (effective life expectancy of the member) at commencement of the income stream. All of these factors are used to calculate the ‘deductible amount’ of the non-defined benefit income stream, using a formula, which reflects the return of the purchase price.

Related Posts:

Defined benefit income streams are different.

Defined Benefit Income Stream Centrelink Assessment

From 1 July 2007, the deductible amount for defined benefit income streams is based on the ‘tax free component’ of the income stream.

The definition of the deductible amount is the amount of the income received that is not assessed for Centrelink assessment purposes.

The provider of the defined benefit pension will be able to provide the pension recipient with a schedule or statement that details the tax free component portion of the income being received.

Defined Benefit Assessment: Changes after 1 January 2016

What should be noted is that, from 1 January 2016, the deductible amount of a defined benefit income stream for Centrelink purposes was limited and capped to 10% of the gross income being received. The result of this, for many defined benefit pension recipients, is that more of the income received is assessed for Centrelink purposes.

The table below shows an example of the how the changes affect the assessment of a defined benefit income stream for Centrelink purposes. For this example, a gross payment of $50,000 p.a. and a tax-free component of $15,000 p.a. is assumed.

Gross Payment Tax-Free Component Centrelink Deductible Amount Assessable Income
Pre-1 Jan 2016 $50 000 p.a. $15 000 p.a. $15 000 p.a. $35 000 p.a.
Post-1 Jan 2016 $50 000 p.a. $15 000 p.a. $5 000 p.a. (capped at 10%) $45 000 p.a.

The 10% cap of the deductible amount does not mean that a defined benefit income stream with a tax-free component of less than 10% will increase to 10% from 1 January 2016. In this case (assuming a tax free component of $3,000 p.a.) it will remain the same, as shown in the table below:

Gross Payment Tax-Free Component Centrelink Deductible Amount Assessable Income
Pre-1 Jan 2016 $50 000 p.a. $3 000 p.a. $3 000 p.a. $47 000 p.a.
Post-1 Jan 2016 $50 000 p.a. $3 000 p.a. $3 000 p.a. $47 000 p.a.

Defined-Benefit-Income-Stream-Schedule-For-Centrelink-Assessment-Purposes

Defined Benefit Assessment: Changes from 1 January 2016 (Exclusions)

Some defined benefit income streams are excluded from the 1 January 2016 changes and will not have the deductible amount of the income stream capped at 10% p.a. The following types of defined benefit income streams will continue to have the full tax-free component exempt from Centrelink/Deparment of Veteran Affairs (DVA) Assessment:

– Defence Force Retirement & Death Benefits Scheme (DFRDB)

– Military Superannuation & Benefits Scheme (MilitarySuper); and

– Defence Force Retirement Benefits Scheme (DFRB)

The provider of a defined benefit income stream will be able to provide a defined benefit income stream schedule for Centrelink assessment purposes, which will include the tax-free component of the income stream, allowing the deductible amount to be calculated.

Share Button

Chris Strano

Chris Strano is a specialist independent superannuation author for SuperGuy.com.au - one of Australia's leading superannuation information resources.

More Posts - Website