Overview

The Social Security (Income Stream) (FaCSIA) Determination 2007 was enacted under the authority of the Social Security Act 1991. It was introduced to address the need for a clearer definition of what constitutes a "defined benefit income stream" in the context of superannuation, particularly for income streams established before 1998, and to specify the types of account-based income stream products that fall under the purview of section 1099DAA of the Social Security Act. This Determination also serves to define the "minimum amount" used in the formula for calculating income derived from such products. The objective of this legislation is to ensure that the social security means test can be appropriately applied to income streams, in line with the changes introduced by the Tax Laws Amendment (Simplified Superannuation) Act 2007. The Social Security (Income Stream) (FaCSIA) Determination 2007 was made by the Minister for Families, Housing, Community Services and Indigenous Affairs, in consultation with relevant government departments, and applies retrospectively from 1 July 2007, providing clarity and benefit to customers.

Scope and Application

The Social Security (Income Stream) (FaCSIA) Determination 2007 applies to individuals and entities involved in the provision of income streams, specifically those that can access new withdrawal limits applicable to account-based income streams from 1 July 2007. This includes individuals who receive income from defined benefit superannuation funds established before 20 September 1998 and entities such as financial institutions and superannuation funds that manage these income streams. The Determination specifies the standards that a pre-1998 income stream must satisfy to qualify as a "defined benefit income stream" under the Social Security Act 1991, ensuring that these income streams are exempt from the assets test for social security purposes. Additionally, the Determination identifies the types of account-based income stream products that will be subject to section 1099DAA of the Act and defines the "minimum amount" used in the formula for calculating the income derived from these products. This instrument has a national reach, applying across Australia as it is made under the Commonwealth’s Social Security Act 1991. The Determination is not retrospective in effect, taking effect from 1 July 2007, and does not impose any significant compliance costs on businesses or individuals.

Key Provisions

The Social Security (Income Stream) (FaCSIA) Determination 2007 sets forth specific standards and criteria that need to be met for pre-1998 income streams to qualify as “defined benefit income streams” for social security purposes. According to Section 4 of the Determination, these income streams must meet the requirements outlined in paragraphs 1.06(2)(a) to (d) and (f) to (h) of the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations). Essentially, this means that the income streams must adhere to the specified standards to be considered a “defined benefit income stream” under the Social Security Act 1991. Section 5 of the Determination specifies that an account-based pension, as defined in the SIS Regulations, falls under subparagraph 1099DAA(1)(b)(i) of the Act. This inclusion ensures that such pensions are subject to the provisions of section 1099DAA, which determines the amount of income to be attributed to a customer from an income stream. Additionally, Section 6 of the Determination clarifies that any annuity provided under a contract must meet the standards outlined in subregulation 1.05(4) and paragraph 1.05(11A)(a) of the SIS Regulations to be considered compliant. The Determination imposes specific obligations on the entities and individuals involved. For instance, entities that provide defined benefit income streams must ensure that their products meet the standards set forth in the SIS Regulations. This includes ensuring that the income streams comply with the requirements specified in paragraphs 1.06(2)(a) to (d) and (f) to (h) of the SIS Regulations. Furthermore, the Determination mandates that any contracts for annuities must adhere to the standards stipulated in subregulation 1.05(4) and paragraph 1.05(11A)(a) of the SIS Regulations. Failure to comply with these standards could result in the income streams not being recognised as “defined benefit income streams” for social security purposes. Breach of the provisions outlined in the Social Security (Income Stream) (FaCSIA) Determination 2007 could lead to various consequences. While the Determination does not explicitly detail specific offences, penalties, or consequences for non-compliance, any failure to meet the standards set forth in the SIS Regulations could result in the income streams not being recognised for social security purposes. This could, in turn, affect the social security benefits received by individuals. Additionally, entities found to be in non-compliance may face regulatory scrutiny and potential enforcement actions by relevant authorities to ensure adherence to the stipulated standards. The exact nature and extent of penalties or consequences would depend on the specific circumstances of non-compliance and the applicable laws and regulations.