Commonwealth Numbered Acts

TAXATION LAWS AMENDMENT ACT (No. 2) 1985No. 123, 1985 - SECT 20

20. After section 121B of the Principal Act the following section is inserted:
Limitation of exemption from tax of income of certain superannuation funds

"121C. (1) In this section, unless the contrary intention appears -
'agreement' means any agreement, arrangement or understanding whether formal
or informal, whether express or implied and whether or not enforceable, or
intended to be enforceable, by legal proceedings; 'associate' has the same
meaning in relation to a person as that expression has in relation to a person
in section 26AAB; 'employee', in relation to a company, includes a director of
the company; 'in-house asset', in relation to a superannuation fund, means an
asset of the fund that consists of a loan to, or an investment in, an employer
sponsor of the fund or an associate of an employer sponsor of the fund, but,
in a case where an employer sponsor of the fund is a life assurance company
and the contributions made by the employer sponsor are in respect of an
employee, or dependants of an employee, of the employer sponsor, does not
include an asset consisting of a life policy on the life of that employee;
'investment' means any mode of application of money for the purpose of gaining
interest, income or profit; 'life assurance company' means -

   (a)  a company registered under section 19 of the Life Insurance Act 1945;
        or

   (b)  a public authority constituted by a law of a State or Territory, being
        a public authority that carries on life business within the meaning of
        that expression in sub-section 4(1) of the Life Insurance Act 1945;
        'life policy' has the same meaning as in sub-section 4 (1) of the Life
        Insurance Act 1945; 'superannuation fund' means a provident, benefit,
        superannuation or retirement fund to which section 23F or 23FB applies
        in relation to the year of income.

"(2) Where an employee has, or dependants of an employee have, a right to
receive benefits from a superannuation fund -

   (a)  an employer of the employee;

   (b)  a company in which an employer of the employee has a controlling
        interest; and

   (c)  if an employer of the employee is a company - a person who is
        connected with that company, who contributes to the fund in respect of
        the employee or dependants of the employee shall be taken, for the
        purpose of this section, to be an employer sponsor of the fund.

"(3) For the purposes of paragraph (2) (c), a person is connected with a
company that is an employer of an employee if, and only if -

   (a)  the person has a controlling interest in the employer;

   (b)  the person is a company in which a controlling interest is held by a
        person who also has a controlling interest in the employer; or

   (c)  the person is a beneficial owner of shares in the employer.

"(4) The investment income of a superannuation fund derived during the year of
income, being a superannuation fund that was established after 11 March 1985,
is not exempt from income tax by virtue of section 23F or 23FB unless, at all
times during the year of income, the cost of the in-house assets of the fund
did not exceed 10% of the cost of all the assets of the fund. "(5) The
investment income of a superannuation fund derived during the year of income,
being a superannuation fund that was established before 12 March 1985, is not
exempt from income tax by virtue of section 23F or 23FB unless, at all times
during the year of income, the cost of the in-house assets of the fund did not
exceed -

   (a)  in the case of the year of income commencing on 1 July 1994 or a
        preceding year of income -

        (i)    the cost of the in-house assets of the fund as at 11 March
               1985; or

        (ii)   10% of the cost of all the assets of the fund, whichever is the
               greater; and

   (b)  in any other case - 10% of the cost of all the assets of the fund.

"(6) Where the cost of the in-house assets of a superannuation fund as at 11
March 1985 exceeded 70% of the cost of all the assets of the fund, the cost of
the in-house assets of the fund as at 11 March 1985 shall be deemed, for the
purposes of sub-paragraph (5) (a) (i), to be equal to 70% of the cost of all
the assets of the fund as at 11 March 1985.

"(7) For the purposes of this section, the Commissioner shall disregard any
failure of the assets of a superannuation fund to comply with the maximum
levels of in-house assets specified in sub-section (4) or (5) if the
Commissioner is satisfied -

   (a)  that the trustee of the fund made a genuine and bona fide attempt to
        ensure that the in-house assets of that fund did not exceed, at any
        time during that year of income, the levels so specified; or

   (b)  that the failure was by reason of a temporary delay in investment, and
        that, in all the circumstances, it would be reasonable to disregard
        that failure.

"(8) This section does not apply, in relation to a year of income, to a
superannuation fund where -

   (a)  the terms and conditions applicable to the fund did not, at any time
        during that year of income, make provision for benefits for residents;
        and

   (b)  no deductions have been allowed or are allowable in the assessment of
        the taxable income of any taxpayer in respect of contributions made to
        the fund during that year of income.

"(9) For the purposes of this section, where, in relation to a year of income,
the investment income of a superannuation fund consists of, or includes, a
portion of the income arising from certain assets -

   (a)  those assets shall be deemed to be assets of the fund; and

   (b)  the cost of those assets shall, in relation to any time during that
        year of income, be such amount as, in the opinion of the Commissioner,
        is reasonable in the circumstances.

"(10) Where -

   (a)  a particular asset of a superannuation fund was acquired without
        consideration or for consideration other than the value of the asset
        when it was acquired; or

   (b)  the whole or a part of the consideration for which a particular asset
        of a superannuation fund was acquired was other than money, the cost
        of that asset shall, for the purposes of this section, be such amount
        as, in the opinion of the Commissioner, is reasonable in the
        circumstances.

"(11) Where -

   (a)  but for this sub-section, an asset of a superannuation fund consists
        of a loan, or investment, other than an in-house asset;

   (b)  that loan or investment was made as the result of the entering into or
        carrying out of an agreement; and

   (c)  any of the persons who entered into or carried out the agreement did
        so for the purpose, or for purposes that included the purpose, of
        achieving the result that a loan or investment would be made to or in,
        or to or in an associate of, an employer sponsor of the fund, the
        asset is an in-house asset of the fund for the purposes of this
        section.

"(12) Where -

   (a)  an asset of a superannuation fund consists of a loan to, or investment
        in, a person other than - (i) an employer sponsor of the fund; or (ii)
        an associate of an employer sponsor of the fund;

   (b)  the person has a financial link with an employer sponsor of the fund
        or an associate of an employer sponsor of the fund; and

   (c)  sub-section (11) does not apply in relation to the asset, the cost of
        the in-house assets of the fund shall be deemed, for the purposes of
        this section, to be increased by such amount (if any) as, in the
        opinion of the Commissioner, is reasonable in the circumstances.

"(13) For the purposes of sub-section (12) and this sub-section -

   (a)  a person has a financial link with a second person if an asset of the
        first-mentioned person consists of a loan to, or an investment in, the
        second person; and

   (b)  a person has a financial link with a second person if the
        firstmentioned person has a financial link with a third person who has
        a financial link with the second person (including a financial link
        with the second person by another application or other applications of
        this paragraph). "(14) Subject to sub-section (15), the cost of the
        in-house assets of a superannuation fund shall be deemed, for the
        purposes of this section, to be increased by an amount equal to the
        sum of -

   (a)  the amount of any subsisting guarantee given by the trustee of the
        fund (whether jointly or otherwise) in relation to, or in relation to
        an associate of, an employer sponsor of the fund;

   (b)  the amount of any subsisting mortgage given in respect of an asset of
        the fund for the benefit of, or for the benefit of an associate of, an
        employer sponsor of the fund (whether or not the mortgage was also
        given for the benefit of other persons); and

   (c)  the amount of payments by way of calls in respect of shares in, or in
        an associate of, an employer sponsor of the fund, that the trustee of
        the fund is, or could become, liable to pay (whether jointly or
        otherwise).

"(15) Where -

   (a)  the trustee of a superannuation fund could become liable (whether
        jointly or otherwise) to pay an amount by way of calls in respect of
        shares in, or in an associate of, an employer sponsor of the fund; and

   (b)  the Commissioner is satisfied that the assets of the employer sponsor
        or the associate of the employer sponsor, as the case may be, are
        sufficient to enable it to pay any debts that it has incurred, or is
        reasonably likely to incur, without requiring any of those calls to be
        paid, the Commissioner may determine that the amount referred to in
        paragraph (a) shall be disregarded for the purposes of paragraph (14)
        (c).

"(16) Where -

   (a)  an employer of an employee is a company;

   (b)  the employee has, or dependants of the employee have, a right to
        receive benefits from a superannuation fund;

   (c)  the employee, or a dependant of the employee, is a beneficial owner of
        shares in the employer;

   (d)  an asset of the fund consists of a loan to the employee, or the
        dependant, referred to in paragraph (c); and

   (e)  but for this sub-section, the asset is an in-house asset of the fund,
        the asset shall, for the purposes of this section, be deemed not to be
        an inhouse asset of the fund if the Commissioner, having regard to -

   (f)  the amount of the loan;

   (g)  the value of the shares; and

   (h)  any other matters that the Commissioner considers relevant, is
        satisfied that there are special circumstances by reason of which it
        would be reasonable to treat the asset as not being an in-house asset
        of the fund.

"(17) Nothing in sub-section (14), (15) or (16) shall be construed as
permitting, by implication, the doing of an act or thing by or in relation to
a superannuation fund that could not be done without contravening whichever of
sections 23F or 23FB is applicable in relation to the fund.

"(18) Where a superannuation fund is in existence during part only of a year
of income, this section has effect as if references to all times during the
year of income were references to all times during the part of that year of
income during which the superannuation fund was in existence.".