Issued by authority of the Minister for Financial Services,
Superannuation and Corporate Law

Income Tax Assessment Act 1997

Income Tax Assessment Amendment Regulations 2009 (No. 3)

Subsection 909-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides, in part, that the Governor-General may make regulations prescribing matters required or permitted by this Act to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to this Act.

Schedule 3 of the Tax Laws Amendment (2009 Budget Measures No. 1) Act 2009 includes amendments to the ITAA 1997 to give effect to the reduction of the annual superannuation concessional contributions caps, as announced in the 2009-10 Budget. The Tax Laws Amendment (2009 Budget Measures No. 1) Act 2009 received Royal Assent on 29 June 2009 for commencement on 1 July 2009.

The main purpose of these Regulations is to amend the Income Tax Assessment Regulations 1997 (ITAR 1997) to support the Australian Government’s Budget announcement that grandfathering arrangements would be extended for certain members of defined benefit funds on 12 May 2009 as a result of the reduction in the concessional contributions caps. These new grandfathering arrangements are modelled on those already in existence for members who had a defined benefit interest at 5 September 2006 (when the original contribution caps were first announced).

The Regulations specify that members who hold a defined benefit interest on 12 May 2009 and whose notional taxed contributions exceed the newly reduced concessional contributions caps have their concessional contributions for that defined benefit interest deemed as being equal to their cap, provided certain conditions are met. The conditions would be based on the current grandfathering conditions in the existing law. For example, an existing condition specifies how the method of calculating superannuation salary may change without the member losing their eligibility for grandfathering.

The Regulations also include a number of refinements to the existing grandfathering regulations to improve the operation of those provisions and clarify their operation in certain circumstances, such as where members of a fund are transferred to another fund. The Regulations also make minor technical amendments to correct inaccurate cross-references in the current law.

The draft Regulations were released for targeted confidential consultation with industry on 18 June 2009.

Details of the proposed regulations are set out in the Attachment.

The Regulations would be legislative instruments for the purposes of the Legislative Instruments Act 2003.

ATTACHMENT

Details of Income Tax Assessment Amendment Regulations 2009 (No. 3)

Regulation 1 specifies the name of the Regulations as the Income Tax Assessment Amendment Regulations 2009 (No. 3).

Regulation 2 provides that the Regulations will commence on the day after they are registered.

Regulation 3 provides that Schedule 1 amends the Income Tax Assessment Regulations 1997.

Regulation 4 provides that the amendments made by items [2] and [5] of Schedule 1 apply in relation to the 2007-08 and later financial years. These amendments remove the potential for a breach of the relevant regulation to have occurred in certain circumstances.

Schedule 1 – Amendments

Technical Amendments

Items 1, 3, 4, and 5

Items 1, 3, 4 and 5 correct inaccurate cross references in the existing Regulations.

Amendment of conditions that determine eligibility for grandfathering for those already covered by existing grandfathering provisions applicable to members with defined benefit interests at 5 September 2006

Items 2 and 6

Items 2 and 6 provide that changes to a benefit category or an increase in a new entrant rate which resulted only because of the necessary application of fund rules or legislation that were in force on 5 September 2006 (the date the original contribution caps were first announced) will not cause the conditions for ‘grandfathering’ to be breached, provided the member had no control over the application of those rules or legislation. These amendments will apply in relation to the 2007-08 financial year and later financial years.

For example, if a member was promoted to a new position and the application of fund rules or legislation in place at 5 September 2006 made it necessary as a result for the member to move to a new benefit category, and the member had no control over whether those rules or legislation would be applied in that circumstance, this would not in itself cause a breach of the relevant conditions for maintaining grandfathering.

Extension of grandfathering arrangements to members with defined benefit interests on 12 May 2009

In broad terms, these amendments extend the grandfathering arrangements that already apply to relevant members with a defined benefit interest at 5 September 2006 to relevant members with a defined benefit interest at 12 May 2009.

Item 7

Item 7 inserts new regulations 292-170.07 and 292-170.08 which provide the conditions that must be satisfied if a defined benefit member of a fund at 12 May 2009 is to be eligible for ‘grandfathering’.

The conditions are effectively the same as those that already apply to members covered by Regulations 292-170.05 and 292-170.06 (that is, members covered by the original 5 September 2006 grandfathering). They thus extend grandfathering to members at 12 May 2009 who are not currently covered by the original 5 September 2006 grandfathering.

If the relevant conditions are met, a member at 12 May 2009 who has notional taxed contributions in excess of the new reduced concessional contributions caps will have their notional taxed contributions for the relevant defined benefit interest set as being equal to their new cap in respect of the 2009-10 and later financial years. For example, a condition specifies how the method of calculating superannuation salary may change without the member losing their eligibility for grandfathering.

A similar provision as inserted by Items 2 and 6 will also apply to members grandfathered under these provisions.

Item 8

Item 8 amends the provisions which determine how the new entrant age for a member is calculated. The new entrant age is used by an actuary in their calculations for determining the level of notional taxed contributions for a member.

The amendment is intended to facilitate fund mergers and transfers by allowing the actuary of the successor fund to take into account the average age of entry of members to a predecessor fund, where appropriate. The change is necessary as Items 3.6(1) and 3.6(2A) of Schedule 1A do not currently facilitate mergers or transfers made after 1 July 2007.

The amendment provides that if there has been a transfer of members from a predecessor fund into a fund or sub-fund then the actuary can, if they consider it reasonable to do so, determine a new entrant age for that fund or sub-fund that takes into account the average age of entry used for or relevant for those transferred members in the predecessor fund.

For example, where members of a predecessor fund are transferred to a new fund or new sub-fund, the actuary of the new fund will be able to determine the average age of entry for the purposes of Schedule 1A taking into account the average age of entry used for those members in the predecessor fund, or the average age of entry into the predecessor fund of the transferred members.

Where the transfer is being made into an existing fund (or sub-fund) where a new entrant age has already been determined, then the actuary can choose, if they consider it appropriate, to recalculate the existing new entrant age to take account of the relevant average entrant age in the predecessor fund of the transferred members.

These amendments will apply in relation to the 2009-10 financial year and later financial years.

Item 9

Item 9 removes the reference to ‘notional earnings base’ in the relevant regulations. This ensures that any changes which are necessary to satisfy the requirements of the Superannuation Guarantee (Administration) Act 1992 will not cause a breach of the conditions that must be met for grandfathering.