Commonwealth Numbered Regulations - Explanatory Statements

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INCOME TAX AMENDMENT REGULATIONS 2002 (NO. 4) 2002 NO. 111

STATUTORY RULES 2002 No. 111

Issued by authority of the Minister for Revenue and Assistant Treasurer

Income Tax Assessment Act 1936

Income Tax Amendment Regulations 2002 (No. 4)

Section 266 of the Income Tax Assessment Act 1936 (the Act) provides that the GovernorGeneral may make regulations prescribing matters required to give effect to the Act.

Section 271A of the Act exempts from tax the income of constitutionally protected funds. A constitutionally protected fund is defined in section 267 of the Act to be a fund that is declared by the Income Tax Regulations 1936 (the principal Regulations) to be a constitutionally protected fund. Regulation 177 of the principal Regulations provides that a constitutionally protected fund includes a fund established by State legislation listed in Schedule 14 to the principal Regulations. A fund will qualify as a constitutionally protected fund, and therefore be listed in Schedule 14, if the assets of the fund are the property of the State. In these circumstances, section 114 of the Constitution prevents the Commonwealth from taxing the fund.

The purpose of the Regulations is to update the list of South Australian and Western Australian constitutionally protected funds set out in the principal Regulations.

Item 1, Schedule 1 removes the Electricity Trust of South Australia Act 1946 (SA) and the Electricity Corporations Act 1994 (SA) from Schedule 14 to the Regulations. Those Acts established the Electricity Industry Superannuation Fund (formerly known as Electricity Trust of South Australia Superannuation Fund). The South Australian Government has sought to change the Fund's status from a constitutionally protected fund to a taxed superannuation fund with effect from 1 July 2000.

Item 1, Schedule 2 removes the Police Occupational Superannuation Scheme established in South Australia under a Trust Deed from the constitutionally protected funds because it no longer exists.

Item 2, Schedule 2 inserts section 29 of the State Superannuation Act 2000 (WA) in Schedule 14 to the principal Regulations to preserve the status of 3 constitutionally protected funds that were established under the Government Employees Superannuation Act 1987 (WA) and the Superannuation and Family Benefits Act 1938 (WA). Those Acts have been repealed. However, the superannuation schemes established by those Acts have been continued by section 29 of the State Superannuation Act 2000 (WA).

Item 3, Schedule 2 amends items 506 to 508 of Schedule 14 to exclude certain sections of the Police Superannuation Act 1990 (SA), the Southern State Superannuation Act 1994 (SA) and the Superannuation Act 1988 (SA). The South Australian Government proposes to establish superannuation schemes under the excluded sections that will not qualify as constitutionally protected funds. Rather, those schemes will be taxed superannuation funds.

Item 4, Schedule 2 removes the scheme established under the Superannuation (Benefit Scheme) Act 1992 (SA) from the list of constitutionally protected funds. That Act has been repealed. The superannuation scheme established under that Act has been merged with the superannuation scheme established under the Southern State Superannuation Act 1994 (SA).

The requirements of subsection 48(2) of the Acts Interpretation Act 1901 are not contravened in relation to the retrospective application of Schedule 1 as no Electricity Industry Superannuation Fund members will be disadvantaged. Benefits payable to members will be taxed as though they come from a taxed source rather than from an untaxed source. That is, as the Fund will now be taxed, members will pay tax at a lower rate on benefits they receive. In addition, the relevant South Australian legislation provides that the net after tax benefits of members cannot be reduced as a result of the change in the Fund's tax status.

If the Regulations were to apply prospectively, the trustees of the Fund and the South Australian Government would have significant administrative difficulties.

Despite subsection 48(2), the proposed Regulations can have effect prior to their date of notification. Section 5 of Schedule 2 to the Taxation Laws Amendment Act (No. 5) 2001 ensures that subsection 48(2) does not apply to regulations that are introduced to amend the principal Regulations to remove the Fund from the list of constitutionally protected funds in Schedule 14.

The Regulations commenced as follows:

•       Regulations 1 to 3 and Schedule 1 are taken to have commenced on 1 July 2000; and

•       Schedule 2 commenced on gazettal of the regulations.