Commonwealth Numbered Regulations - Explanatory Statements

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INCOME TAX AMENDMENT REGULATIONS 2002 (NO. 6) 2002 NO. 215

STATUTORY RULES 2002 No. 215

Issued by authority of the Minister for Revenue and Assistant Treasurer

Income Tax Assessment Act 1936

Income Tax Amendment Regulations 2002 (No. 6)

Section 266 of the Income Tax Assessment Act 1936 (the Act) provides that the Governor-General may make regulations prescribing matters required or permitted by the Act to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to the Act.

Recent amendments to the Family Law Act 1975 and related legislation will in future allow superannuation to be split between couples on the breakdown of a marriage.

The purpose of the Regulations is to prescribe certain matters necessary to give effect to the taxation consequences of superannuation being split. In particular the proposed Regulations would:

•       ensure that the taxation consequences (section 27ACB of the Act) of a superannuation interest being split in such circumstances apply to all types of interest splits envisaged under the Family Law legislation (Schedule l, item 3);

•       ensure that where pension payments are split the 'deemed' pensions that result for each party (under subsections 140M(1A) and (1C) of the Act) will both be considered to meet the pension and annuity standards if the original pension meets those standards (Schedule 1, item 1); and

•       make minor amendments to clarify reasonable benefit limit (RBL) reporting obligations where pensions are split (Schedule 1, item 2).

Details of the Regulations are set out in the attachment.

The Regulations would commence on the commencement of the Family Law Legislation Amendment (Superannuation) (Consequential Provisions) Act 2001, which received Royal Assent on 18 September 2001, and which is expected to commence in late December 2002.

ATTACHMENT

Income Tax Amendment Regulations 2002 (No. 6)

Explanation of the amendments

Regulation 1 - specifies the name of the Regulations as the Income Tax Amendment Regulations 2002 (No. 6).

Regulation 2 - provides that the Regulations would commence on the commencement of the Family Law Legislation Amendment (Superannuation) (Consequential Provisions) Act 2001. That Act in turn commences at the same time as the commencement of the Family Law Legislation Amendment (Superannuation) Act 2001 which commences on a date to be proclaimed or 18 months after Royal Assent (which would be 28 December 2002).

Regulation 3 - provides that Schedule 1 amends the Income Tax Regulations 1936.

Schedule 1 amendments

Item 1 of Schedule 1 - amends existing Regulation 53J to clarify the reasonable benefit limit (RBL) treatment of pensions that are split on marriage breakdown. The RBL is the amount of concessionally taxed superannuation benefits a person is entitled to receive.

Under subsections 140M(1A) and (1C) of the Act if pension payments are split each of the parties (referred to in the Family Law legislation as the 'member spouse' and 'non-member spouse') will be deemed to be in receipt of a new separate pension which will be reported and assessed against their own individual RBL. If a pension meets the 'pension and annuity standards' then it may entitle the beneficiary to access to a higher RBL.

The purpose of the amendment is to ensure that any deemed pensions under subsections 140M(1A) and (1C) will be considered to meet the 'pension and annuity standards' if the original pension that is subject to the split meets those standards. This may entitle the beneficiary to access to a higher RBL.

Item 2 of Schedule 1 - provides that the information that funds are required to report when deemed pensions are taken to commence under subsections 140M(1A) and (1C) is the information contained in Schedule 2B of the Regulations. Funds are already required to report information in accordance with Schedule 2B when a pension commences. The effect of the regulation is to extend this requirement to pensions deemed to commence when an original pension has been split on marriage breakdown.

Item 3 of Schedule 1 - inserts a new Regulation 98 into the Regulations.

Section 27ACB of the Act sets out the taxation consequences if a superannuation interest is split by a new interest being created for the non-member spouse or by an amount being transferred or rolled over for the non-member spouse to another fund. However, section 27ACB will only apply where the new interest or transfer/rollover occurs in circumstances specified in the regulations.

The intent is to refer in the regulations to all circumstances where the Family Law legislation envisaged such new interests or transfers/rollovers would occur. These circumstances are already referred to in Division 2.2 of the Family Law Regulations in the context of determining what payments are not 'splittable payments' under the Family Law Act 1975.

Accordingly new Regulation 98 specifies the circumstances for the purposes of section 27ACB by providing a cross link to the circumstances in which new interests and transfers/rollovers for the non-member spouse are relevant for the purposes of Division 2.2 of the Family Law Regulations. Broadly, this means that section 27ACB will apply where a new interest is created, or amount transferred or rolled over for the non-member spouse under the Superannuation Industry (Supervision) Regulations or Retirement Savings Account Regulations or under the governing rules of the superannuation entity.

Item 4 of Schedule 1 - enables the Commissioner of Taxation (Commissioner) to ask for additional information when funds are reporting benefits for the purposes of subsections 140M(1A) and (1C) and 140ZP(3). This ensures that the Commissioner can receive all necessary information to assess the value of any pensions deemed to commence under subsections 140M(1A) and (1C) and to make the reduction in the value of the original pension of the member spouse as provided for in subsection 140ZP(3).