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INCOME TAX REGULATIONS (AMENDMENT) 1991 NO. 390
EXPLANATORY STATEMENTSTATUTORY RULES 1991 No. 390
Issued by the Authority of the Treasurer
Income Tax Assessment Act 1936
Income Tax Regulations (Amendment)
These regulations amend the Income Tax Regulations dealing with the payment, roll-over and tax instalment deduction provisions relating to eligible termination payments (ETP's).
The amending regulations are required as a result of the amendment of the Income Tax Assessment Act 1936 (the Act) by the Occupational Superannuation (Reasonable Benefit Limit) Amendment Act 1990 (the OSS Act). The amendment established a sixth component - the "excessive component" - of an ETP. This excessive component is determined by the Insurance and Superannuation Commission (ISC) from the information provided by the payer of a superannuation benefit and represents benefits which are in excess of a taxpayer's reasonable benefit limit (RBL).
The 'excessive component' of an ETP can consist of:
• so much as the ISC has determined exceeds the taxpayer's RBL; or
• so much as represents the commutation to a lump sum of the whole or part of an annuity or pension which is in excess of the taxpayer's RBL. This part of an ETP is defined in the Act as an "ISC-directed commutation payment".
Except for one situation, when an ETP is paid or rolled over it is proposed that the ETP components on the payment and rollover notification forms will be the components before the ISC determination rather than those recalculated by the ISC. This is because at the time when ETP's are paid or rolled over the ISC determination will generally not have been made. The regulations will do this by referring to the definitions of the pre July and post-June 83 components in the Act as if no excessive component exists.
The one exception is where an ISC-directed commutation payment is made. In this case the ETP will have one component - an excessive component which the payer will know at the time of payment. The regulations will ensure that this excessive component is included on the statement of termination payment (STP) form. The Act provides that the "ISC -directed commutation payment" cannot be rolled over.
The amendments will also ensure that pay as you earn (PAYE) tax deductions are made from an "ISC-directed commutation payment" at the top marginal rate plus medicare levy. Further, PAYE deductions at that rate will also be made from the pre-July 83 component of an ETP where a taxpayer has not quoted a tax file number.
The regulations will also expand the circumstances where a rollover notification form or STP form is not required when an ETP is rolled over. The requirement to prepare the forms is to be waived where the ETP arises as a result of an individual employee transferring between funds of the same employer. The amending regulations also remove the need for the Commissioner's approval to not complete the relevant forms in such circumstances. Instead, the transferor fund will be required to provide the transferee fund with certain specific information about the member.
Regulation 1 provides that the Income Tax Regulations are to be amended as set out in these regulations.
Subregulation 2.1 replaces the term "eligible termination payment" in the definition of that term in subregulation 42 (1) with the abbreviation "ETP".
The amending regulations also abbreviate the term "eligible termination payment" where used in the regulations to "ETP" as shown in the table below:
Amending Regulation Income Tax Regulations
2.4 42 (1)
2.5 42 (2); 42 (3); 42 (5);
3.1 70 (3) (a)
4.4 97 (2)
5.1 98 (8) (a)
6.1 99 (1) (a) (i)
6.3 99 (2) (a)
6.4 99 (3); 99 (5)
6.5 99 (5) (a) - definition of 'B'
6.6 99 (5) (a) - definition of 'C'
6.8 99 (7) (b)
7.1 100 (1)
Regulation 42 contains the administrative requirements for ETP's or components thereof to be rolled over directly by an employee. Subregulations 2.2 and 2.3 will amend the definitions of "pre-July 83 component" and "post June 83 component" in subregulation 42 (1). The amendments will ensure that, for rollover purposes, those two ETP components will be specified on the rollover form referred to in subregulation 42 (3) as if no excessive component exists. The amendment is necessary to cater for the situation where an excessive component has been determined in respect of an ETP which is subsequently rolled over. In this situation, the original ISC determination will be revoked and a new ISC determination made in respect of the ETP components which are not rolled over.
Subregulation 2.6 replaces existing subregulation 42(6), That subregulation provides for the waiver of the requirement, in subregulation 42(2), for a taxpayer to complete a rollover notification form where the taxpayer's ETP is rolled over. The requirement is waived where the ETP is rolled over as a consequence of the bulk transfer of members from one superannuation fund to another.
New subregulation 42(6) will provide that a rollover notification form does not have to be completed by the taxpayer where the payer of the ETP is not required to prepare an STP form because the conditions in subregulation 99(6) are satisfied (see the comments on amendments to subregulation 99(6) made by subregulation 6.7). Subregulation 42(6) is being amended because the existing subregulation contains actions which are more appropriately undertaken by the payer of the ETP rather than the taxpayer.
Subregulation 4.1 inserts a new definition, "ISC-directed commutation payment" into subregulation 97 (2). The new term has the same meaning as in subsection 27A (1) of the Act. The "ISC-directed commutation payment" is an ETP which represents the commutation to a lump sum of the whole or part of an annuity or pension which the ISC has determined is in excess of the taxpayer's Reasonable Benefit Limit. The ETP in this case will have one component, an excessive component.
Subregulation 97 (2) restates the terms defined in subregulation 42 (1) for the purposes of deducting PAYE tax from ETPs. Regulation 98 prescribes the rates of PAYE tax to be deducted for the purposes of section 221C of the Act. The terms are also used by employers or ETP payers to describe the components of ETPs which are paid and/or rolled over by payers at the request of the employee or payee in accordance with regulation 99.
Subregulations 4.2 and 4.3 amend subregulation 97 (2) by omitting the old definitions and inserting new definitions of "post-June 83 component" and "pre-July 83 component" respectively. These amendments mirror those made in subregulations 2.2 and 2.3.
Subregulation 5.2 amends the definition of "net relevant amount" in subregulation 98 (10).
The current definition represents the "post-June 83 component" of an ETP which is not rolled over and is the amount from which PAYE tax is deducted in accordance with subregulation 98 (8) when a tax file number is not provided to the ETP payer by the payee.
The new reasonable benefit limit arrangements which have operated since 1 July 1990 provide that where a tax file number is not given to the payer of an ETP, the pre-July and post-June 83 ETP components will be an excessive component and subject to tax at the marginal in lieu of concessional rates of tax.
The definition of "net relevant amount" therefore needs to be amended to include that portion of the "pre-July 83 component" which is not rolled over. The amended definition will represent the excessive component.
The rate of PAYE tax deducted in subregulation 98 (8) from the net relevant amount is the top marginal rate of tax plus medicare levy.
Subregulation 5.2 also inserts new Subregulation 98 (11). This new provision prescribes the rate of PAYE tax to be deducted from an ETP that includes an "ISC-directed commutation payment". As the commutation payment represents the excessive component of an ETP the rate of deduction will be the top marginal rate plus medicare levy.
Subregulation 6.2 inserts new subparagraph 99 (1) (a) (i) (G). This new provision ensures that the STP form referred to in paragraph 99 (1) (a) includes an "ISC-directed commutation payment" if one has been paid.
Subregulation 6.7 replaces existing subregulation 99(6). That subregulation provides for the waiver of the requirement in regulation 99 for an employer to complete an STP form on payment of an ETP. The requirement is waived where the ETP arises as a consequence of the bulk transfer of members between superannuation funds and the Commissioner of Taxation approves the waiver.
New subregulation 99(6) provides that the requirement to complete an STP form will be waived in two circumstances, namely:
(i) where there is a bulk transfer of members from one superannuation fund to another; and
(ii) where an individual member of a superannuation fund transfers to another superannuation fund, and the same employer is required to provide superannuation support for the member to both funds.
Also, consistent with self assessment, the Commissioner's approval will no longer be required to not complete the STP forms. Instead, the transferor superannuation fund will be required to provide to the transferee fund the following information:
(i) name of the member;
(ii) date of birth;
(iii) date when membership of the transferor fund commenced;
(iv) eligible service period;
(v) components of the ETP as set out in subregulation 99(1).