Commonwealth Numbered Regulations - Explanatory Statements

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INCOME TAX REGULATIONS (AMENDMENT) 1993 NO. 202

STATUTORY RULES 1993 No. 202

ISSUED BY THE AUTHORITY OF THE ASSISTANT TREASURER

Income Tax Assessment Act 1936

Income Tax Regulations (Amendment)

These regulations amend the Income Tax Regulations to:

•        increase the rate of deductions to be made from the post-June 1983 component of an eligible termination payment paid on or after 1 August 1993 in line with the increase in the Medicare levy from 1 July 1993;

•        ensure the most recently published Life Tables are used to ascertain a person's life expectancy for the purpose of calculating the assessable amount of a purchased annuity;

•        enable the updating and simplification of Statement of Termination Payment and roll-over payment notification forms following recent amendments to the Act; and

•       make a minor consequential amendment necessary because of recent amendments to the Income Tax Assessment Act 1936 (the Act).

Medicare Levy

A person who pays an eligible termination payment (ETP) must deduct tax from the part of the postJune 1983 component which is not rolled over. Currently the rate of tax deducted includes the Medicare levy at 1.25%. From 1 July 1993 the levy is to be increased to 1.4%. These regulations ensure that the increase in the Medicare levy is reflected in the amount of tax deducted from the postJune 1983 component of ETPs paid on or after 1 August 1993.

Life Tables

The amount of a purchased annuity payable for life which is included in assessable income depends on a person's life expectancy (defined in the Act as the 'life expectation factor'). Regulation 9 of the Regulations prescribes certain Life Tables prepared by the Australian Government Actuary for the purposes of calculating the life expectation factor.

New Life Tables are published every five years, Currently, each time new Life Tables are published, the Regulations need to be amended to incorporate them. These regulations ensure that in future, without the need for further amendments to the Regulations, the prescribed Life Tables will always be the latest ones published by the Government Actuary.

Statement of termination payments and roll-over payment notifications

The payer of an ETP must prepare a statement relating to the ETP on a form approved by the Commissioner (a Statement of Termination Payment, or STP). The Regulations list certain particulars which must be provided in the STP, namely the components comprising the ETP.

A person who receives an ETP may defer tax on it and retain it in a concessionally taxed environment by rolling it over into a roll-over fund. If the person elects to roll over the whole or part of the ETP then he or she must complete an application on a form approved by the Commissioner specifying the extent to which components of the ETP are to be rolled over. The application is known as a roll-over payment notification. A person may elect to have his or her employer directly roll over an ETP, in which case the information on the roll-over payment notification must also be provided in a roll-over nomination on the STP fol m.

The Taxation Laws Amendment (Superannuation) Act 1992 (the amending Act) provided for a new component of an ETP paid on or after 1 July 1994 (the post-June 1994 invalidity component). It also made changes to the roll-over provisions which, with effect from 1 July 1992:

•       introduced the concept of the retained amount of various ETP components (i.e. the amount not rolled over); and

•       ensured that the pre-July 83 component must be rolled over in the same proportion as the post-June 83 component plus undeducted contributions.

Following on from the above amendments to the Act, these regulations enable the Commissioner to approve forms which specify the retained amount of various components and to incorporate into the forms, from 1 July 1994, the new post-June 1994 invalidity component.

The amendments to the Act also provide scope for simplifying the forms by omitting certain details since, as a result of the requirement relating to the roll-over of the pre-July 83 and post-June 83 components, roll-over funds and ETP recipients no longer require all the information currently specified on the forms. In this regard these regulations allow the Commissioner to provide forms which specify only those details which are required (which depends on the type of ETP paid).

Omission of subsection 27A(10)

The amending Act also omitted subsection 27A(10) of the Act, upon which subregulation 99(5) depends. Therefore these regulations repeal that subregulation.

Subregulation 1.1 provides that the Income Tax Regulations are amended as set out in the amending regulations.

Subregulation 2.1 replaces regulation 9 with a new regulation 9.

Regulation 9 prescribes Australian Life Tables for the purpose of the definition of 'life expectation factor' in subsection 27H(4) of the Act. New paragraphs 9 (a), (b) and (c) prescribe the same Life Tables for annuities payable before 1 July 1993 as are prescribed in existing regulation 9. For annuities payable on or after that date new regulation 9 provides that the prescribed Life Tables are those most recently published before the start of the (calendar) year in which the annuity first commenced to be payable.

The effect of the above amendment is that the 1985-1987 Life Tables applies to all annuities payable on or after 1 May 1993 and before 1 January 1994. Thereafter the applicable Tables will depend on when new Tables are published.

Regulation 3 amends regulation 42 which provides for the completion of roll-over payment notifications. A roll-over payment notification must be completed for each roll-over fund into which part or all of an ETP is rolled over.

Subregulation 3.1 omits various definitions in subregulation 42(1) which, as a result of these amendments, are no longer required.

Subregulation 3.2 replaces existing subregulation 42(3) with a new subregulation and inserts subregulation 42(3A).

New subregulation 42(3) provides that an application to roll over an ETP must be in the appropriate form approved by the Commissioner and must:

•       state the amount of each of the components of the ETP specified in the form which are to be rolled over; and

•       be signed and dated.

The appropriate form will depend on the source of the ETP.

New subregulation 42(3A) provides that where a payee has elected in the roll-over nomination part of a STP for the payer of the ETP to roll over the ETP directly to a particular fund or person (see amending subregulation 6.2 below), the application to roll over the ETP in the form prescribed by new subregulation 42(3) is taken to authorise the payer to pay the ETP to the relevant fund or person.

Subregulation 3.3 inserts new subregulation 42(7). That new subregulation enables the Commissioner to approve different forms for different circumstances. This will assist in simplification of roll-over payment notification forms since it will ensure that the forms require people rolling over ETPs to provide essential information only. It also enables forms to be up-dated to take into account any future changes in the law concerning ETPs and roll-overs.

Regulation 4 amends subregulation 97(2) which provides various definitions.

Subregulation 4.1 omits various definitions in subregulation 97(2) which, as a result of these amendments, are no longer required.

Subregulation 4.2 inserts definitions of terms used in amending subregulations; 5.4 and 5.5.

Regulation 5 amends regulation 98, which provides for tax deductions to be made from ETPs.

Subregulations 5.1 and 5.2 amend subregulation 98(1) to ensure that the increase in the Medicare levy from 1 July 1993 is taken into account in tax deductions from the post-June 1983 component of an ETP.

Subregulation 5.3 inserts new subregulation 98(1A) to ensure that the new rates of tax deductions apply to ETPs paid or payable on or after 1 August 1993. This ensures that the amending regulations do not operate retrospectively. The rates of tax deductions for ETPs paid or payable after 30 June 1993 and before 1 August 1993 are the same as the rates specified for the 1992-93 year of income.

Subregulations 5.4 and 5.5 replace the reference to 'net relevant amount' in paragraphs 98(8) (c) and (d) with a reference to the sum of the retained amounts of the pre-July 1983 and post-June 1983 components of an ETP.

The concept of 'retained amount' was introduced into the Act by the Taxation Laws Amendment (Superannuation) Act 1992. It provides a simple method to represent the concept of 'net relevant amount', and is consistent with the terminology used in the Act.

Subregulation 5.6 omits subregulation 98(10). That subregulation provides a definition of 'net relevant amount', which is no longer required because of the proposed amendments to paragraphs 98(8) (c) and (d) described above.

Regulation 6 amends regulation 99 which provides for the completion of STPs by payers of ETPs.

Subregulation 6.1 replaces subparagraph 99(1)(a)(i) with a new subparagraph. Currently subparagraph 99(1)(a)(i) requires the payer of an ETP to provide in relation to the ETP information concerning all possible components of an ETP, some of which may not be applicable to the type of ETP actually paid. The new subparagraph replaces that requirement with a provision that only amounts relating to those components specified in the appropriate approved form need to be specified.

Subregulation 6.2 replaces subregulation 99(2) with a new subregulation. Subregulation 99(2) currently prescribes the information which must be included in a roll-over nomination. A roll-over nomination is contained on the STP and the recipient of an ETP will complete it if he or she wishes the payer to directly roll over the ETP.

To enable simplification of the nomination form, the new subregulation removes the requirement in existing subregulation 99(2) that the nomination authorise the payer to roll over the payment. The appropriate authorisation derives from the application to roll over the ETP under regulation 42 (see amending subregulation 3.2).

New subregulation 99(2) also enables simplification of the STP by restricting the information required to be provided on the roll-over nomination to information which is relevant to the type of ETP paid.

Subregulation 6.3 omits subregulation 99(5). That subregulation is dependent on the operation of subsection 27A(I0). Subsection 27A(10) has been omitted with effect from 1 July 1992.

Subregulation 6.4 inserts new subregulation 99(8). The new subregulation enables the Commissioner to approve different forms for different circumstances. This will assist in simplification of STP forms since the forms will specify only the information which is relevant to the particular type of ETP received. It also enables the forms to be up-dated to take into account any future change in the law concerning ETPs.