Income Tax Amendment Regulations 2002 (No. 4) 2002 No. 111
EXPLANATORY STATEMENT
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 Those Acts have been repealed.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.
Overview
The Income Tax Amendment Regulations 2002 (No. 4) were enacted to amend the Income Tax Assessment Act 1936, addressing the need to update the list of constitutionally protected funds, which are exempt from Commonwealth income tax. These regulations were issued by the Minister for Revenue and Assistant Treasurer and aim to align the list of constitutionally protected funds with changes in state legislation. The policy objective is to ensure the appropriate tax treatment of these funds, maintaining the integrity of the taxation system while respecting constitutional provisions that prevent the Commonwealth from taxing state-owned assets. The regulations specifically address the removal and adjustment of certain funds in South Australia and Western Australia to reflect changes in the status of these funds or their legislative frameworks.
Scope and Application
The Income Tax Amendment Regulations 2002 (No. 4) primarily concern the updating of the list of constitutionally protected funds under the Income Tax Assessment Act 1936, focusing on South Australian and Western Australian superannuation funds. These Regulations apply to funds that are established by state legislation and whose assets are the property of the State, thereby preventing the Commonwealth from taxing them as per section 114 of the Constitution. The regulations address various changes in the status of these funds, including the removal of certain funds from the list due to legislative changes, mergers, or the cessation of their operations. For example, funds established under the Electricity Trust of South Australia Act 1946 and the Electricity Corporations Act 1994 are removed from the list due to their transformation into taxed superannuation funds. Similarly, the Police Occupational Superannuation Scheme in South Australia is excluded as it no longer exists. Conversely, certain funds in Western Australia are retained in the list due to their continuation under the State Superannuation Act 2000. The Regulations also adjust the list by excluding sections of other South Australian superannuation acts that will establish taxed funds instead of constitutionally protected ones. These changes are intended to align the list with current legislative realities and ensure that the tax status of these funds accurately reflects their legal status.
Key Provisions
The key provisions of the Income Tax Amendment Regulations 2002 (No. 4) revolve around updating the list of constitutionally protected funds as per the Income Tax Assessment Act 1936 (the Act) (s 266). This involves amending the Income Tax Regulations 1936 (the principal Regulations) to reflect changes in the status of certain funds established under state legislation. For instance, the regulations remove the Electricity Trust of South Australia Act 1946 and the Electricity Corporations Act 1994 from Schedule 14, as the South Australian Government has changed the status of the Electricity Industry Superannuation Fund from a constitutionally protected fund to a taxed superannuation fund (Item 1, Schedule 1). Similarly, the Police Occupational Superannuation Scheme, established under a Trust Deed in South Australia, is removed from the list of constitutionally protected funds because it no longer exists (Item 1, Schedule 2).
The regulations impose obligations on various entities, primarily those responsible for managing superannuation funds. Trustees of funds whose status is being altered must ensure compliance with the new regulations. For example, trustees of the Electricity Industry Superannuation Fund must adjust their tax reporting and payments to align with the new taxed status of the fund. Additionally, the South Australian Government is required to ensure that its legislative changes are reflected accurately in the regulations. For the superannuation schemes continued under section 29 of the State Superannuation Act 2000 (WA), the trustees must maintain the constitutionally protected status by ensuring the funds remain untaxed (Item 2, Schedule 2).
The regulations also address specific instances where certain sections of state legislation are excluded from the list of constitutionally protected funds. For example, certain sections of the Police Superannuation Act 1990 (SA), the Southern State Superannuation Act 1994 (SA), and the Superannuation Act 1988 (SA) are excluded because the South Australian Government intends to establish new superannuation schemes under these sections that will be taxed (Item 3, Schedule 2). Furthermore, the scheme established under the Superannuation (Benefit Scheme) Act 1992 (SA) is removed from the list as the Act has been repealed, and the scheme has been merged with another (Item 4, Schedule 2).
Breach of these regulations could lead to civil or administrative consequences, depending on the nature of the non-compliance. Trustees who fail to adjust their tax reporting and payments as required could face penalties under the Income Tax Assessment Act 1936. For instance, incorrect reporting of a fund’s tax status could result in fines or additional tax liabilities. The South Australian Government could also face scrutiny if it fails to properly reflect legislative changes in the regulations, potentially leading to administrative actions to correct the oversight. The regulations themselves are designed to ensure that no members of the Electricity Industry Superannuation Fund are disadvantaged by the changes, as benefits will be taxed at a lower rate, and the net after-tax benefits cannot be reduced.