EXPLANATORY STATEMENT
Select Legislative Instrument 2005 No. 326
Issued by authority of the Minister for Revenue and Assistant Treasurer
Income Tax Assessment Act 1936
Income Tax Amendment Regulations 2005 (No. 8)
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.
The purpose of the Regulations is to ensure that superannuation annuities split on marriage breakdown are given the same tax treatment as is currently applied to superannuation benefits split on marriage breakdown.
Under family law legislation, married couples have been able to split their superannuation benefits on marriage breakdown since December 2002. However, this legislation did not apply to superannuation‑like annuity products purchased from life offices (and other organisations) with rolled‑over superannuation money. The Government recently amended the family law legislation, in the Family Law Amendment (Annuities) Act 2004, to allow married couples to split such annuities on marriage breakdown in the same way as other superannuation benefits.
The Regulations support changes made by the Tax Laws Amendment (2005 Measures No. 2) Act 2005 to the Act to ensure consistent tax treatment of interests in superannuation‑like annuity products with other superannuation benefits.
The Regulations benefit both the member spouse and the non‑member spouse by specifying the circumstances under family law legislation in which certain provisions in the Act become operative, and thereby allow each person’s interest in the split superannuation annuity to be reported and assessed separately against the eligible termination payment (ETP) low-rate threshold and their own reasonable benefit limits (RBL). Currently the Regulations do not specify those circumstances.
Details of the Regulations are set out in the Attachment.
The Regulations are a legislative instrument for the purposes of the Legislative Instruments Act 2003.
Consultations were held with the Australian Taxation Office, the Attorney‑General’s Department, the Department of Veteran’s Affairs, the Department of Family and Community Services and representatives from the superannuation industry during the development of these Regulations. The draft Regulations were released to representatives from the superannuation industry for one month during which time submissions were received and considered.
The Office of Regulation Review has advised that a Regulation Impact Statement is not required to be included with the Regulations, as the changes are of a minor or machinery of government nature and do not substantially alter existing arrangements.
ATTACHMENT
Details of the Income Tax Amendment Regulations 2005 (No. 8)
Regulation 1 — Name of the Regulations
This specifies that the Regulations are the Income Tax Amendment Regulations 2005 (No. 8).
Regulation 2 — Commencement
This provides that the Regulations commence on the day after they are registered.
Regulation 3 — Amendment of the Income Tax Regulations 1936
This provides that Schedule 1 amends the Income Tax Regulations 1936 (the Principal Regulations).
Schedule 1 — Amendments
The following amendments to the Principal Regulations ensure that superannuation annuities split on marriage breakdown are given the same tax treatment as superannuation benefits split in similar circumstances.
Sections 27ACA and 27ACB of the Act deal with the way in which superannuation benefits that are split under family law legislation are to be treated for the purposes of taxation of eligible termination payments.
Subsections 82AAT(1AA) and (1CBA) of the Act deal with the ramifications for claiming a taxation deduction where a benefit is split under family law legislation.
Sections 140M, 140ZN and 140ZP of the Act include provisions dealing with ramifications for reasonable benefit limit purposes of the splitting of superannuation benefits under family law legislation.
These sections were recently amended by the Taxation Laws Amendment (2005 Measures No. 2) Act 2005 (Act No. 78 of 2005) to provide for the splitting of superannuation annuities and to make some refinements to the operation of the existing law.
The specific provisions in these sections dealing with the splitting of superannuation (including annuities) under family law legislation only become operative in circumstances specified in the regulations.
The Regulations specify those circumstances as:
• where an interest in a superannuation fund, or an annuity, is created for the non‑member spouse; or
• an amount is transferred for the benefit of the non‑member spouse;
in such a way that, because of Division 2.2 of the Family Law (Superannuation) Regulations 2001, a payment in respect of the interest or annuity of the member spouse, made after the interest or annuity is created or amount transferred, would not be a splittable payment.
Division 2.2 of the Family Law (Superannuation) Regulations 2001 determines which payments are not splittable payments under the Family Law Act 1975, effectively bringing to an end the operation of the splitting order or agreement, where the future entitlements of the non‑member spouse under the order or agreement have been satisfied in some other way.
The non‑member spouse’s future entitlements may be satisfied by;
• creating a new interest for the non‑member spouse;
• transferring or rolling over an amount for the non‑member spouse; or
• paying an amount to the non‑member spouse.
Broadly, this means that if a an interest is created, or an amount is transferred for the benefit of the non‑member spouse in accordance with family law legislation, then the relevant ETP, deduction and RBL provisions in sections 27ACA, 27ACB, 82AAT, 140M, 140ZN and 140ZP of the Act will be triggered to determine the taxation consequences.
Regulation 98 sets out the tax treatment where the superannuation benefit is split through the creation of a new interest or annuity for the non‑member spouse.
Regulation 98A sets out the tax treatment where the superannuation benefit is split by an amount being transferred to another fund for the benefit of the non‑member spouse.
Under the Regulations the member spouse’s reduced interest in the split superannuation annuity:
• is considered to be an ETP that has been rolled‑over and is therefore subject to concessional tax treatment; and
• is remeasured and assessed against his or her RBL.
Similarly, the non‑member spouse’s interest in the split superannuation annuity:
• is considered to be an ETP that has been rolled‑over and is therefore subject to concessional tax treatment; and
• is remeasured and assessed against his or her RBL.
The Regulations ensure that a member spouse’s contribution to another fund on behalf of a non‑member spouse in accordance with family law legislation is not an allowable deduction, an eligible spouse contribution or a taxable contribution.