Income Tax Regulations (Amendment) 1995 No. 152
EXPLANATORY STATEMENT
STATUTORY RULES 1995 No. 152
Issued by the Authority of the Assistant Treasurer
Income Tax Assessment Act 1936
Income Tax Regulations (Amendment)
GENERAL OUTLINE
Purpose of regulations
The purpose of these regulations is to give effect to the proposal to allow deductions to registered organisations for their expenses incurred in gaining the investment component of life insurance premiums from 1 July 1994.
The legislation giving effect to this change, Taxation (Deficit Reduction) Act (No 2) 1993, received Royal Assent on 27 October 1993. Since then, the provision providing the allowance of deductions (section 116HAA) has been repealed and replaced by Taxation Laws Amendment Act 1994 (section 116HAC).
Matters covered by regulations
The investment component of a life insurance premium is the amount remaining after deducting the risk component. The regulations contain the methods for calculating the risk component of life insurance premiums.
Life insurance companies are able to claim a deduction for the expenditure incurred in gaining the investment component of certain premiums and regulations are in place for this purpose (Part 3A, regulations 14A-14D). These regulations are amended to extend the application to registered organisations.
DETAILED NOTES ON THE REGULATIONS
Regulation 1
Regulation 1 is the commencement date. The regulations are taken to have commenced on 1 July 1994 because it was from this date that the Income Tax Assessment Act 1936 provided registered organisations with a deduction for the investment component.
The commencement date for the regulations is retrospective because it is to the benefit of the taxpayer and it places no burden on any person other than the Crown. Without this application date, registered organisations are unable to calculate the amount of deduction available under section 116HAC.
Regulation 2
Regulation 2 is procedural and is designed to modify the existing Income Tax Regulations as necessary and to substitute new regulations 14A and 14D in those Regulations.
Regulation 3
Regulation 14A is omitted and substituted with new regulation 14A to extend the application of Part 3A to registered organisations:
• in relation to registered organisations, the terms 'life assurance policy', 'registered organisation' and 'risk component' are defined to have the same meaning as subsection 116E(1); for life insurance companies, these terms are defined in subsection 110(1);
• for registered organisations, 'authorised actuary' has the same meaning as subsection 116HAC(1); for life insurance companies, the definition is the same as that contained in subsection 110(1);
• 'future premiums' has the same meaning as contained in subsection 110(1) for both registered organisations and life insurance companies.
Regulation 4
Regulation 14D is amended to extend its application to both life assurance companies and registered organisations.
New Regulation 14D provides a detailed description of how to calculate the risk component
Overview
The Income Tax Regulations (Amendment) 1995 No. 152 was enacted to address a gap in the tax law regarding the deductions available to registered organisations for their expenses incurred in gaining the investment component of life insurance premiums from 1 July 1994. This amendment was introduced following the passage of the Taxation (Deficit Reduction) Act (No 2) 1993, which was later replaced by the Taxation Laws Amendment Act 1994. The objective of these regulations is to provide clarity and consistency in the calculation methods for the risk component of life insurance premiums, extending the application of existing regulations to registered organisations. This legislative change was authorised by the Parliament of Australia and was designed to ensure that registered organisations could accurately calculate the deductions available to them under section 116HAC of the Income Tax Assessment Act 1936.
Scope and Application
The Income Tax Regulations (Amendment) 1995 No. 152 applies to registered organisations that incur expenses related to the investment component of life insurance premiums, as amended by the Taxation (Deficit Reduction) Act (No 2) 1993 and later the Taxation Laws Amendment Act 1994. The regulations modify the Income Tax Assessment Act 1936 to allow these organisations to claim deductions from 1 July 1994. These amendments extend the application of existing regulations governing life insurance companies to registered organisations, ensuring uniformity in definitions and calculations of the investment and risk components of premiums. The regulations are applicable nationally, aligning with the overarching provisions of the Income Tax Assessment Act 1936, which is a Commonwealth Act. The amendments made by these regulations do not introduce any exclusions or exemptions but rather provide clarity and expanded application to registered organisations, ensuring they can properly account for their deductions in compliance with the legislative framework.
Key Provisions
The Income Tax Regulations (Amendment) 1995 No. 152, under the Income Tax Assessment Act 1936, introduce key amendments that allow deductions for the expenses incurred by registered organisations in gaining the investment component of life insurance premiums from 1 July 1994. These amendments are primarily implemented through regulations 14A and 14D (regulations 1 and 4). Regulation 1 specifies the commencement date of the regulations, which is retroactive to 1 July 1994, enabling registered organisations to claim deductions from this date. Regulation 2 modifies existing Income Tax Regulations by substituting new regulation 14A and amending regulation 14D to extend the application of Part 3A to registered organisations.
The obligations imposed by these regulations require registered organisations to ensure they meet the criteria for claiming deductions related to the investment component of life insurance premiums. This includes maintaining accurate records of their expenses and the calculation methods for the risk component, as detailed in regulation 14D. Registered organisations must also ensure they adhere to the definitions provided for terms such as 'life assurance policy','registered organisation', and 'risk component', as outlined in subsection 116E(1) and 116HAC(1). Additionally, they must comply with the definitions for 'authorised actuary' and 'future premiums' as specified in the relevant subsections.
Failure to comply with the provisions of these regulations may result in civil or criminal consequences. While the specific penalties are not outlined in the explanatory statement, breaches of tax regulations generally can attract penalties under the Income Tax Assessment Act 1936. These penalties can include fines and interest on unpaid taxes, with the potential for more severe criminal sanctions in cases of deliberate or fraudulent non-compliance. The maximum penalties for tax offences can vary, but they can include substantial fines and imprisonment, depending on the severity and intent of the breach.