Income Tax Regulations (Amendment) 1995 No. 139
EXPLANATORY STATEMENT
Statutory Rules 1995 No. 139
Issued By the Authority of the Treasurer
Income Tax Assessment Act 1936
Income Tax Regulations (Amendment)
Background
These regulations will amend the Income Tax Regulations (the Regulations) to simplify the taxation reporting when eligible termination payments are rolled-over.
The Treasurer announced a range of measures in his statement on Superannuation Policy on 28 June 1994, altering the operation of the superannuation system. The measure that follows is one of the changes announced in that Statement.
The major superannuation fund administrators in Australia have been jointly developing a mechanism by which inactive and small superannuation accounts can be amalgamated to the member's current active superannuation account. They have termed this mechanism a "transfer protocol".
A key way to facilitate this transfer protocol is to relax the taxation reporting requirements when accounts are transferred. These amendments are designed to meet this end.
Roll-Over Of Eligible Termination Payments
Current Position
Sections 27A to 27J of the Income Tax Assessment Act 1936 (the Act) deal with the taxation of eligible termination payments (ETPs). Generally speaking, ETPs arise when an employee ceases employment, for example by resigning or retiring or when he or she receives a payment from a superannuation fund.
An ETP is made up of various components, all of which have special taxation rules. When an ETP is payable, a person has a choice to take in cash all or part of it, or to invest it. If a portion of the ETP is cashed out there may be some taxation of that portion of the ETP.
Subsection 27A(12) of the Act allows a person to defer the taxation of the ETP by:
• transferring the ETP to a complying superannuation fund, or
• by paying it to a complying approved deposit fund (ADF); or
• using it to purchase an annuity from a life assurance company or registered organisation.
These actions are called rolling-over an ETP. Generally speaking, the amount that is rolled-over is not taxed until it is taken in cash.
When a person elects to roll-over an ETP, there are certain prescribed forms that must be completed and lodged with his/her tax return. These forms are prescribed by the Regulations. The table below is a summary of these forms and the Regulations that prescribe them. As the table shows, in some circumstances, these forms do not need to be completed.
Form | Regulation | Exemption |
Statement of | sub regulation | Subregulation |
Roll-Over- | Subregulation | Subregulation |
Roll-Over | Paragraph | Subregulation |
The combined effect of subregulations 99(6) and 42(6) is that in limited circumstances, STPs & ROPNs do not need to be completed. These circumstances are when:
• the whole of the ETP is rolled-over, and
• the roll-over is made by one superannuation fund directly to another; and
• the roll-over is in relation to:
(i) an individual employee transferring from one superannuation fund to another superannuation fund and the same employer provides super support for the member to both funds; or
(ii) a bulk transfer of members from one employer sponsored superannuation fund to another.
In these circumstances, the transferor fund must provide the following information to the transferee fund:
(i) name of the transferring member;
(ii) date of birth;
(iii) date when membership of the transferor fund commenced;
(iv) eligible service period;
(v) components of the ETP.
This information is required to enable the transferee fund to properly calculate the tax payable on the ETP when it is paid to the member at some future time.
The Amendments
The amendment to the regulations relaxes further the requirement to complete STPs and ROPNs. The amendments are restricted to those circumstances where an ETP is rolledover in totality and no part is taken in cash. There is no tax payable on the ETP by the taxpayer when it is rolled-over in this way. Consequently, there is no need to complete STPs and ROPNs.
Regulation 5.1 inserts a new regulation 99A which replaces former subregulation 99(6). A consequential amendment to subregulation 42(6) is made by Regulation 3.1.
Expansion of the Exemption to Complete STPs & ROPNs
Regulation 4.2 repeals Reg 99(6). Under new subregulation 99A(2), STPs & ROPNs are not required for:
A member instigated transfers, and
B non - member instigated transfers (trustee instigated).
A Member Instigated Transfers
These are transfers instigated by a member or members from one roll-over fund to another. "Fund" refers to the roll-over vehicles defined in section 27A(1) of the Act, that is a complying superannuation fund, a complying approved deposit fund or a life assurance company or registered organisation for the purchase of an eligible annuity.
The STP & ROPN will not need to be completed if:
(i) the member instigates the transfer;
(ii) the whole of the ETP is rolled-over;
(iii) the roll-over is made by one fund directly to another fund;
(iv) the member demonstrates to the satisfaction of the transferor fund that the transferee fund consents to the proposed roll over;
(v) the transferor fund provides the transferee fund with:
- the total amount to be paid to the transferee fund;
- the components of the ETP that are required on the STP under subparagraph 99(1)(a)(i). However, the pre-July 1983 component and the post-June 1983 taxed element do not need to be provided. (The post-June 1983 untaxed element, does need to be provided);
- the amount of preserved, restricted non - preserved and unrestricted non - preserved benefits.
The preserved, restricted non-preserved and unrestricted non-preserved benefits are defined in Part 6 of the Superannuation Industry (Supervision) Regulations (SIS Regulations).
The transferor fund must also provide the same information that was formerly required by 99(6)(d) which is now replaced by the new sub subparagraphs (A) to (D) of subparagraph 99A(2)(d)(i).
New paragraph 99A(2)(c) requires that the member demonstrates to the satisfaction of the transferor fund that the transferee fund consents to the proposed roll-over. Examples of how this requirement can be satisfied are:
• the request for the roll-over has been made to the transferor fund by the transferee fund; or
• the trustee of the transferor fund has been advised by the trustee of the transferee fund that they will accept the particular roll-over.
B Non - Member Instigated Transfers
The amendments to the regulations do not explicitly refer to non - member instigated transfers, however, the amendments do apply to them. Under the superannuation law, in some instances, superannuation benefits can be transferred without the consent or instigation of the member. One example is transfers under Part 24 of the Superannuation Industry (Supervision) Act 1993 (SIS Act).
This Part of the SIS Act relates to what are termed "lost members". It applies where a member's benefit has become payable and the member has failed to provide instructions to the fund as to how the fund should deal with it. The member is often unable to be contacted or is deceased. In these circumstances, the fund may pay the benefit to an eligible roll-over fund (ERF). Strictly speaking, such transfers would, but for these amendments, still require STPs and ROPNs. Obviously, these forms are unable to be completed if the member cannot consent to the roll-over.
From 1 July 1995, some new member protection standards come into force under the SIS Regulations. The object of the new rules is to prevent small amounts of superannuation from being eroded through excessive administration costs levied by superannuation funds.
One consequence of these new standards is that some trustees may decide to not retain small amounts of superannuation. If they so decide, they will have no option but to either request that a member transfers out of the fund, or to transfer the account without the consent of the member to a fund that will protect the benefit in accordance with the new regulations. In the latter case, the transfer will be to an ERF under proposed amendments to Part 24 of the SIS Act contained in Superannuation Laws Amendment (Small Accounts and Other Measures) Bill 1995), which is presently before Parliament.
As with member initiated transfers, the STP & ROPN will not need to be completed if:
(i) the whole of the ETP is rolled-over;
(ii) the roll-over is made by one fund directly to another fund;
(iii) the transferor fund provides the transferee fund with:
- the total amount to be paid to the transferee fund,
- the components of the ETP that are required on the STP under subparagraph 99(1)(a)(i). However, the pre July 1983 component and the post-June 1983 taxed element do not need to be provided. (The post-June 1983 untaxed element, does need to be provided);
- the amount of preserved, restricted non-preserved and unrestricted non-preserved benefits.
The preserved, restricted non-preserved and unrestricted non-preserved benefits are defined in Part 6 of the SIS Regulations.
The transferor fund must also provide the same information that was formerly required by 99(6)(d) which is now replaced by the new sub subparagraphs (A) to (D) of subparagraph 99A(2)(d)(i).
Under What Circumstances Do STPs & ROPNs Now Need To Be Completed?
With this expansion of the exemption to complete STPs & ROPNs, these forms only need to be completed when:
• any part of the ETP is not rolled-over; or
• the roll-over is made to more than one fund; or
• the ETP is paid by an employer as opposed to being paid by a fund (even if AU of the ETP is rolled-over to a fund).
Electronic Transfer of Information
The information that is required by the amended paragraph 99(6)(d) may be transferred between funds electronically. Regulation 5.1 inserts a new subregulation 99A(3) which specifies that the information required by new paragraph 99A(6)(d) may be furnished electronically.
The regulations commence on 1 July 1995.