Income Tax Regulations (Amendment)

Administered by Department of the Treasury

Legislation au F1997B00424 Regulations Not in force Legislative Instrument

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Income Tax Regulations (Amendment) 1996 No. 56

EXPLANATORY STATEMENT

STATUTORY RULES 1996 No. 56

Issued by the Authority of the Assistant Treasurer

Income Tax Assessment Act 1936

Income Tax Regulations (Amendment)

Background

Subdivision 3 of the Income Tax Regulations is concerned with tax instalment deductions from eligible termination payments (ETPs). Regulation 97 concerns Interpretation and Regulation 98 prescribes the rate of tax instalment deduction from EM.

In the 1995-96 Budget, the then Treasurer announced an increase in the Medicare levy from 1.4% to 1.5%. The Medicare Levy Amendment Act 1995 (No. 56 of 1995) amended section 6 of the Medicare Levy Act 1986 to increase the rate to 1.5%. The Bill received Royal Assent on 28 June 1995 and the new rate commenced to apply from 1 July 1995.

A number of regulations affected by the changes have been amended accordingly. However, subdivision 3 has not been amended to reflect the increased rate. The regulations also contain references to provisions made obsolete by the new system of taxation of ETPs effective from 1 July 1994.

Purpose of the regulations

The purpose of these regulations is to allow an employer to apply the correct rates of tax instalment deductions when making ETPs. Increasing the amount of tax instalment deductions (by the increase in the rate of Medicare Levy) from EM enables the correct amount of tax to be deducted from those payments. This will overcome the possibility of the employee receiving a tax bill in respect of an ETP in his or her income tax assessment for the year in which the ET? was received.

An explanation of the Regulations appears below:

Regulation 1 - Commencement

Regulation 1 provides that these regulations commence on 1 June 1996.

Regulation 2 - Amendment

Regulation 2 provides that these regulations amend the Income Tax Regulations.

Regulation 3 - Regulation 97 (Interpretation)

Regulation 3.1 amends subregulation 97(2) to omit the definition of the term 'ISC directed commutation payment' (a payment directed by the Insurance and Superannuation Commission). This term is no longer relevant as it was omitted from the Income Tax Assessment Act 1936 (the Act) in 1992.

Regulation 3.2 amends subregulation 97(2) to insert definitions of 'dependant' and 'nondependant'.

Dependant: For the purposes of the Income Tax Regulations the term 'dependant' is to have the same meaning as given by subsection 27A(1) of the Act. A dependant will include a spouse (including a de facto spouse), children under 18 years of age and any person who is financially dependant.

Non-dependant: A definition of a non-dependant is required to distinguish circumstances where a superannuation death benefit is paid to a dependant from circumstances where such a payment is made to a non-dependant Where such a payment is made to a dependant it is not generally an ETP. However, where such a payment is made to a non-dependant it will be an ETP. The post-June 1983 component of the ETP is included in the non-dependant's assessable income under subsection 27B(1A) of the Act, but attracts a rebate under section 159SA of the Act. The rebate ensures that tax will not exceed 15% and 30% (+1.5% Medicare levy) on the taxed and untaxed elements respectively.

Regulation 4 - Regulation 98 (Rates of deduction - ETP)

Regulation 4.1 amends subregulation 98(1) to omit a reference to 'tables' and inserts a reference to only one 'table'. The amendments remove two tables and replace them with only one table.

Regulation 4.2 amends subregulation 98(1) to omit Tables 1 and 2 and replace them with a new Table. The new table incorporates the increased Medicare levy component.

Regulation 4.3 omits subregulation 98(1A) and inserts a new subregulation 98(1A). The new subregulation 98(1A) clarifies that the rates of deduction for the year of income commencing 1 July 1995 or later, as contained in the new Table inserted into subregulation 98(1), will not apply retrospectively. The amendments made by these regulations are to apply from 1 June 1996. New subregulation 98(1A) provides that for payments made in the period 1 July 1995 to 31 May 1996 the rate of deduction is to be the rate that would be applicable under subregulation 98(1) as in force during that period.

Regulation 4.4 omits subregulations 98(2) and 98(3) as those subregulations refer to the two Tables in subregulation 98(1) which have been omitted and replaced with one Table by virtue of these regulations. Those subregulations are also no longer required as they refer to repealed sections of the Act.

Regulation 4.5 amends subregulation 98(4) to substitute reference to 'Tables 1 and 2' with a reference to 'the Table'.

Regulation 4.6 amends paragraph 98(4)(a) to include a reference to death benefit ETPs included in a taxpayer's income by virtue of subsections 27B(1A)(a) and 27B(1A)(b) of the Act.

Regulation 4.7 omits subregulation 98(6) as that subregulation refers to amounts contained in the two Tables in subregulation 98(1) which have been omitted and replaced with one Table by virtue of these regulations. Subregulation 98(6) is also no longer required as it refers to repealed sections of the Act.

Regulation 4.8 omits subregulation 98(11) which relates to ISC-directed commutation payments. The regulation is no longer relevant as ISC directed commutation payments no longer arise.

 

Overview

The Income Tax Regulations (Amendment) 1996 No. 56, issued under the authority of the Assistant Treasurer, amends the Income Tax Regulations in response to changes in the Medicare levy rate and the new system of taxation of eligible termination payments (ETPs). The 1995-96 Budget increased the Medicare levy from 1.4% to 1.5%, an amendment that took effect from 1 July 1995 as per the Medicare Levy Amendment Act 1995. The regulations aim to ensure employers apply the correct rates of tax instalment deductions on ETPs, particularly in light of the increased Medicare levy. The amendments also address outdated references in the regulations by incorporating the new Medicare levy component and updating definitions related to ETPs. These changes are designed to prevent employees from receiving unexpected tax bills and to streamline the application of tax instalment deductions on ETPs.

Scope and Application

The Income Tax Regulations (Amendment) 1996 No. 56 applies to employers and employees within Australia, particularly in relation to the tax instalment deductions from eligible termination payments (ETPs). The amendments are designed to align the regulations with the increased Medicare levy rate, which was raised from 1.4% to 1.5% under the Medicare Levy Amendment Act 1995. These regulations are applicable on a national level, governing the tax obligations of employers when making ETPs to employees. The regulations take effect from 1 June 1996, as outlined in Regulation 1, and they amend the Income Tax Regulations to ensure that employers can apply the correct rates of tax instalment deductions, thus preventing employees from receiving a tax bill in respect of ETPs. Regulation 97 provides definitions of 'dependant' and 'nondependant' to clarify the circumstances under which superannuation death benefits are considered ETPs. Regulation 98 adjusts the rates of deduction to incorporate the increased Medicare levy, with the changes applying from 1 July 1995 onwards, as detailed in subregulation 98(1A). Subregulation 98(1) introduces a new table to replace the previous two, which now includes the updated rates of deduction. The amendments also remove references to obsolete provisions and tables that were rendered unnecessary by the new system of taxation of ETPs effective from 1 July 1994.

Key Provisions

The Income Tax Regulations (Amendment) 1996 No. 56 primarily amends Subdivision 3 of the Income Tax Regulations to align with the increased Medicare levy rate and to update the rates of tax instalment deductions from eligible termination payments (ETPs). Regulation 1 specifies the commencement date of these regulations as 1 June 1996, as stated in Regulation 1. Regulation 2 explicitly provides that these regulations amend the existing Income Tax Regulations. Regulation 3.1 amends subregulation 97(2) to remove the definition of 'ISC directed commutation payment', which is no longer relevant following its omission from the Income Tax Assessment Act 1936. Regulation 3.2 introduces new definitions for 'dependant' and 'non-dependant', clarifying the tax treatment of ETPs based on whether the payment is made to a dependant or a non-dependant. Regulation 4 updates subregulation 98(1) to replace the existing tables with a single new table, which incorporates the increased Medicare levy rate. This change ensures the correct tax deduction rates are applied from ETPs. The regulations impose specific obligations on employers to correctly apply the tax instalment deductions for ETPs. Employers must ensure they use the correct rates as defined in the updated Table in subregulation 98(1) to avoid any discrepancies in tax assessments for employees receiving ETPs. They are also required to distinguish between payments made to dependants and non-dependants to determine the correct tax treatment, as outlined in subregulation 97(2). Employers must also be aware that the amendments do not apply retrospectively and must use the appropriate rates for payments made in the period between 1 July 1995 and 31 May 1996, as specified in new subregulation 98(1A). Violations of these regulations may result in significant consequences for both employers and employees. Employers who fail to correctly apply the tax instalment deductions may face penalties under the Income Tax Assessment Act 1936 for non-compliance. Such penalties can include fines and interest on the unpaid tax amounts. Additionally, employees who receive incorrect tax deductions on their ETPs may be required to pay additional taxes upon receiving their income tax assessments, potentially resulting in financial penalties and additional administrative burdens.

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Sourced from the Federal Register of Legislation at 26 August 2026. For the latest information on Australian Government law please go to https://www.legislation.gov.au.