Income Tax Regulations (Amendment) 1994 No. 174
EXPLANATORY STATEMENT
STATUTORY RULES 1994 No. 174
Issued by authority of the Assistant Treasurer
Income Tax Assessment Act 1936
Income Tax Regulations (Amendment)
These regulations amend Income Tax Regulation 124 which makes provision for variation of the notional tax of companies, and insert new Regulation 124A which will deal with the variation of notional tax for a company which is a life assurance company.
Section 266 of the Act provides that the Governor-General may make regulations prescribing matters required to give effect to the Act. Subsection 221AZB(4) of the Act provides for regulations to determine the calculation of a variation of notional tax for a relevant entity [a term which includes a life assurance company] where the rate of income tax payable for a financial year differs from the rate declared by the Parliament for the following year. A company's notional tax for a year of income, which is used as a basis for determining the initial payment of tax for that year, represents the tax assessed in respect of the previous year of income.
Where the rate of income tax payable by companies for a year of income differs from the rate declared by the Parliament for the next succeeding year, regulation 124 provides the correct notional tax for companies generally. However regulation 124 did not provide the correct notional tax for life assurance companies with components of taxable income which are subject to tax at different rates.
Regulation 124 contains the formulae for determining a company's notional tax when the rate of income tax differs from the previous year. The regulation was amended in 1993 when the company tax rate was reduced from 39% (for the 1992-93) year to 33% (for the 1993-94 year). As a result, regulation 124 operates so that a company's initial payment of tax for the 1993-94 is based on 33/39 times the company's tax assessed for the 1992-93 year. Previously, the regulation has not taken account of changes in the tax rate for different income components for life assurance companies.
A life assurance company's taxable income could consist of four income components which are subject to income tax at different rates. The rates of tax range from 15% for the CSIRA component (complying superannuation and annuity business) to 47% for the NCS component (non complying superannuation business). The rates of tax for a life assurance company did not change in 1993-94 except for the non-fund component (business other than life assurance business) of a non-mutual company. The rate of tax for the non-fund component of a non-mutual life assurance company decreased from 39% (for the 1992-93 year) to 33% (for the 1993-94 year) in line with the rate reduction for companies generally.
If new regulation 124A were not introduced to cover life assurance companies, their initial payment of tax for the 1993-94 year of income under regulation 124 will also be based on the ratio of 33/39 times the company's tax assessed in 1992-93. This would have been the result even though there was a reduction in the rate of tax payable on only 1 of 4 possible components of taxable income.
The amended regulations exclude life assurance companies whose year of income ends on or after 30 June 1994 from Regulation 124.
The amending regulations also inserted a new regulation to provide the calculation of notional tax for a life assurance company whose 1993-94 year of income ends on or after 30 June 1994, so that each component of taxable income is calculated separately; having regard to the variation, if any, in the rate of tax from 1992-93 to 1993-94.
Details of the amending regulations are as follows:
Regulation 1 proposed that the Income Tax Regulations be amended as set out in the amending regulations.
Regulation 2 amends existing subregulation 124(3) to exclude life assurance companies whose 199394 year of income ends on or after 30 June 1994 from its operation.
Regulation 3 inserts new regulation 124A to provide the calculation of notional tax for life assurance companies whose 1993-94 year of income ends on or after 30 June 1994.
New subregulation 124A(1) provides that new regulation 124A applies to a life assurance company whose 1993-94 year of income ends on or after 30 June 1994.
New subregulation 124A(2) calculates the notional tax for a life assurance company as the sum of amounts calculated for each component of the company's taxable income as identified under section 116CJ of the Act.
New subregulation 124A(3) contains the formula to calculate the notional tax for a component of income of a life assurance company for the 1993-94 year of income for the purposes of subregulation 124A(2).
New subregulation 124A(4) specifies the prescribed date, in accordance with subsection 221AZB(4) of the Act, to be 1 January 1993. This date is the same day used in subregulation 124(2) and represents the beginning of the 1993-94 year of income for a company balancing on 31 December 1993 in lieu of 30 June 1994. The operation of new subregulation 124A(1) will ensure that new regulation 124A applies only to those life assurance companies which balance their 199394 year of income on or after 30 June 1994.