EXPLANATORY STATEMENT
STATUTORY RULES 1988 No. 208
ISSUED BY THE AUTHORITY OF THE TREASURER
These regulations will amend the Income Tax Regulations affecting the assessment of annuities and the application of the roll-over and tax instalment deduction provisions of the Income Tax Assessment Act to eligible termination payments.
First, the amending regulations will bring up-to-date a reference to the Australian Life Tables. The Australian Life Tables 1975-1977 are the prescribed Life Tables for the purpose of ascertaining life expectation factors used in calculating the annual exclusion from assessable income of the capital cost component of an annuity. The new prescribed Life Tables will be the most recent edition of the Australian Life Tables, the Australian Life Tables 1980-1982.
A second purpose of the regulations is to ease the administrative workload of payers and recipients of eligible termination payments in certain prescribed circumstances. Those circumstances are where a bulk transfer of members of a superannuation fund occurs or where the recipient of an eligible termination payment is in a location remote from the place where the payer’s wage-keeping records are held.
Thirdly, the regulations will update references to the undeducted contributions component of an eligible termination payment which suggest that only 2 particular types of eligible termination payment may include such a component. The result of recent amendments of the Income Tax Assessment Act is that several new types of eligible termination payment may also include an undeducted contributions component. Another amendment will insert a reference to a new component of certain eligible termination payments created by the Taxation Laws Amendment Act (No. 4) 1985. The new component - the non-qualifying component- is required to be shown on a Statement of Termination Payment prepared by the payer of relevant payments.
Regulation 1 provides for the amending regulations to come into effect on 1 September 1988.
Regulation 2 simply facilitates reference to the present Income Tax Regulations in the amending regulations by use of the term “Principal Regulations”.
Regulation 3 repeals the present regulation 4AE and replaces it with new regulation 4AE. New regulation 4AE updates the reference to the prescribed Life Tables which are used to calculate the annual amount to be excluded from an assessable annuity (the deductible amount) under subsection 27H(4) of the Income Tax Assessment Act. For annuities which commence to be payable on or after 1 September 1988 the prescribed Life Tables will be the Australian Life Tables 1980-1982 prepared by the Australian Government Actuary. Since the deductible amount in relation to an annuity is generally fixed for the whole of the period during which the annuity is paid, the Australian Life
Tables 1975-1977 will remain the prescribed Life Tables in relation to annuities that commenced to be payable before 1 September 1988.
Regulation 4 amends regulation 33A which requires that a recipient of an eligible termination payment that is to be rolled-over must complete a form - a Roll-over Payment Notification - detailing which components of the payment are being applied in making the roll-over payment. Subparagraphs (3)(i) to (iv) of regulation 33A describe the various components of an eligible termination payment that may be rolled-over. Paragraph (b) of amending regulation 4 updates subparagraph 33A(3)(b)(iv) by removing the words suggesting that only two types of eligible termination payment may contain “undeducted contributions”. That is no longer the case.
Paragraphs 4(a) and (c) together have the effect that a Roll-over Payment Notification need not be completed in certain prescribed circumstances. Paragraph 4(a) makes the requirement to prepare a Roll-over Payment Notification subject to new subregulation 33A(6) being inserted by paragraph 4(c). The circumstances in which the requirement will not apply are set down in new paragraphs (a) to (d). Those paragraphs are intended to describe a situation where there is a bulk transfer of members of one superannuation fund to another fund and the whole of each member’s accrued entitlement is automatically paid into the new fund (such a payment technically constitutes the roll-over of an eligible termination payment). In such a case the general requirement of regulation 33A serves no useful purpose and the Commissioner will be able to dispense with the requirement.
Regulation 5 will insert 2 new definitions in subregulation 54DAO(2). The “non-qualifying component” of an eligible termination payment is the part of such a payment received as the result of commuting a non roll-over immediate annuity that represents accrued but unpaid income. Amendments made by the Taxation Laws Amendment Act (No.4) 1985 created this new component of an eligible termination payment. By virtue of the complementary amendment being made by paragraph (d) of regulation 6, payers of relevant eligible termination payments will have to show the non-qualifying component on Statements of Termination Payment.
“Roll-over payment” means the payment of an amount within 90 days of payment of an eligible termination payment to a roll-over fund such as a superannuation fund or approved deposit fund. To the extent that an eligible termination payment is so rolled-over it is exempt from tax at that time. The definition facilitates reference to a roll-over payment in new subregulation 54DAQ(6) being inserted by regulation 6.
Regulation 6 will amend regulation 54DAQ which provides for an employer (the payer of an eligible termination payment) and an
employee (the payee) together to complete a form - a Statement of Termination Payment - which sets out details of the payment and any amounts to be rolled over by the payer on the payee’s behalf. The information shown on the form enables the payer to determine the appropriate PAYE tax instalment deduction to be made from the payment.
Subregulation 54DAQ(1) sets out the actions to be taken by an employer and employee before an eligible termination payment is made. An employer must prepare a Statement of Termination Payment showing the components of the payment and give it to the employee. The employee must then make a roll-over nomination in the manner prescribed by subregulation 54DAQ(2), stating which part, if any, of the payment he or she wishes the employer to roll over on his or her behalf. The Statement is then required to be given back to the employer before being returned to the employee with the eligible termination payment, as required by subregulation 54DAQ(3).
Paragraphs (c), (d), and (e) of regulation 6 will simply update references in subregulations 54DAQ (1) and (2) to the different components of an eligible termination payment. Paragraphs (c) and (e) respectively will remove the words in sub-subparagraph (1)(a)(i)(D) and subparagraph (2)(b)(iv) that suggest that only 2 particular types of eligible termination payment may have an undeducted contributions component. Because of recent amendments of the law several other types of eligible termination payment may now have such a component. Paragraph (d) will insert new sub-subparagraph (1)(a)(i)(E) which contains a reference to a new component of an eligible termination payment - the non-qualifying component - created by the Taxation Laws Amendment Act (No. 4) 1985. Employers will have to show the non-qualifying component on Statements of Termination Payment where relevant.
At present the procedure laid down in subregulations 54DAQ(1) and (2) must be followed in every case where an eligible termination payment is made. Paragraphs (a) and (f) will remove that requirement in certain circumstances. The relevant circumstances are those prescribed in new subregulations 54DAQ (6) and (7) being inserted by paragraph (f).
The circumstances described in new subregulation 54DAQ(6) match those in new subregulation 33A(6) being inserted by regulation 4, that is, they describe a case where there is a bulk transfer of members of one superannuation fund to another fund and the whole of each member’s accrued entitlement is paid over to the new fund. The effect of the 2 amendments is that, in those circumstances, employers will not have to complete Statements of Termination Payment and employees will not have to prepare Roll-over Payment Notification forms.
New subregulation 54DAQ(7) describes circumstances where it will not be necessary for an employer to give the Statement of
Termination Payment to an employee to make a roll-over nomination before making an eligible termination payment. Those circumstances are where an employee works in a place that is remote from the place where the employer’s wages records are kept and the employee advises the employer at the time of termination of employment that no part of the relevant eligible termination payment is to be rolled over. The Commissioner will be able to grant an exemption from the procedures laid down in subregulations 54DAQ(1) and (2) to prevent unnecessary delays in the payment of eligible termination payments in such circumstances.