EXPLANATORY STATEMENT
Select Legislative Instrument 2010 No. 302
Issued by authority of the Minister for Financial Services and Superannuation
Income Tax (Transitional Provisions) Act 1997
Income Tax (Transitional Provisions) Regulations 2010
Section 909-1 of the Income Tax (Transitional Provisions) Act 1997 (the Act) provides that the Governor-General may make regulations prescribing matters required or permitted by the Act to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to the Act.
On 13 October 2009, the then Minister for Financial Services, Superannuation and Corporate Law announced amendments to the tax law to provide transitional relief to complying superannuation funds for the deduction of total and permanent disability (TPD) insurance premiums. The transitional relief will provide complying superannuation funds, for the 2004-05 to 2010-11 income years (the transitional period), with a greater scope to deduct premiums paid for insurance cover commonly regarded as TPD insurance.
Under the Income Tax Assessment Act 1997 (ITAA 1997), premiums are deductible only if they relate to a ‘disability superannuation benefit’ (that is, an individual’s inability to perform any occupation). ‘Death and disability benefits’ receive similar treatment under the Income Tax Assessment Act 1936 (ITAA 1936), the law that was applicable up to the 2007-08 income year.
Legislative amendments to the Act and the ITAA 1997, contained in the Superannuation Legislation Amendment Act 2010 (SLAA), allow superannuation funds to treat a broader range of premiums as deductible premiums. This is achieved by allowing, in the transitional period, broader meanings of the terms ‘disability superannuation benefit’ in the ITAA 1997 and ‘death or disability benefits’ in the ITAA 1936 to the extent they relate to the deductibility of TPD insurance premiums. These terms will be given the broader, transitional meaning if the insured disability to which they relate is described as a permanent disability for the purposes of the transitional provisions.
The Regulations describe what a permanent disability is for the purposes of the transitional provisions. They contain a comprehensive list that captures all the disabilities covered by policies industry has been treating as TPD policies. Terminal illness is included as a category of disability. This provides certainty to both the superannuation industry and the Australian Taxation Office (ATO) and will ensure that appropriate policies receive the full deduction for premiums paid in the 2004-05 to 2010-11 income years.
Details of the Regulations are set out in the Attachment.
The Act specifies no conditions that need to be met before the power to make the Regulations may be exercised.
The Regulations are a legislative instrument for the purpose of the Legislative Instruments Act 2003.
The Regulations commence on commencement of item 5 of Schedule 2 to the SLAA.
Item 5 commences by Proclamation on 1 December 2010.
The ATO and stakeholders were consulted during the preparation of these Regulations.
ATTACHMENT
Details of Income Tax (Transitional Provisions) Regulations 2010
Regulation 1 provides that the title of the Regulations is the Income Tax (Transitional Provisions) Regulations 2010.
Regulation 2 provides that the Regulations commence on the commencement of item 5 of Schedule 2 to the Superannuation Legislation Amendment Act 2010.
Regulation 3 provides definitions for the purposes of the Regulations. The defined terms are:
• Act which is defined to be the Income Tax (Transitional Provisions) Act 1997.
• daily activities which is a non-exhaustive list including communicating with others, eating or drinking, dressing or undressing, attending to personal hygiene, walking, seeing, sitting or rising from a seated position, lifting or carrying, writing or using a keyboard; and
• home duties which is a non-exhaustive list including cleaning, shopping for food and household items, preparing meals, providing laundry services, looking after a dependent child, caring full time for a member of the household who is disabled.
Regulation 4 describes certain disabilities as permanent disabilities.
Subregulation 4(1) stipulates that regulation 4 is made for section 295-466 of the Act.
Subregulation 4(2) describes disabilities that are to be considered to be examples of a permanent disability for the purposes of the transitional provisions.
It ensures that a certain level of evidence is required to be provided to superannuation fund trustees or insurance providers before any disability will be considered a permanent disability.
It also stipulates that the disability must be a disability described in subregulation 4(3).
Subregulation 4(3) describes certain categories of disability. Such disabilities are to be considered permanent disabilities in relation to the members of superannuation funds for the purposes of subregulation 4(2).
The following disabilities are described:
• a disability that is likely to result in an inability ever to work in any occupation for which the member is reasonably qualified by education, training or experience;
• a disability that is likely to result in an inability ever to work again in the member’s own occupation;
• a disability that results in a substantial reduction in the member’s capacity to do one or more daily activities without the assistance of another person, an animal or equipment that alleviates the effect of the disability;
• in relation to a member who was engaged in home duties — a disability that is likely to result in an inability ever to engage in the majority of those home duties;
• a permanent loss of either or both of:
– the member’s sight in one or both eyes resulting in the member being legally blind; or
– the use of one or more of the member’s limbs, feet or hands;
• a permanent cognitive impairment that results in the need for the member to be continuously supervised by another person; and
• a terminal illness from which the member is expected to die within 12 months of the member obtaining medical evidence to provide to his or her superannuation fund trustee or insurer.
Subregulation 4(4) extends the meaning of two of the disabilities listed in subregulation 4(2):
• a disability that is likely to result in an inability ever to work in any occupation for which the member is reasonably qualified by education, training or experience; and
• a disability that is likely to result in an inability ever to work again in the member’s own occupation.
Included in the meaning of these two disabilities is the case where a member can still work, but only in a substantially reduced capacity in comparison to his or her working ability before the disability.
Subregulation 4(5) ensures that nuances in the wording of insurance policies does not prevent them being covered by the transitional arrangements. The permanent disability event described in the policy is not to be precluded from being a permanent disability for the purpose of the transitional arrangements if it contains the essential elements of a disability described in subregulation 4(3).
This subregulation also stipulates that any additional criterion included in a definition of permanent disability will not preclude the disability from being a permanent disability for the purpose of the transitional arrangements.