EXPLANATORY STATEMENT
Social Security (Attribution of Income – Ineligible Deductions) Determination 2004
Summary
Sections 1208B and 1209C of the Social Security Act 1991 (the Social Security Act) provide that to calculate the income of a company or trust, for the purposes of Division 7 of Part 3.18, any deductions allowable under the Income Tax Assessment Act 1936 or Income Tax Assessment Act 1997 can be deducted from the gross income of the company or trust, unless the Secretary has determined that they are an ineligible deduction, or an ineligible part of a deduction.
The purpose of this instrument is for the Secretary to determine those tax deductions that are ineligible to be applied against the gross income of a company or trust for social security purposes.
Background
The Social Security and Veterans’ Entitlements Legislation Amendment (Private Trusts and Private Companies – Integrity of Means Testing) Act 2000 amended the Social Security Act to give effect to a measure in the Government's 2000-2001 Budget to revise the means test treatment of private companies and private trusts. The measure aims to ensure that customers who hold their assets in private companies or private trusts receive comparable treatment under the means test to those customers who hold their assets directly. The assets and income of the structure will be attributed to the person or persons who control the company or trust, or to the person or persons who were the source of the capital or corpus of the company or trust.
Explanation of the provisions
Part 1
Section 1 of the instrument states the name of the disallowable instrument and section 2 states that the Determination commences on gazettal. Section 3 contains interpretation provisions.
Part 2
Section 4 of the instrument provides that for the purposes of subsections 1208B(3) and 1209C(3) of the Social Security Act, those deductions listed in Parts 1 and 2 of Schedules 1 and 2 (respectively) of the instrument, that would normally be allowable deductions under the Income Tax Assessment Act 1936 or Income Tax Assessment Act 1997 are ineligible deductions, for the purposes of Part 3.18 of the Social Security Act.
Sections 5 to 11 provide rules that deal with the application of subsections 1208B(5) and 1209C(5) of the Social Security Act in relation to particular types of deductions.
Section 5 provides that any part of a contribution to an employee’s superannuation fund will not be allowed as a deduction in so far as it is greater than the ‘superannuation guarantee’ levy amount and the employee is either an attributable stakeholder of the entity or an associate of an attributable stakeholder, within the meaning of paragraph 1207C(1) (e), (h), (i) or (j).
Section 6 provides that, where a company or trust pays wages or a salary to an attributable stakeholder of that entity, or an associate of such a person, then such part of the salary or wages payment that is greater than reasonable remuneration for the work undertaken will be an ineligible part of the allowable deduction.
Section 7 provides that any part of an interest payment to a creditor of a company or trust will be an ineligible part of the allowable deduction in so far as it is greater than a reasonable rate of interest.
Section 8 provides that, where a company or trust artificially depreciates the value of its trading stock by changing its method of valuing the stock from one year to the next in accordance with an election under section 70-45 of the Income Tax Assessment Act 1997, then any part of the depreciation which is solely attributable to this altered valuation method will be an ineligible part of the allowable deduction.
Section 9 provides that, where a primary production company or trust artificially depreciates the value of its trading stock by changing its method of valuing the stock from one year to the next in accordance with an election under section 70-45 of the Income Tax Assessment Act 1997, then any part of the depreciation which is solely attributable to this altered valuation method will be an ineligible part of the allowable deduction.
Section 10 provides that, where a company or trust artificially depreciates the value of its trading stock by changing its method of valuing the stock during an income year in accordance with an election under section 70-50 of the Income Tax Assessment Act 1997, then any part of the depreciation which is solely attributable to this altered valuation method will be an ineligible part of the allowable deduction.
Section 11 provides that, where a primary production company or trust artificially depreciates the value of its trading stock by changing its method of valuing the stock during an income year in accordance with an election under section 70-50 of the Income Tax Assessment Act 1997, then any part of the depreciation which is solely attributable to this altered valuation method will be an ineligible part of the allowable deduction.
Schedule 1 – Part 1
This part provides a list of deductions, which would otherwise be allowable under the Income Tax Assessment Act 1936, but are determined to be ineligible deductions for the purposes of section 1208B of the Social Security Act.
Schedule 1 – Part 2
This part provides a list of deductions, which would otherwise be allowable under the Income Tax Assessment Act 1997, but are determined to be ineligible deductions for the purposes of section 1208B of the Social Security Act.
Schedule 2 – Part 1
This part provides a list of deductions, which would otherwise be allowable under the Income Tax Assessment Act 1936, but are determined to be ineligible deductions for the purposes of section 1209C of the Social Security Act.
Schedule 2 – Part 2
This part provides a list of deductions, which would otherwise be allowable under the Income Tax Assessment Act 1997, but are determined to be ineligible deductions for the purposes of section 1209C of the Social Security Act.