Taxation Administration Amendment Regulations 2002 (No. 1) 2002 No. 102
EXPLANATORY STATEMENT
STATUTORY RULES 2002 No. 102
Issued by authority of the Minister for Revenue and Assistant Treasurer
Taxation Administration Act 1953
Taxation Administration Amendment Regulations 2002 (No. 1)
Section 18 of the Taxation Administration Act 1953 (the Act), provides that the GovernorGeneral 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.
The purpose of the proposed Regulations is to specify the rates of withholding tax that would apply when a 'departing Australia superannuation payment' is made.
Recent amendments to the Superannuation Industry (Supervision) Regulations and the Retirement Savings Account Regulations allow superannuation benefits that are normally required to be preserved until retirement to instead be paid to a temporary resident after they have permanently departed Australia.
As these payments will not be preserved until retirement it is not appropriate that they receive concessional taxation treatment. Accordingly the payments will be defined as 'departing Australia superannuation payments' under subsection 27A(1) of the Income Tax Assessment Act 1936 and be subject to special rates of taxation set out in the Income Tax (Superannuation Payments Withholding Tax) Act 2002. Collection of the tax on these payments is to be achieved through the payer being required to withhold tax before making the 'departing Australia superannuation payment'.
Section 12-305 of Schedule 1 to the Act provides that an entity must withhold an amount from a 'departing Australia superannuation payment'. Section 15-35 of Schedule 1 to the Act provides scope for regulations to be made to specify the rates of withholding tax that will apply. These rates would be identical to those set out in the Income Tax (Superannuation Payments Withholding Tax) Act 2002. In most cases this would mean a 30% withholding tax would apply, though this may vary depending on the components of the benefit.
Details of the amending Regulations are set out in the Attachment.
The amending Regulations commenced on 1 July 2002.
ATTACHMENT
Taxation Administration Amendment Regulations 2002 (No. 1)
Explanation of the amendments
Regulation 1 - specifies the name of the Regulations as the Taxation Administration Amendment Regulations 2002 (No. 1).
Regulation 2 - provides that the Regulations commenced on 1 July 2002.
Regulation 3 - provides that Schedule 1 amends the Taxation Administration Regulations 1976.
Schedule 1 amendments
Item 1 of Schedule 1 - amends the heading of Division 4, Part 5 of the Taxation Administration Regulations 1976 to reflect new Regulation 43A which is inserted by item 2.
Item 2 of Schedule 1 - inserts new Regulation 43A. This specifies the withholding tax rates to apply when a 'departing Australia superannuation payment' is made. For that part of a 'departing Australia superannuation payment' that represents undeducted contributions or a post-June 1994 invalidity component the withholding rate is nil. For that part that represents an untaxed element of the post-June 1983 component the withholding rate is 40%. For the remainder of the payment the withholding rate is 30%.
The terms used to define the components of the benefit are already defined in section 27A of the Act and have the same meaning in relation to a 'departing Australia superannuation payment' as they do in relation to other existing superannuation payments.
Overview
The Taxation Administration Amendment Regulations 2002 (No. 1) were enacted to address the gap arising from the recent amendments to the Superannuation Industry (Supervision) Regulations and the Retirement Savings Account Regulations, which allow superannuation benefits to be paid to temporary residents after they have permanently departed Australia. This legislation was enacted by the Australian Government under the authority of the Minister for Revenue and Assistant Treasurer, to ensure that superannuation payments made under these circumstances are appropriately taxed. The primary policy objective of these Regulations is to ensure that superannuation benefits paid to departing temporary residents are subject to the correct tax rates, thereby maintaining the integrity of the superannuation system. The Regulations came into effect on 1 July 2002 and specify the withholding tax rates for "departing Australia superannuation payments" to reflect the different components of the benefits, ensuring that these payments are taxed in accordance with the Income Tax (Superannuation Payments Withholding Tax) Act 2002.
Scope and Application
The Taxation Administration Amendment Regulations 2002 (No. 1) apply to entities making 'departing Australia superannuation payments', which are payments made to individuals who have permanently left Australia and are not subject to the usual superannuation preservation rules. These Regulations are made under the authority of the Taxation Administration Act 1953 and are designed to ensure that such payments are taxed at appropriate rates to reflect the changes in the tax treatment of these payments. The Regulations specify the rates of withholding tax that must be applied by the entity making the payment, with different rates applying to different components of the payment as defined in the Income Tax Assessment Act 1936. The withholding tax rates outlined in the Regulations are identical to those specified in the Income Tax (Superannuation Payments Withholding Tax) Act 2002. The Regulations commenced on 1 July 2002 and their application is limited to the specified rates of withholding tax on 'departing Australia superannuation payments'.
Key Provisions
The main operative sections of the Taxation Administration Amendment Regulations 2002 (No. 1) are Regulation 3 and item 2 of Schedule 1, which together specify the withholding tax rates that apply when a 'departing Australia superannuation payment' is made. Regulation 3 provides that the Schedule to the Regulations amends the Taxation Administration Regulations 1976. Item 2 of Schedule 1 then inserts a new Regulation 43A, which sets out the withholding tax rates for 'departing Australia superannuation payments'. According to this new regulation, the withholding tax rate is nil for the part of the payment that represents undeducted contributions or a post-June 1994 invalidity component. For the part of the payment that represents an untaxed element of the post-June 1983 component, the withholding tax rate is 40%. For the remainder of the payment, the withholding tax rate is 30%.
The obligations imposed by these Regulations are primarily on entities making 'departing Australia superannuation payments'. Under section 12-305 of Schedule 1 to the Taxation Administration Act 1953, an entity must withhold an amount from a 'departing Australia superannuation payment'. The amount to be withheld is determined by Regulation 43A, which specifies the tax rates according to the components of the benefit. Entities must ensure they correctly identify and calculate the tax payable on each component of the payment before making the payment to the recipient.
Breaches of the obligations set out in the Regulations may lead to civil or criminal consequences. Under section 18 of the Taxation Administration Act 1953, any person who fails to comply with a requirement to withhold tax as specified in the Regulations may be liable to pay a penalty. The penalty for a 'serious contravention' is the greater of $2,100 or 100% of the amount of tax that should have been withheld. For a 'non-serious contravention', the penalty is the greater of $420 or 20% of the amount of tax that should have been withheld. Additionally, the Commissioner of Taxation may take action to recover the unpaid tax from the entity that failed to withhold it, and in serious cases, may also prosecute for criminal offences. The maximum penalties for these offences are set out in the Income Tax Assessment Act 1936 and include fines of up to $22,200 for individuals and $111,000 for bodies corporate, along with potential imprisonment terms.