House of Representatives

Tax Laws Amendment (2007 Measures No. 4) Bill 2007

Taxation (Trustee Beneficiary Non-disclosure Tax) Bill (No. 1) 2007

Taxation (Trustee Beneficiary Non-disclosure Tax) Act (No. 1) 2007

Taxation (Trustee Beneficiary Non-disclosure Tax) Bill (No. 2) 2007

Taxation (Trustee Beneficiary Non-disclosure Tax) Act (No. 2) 2007

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello MP)

Chapter 5 Superannuation amendments

Outline of chapter

5.1 Schedule 5 to this Bill amends various Acts to assist in the smooth transition to the Simplified Superannuation regime and ensure the intended policy outcome is reflected in the legislation.

5.2 These amendments limit strategies which could circumvent the minimum drawdown requirements for account-based pensions, facilitate the provision of tax file numbers (TFNs) to superannuation and retirement savings account (RSA) providers, change the treatment of no-TFN contributions income under the pay as you go (PAYG) regime, and revise the application of the small business capital gains tax (CGT) relief amendments.

5.3 These amendments further improve the readability of provisions rewritten as part of the Simplified Superannuation reforms and clarify the intended operation of the reforms.

Context of amendments

Tax file numbers

5.4 The Tax Laws Amendment (Simplified Superannuation) Act 2007 inserted Subdivision 295-I into the Income Tax Assessment Act 1997 (ITAA 1997). This Subdivision establishes a new category of income for superannuation and RSA providers, consisting of superannuation contributions which are included in their assessable income where no TFN is attached to the receiving member's account. Such income is known as no-TFN contributions income and taxed at a higher rate than would normally apply where a TFN is quoted.

Quotation of tax file numbers

5.5 The Government announced on 5 September 2006 that the Australian Taxation Office (ATO) will use its systems to match TFNs to members where non-quotation has occurred and contact members to organise for a TFN to be provided to their superannuation or RSA provider.

5.6 The amendments in this Schedule ensure that where the Commissioner of Taxation (Commissioner) gives notice of a TFN to a superannuation or RSA provider it is taken to have been quoted by the individual and thus the higher rate of tax is not applied to contributions for that individual. The Commissioner may provide a TFN to a superannuation or RSA provider under the general administration provisions of existing legislation.

Pay as you go instalments

5.7 Without special rules, superannuation and RSA providers would be required to reflect the tax on no-TFN contributions income in their PAYG instalments as well as their annual tax assessment.

5.8 It is not possible for superannuation and RSA providers to determine whether a particular contribution is no-TFN contributions income under Subdivision 295-I of the ITAA 1997 until the end of an income year. These amendments will ensure that superannuation and RSA providers do not need to take account of their no-TFN contributions income when working out their PAYG instalments.

Segregated pension assets

5.9 Pensions receive concessional tax treatment in the form of a tax-exemption for income derived from the assets supporting the pension under section 295-385 of the ITAA 1997. This section gives complying superannuation funds an exemption for income derived from assets which, at the time of derivation, are segregated current pension assets.

5.10 In return for this concessional tax treatment, pensions are subject to rules designed to ensure that the capital in the pension is drawn down over time. In the case of account-based pensions, these rules require that a payment of at least a minimum amount be made each year. The minimum payment amount is calculated as a set proportion of the income stream account balance at the commencement of each financial year.

5.11 These amendments clarify that, in the case of account-based pensions, assets which are not included in the income stream account balance will be ineligible for the tax concession available to segregated current pension assets.

Capital gains tax small business relief

5.12 Relief from CGT is available for qualifying small businesses on proceeds of CGT events that are used for retirement. Under Simplified Superannuation reforms the relevant CGT provisions were amended to exclude references to eligible termination payments and allow for the payment of a contribution to a complying superannuation fund or RSA. These changes applied to CGT events occurring in the 2007-08 income year or later income years.

5.13 The application provision is amended to provide for CGT events which occur before the 2007-08 income year where either an individual makes the choice to take advantage of this relief, or the proceeds from the CGT events are received, after 30 June 2007. The provisions are also amended to apply to a company or trust that makes a payment to a CGT concession stakeholder under Subdivision 152-D of the ITAA 1997, after 30 June 2007.

5.14 These amendments are to the application provisions which incorporate new CGT concepts introduced by the Tax Laws Amendment (2006 Measures No. 7) Act 2007 that apply to CGT events happening in the 2006-07 and later income years.

Rewrite of superannuation tax law

5.15 As part of the Simplified Superannuation reforms, the provisions dealing with the taxation of superannuation in the Income Tax Assessment Act 1936 (ITAA 1936) were rewritten and consolidated into the ITAA 1997 by the Tax Laws Amendment (Simplified Superannuation) Act 2007 .

5.16 The relevant provisions in the ITAA 1936 were repealed by the Superannuation Legislation Amendment (Simplification) Act 2007 .

5.17 These amendments ensure the rewritten provisions operate in a manner consistent with the original policy.

Summary of new law

Tax file numbers

5.18 New provisions in the ITAA 1997, the Superannuation Industry (Supervision) Act 1993 , and the Retirement Savings Accounts Act 1997 ensure that where a TFN is provided by the Commissioner to a superannuation or RSA provider, the individual is taken to have quoted their TFN. This ensures that the higher rate of tax that may otherwise apply in respect of contributions made for the benefit of the individual will not be applied where the Commissioner has supplied the TFN.

5.19 Amendments to provisions in the Taxation Administration Act 1953 (TAA 1953) will ensure the tax attributable to no-TFN contributions income under Subdivision 295-I of the ITAA 1997 and the offset for no-TFN contributions income under Subdivision 295-J of the ITAA 1997 are not included when working out a superannuation or RSA provider's PAYG notional tax or benchmark tax.

Segregated pension assets

5.20 Section 295-385 of the ITAA 1997 is amended so that assets supporting superannuation income stream benefits being paid as allocated pensions, market-linked pensions or account-based pensions, will not be considered 'segregated current pension assets' (as defined in that section) to the extent that the value of those assets exceeds the value of the account balance or balances supporting those income stream benefits.

Capital gains tax small business relief

5.21 The application of the CGT small business relief provisions is amended to provide for CGT events which occur either before the Simplified Superannuation transitional period or the 2007-08 income year, but the choice to take advantage of this relief is made, or the proceeds from the CGT events are received, after 30 June 2007.

5.22 The application provision is also amended to apply to a company or trust that makes a payment to a CGT concession stakeholder under Subdivision 152-D of the ITAA 1997 after 30 June 2007.

5.23 The Simplified Superannuation reforms also provided for changes in CGT terminology that were introduced in the Tax Laws Amendment (2006 Measures No. 7) Act 2007 . This Schedule amends the application provision to apply the changed terminology to CGT events happening in the 2006-07 income year and later income years.

Rewrite of superannuation tax law

5.24 These amendments:

·
require amounts of a superannuation income stream purchased with amounts rolled over prior to 1 July 1994, and any tax-free components a member has received since 1 July 2007, to be considered in the calculation of the tax-free component at a trigger event as set out in section 307-125 of the Income Tax (Transitional Provisions) Act 1997 ;
·
provide certain circumstances where a death benefit paid under section 307-5 of the ITAA 1997 can be paid outside of the specified timeframe and still be treated as a superannuation death benefit;
·
insert section 307-290 into the Income Tax (Transitional Provisions) Act 1997 so that deductions claimed for insurance premiums under sections 279 and 279B of the ITAA 1936 are considered when calculating the element untaxed in the fund under the ITAA 1997;
·
provide that a deduction claimed under section 295-485 of the ITAA 1997 can include an amount equal to the contributions tax paid under the ITAA 1936;
·
enable employers to claim a deduction for contributions on behalf of a person who is considered to be an employee for superannuation guarantee (SG) purposes but who is not considered to be an employee under the common law;
·
ensure the policy intent of provisions giving effect to Simplified Superannuation is properly reflected (including to the definitions of 'non-complying superannuation fund' and 'average superannuation liabilities'); and
·
improve the readability of the rewritten provisions.

Comparison of key features of new law and current law

New law Current law
Tax file numbers
An individual is taken to have quoted their TFN to a superannuation or RSA provider where the Commissioner gives notice of their TFN to the provider. The law does not specifically provide that if the Commissioner provides a TFN to a superannuation or RSA provider that the individual is taken to have quoted their TFN to the provider.
The tax attributable to no-TFN contributions income, and the tax offset for no-TFN contributions income, are not taken into account when working out a superannuation or RSA provider's PAYG notional tax or benchmark tax. The tax attributable to no-TFN contributions income, and the tax offset for no-TFN contributions income, are taken into account when working out a superannuation or RSA provider's PAYG notional tax or benchmark tax.
Segregated pension assets
Assets which are not included in a pension account balance will not be considered segregated current pension assets and income derived from these assets will not be exempt from tax. The ITAA 1997 provides a tax exemption to complying superannuation funds for income derived from assets which are segregated current pension assets.
Capital gains tax small business relief
Relief from CGT for qualifying small businesses on the proceeds of CGT events that are used for retirement are also available where the CGT events occur before the Simplified Superannuation transitional period or the 2007-08 income year, but the choice to take advantage of this relief is made or the proceeds from the CGT events are received, after 30 June 2007. Relief from CGT is available for qualifying small businesses on the proceeds of CGT events that are used for retirement where the CGT events occur in either: the 2007-08 income year or later income years, or, during the Simplified Superannuation transitional period.
Rewrite of superannuation tax law
The tax-free component of a superannuation income stream at a trigger event, where the income stream commenced prior to 1 July 2007, is worked out under subsections 307-125(6) and (6A) of the Income Tax (Transitional Provisions) Act 1997 . The tax-free component of a superannuation income stream at a trigger event, where the income stream commenced prior to 1 July 2007 is worked out under subsection 307-125(6) of the Income Tax (Transitional Provisions) Act 1997 .
In certain circumstances, more time is allowed for a benefit to be paid and still be treated as a superannuation death benefit. A superannuation benefit that results from the commutation of a superannuation income stream after the death of the receiving member must be paid within six months of the death, or three months of the grant of probate, in order to be treated as a superannuation death benefit.
New section 307-290 is added to the Income Tax (Transitional Provisions) Act 1997 which provides that for the purposes of section 307-290 of the ITAA 1997, a deduction claimed under former section 279 or 279B of the ITAA 1936 is to be treated as a deduction under section 295-465 or 295-470 of the ITAA 1997 respectively. Section 307-290 of the ITAA 1997 provides a method for working out the taxed and untaxed elements of death benefit superannuation lump sums. The section applies where a deduction has been, or is to be, claimed (under section 295-465 or 295-470 of the ITAA 1997) for insurance premiums paid for life insurance on behalf of the member.
A deduction claimed under section 295-485 of the ITAA 1997 for contributions tax paid on superannuation death benefits allows for amounts included in assessable income under former section 274 of the ITAA 1936. A deduction claimed under section 295-485 of the ITAA 1997 for contributions tax paid on superannuation death benefits does not apply to contributions included in the assessable income of a superannuation entity prior to the 2007-08 income year.
An employer is able to claim a deduction for superannuation contributions made on behalf of an employee who is an SG employee, or engaged in producing the entity's assessable income or engaged in the entity's business. An employer is able to claim a deduction for superannuation contributions made on behalf of an employee who is either engaged in producing the entity's assessable income or engaged in the entity's business.

Detailed explanation of new law

Tax file numbers

Income Tax Assessment Act 1997

Meaning of 'quoted (for superannuation purposes)'

5.25 Section 295-610 of the ITAA 1997 specifies that no-TFN contributions income is included in a superannuation provider's assessable income by Subdivision 295-C of the ITAA 1997, for the income year in which 1 July 2007 occurs (or later income years) only if the contributions are made on or after 1 July 2007 and the individual has not quoted their TFN to their superannuation or RSA provider by the end of the income year in which the contribution is made.

5.26 Currently, section 295-615 of the ITAA 1997 specifies that a TFN will be taken to have been quoted (for superannuation purposes) under section 295-610 of the ITAA 1997 where it has been quoted by the individual or is taken to have been quoted by the individual under the ITAA 1997, the Superannuation Industry (Supervision) Act 1993 or the Retirement Savings Accounts Act 1997 .

5.27 This Schedule ensures that where the Commissioner gives notice of an individual's TFN to a superannuation or RSA provider, the individual will be taken to have quoted their TFN to the superannuation or RSA provider for superannuation purposes. [Schedule 5, items 7 and 8, subsection 295-615(2) of the ITAA 1997] . Accordingly, the higher rate of tax that may otherwise apply if no TFN has been quoted will not apply in respect of contributions for that individual.

Retirement Savings Accounts Act 1997

The holder is taken to have quoted their TFN where the Commissioner gives notice

5.28 The current law does not specifically deal with the situation where the Commissioner provides a TFN to an RSA provider, except in the limited circumstances involving the incorrect quotation of a TFN (see Division 4A of Part 11 of the Retirement Savings Accounts Act 1997 ). However, the Commissioner's power to provide a TFN to an RSA provider is not limited to the specific circumstances where an incorrect TFN has been provided. Rather the Commissioner may provide a TFN to an RSA provider under the Commissioner's general administration powers.

5.29 These amendments ensure that where a TFN is provided by the Commissioner to an RSA provider, an individual is taken to have quoted their TFN in connection with the operation or the possible future operation of the Retirement Savings Accounts Act 1997 and the other 'Superannuation Acts'. [Schedule 5, item 26, subsection 140A(1) of the Retirement Savings Accounts Act 1997]

5.30 Section 16 of the Retirement Savings Accounts Act 1997 specifies 'Superannuation Acts' to mean the:

·
Retirement Savings Accounts Act 1997 ;
·
Superannuation Contributions Tax (Assessment and Collection) Act 1997 ;
·
Superannuation Contributions Tax (Members of Constitutionally Protected Funds) Assessment and Collection Act 1997 ;
·
Superannuation (Unclaimed Money and Lost Members) Act 1999 ; and
·
Termination Payments Tax (Assessment and Collection) Act 1997 .

5.31 This Schedule ensures that where the Commissioner gives notice of an individual's TFN to an RSA provider, the RSA holder will be taken to have quoted their TFN to the RSA provider for superannuation purposes at the time it is provided by the Commissioner. Accordingly, the RSA provider will be able to accept member contributions from the time the individual is taken to have quoted their TFN to the RSA provider. [Schedule 5, item 26, subsection 140A(2) of the Retirement Savings Accounts Act 1997]

Superannuation Industry (Supervision) Act 1993

The beneficiary is taken to have quoted their TFN where the Commissioner gives notice

5.32 The current law does not specifically deal with the situation where the Commissioner provides a TFN to a trustee, except in the limited circumstances involving the incorrect quotation of a TFN (see Division 3A of Part 25A of the Superannuation Industry (Supervision) Act 1993 ). However, the Commissioner's powers to provide a TFN to a trustee are not limited to the specific circumstances where an incorrect TFN has been provided. Rather the Commissioner may provide a TFN to a trustee under the Commissioner's general administration powers.

5.33 These amendments ensure that where a TFN is provided by the Commissioner to a trustee of an entity or scheme, an individual is taken to have quoted their TFN in connection with the operation or the possible future operation of the Superannuation Industry (Supervision) Act 1993 and the other 'Superannuation Acts'. [Schedule 5, item 27, subsection 299SA(1) of the Superannuation Industry (Supervision) Act 1993]

5.34 Section 299W of the Superannuation Industry (Supervision) Act 1993 specifies 'Superannuation Acts' to mean the:

·
Superannuation Industry (Supervision) Act 1993 ;
·
Superannuation Contributions Tax (Assessment and Collection) Act 1997 ;
·
Superannuation Contributions Tax (Members of Constitutionally Protected Funds) Assessment and Collection Act 1997 ;
·
Superannuation (Unclaimed Money and Lost Members) Act 1999 ; and
·
Termination Payments Tax (Assessment and Collection) Act 1997 .

5.35 These amendments ensure that where the Commissioner gives notice of an individual's TFN to a trustee of an entity or scheme, the individual will be taken to have quoted their TFN to the entity or scheme for superannuation purposes at the time it is provided by the Commissioner. Accordingly, the entity or scheme will be able to accept member contributions from the time the individual is taken to have quoted their TFN to the entity or scheme. [Schedule 5, item 27, subsection 299SA(2) of the Superannuation Industry (Supervision) Act 1993]

Taxation Administration Act 1953

5.36 The tax attributable to no-TFN contributions income and the tax offset for no-TFN contributions income will not be taken into account when working out a superannuation or RSA provider's notional tax or benchmark tax. This will ensure that any extra tax that a superannuation or RSA provider has to pay, or any tax offset it can claim, because of no-TFN contributions income will be taken into account in the entity's income tax assessment and not in its PAYG instalments.

Notional tax if you have no-TFN contributions income

5.37 The Commissioner works out the instalment rate or GDP-adjusted (gross domestic product) notional tax amount for superannuation and RSA providers from the entity's notional tax under section 45-325 of Schedule 1 to the TAA 1953. The calculation of the superannuation or RSA provider's notional tax will be modified to ensure that no-TFN contributions income and the tax offset for no-TFN contributions income are not taken into account. However the contributions are still assessable contributions that are taken into account when working out the provider's notional tax and base assessment instalment income. This amendment does not affect how a superannuation or RSA provider works out their instalment income. The provider must still include all contributions that are assessable contributions in their instalment income for a period. [Schedule 5, item 29, subsection 45-325(1A) of the TAA 1953]

Benchmark tax if you have no-TFN contributions income

5.38 The application of section 45-365 of Schedule 1 in working out a superannuation or RSA provider's benchmark tax is modified to ensure that no-TFN contributions income and the tax offset for no-TFN contributions income are not taken into account. This will ensure that the superannuation or RSA provider can ignore the effect of the no-TFN contributions income measures when considering whether to vary its PAYG instalments for a year. However the contributions are still assessable contributions that are taken into account when working out the provider's benchmark tax and variation year (instalment income). [Schedule 5, item 30, subsection 45-365(1A) of the TAA 1953]

Segregated pension assets

5.39 Under section 295-385 of the ITAA 1997, income of a complying superannuation fund that is derived from 'segregated current pension assets' (as defined in that section) is exempt from tax.

5.40 These amendments provide that assets supporting a superannuation income stream benefit which is being paid as an allocated pension, a market-linked pension or an account-based pension, are not considered segregated current pension assets to the extent that the value of those assets exceeds the value of the account balance supporting the income stream benefit. [Schedule 5, item 5, subsection 295-385(6) of the ITAA 1997]

5.41 The effect of this integrity change is that assets which are not included in a pension account balance will not be considered segregated current pension assets and therefore any income derived from those assets will not be exempt from tax.

CGT small business relief

5.42 With the replacement of the concept of eligible termination payments from 1 July 2007, consequential amendments were made to CGT provisions in Division 152 of the ITAA 1997. These provisions provide relief from CGT to qualifying small businesses where the proceeds of CGT events are used for retirement.

5.43 The application provisions currently contained in item 12 of Schedule 2 to the Superannuation Legislation Amendment (Simplification) Act 2007 apply to CGT events that happen in the 2007-08 income year or later income years only.

5.44 The application provisions relating to the removal of the eligible termination payment mechanisms are amended to provide for a CGT event that occurs in an earlier income year to the income year in which the proceeds are received, where the CGT event and the receipt of the proceeds crossover with a start date for the Simplified Superannuation reforms (ie, either 10 May 2006 or 1 July 2007). For example, a CGT event occurs on 1 April 2006 but the proceeds are not received until 14 October 2006. The new mechanisms for receiving a CGT amount and contributing it to superannuation will apply, despite the CGT event occurring before the transitional period.

5.45 The amended application provisions apply to the period in which the choice is made or the proceeds are received by an individual, or a payment is made by a company or trust, not the period in which the CGT event occurred. [Schedule 5, item 28 ; item 12 of Schedule 2 to the Superannuation Legislation Amendment (Simplification) Act 2007]

5.46 The Simplified Superannuation reforms also provided for changes in CGT terminology introduced in the Tax Laws Amendment (2006 Measures No. 7) Act 2007 which applied to CGT events occurring in either: the 2007-08 income year or later income years, or, during the Simplified Superannuation transitional period, 10 May 2006 to 30 June 2007.

5.47 This Schedule amends the application provisions to provide for CGT events happening in the 2006-07 income year and later income years. [Schedule 5, item 28 ; item 12 of Schedule 2 to the Superannuation Legislation Amendment (Simplification) Act 2007]

Rewrite of superannuation tax law

The tax-free component worked out under the Income Tax (Transitional Provisions) Act 1997

5.48 After 1 July 2007, the tax-free component of pensions which commenced before 1 July 2007 will be worked out under subsection 307-125(2) of the Income Tax (Transitional Provisions) Act 1997 . When a pension trigger event occurs (eg, the pensioner reaches age 60), the tax-free component is then calculated under subsection 307-125(6).

5.49 Subsection 307-125(6) currently defines the 'tax-free component' as being the sum of the unused undeducted purchase price (within the meaning of section 27A of the ITAA 1936) and the pre-July 1983 component of the pension. The pre-July 1983 component is nil where at least one superannuation income stream benefit was paid from the superannuation income stream before 1 July 1994.

5.50 Subsection 307-125(6) is amended, and subsection 307-125(6A) inserted into the Income Tax (Transitional Provisions) Act 1997 , to amend the calculation of the tax-free component (for the purposes of paragraph 307-125(4)(b)) and to make the section easier to read. The reference in paragraph 307-125(4)(b) is also updated to refer to both subsection (6) and the new subsection (6A). [Schedule 5, item 19, paragraph 307-125(4)(b) of the Income Tax (Transitional Provisions) Act 1997]

5.51 Paragraph 307-125(6)(b) is amended to refer to only paragraph (a) of the definition of 'unused undeducted purchase price' in subsection 27A(1) of the ITAA 1936 [Schedule 5, item 20, paragraph 30-125(6)(b) of the Income Tax (Transitional Provisions) Act 1997] . The references in that paragraph to paragraphs (b) and (c) of the definition are also excluded for the purposes of the operation of the calculation [Schedule 5, item 21, paragraph 307-125(6)(b) of the Income Tax (Transitional Provisions) Act 1997] .

5.52 The amount worked out in paragraph 307-125(6)(b) will be the unused undeducted purchase price amount, reduced by the amount of any tax-free components (worked out under subsection 307-125(2)) of any benefits paid from the superannuation income stream after 1 July 2007. [Schedule 5, item 22, paragraph 307-125(6)(b) of the Income Tax (Transitional Provisions) Act 1997]

5.53 Paragraph 307-125(6)(c) is amended to remove the reference to treating the pre-July 1983 component as nil [Schedule 5, item 23, paragraph 307-125(6)(c) of the Income Tax (Transitional Provisions) Act 1997] . This component of the calculation is being moved to subsection 307-125(6A). Subsection 307-125(6) is amended so the tax-free component is worked out under subsections (6) and (6A) [Schedule 5, item 24, subsection 307-125(6A) of the Income Tax (Transitional Provisions) Act 1997] .

5.54 The tax-free component will be the unused undeducted purchase price ( less any tax-free components of any benefits paid from the superannuation income stream after 1 July 2007) where:

·
at least one superannuation income stream benefit was paid from the superannuation income stream before 1 July 1994; or
·
the superannuation income stream was purchased after 1 July 1994 with the roll-over of a commutation of a pension that commenced before 1 July 1994.

5.55 Where this is not the case, the tax-free component will be equal to the sum of the unused undeducted purchase price ( less any tax-free components (worked out under subsection 307-125(2)) of any benefits paid from the superannuation income stream after 1 July 2007) and the pre-July 1983 component.

Payment of death benefits

5.56 Currently, a superannuation benefit that results from the commutation of a superannuation income stream after the death of the receiving member must be paid within six months of the death, or three months of the grant of probate, in order to be treated as a superannuation death benefit.

5.57 Section 307-5 of the ITAA 1997 is amended to allow, in certain circumstances, more time for a benefit to be paid and still be treated as a superannuation death benefit.

5.58 The time periods currently in section 307-5 of the ITAA 1997 are extended where they can not be met due to legal action (including dispute resolution processes), or reasonable delays in the process of identifying and contacting potential beneficiaries.

5.59 The time period is extended to six months after the cessation of legal action or after contact is made with potential beneficiaries. [Schedule 5, items 9 to 12, paragraph 307-5(3)(c) of the ITAA 1997]

5.60 The term 'reasonable delays' covers situations where the payer has genuinely attempted to identify the potential recipients and the potential recipients do not unreasonably delay the process.

5.61 If the benefit is not paid within this period, the Commissioner may make a decision in writing that the payment is not a superannuation member benefit. [Schedule 5, item 13, paragraph 307-5(3)(d) of the ITAA 1997 and item 14, subsection 307-5(3A) of the ITAA 1997]

5.62 In making this decision, the Commissioner must have regard to:

·
whether there was any action taken to try to pay the benefit, and the nature of that action (for instance the thoroughness of attempts to locate and communicate with potential beneficiaries);
·
the circumstances and actions of the person to whom the benefit was paid; and
·
any other factors beyond the control of the fund or beneficiary which prevented the timeframe being met.

[Schedule 5, item 14, subsection 307-5(3B) of the ITAA 1997]

5.63 This mechanism is intended to ensure that where reasonable attempts are made to pay the benefit within the specified time period, but due to factors beyond the control of the parties the benefit is not paid within time, the benefit can still be treated as a superannuation death benefit. However, the intent is not that payers or recipients are able to delay payment in order to keep money within the superannuation system.

Example 5.1 The superannuation fund trustee determines that Nicholas is entitled to the entirety of a benefit payable upon the death of his father. The payment of a death benefit to Nicholas is delayed because his step-sister, Emma, takes action in the Superannuation Complaints Tribunal (SCT) in an attempt to receive some of the benefit. Emma is unsuccessful in the SCT, and five months later, Nicholas receives the payment. Section 307-5 would operate to treat this payment as a superannuation death benefit.

Example 5.2 Mat's father dies, and shortly after, Mat moves to Japan. His father's superannuation fund makes several attempts to contact him by letter and by telephone, but is unable to locate him. One year later, Mat returns to Australia and sees a letter from his father's superannuation fund. He contacts the fund, and one month later receives the payment. Section 307-5 would operate to treat this payment as a superannuation death benefit.

Example 5.3 Geeta receives a letter from her deceased father's superannuation fund identifying her as the beneficiary of her father's superannuation. Geeta writes back to the superannuation fund providing details of how she would like to be paid. However, Geeta inadvertently omits a digit from her bank account number, and the superannuation fund cannot make the payment. Both parties attempt to rectify the mistake as quickly as possible, but by the time the money is paid, it has been seven months since the superannuation fund first contacted Geeta.The actions of Geeta and the superannuation fund in attempting to rectify the mistake as quickly as possible are relevant in determining that the benefit should be treated as a superannuation death benefit. It is intended that in these circumstances, the Commissioner would exercise his discretion to treat the benefit as a superannuation death benefit.

Example 5.4 Modifying Example 5.3, Geeta decides to ignore the letter from her father's superannuation fund because she does not need the money. One year later, Geeta decides she does need the money, contacts the fund and receives the benefit.In this situation it is not intended that the Commissioner would exercise his discretion to allow the payment to be treated as a superannuation death benefit as there was a deliberate choice to delay payment of the benefit.

Deductions for insurance premiums

5.64 Section 307-290 of the ITAA 1997 provides a method for working out the taxed and untaxed elements of death benefit superannuation lump sums. The section applies where a deduction has been, or is to be, claimed (under section 295-465 or 295-470 of the ITAA 1997) for insurance premiums paid for life insurance on behalf of the member.

5.65 Section 307-290 is inserted into the Income Tax (Transitional Provisions) Act 1997 to provide that for the purposes of section 307-290 of the ITAA 1997, a deduction claimed under section 279 or 279B of the ITAA 1936 is to be treated as a deduction under section 295-465 or 295-470 of the ITAA 1997 respectively. [Schedule 5, item 25, section 307-290 of the Income Tax (Transitional Provisions) Act 1997]

5.66 The note after subsection 307-290(1) of the ITAA 1997 is amended to refer to new section 307-290 of the Income Tax (Transitional Provisions) Act 1997 . [Schedule 5, item 15, subsection 307-290(1) (note) of the ITAA 1997]

Deductions for tax paid on contributions

5.67 As part of the Simplified Superannuation reforms section 279D of the ITAA 1936 was rewritten as section 295-485 of the ITAA 1997.

5.68 Section 295-485 of the ITAA 1997 provides that certain superannuation death benefits are not reduced because of tax paid for contributions included in the assessable income of the superannuation entity. Under this section, complying superannuation funds or complying approved deposit funds are able to claim a deduction for an increased amount of a superannuation lump sum death benefit paid to the trustee of the deceased's estate or a spouse or former spouse or child of the deceased. The increased amount is equal to the tax paid for contributions included in the assessable income of the superannuation entity.

5.69 These amendments include a provision in the Income Tax (Transitional Provisions) Act 1997 that modifies the effect of paragraph 295-485(1)(b) to allow for amounts included in assessable income under former section 274 of the ITAA 1936. [Schedule 5, item 18, section 295-485 of the Income Tax (Transitional Provisions) Act 1997]

5.70 The amendments also include a note at the end of section 295-485 of the ITAA 1997 referring to the new transitional provision. [Schedule 5, item 6, note to subsection 295-485(1) of the ITAA 1997]

5.71 These amendments ensure that the rewritten section operates as intended.

Deductions for employer superannuation contributions

5.72 Paragraph 290-70(aa) is inserted into the ITAA 1997 to enable an employer to claim a deduction for superannuation contributions made on behalf of a person who is an employee ('employee', as defined in section 12 of the Superannuation Guarantee (Administration) Act 1992 ). [Schedule 5, items 1 and 2, section 290-70 of the ITAA 1997]

5.73 This will enable employers to claim a deduction for contributions made on behalf of SG employees who are not engaged in producing the assessable income of the business, nor engaged in the business for the employer.

5.74 However, individuals who are not SG employees will still need to be engaged in producing the assessable income of the business or engaged in the business before a deduction can be claimed.

5.75 An employer still needs to satisfy the conditions in sections 290-75 and 290-80 of the ITAA 1997 in order to claim a deduction.

5.76 Paragraph 290-90(4)(aa) is inserted into the ITAA 1997 to allow an employer to claim a deduction for superannuation contributions made on behalf of an SG employee of the company, where the employer has a controlling interest in the company [Schedule 5, items 3 and 4, subsection 290-90(4) of the ITAA 1997] . The employer will still need to satisfy the conditions in sections 290-75 and 290-80, as well as the other conditions in section 290-90, before claiming a deduction.

Minor technical amendments

Definition of 'non-complying superannuation fund'

5.77 The current definition of a 'non-complying superannuation fund' in the ITAA 1997 is a superannuation fund that is not a complying superannuation fund.

5.78 The definition of 'non-complying superannuation fund' is amended so that a non-complying superannuation fund is a superannuation fund that is a fund, but is not a complying superannuation fund [Schedule 5, item 16, subsection 995-1(1) of the ITAA 1997] . This change is intended to reflect the definition of non-complying superannuation fund as it stood before 1 July 2007.

Income Tax (Former Non-resident Superannuation Funds) Act 1994

5.79 A reference is updated to clarify that the section being referred to at the end of section 3 of the Income Tax (Former Non-resident Superannuation Funds) Act 1994 is section 295-320 of the ITAA 1997, not section 295-320 of the Income Tax (Former Non-resident Superannuation Funds) Act 1994 itself. [Schedule 5, item 17, section 3 of the Income Tax (Former Non-resident Superannuation Funds) Act 1994]

Formula for the average value of superannuation liabilities for the segregated pension asset calculation

5.80 Section 295-390 of the ITAA 1997 sets out the exempt income of a superannuation entity used to meet current pension liabilities. Subsection 295-390(3) of the ITAA 1997 provides a formula to determine the proportion of assets that are exempt.

5.81 The formula for 'average value of superannuation liabilities' in the ITAA 1997 only refers to 'superannuation income stream benefits' and as a result does not include in the calculation any liabilities to pay non-pension benefits (ie, lump sums) in the future.

5.82 The definition of 'average superannuation liabilities' in subsection 295-390(3) of the ITAA 1997 is amended to replace 'superannuation income stream benefits' with 'superannuation benefits' (which refers to subsection 995-1(1) and section 307-5). [Schedule 5, item 43, subsection 295-390(3) of the ITAA 1997]

5.83 This amendment reflects the operation of former subsection 283(2) of the ITAA 1936.

5.84 Other minor technical amendments are made to improve the presentation of some rewritten provisions in the ITAA 1997, and to amend a number of definitions, including 'index number'. [Schedule 5, items 31 to 42 and 44 to 46, section 9-1 (item 9 in the table), section 9-1 (item 10 in the table, column headed 'because of this provision:'), section 9-1 (item 11 in the table), subsection 9-5(1) (item 5 in the table), subsection 9-5(1) (item 6 in the table), subsection 9-5(1) (item 7 in the table), subsection 9-5(1) (item 8 in the table), subsection 9-5(1) (item 9 in the table), subsection 9-5(1) (item 10 in the table), section 12-5 (item in the table headed 'interest'), section 20-5 (item 8 in the table), subsection 295-390(3) (definition of 'average value of superannuation liabilities'), subsection 295-485(3), subsection 295-485(3) (definition of 'low tax component tax rate'), subsection 995-1(1) (definition of 'index number') of the ITAA 1997 ; Schedule 5, item 47, subsection 16-165(1) of the TAA 1953]

Application and transitional provisions

5.85 These amendments generally apply to the 2007-08 income year and later income years. [Schedule 5, subitem 48(1)]

5.86 However, amendments relating to the following commence on 1 July 2007 [Schedule 5, subitem 48(2)]:

·
payment of death benefits [Schedule 5, items 9 to 14] ;
·
change to the definition of 'non-complying superannuation fund' [Schedule 5, item 16] ;
·
the calculation of the tax free component under the Income Tax (Transitional Provisions) Act 1997 [Schedule 5, items 19 to 24] ; and
·
deductions for insurance premiums [Schedule 5, items 15 and 25] .

5.87 Amendments to section 295-615 of the ITAA 1997, section 140A of the Retirement Savings Accounts Act 1997 and section 299SA of the Superannuation Industry (Supervision) Act 1993 in regards to the notice of an individual's TFN, apply on or after 1 June 2007. [Schedule 5, subitem 48(3)]

5.88 Amendments to subsection 45-325(1) of the TAA 1953 apply to a superannuation or RSA provider's 2007-08 base year and later base years. [Schedule 5, subitem 48(4)]

5.89 Amendments to subsection 45-365(1) of the TAA 1953 apply to a superannuation or RSA provider's 2007-08 variation year and later variation years. [Schedule 5, subitem 48(5)]


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