ATO Interpretative Decision

ATO ID 2004/225 (Withdrawn)

Superannuation

• This ATO Interpretative Decision is withdrawn from the database because it contains a view in respect of a provision of the Income Tax Assessment Act 1936 that doesn't apply after the 2006-2007 income year. Despite its withdrawal from the database, this ATO Interpretative Decision continues to be a precedential view in respect of decisions for income years up to, and including, the 2006-2007 income year.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Can an investment product (marketed as a deferred annuity) purchased with the rolled-over amount of an Eligible Termination Payment (ETP) and providing for the granting of a loan to an investor on conditions relating to the placement and the amount of the ETP be a deferred annuity for the purposes of Subdivision AA Division 2, Part III of the Income Tax Assessment Act 1936 (ITAA 1936)?

Decision

No. An investment product (marketed as a deferred annuity) purchased with the rolled-over amount of an ETP and providing for the granting of a loan to an investor on conditions relating to the placement and the amount of the ETP, cannot be a deferred annuity for the purposes of Subdivision AA Division 2, Part III of the ITAA 1936.

Facts

An investor purchases an investment product (marketed as a deferred annuity) with the rolled-over amount of an ETP. The investment product offers investors a loan subject to conditions which include the following:

•

The right to a loan is conditional on the ETP being deposited with the investment provider.

•

The maximum amount which each investor can borrow is expressed as a percentage of the amount of the ETP.

•

Suitable security must be offered for the loan by way of mortgage but the loan must be repaid, and the mortgage discharged, if the ETP is withdrawn.

Reasons for Decision

"Deferred annuity" in subsection 27A(1) of the ITAA 1936:

means an annuity other than an immediate annuity

"Annuity" as defined in subsection 27A(1) of the ITAA 1936:

has the same meaning as in section 10 of the Superannuation Industry (Supervision) Act 1993.

Subsection 10(1) of the Superannuation Industry (Supervision) Act 1993 (SISA) provides that:

In this Act unless the contrary appears:

"annuity" includes a benefit provided by a life insurance company or registered organisation, if the benefit is taken, under the regulations, to be an annuity for the purposes of the Act.

Paragraph 1.05(1)(b) of the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations) provides that:

1.05(1) A benefit provided by a life insurance company or a registered organistion is taken to be an annuity for the purposes of this Act if:

(b)

For a benefit purchased on or after 3 August 1993 - it is purchased with the whole or part of a rolled-over amount within the meaning given to that term by section 27A of the Tax Act"; and

Further subparagraph B of paragraph (b)(ii) of subregulation 5.01(1) of the SIS Regulations provides relevantly that:

5.01(1) In this Part, unless the contrary intention appears:

"deferred annuity" means an annuity:

(b)

whose terms ensure:

(ii)

that... the provider of the annuity does not recognise, or in any way encourage or sanction

(B)

the giving of a charge over, or in relation to the annuity.

The word "charge" is defined in Regulation 13.11 of the SIS Regulations:

includes a mortgage, lien or other encumbrance.

The words "in relation to" have very wide meaning. Authority for this proposition may be found in Cyclone Scaffolding Pty Ltd v. Commissioner of Stamp Duties (Qld) (1982) 84 ATC 4704; (1982) 12 ATR 777 and Trustees Executors & Agency Co Ltd v. Reilly [1941] VLR 110.

There may be circumstances where there is the giving of a charge directly over an annuity itself. Clearly such a product will fall outside the scope of the Subdivision.

In the circumstances described in this ATO Interpretative Decision, there is giving over of a charge in relation to the annuity because:

•

The granting of the mortgage loan is conditional on, and therefore directly linked to the investor depositing the ETP.

•

The maximum amount borrowed is directly referable to the amount of the ETP deposited and

•

The loan must be repaid and the discharge of the mortgage is directly linked to the withdrawal of the ETP.

Accordingly the investment product cannot be a "deferred annuity" as defined in subsection 27A(1) of the ITAA 1936 for the purposes of Subdivision AA Division 2, Part 111 of the ITAA 1936.

Year of income:  Year ended 30 June 2003

Legislative References:
Income Tax Assessment Act 1936
   Subdivision AA Division 2, Part III
   section 27A
   subsection 27A(1)

Case References:
Cyclone Scaffolding Pty Ltd v. Commissioner of Stamp Duties (Qld)
   (1982) 84 ATC 4704
   (1982) 12 ATR 777

Keywords
Deferred annuity
Annuity

Business Line:  Superannuation

Date of publication:  12 March 2004

ISSN: 1445-2782