INCOME TAX ASSESSMENT REGULATIONS 1997

PART 2A - SPECIALIST LIABILITY RULES  

Division 295 - Taxation of superannuation entities  

Subdivision 295-D - Contributions excluded  

REGULATION 295-265.01   APPLICATION OF PRE-1 JULY 1988 FUNDING CREDITS - LIMIT ON CHOICE  

295-265.01(1)  
For paragraph 295-265(7)(a) of the Act, this regulation prescribes the manner in which a superannuation provider in relation to a superannuation fund is to work out the amount applicable to the fund, under subsection 295-265(6) of the Act, for an income year where the superannuation provider chooses, after 9 May 2006, to specify an amount for the purposes of subsection 295-265(1) of the Act. Method 1 - Funding credit valuation process

295-265.01(2)  
Method 1 must be used for an income year, unless:


(a) the conditions mentioned in subregulation (7) for the use of method 2 are met; and


(b) the actuary decides that the use of method 2 is appropriate.

295-265.01(3)  
The amount applicable to the fund for an income year is the least of the following amounts:


(a) the amount of pre-1 July 1988 funding credits unused at the end of the previous income year;


(b) the value of unfunded pre-1 July 1988 liabilities at the first day of the income year, determined by an actuary in accordance with step 3 of method 1 or method 2;


(c) the pre-1 July 1988 taxable contributions for the income year, worked out in accordance with step 4 of method 1 or method 2;


(d) for an income year that ended before 9 May 2006 - the amount that the superannuation provider could specify under subsection 295-265(1) of the Act under the legislation that applied to the income year.

295-265.01(4)  
The amount identified in accordance with subregulation (3) must then be adjusted for all transfers of funding credits and relevant liabilities into or out of the fund.

295-265.01(5)  
The procedure in method 1 for determining an amount applicable to a fund is referred to in this regulation as a funding credit valuation process .

295-265.01(6)  
The amounts mentioned in paragraphs (3)(a), (b), (c) and (d), and the amount as adjusted under subregulation (4), must be certified by an actuary. Method 2 - Notionally updated funding credit valuation process

295-265.01(7)  
The actuary may use method 2 for an income year if:


(a) the actuary can identify, at the start of the income year, that the value of unfunded pre-1 July 1988 liabilities exceeds the amount that the superannuation provider wishes to specify for subsection 295-265(1) of the Act; and


(b) the income year is the first year after, or the second year after, an income year for which method 1 was used to calculate the amount applicable to the fund.

295-265.01(8)  
The procedure in method 2 for calculating an amount applicable to a fund is referred to in this regulation as a notionally updated funding credit valuation process .


Method 1 - Funding credit valuation process
Method 1 - Funding credit valuation process
Step 1 (value liabilities) 1.1 For any income year in which funding credits are claimed, calculate the discounted present value of liabilities as at the first day of that income year that relates to membership completed.
1.2 The basis for the calculations in item 1.1 must be the actuarial valuation basis relevant to the income year in question which the superannuation fund ' s actuary would consider appropriate for a valuation under Part 9 of the SIS Regulations.
1.3 In making the calculation in item 1.1 exclude the following liabilities that are not provided from taxable contributions:
(a) liabilities representing benefits financed by undeducted contributions;
(b) liabilities representing benefits or components that are expected to be treated as paid from an untaxed source;
Example
Pensions provided on an emerging cost or pay as you go basis, with corresponding elections being made under subsection 295-180(1) of the Act.
(c) liabilities for entitlements relating to membership and for which corresponding assets can be identified;
Example
Fully funded productivity, superannuation guarantee or salary sacrifice account balances.
(d) liabilities representing death and disability benefits for which costs are claimed as deductible under section 295-465 or 295-470 of the Act.
1.4 Apportion the discounted present value of the liabilities, between:
(a) the period of superannuation fund membership completed before 1 July 1988; and
(b) the period of superannuation fund membership completed on and after 1 July 1988;
for each superannuation fund member or former member for whom a liability is being valued.
1.5 The apportionment in item 1.4 must be made having regard to the following requirements and principles:
(a) superannuation fund membership must be consistent with the definition used by the fund to determine the benefit being valued;
(b) the actuary of the superannuation fund may use an alternative method for apportioning the discounted present value of liabilities only if the actuary certifies that the method will provide a reasonable approximation of the apportionment;
(c) the actuary will generally use a linear apportionment method, but may use an apportionment method that reflects non-linear accrual of entitlements, provided the actuary considers that such an approach achieves an outcome that is consistent with the principle that funding credits can only be used against contributions intended to provide for entitlements relating to membership completed before 1 July 1988.
1.6 The actuary must retain documentation of the liability and valuation apportionment calculations for not less than 5 years.
1.7 The discounted present value of liabilities for all members apportioned to pre-1 July 1988 membership is the value of pre-1 July 1988 liabilities .
Step 2 ( apportion assets ) 2.1 Calculate the total amount of superannuation fund assets at their market value at the start of the income year, on the basis on which the superannuation fund ' s actuary would consider appropriate for a valuation under Part 9 of the SIS Regulations.
2.2 Allow deductions for realisation costs and charges incurred in the normal course of operation of the superannuation fund.
2.3 Deduct the amount of assets that relate to excluded liabilities mentioned in item 1.3 of step 1 of this method.
2.4 All remaining assets should be treated as available to provide for the value of pre-1 July 1988 liabilities unless the superannuation provider can provide the actuary with written evidence to support exclusion of both an amount of assets and a corresponding value of liabilities.
2.5 The actuary must retain documentation to support calculations made for the asset apportionment for not less than 5 years.
2.6 The result is the assets available to fund pre-1 July 1988 liabilities for the income year.
Step 3 ( unfunded pre-1 July 1988 liabilities ) 3.1 Deduct the assets available to fund pre-1 July 1988 liabilities from the value of pre-1 July 1988 liabilities.
3.2 The result is the value of unfunded pre-1 July 1988 liabilities .
Step 4 ( pre-1 July 1988 taxable contributions ) 4.1 The superannuation provider must notify to the actuary the amount of taxable contributions that are used to fund pre-1 July 1988 liabilities for the income year.
4.2 The superannuation provider must retain documentation to support calculations of pre-1 July 1988 taxable contributions for not less than 5 years.
4.3 The result is the pre-1 July 1988 taxable contributions .


Method 2 - Notionally updated funding credit valuation process
Method 2 - Notionally updated funding credit valuation process
Step 1 ( notionally update value of liabilities ) 1.1 The actuary must notionally adjust the value of pre-1 July 1988 liabilities from the start of the previous year to the start of the current income year, taking into account any factors likely to affect the value of the pre-1 July 1988 liabilities.
1.2 In making a calculation under item 1.1 the actuary must have regard to the valuation basis that would be used by the fund if method 1 were being used.
1.3 In making a calculation under item 1.1 the actuary must have regard to actual experience gained from the operation of the fund if the experience is materially different from valuation assumptions used in the calculation of the previous pre-1 July 1988 liabilities.
1.4 The actuary must retain documentation of the notional updating of the pre-1 July 1988 liability valuation calculations for not less than 5 years.
1.5 The result is the notionally updated value of pre-1 July 1988 liabilities for the income year.
Step 2 ( notionally update apportionment of assets ) 2.1 The actuary must notionally adjust the amount of the assets available to fund pre-1 July 1988 liabilities, from the start of the previous year to the start of the current income year, taking into account any factors likely to affect the amount of the assets available to fund pre-1 July 1988 liabilities.
2.2 Add taxable contributions allocated to fund pre-1 July 1988 taxed liabilities in the previous income year.
2.3 Deduct the employer financed component of pre-1 July 1988 taxed benefits paid out during the previous income year.
2.4 Add actual investment earnings net of the tax and expenses relating to investment income for the previous income year using a basis that is consistent with the underlying investment earnings achieved and normal practices of the superannuation fund.
2.5 The actuary must retain documentation to support notional updating of the amount of assets available to fund pre-1 July 1988 liabilities for not less than 5 years.
2.6 The result is the notionally updated amount of assets available to fund pre-1 July 1988 liabilities .
Step 3 ( unfunded pre-1 July 1988 liabilities ) 3.1 Deduct the notionally updated amount of assets available to fund pre-1 July 1988 liabilities from the notionally updated value of pre-1 July 1988 liabilities.
3.2 The result is the value of unfunded pre-1 July 1988 liabilities for the income year.
Step 4 ( pre-1 July 1988 taxable contributions ) 4.1 The superannuation provider must notify to the actuary the amount of taxable contributions that are allocated to fund pre-1 July 1988 liabilities for the income year.
4.2 The superannuation provider must retain documentation to support calculations of pre-1 July 1988 taxable contributions for not less than 5 years.
4.3 The result is the pre-1 July 1988 taxable contributions .

295-265.01(9)  
If an actuary certifies an amount under subregulation (6) the actuary must, if requested by a superannuation provider, provide sufficient information to enable another actuary to check the certification.

295-265.01(10)  
An actuary must, in making a calculation under or applying method 1 or 2:


(a) follow any professional standards prepared by the Institute of Actuaries of Australia; and


(b) have regard to any professional guidance notes prepared by the Institute of Actuaries of Australia;

that relate to the determination of accrued benefits mentioned in method 1 or 2.

295-265.01(11)  
A superannuation provider must, if requested to do so, provide sufficient information to support a funding credit claim under subsection 295-265(1) of the Act, including any relevant information that relates to an income year for which a claim was not made.

295-265.01(12)  
In this regulation:

method 1
means the method described in the table, Method 1 - Funding credit valuation process.

method 2
means the method described in the table, Method 2 - Notionally updated funding credit valuation process.

Note:

actuary is defined in section 995-1 of the Act.




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