Supplementary Explanatory Memorandum
This supplementary memorandum explains an amendment being proposed to the Taxation Laws Amendment (Superannuation) Bill 1989 (referred to in this memorandum as "the Bill") as introduced into the Senate. The amendment will exempt from tax a portion of the investment income of complying approved deposit funds (ADFs) that receive most of their income as interest. The income to be exempt is, broadly, the part of the ADF's normal assessable income (that is, income other than taxable contributions and certain non-arm's length income that is taxable at the top personal marginal rate) attributable to amounts held on deposit, including accumulated earnings, at 25 May 1988 for certain eligible depositors. Eligible depositors are:
- depositors aged 55 or more at 25 May 1988; and
- those depositors aged 50 or more at 25 May 1988 who, on or before that date, rolled over to the ADF all or part of an ETP which had a concessional component (i.e., an approved early retirement scheme payment, a bona fide redundancy payment or an invalidity payment), regardless of whether any part of the concessional component was rolled over.
The tests of exemption are in two stages. First, an ADF will have to satisfy the following conditions in respect of the year for which exemption is sought :
- the fund is a complying ADF;
- at no time during the year do the fund's assets include either units in a pooled superannuation trust or life assurance policies;
- at least 90 per cent of the fund's normal investment income consists of interest, payments in the nature of interest or amounts included in assessable income in respect of long term discounted securities.
Second, an ADF that satisfies those conditions (a fixed interest complying ADF) in a year of income must have met the conditions at all times from the year of income in which 1 July 1988 occurred until the year when the exemption is sought. This test will only become relevant in years of income after the year in which 1 July 1988 occurred.
The purpose of the amendment is to relieve eligible depositors from the impact of the tax otherwise payable by an ADF on income attributable to those depositors' investments in the ADF at 25 May 1988. It is to be a pre- condition of the exemption that ADFs pass on the benefit of the exemption to eligible depositors.
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