Edited version of administratively binding advice

Authorisation Number: 1012497374315

Advice

Subject: Notional taxed contributions - grandfathering and associated issues

Questions

Main Question

1. If eligibility for a reversionary pension under the rules of a superannuation scheme (the Scheme) is extended (the proposed enhancement), will a member's amount of notional taxed contributions (NTC) still be treated as 'nil' or as 'equal' to the concessional contributions cap (as the case may be) under Subdivision 292-D of the Income Tax Assessment Regulations 1997 (the ITAR)?

Subsidiary Questions

2. For NTC to equal the concessional contributions cap, will it be necessary to meet the requirements of either:

(a) subsection 291-170(2) or subsection 291-170(4); or

(b) both of these subsections;

of the Income Tax (Transitional Provisions) Act 1997 (the ITTPA)¹

3. Does the new entrant rate (NER) mentioned in subregulation 292-170.05(2) of the ITAR refer to the first NER that was ever calculated since 5 September 2006 or to any subsequent NER that might be calculated in the course of time?

4. Will any change to the rules of the Scheme that gives effect to the proposed enhancement be a change that 'improves' a member's benefit under the Scheme for the purposes of subregulation 292-170.05(2) of the ITAR?

5. Will a member of the Scheme who:

(a) is currently receiving a pension under the Scheme; and

(b) may benefit from the proposed enhancement;

remain a non-accruing member within the meaning of that term in subregulation 292-170.04(4) of the ITAR and continue to have a 'nil' amount of NTC?

6. If the answer to question 5 is 'no', will the member mentioned in that question:

(a) forever lose the grandfathering concession that subregulation 292-170.04(1) of the ITAR gives the member; or

(b) be liable to an amount of NTC as if the member were an accruing member for the financial year in which the proposed enhancement is put in place and for that financial year only?

7. Additionally, if the answer to question 5 is 'no':

(a) will the member mentioned in that question be re-classified from being in the pension phase to being in the growth phase;

(b) will it be necessary to re-calculate the taxable component of the member's benefit entitlement under the Scheme; and

(c) given that the member is no longer an employee, how should a contribution to the Scheme required to be made by the employer (the Employer) in respect of the proposed enhancement be classified?

8. Will a member of the Scheme who:

(a) has deferred, or otherwise suspended, their entitlement to a pension under the Scheme; and

(b) may benefit from the proposed enhancement;

remain a non-accruing member within the meaning of that term in subregulation 292-170.04(5) of the ITAR 1997 and continue to have a 'nil' amount of NTC?

9. If the answer to question 8 is 'no', will the member mentioned in that question:

(a) forever lose the grandfathering concession that subregulation 292-170.04(1) of the ITAR gives the member; or

(b) be liable to an amount of NTC as if the member were an accruing member for the financial year in which the proposed enhancement is put in place and for that financial year only?

10. Given that the member mentioned in question 8 is no longer an employee, how should a contribution to the Scheme required to be made by the employer in respect of the proposed enhancement be classified?

11. Will a member of the Scheme who:

(a) is currently making contributions under the Scheme; and

(b) may benefit from the proposed enhancement;

still meet the condition mentioned in subregulation 292-170.07(2) of the ITAR and continue to be allowed to equate their amount of NTC with the concessional contributions cap?

12. If the answer to question 11 is 'no', will the member mentioned in that question:

(a) forever lose the grandfathering concession that section 291-170 of the ITTPA gives the member; or

(b) be liable to an amount of NTC for the financial year in which the proposed enhancement is put in place and for that financial year only?

13. If a member of the Scheme is no longer a non-accruing member because of the proposed enhancement being put in place, will it be necessary to:

(a) determine an NER for the member; and

(b) create a new benefit category under the Scheme?

14. If the proposed enhancement is put in place, will it be necessary to work out, in relation to the formula in section 1.8 of Schedule 1A to the ITAR:

(a) an additional amount 'X' under Part 5 (change of benefit category); and/or

(b) an additional amount 'Y' under Part 6 (change of governing rules)?

Advice/Answers

1. Yes.

2. It will be necessary to meet the requirements under subsection 291-170(4) of the ITTPA only.

3. The NER referred to in subregulation 292-170.05(2) of the ITAR refers to the first NER that was ever calculated since 5 September 2006.

4. No.

5. Yes.

6. Answer not required, as the answer to question 5 is 'yes'.

7. Answer not required, as the answer to question 5 is 'yes'.

8. Yes.

9. Answer not required, as the answer to question 8 is 'yes'.

10. As long as the member mentioned in question 8 remains a non-accruing member, no contribution would need to be made to the Scheme under the Scheme rules.

11. Yes.

12. Answer not required, as the answer to question 11 is 'yes'.

13. Answer not required, as the answer to both questions 5 and 8 is 'yes'.

14. No.

This ABA applies for the following period

2013-14 income year.

Relevant facts

The Scheme was established under an Act of a Parliament (the Act). It is a partly funded, defined-benefit superannuation scheme, now closed to new members.

A superannuation fund (the Fund) is maintained under the Act.

The Act requires that the Fund be maintained in such other places as the trustees of the Fund determine.

The trustees of the Fund (the Trustees) are appointed under the Act.

Among the members of the Scheme are active contributors, deferred and suspended pensioners, current pensioners and reversionary pensioners. As the Scheme is a defined benefit scheme, the Fund pays pensions as the primary benefit.

Pension benefits are generally based on a member's length of service and salary.

Both the Employer and members of the Scheme contribute to the Fund. Employer contributions are determined after considering the advice of the Trustees. Member contributions at a specified percentage are deducted from instalments of a member's salary.

An actuarial investigation as to the state and sufficiency of the Fund is made at the end of every three years.

At present, a reversionary pension is payable under the Act to a spouse or partner of a former member on the death of the former member if, immediately before the former member dies, the former member:

(a) was receiving, or was entitled to receive, a pension under the Act; and

(b) was in a marriage or relationship with that spouse or partner.

Where, immediately before a former member dies:

(a) the former member was receiving, or was entitled to receive, a pension under the Act; and

(b) a person:

(i) became the spouse or partner of the former member after the former member became entitled to the pension; and

(ii) has had a child in their marriage or relationship with the former member;

a reversionary pension is also payable under the Act to that person. However, if the marriage or relationship is less than a specified number of years when the former member dies, the reversionary pension is reduced on a pro rata basis in the proportion that the period of the marriage or relationship bears to that specified number of years.

Unless the length of a marriage or relationship up to the time of a former member's death is less than the specified number of years, a reversionary pension is generally payable at the rate of:

(a) a specified percentage of the pension that would have been payable from time to time to the former member but for the former member's death; or

(b) a specified percentage of the current basic salary as is defined in the Act;

whichever is the greater.

It is proposed that the rules of the Scheme be changed to enable a reversionary pension to be paid to a spouse or partner in all post-retirement marriages or relationships while still keeping in place the pro rata arrangement where the length of a marriage or relationship is shorter than the specified number of years. This proposed enhancement is to apply to all future deaths of pensioners, but not to any past deaths of pensioners. Subject to the agreement of the Employer, this proposed enhancement will be given effect by amending the Act.

According to the opinion of the Fund's actuary (the Actuary), the following groups may benefit from the proposed change:

(a) a small number of existing pensioners who have a post-retirement marriage or relationship that does not meet all the requirements for an entitlement to a reversionary pension;

(b) existing pensioners who currently are single, or have divorced or are widowed and who may marry or re-marry in future;

(c) existing contributors and deferred or suspended pensioners who currently are single, or have divorced or are widowed and who may, in future, marry or re-marry after starting a pension.

Group (a) above would, according to the Actuary, benefit directly and substantially from the proposed enhancement, as a reversionary pension may be payable for many years depending on the age of the pensioner's spouse or partner, as well as the level of pension. The actuarial value of any increase in benefits for each individual in this group (using assumptions appropriate to their specific circumstances) may be in the range of specified amounts.

Groups (b) and (c) above would not benefit from the proposed enhancement unless their future circumstances emerge in a certain way. The actuarial value of any increase in benefits is much lower than that in group (a) as the probability of the circumstances emerging as required for an increase in benefits is not very high.

The Actuary's opinion also includes the following:

(a) Any change in the Scheme's rules would not, of itself, change the new entrant rate (NER) for accruing members because subsection 3.8(2) of Schedule 1A to the ITAR prescribes that:

If the fund benefit is a reversionary pension, the value of the pension is to be taken as the value of the pension assuming it is a single life pension, increased by 10%.

This would not alter with the change in the Scheme's rules.

(b) One of the actuarial assumptions used in the NER calculation for a particular year in the past was 'commutation rate', i.e., the proportion of pensions that were voluntarily exchanged for lump sums at pension commencement. The commutation rate was actuarially assumed to be a specified percentage for pre-1990 members and another specified percentage for all other members. The most recent triennial actuarial review reduced the assumed commutation rate for all other members to a smaller percentage.

If the reduced commutation rate used in the actuarial assumptions were incorporated in the NER calculation, a slight increase in the NER would ensue for some members. It is, however, the Actuary's understanding that there is no requirement under the ITAR to re-calculate the NER solely on the basis of a change in actuarial assumption. The NER therefore remains as was originally calculated.

(c) As of 1 July 2013 there will be an increase in the rate of superannuation guarantee (SG) contributions. This will, in turn, require a re-calculation of the NER to take into account both the increase in the SG rate and any changes in the prevailing actuarial assumptions (including the reduction in the assumed commutation rate).

By reason of subregulation 292-170.05(3) or 292-170.07(2) of the ITAR, any increase in the NER based on the increase in the SG rate will not remove the grandfathering protection. The change in the assumed commutation rate will, however, increase the NER for some contributors.

If the proposed enhancement is put in place post-June 2013 after certification of the re-calculated NER (which will have taken into account both the increase in the SG rate and any change in the underlying actuarial assumptions), the assessment of whether there will be any resultant change in the NER will be made against the then prevailing NER. As there are no longer any commutation assumptions that need to be taken into account at that time, the revised NER will not change.

(d) Both the value of 'X' and the value of 'Y' under Parts 5 and 6 of Schedule 1A to the ITAR would be zero as:

(i) there is no change in the way a reversionary pension would be valued before and after the proposed enhancement; and

(ii) any change to the Scheme's rules that gives effect to the proposed enhancement is a one-off change.

(e) With regard to the value of 'Y', section 6.2 of Part 6 of Schedule 1A to the ITAR states that:

The economic and other assumptions to be used are set out in Part 3

Subsection 3.8(2) of Schedule 1A to the ITAR specifies that all reversionary pensions are to be valued by adding 10% to the value of the single-life pension. Thus, regardless of any changes in the probability of a reversionary pension emerging, the assumption an actuary would be required to use is an increase by 10% of the value of the single-life pension.

Therefore, in relation to any change to the Scheme's rules that gives effect to the proposed enhancement, there is no change in the value of entitlement before and after the change. Thus, the value of 'Y' is zero.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 292-25.

Income Tax Assessment Act 1997 Subsection 292-25(1).

Income Tax Assessment Act 1997 Section 291-165.

Income Tax Assessment Act 1997 Section 291-170.

Income Tax Assessment Act 1997 Subsection 291-170(1).

Income Tax Assessment Act 1997 Subsection 291-170(2).

Income Tax Assessment Act 1997 Subsection 291-170(3).

Income Tax Assessment Act 1997 Subsection 291-170(4).

Income Tax Assessment Act 1997 Section 295-160 Item 1.

Income Tax (Transitional Provisions) Act 1997 Section 291-170

Income Tax (Transitional Provisions) Act 1997 Subsection 291-170(4)

Income Tax Assessment Regulations 1997 Regulation 292-170.02.

Income Tax Assessment Regulations 1997 Subregulation 292-170.02(1).

Income Tax Assessment Regulations 1997 Subregulation 292-170.02(2).

Income Tax Assessment Regulations 1997 Regulation 292-170.04.

Income Tax Assessment Regulations 1997 Subregulation 292-170.04(1).

Income Tax Assessment Regulations 1997 Subregulation 292-170.04(3).

Income Tax Assessment Regulations 1997 Subregulation 292-170.04(4)..

Income Tax Assessment Regulations 1997 Subregulation 292-170.04(5).

Income Tax Assessment Regulations 1997 Subregulation 292-170.04(6).

Income Tax Assessment Regulations 1997 Regulation 292-170.05.

Income Tax Assessment Regulations 1997 Subregulation 292-170.05(1).

Income Tax Assessment Regulations 1997 Subregulation 292-170.05(2).

Income Tax Assessment Regulations 1997 Subregulation 292-170.05(3).

Income Tax Assessment Regulations 1997 Regulation 292-170.07.

Income Tax Assessment Regulations 1997 Subregulation 292-170.07(1).

Income Tax Assessment Regulations 1997 Subregulation 292-170.07(2).

Income Tax Assessment Regulations 1997 Schedule 1A.

Income Tax Assessment Regulations 1997 Schedule 1A Section 1.5.

Income Tax Assessment Regulations 1997 Schedule 1A Section 1.8.

Income Tax Assessment Regulations 1997 Schedule 1A Section 2.1.

Income Tax Assessment Regulations 1997 Schedule 1A Section 3.8.

Income Tax Assessment Regulations 1997 Schedule 1A Subsection 3.8(2).

Income Tax Assessment Regulations 1997 Schedule 1A Section 5.1.

Income Tax Assessment Regulations 1997 Schedule 1A Subsection 5.1(1).

Income Tax Assessment Regulations 1997 Schedule 1A Section 6.1.

Income Tax Assessment Regulations 1997 Schedule 1A Subsection 6.1(1).

Income Tax Assessment Regulations 1997 Schedule 1A Subsection 6.1(2).

Reasons for Decision

Summary

Notwithstanding that eligibility for reversionary pension under the rules of the Scheme is extended, as proposed, to spouses or partners of all post-retirement marriages or relationships, the amount of notional taxed contributions for a financial year in respect of the defined-benefit interest of a member of the Scheme remains:

(a) 'nil' for the financial year where the member:

(i) is currently receiving a pension from the Fund under the Scheme; or

(ii) has their entitlement to a pension under the Scheme deferred or otherwise suspended; or

(b) equal to the concessional contributions cap for the financial year where the member is currently contributing to the Fund under the Scheme.

Detailed reasoning

Question 1

Schedule 1A to the ITAR sets out the method to be used to determine the amount of notional taxed contributions in respect of the defined benefit interest of a member of a superannuation fund that has five or more defined benefit members.

Section 3.1 of Schedule 1A to the ITAR states that:

For the purpose of working out the new entrant rate for a benefit category mentioned in Part 1 or 2, the actuary is to apply the economic, decrement and other parameters set out in this Part.

Section 3.8 of Schedule 1A to the ITAR states that:

(1) If the fund benefit is a single life pension, the pension is to be valued using the assumptions set out in this Part.

(2) If the fund benefit is a reversionary pension, the value of the pension is to be taken as the value of the pension assuming it is a single life pension, increased by 10%.

Thus, as pointed out by the Actuary, regardless of any changes in the probability of a reversionary pension emerging, the assumption an actuary would be required to use is an increase by 10% of the single life pension's value. It follows that there is no change in the value of a member's benefit entitlement before and after the proposed enhancement.

As the proposed enhancement itself does not result in either an improvement in a pensioner's pension benefit or in an increased NER, the Commissioner is of the view that the existing grandfathering protection given to members of the Scheme will remain despite the proposed enhancement.

For those who are receiving a pension or have their pension entitlement deferred or suspended, their amount of NTC continues to be 'nil'. For those who are still in the contribution phase, their amount of NTC continues to be equal to the concessional contributions cap.

Question 2

Subsection 291-170(2) of the ITTPA² states that a taxpayer's NTC for a financial year are equal to the taxpayer's concessional contributions cap for the financial year if, broadly speaking:

· Subdivision 291-C³ applies in relation to the taxpayer who has a defined-benefit interest in the financial year; and

· the taxpayer held that interest in a superannuation fund on 5 September 2006.

The concessional contributions cap for the 2009-10 income year was reduced from $50,000 to $25,000. The following were stated in the Explanatory Memorandum to the Tax Laws Amendment (2009 Budget Measures No.1) Bill 2009 (the Bill):

3.24 Special arrangements will apply to certain members with a defined benefit interest on 12 May 2009 where notional taxed contributions for that interest exceed the concessional contributions cap in the 2009-10 or later financial years…

3.25 Similar arrangements for defined benefit members applied when the caps were first introduced in 2007.

3.26 This arrangement will be subject to the conditions (if any) set out in the regulations and will only apply to notional taxed contributions reported for the 2009-10 or later financial years.

Subsection 291-170(4) of the ITTPA⁴ states that a taxpayer's NTC for a financial year are equal to the taxpayer's concessional contributions cap for the financial year if, broadly speaking:

Subdivision 291-C applies in relation to a taxpayer who has a defined-benefit interest in a financial year;

· the taxpayer held that interest in a superannuation fund on 12 May 2009; and

· the financial year is the 2009-10 financial year or a later financial year.

As the proposed enhancement, if implemented, will be implemented in a later financial year than the 2009-10 financial year (possibly 2013-14), the Commissioner is of the view that only the requirements under subsection 291-170(4) of the ITTPA will need to be met.

Question 3

For a member's amount of NTC for a financial year in respect of that member's defined benefit interest in a superannuation fund to equal the concessional contributions cap for the financial year, subregulation 292-170.05(2) of the ITAR requires that:

A condition is that between 5 September 2006 and the time at which the new entrant rate for the defined benefit member is worked out using Schedule 1A:

(a) the rules of the superannuation fund have not changed to improve the member's benefit; and

…

Subregulation 292-170.05(3) of the ITAR, which needs to be satisfied as well, then states that:

A condition is that the new entrant rate for the defined benefit member, as worked out using Schedule 1A:

(a) has not increased since it was first worked out using Schedule 1A; or

… (Italics added)

It follows that the NER referred to in subregulation 292-170.05(2) of the ITAR is the first NER that was ever calculated since 5 September 2006. In this case, the NER calculated in a particular year in the past was the first NER ever calculated.

Question 4

As noted in our answer to question 3 above, under subregulation 292-170.05(2) of the ITAR the condition to be satisfied is that the rules of the superannuation fund have not changed between 5 September 2006 and the time at which the NER is worked out, which, in this case, was the particular year in the past.

As the Employer has not yet implemented the proposed enhancement, any changes to the Act, and in turn any changes to the rules of the Scheme, will take place some time in the future. This being the case, the question of whether any change to the rules of the Scheme for implementing the proposed enhancement will, or will not, improve a member's benefit under the Scheme is, in the Commissioner's opinion, not to be considered under subregulation 292-170.05(2) of the ITAR but should be considered under subregulation 292-170.07(2) instead. The latter subregulation states that:

A condition is that the new entrant rate for the defined benefit member, as worked out using Schedule 1A:

(a) has not increased since 12 May 2009; or

…

Question 5

Subregulation 292-170.04(1) of the ITAR states that:

For subsection 292-170(4) of the Act⁵, this regulation sets out circumstances in which the amount of the notional taxed contributions for a financial year in respect of the defined benefit interest of a member of a superannuation fund is nil.

Under subregulation 292-170.04(3) of the ITAR, a circumstance is that:

(a) subregulation 292-170.02(2) applies, or is taken to apply, in relation to the superannuation fund; and

(b) the member is a non-accruing member of the fund, in accordance with subregulations (4), (5) and (6), for the whole of the financial year.

According to subregulation 292-170.04(4) of the ITAR, a defined benefit member of a superannuation fund is a non-accruing member of the fund for the whole of a financial year if, for the whole of the financial year:

(a) the member's membership of the fund consists only of the member receiving pension payments from the superannuation fund; and

(b) any of the following applies:

(i) the pension payments are always the same amount;

(ii) the pension payments are paid from an account that relates only to the member, and no employer contributions are paid to the account for the benefit of the member;

(iii) the pension payments increase at rates that are consistent with the rates prescribed under the rules of the fund that applied when the pension commenced to be paid.

A member of the Scheme is, broadly speaking, entitled to an annual pension until death at the rate ascertained in accordance with the Act.

Subregulation 292-170.04(6) of the ITAR states that:

For the purposes of determining whether a defined benefit member is a non-accruing member of the fund for a period, any employer contributions paid to the fund for the period to meet partially, or wholly, unfunded benefit liabilities of the fund are not to be treated as employer contributions for the benefit of the member for the period.

Pursuant to this provision, any amounts paid by the Employer will be to cover the Fund's partially or wholly unfunded benefit liabilities rather than for allocation to a particular member's interest.

Based on the above, it would appear that an existing pensioner under the Scheme satisfies the requirement under paragraph 292-170.04(4)(a) of the ITAR and that under sub-subparagraph 292-170.04(b)(iii). Consequently, the Commissioner is of the view that an existing pensioner will continue to be regarded as a 'non-accruing member' within the meaning of that term in subregulation 292-170.04(4), and that their amount of NTC will, therefore, continue to be 'nil'.

Question 6

Given the answer to question 5 above, it is not necessary to address question 6.

Question 7

Given the answer to question 5 above, it is not necessary to address question 7.

Question 8

With regard to a deferred pensioner under the Scheme, subregulation 292-170.04(5) of the ITAR provides that a defined benefit member of a superannuation fund is a 'non-accruing member' of the fund for the whole of a financial year if, for the whole of the financial year:

(a) the member has a benefit entitlement in the fund, but no employer-provided benefits have accrued to the member; and

(b) the rules of the fund provide that the benefit:

(i) is not to increase in nominal terms; or

(ii) is to increase at a rate that reflects general price increases (for example, in accordance with the Consumer Price Index); or

(iii) is to increase at a rate reflecting the general level of salary growth for relevant fund membership (for example, in accordance with average weekly earnings, or average weekly ordinary time earnings, published by the Australian Statistician); or

(iv) is to increase at the rate (if any) at which the salary on which the member's benefit is based increases; or

(v) is to increase at a rate reflecting the earning rate of the assets of the fund or the part of the fund to which the member belongs; or

(vi) in the case of a deferred benefit - is to increase at a rate that reflects any reduction in the expected period in which pension payments are to be made and any deferral of the date when payments will start; or

(vii) is to increase at a regular rate, or a rate worked out using a formula, that an actuary considers will not result in an increase that is more than the greatest of the increases mentioned in subparagraphs (i) to (vi).

In respect of a deferred pensioner under the Scheme, the value of their deferred pension is, in accordance with the Act, based on their length of service and salary.

Based on these provisions and subregulation 292-170.04(6) of the ITAR [quoted in the answer to question 5 above], it would appear that a deferred pensioner under the Scheme satisfies the requirement under subparagraph 292-170.04(5)(a) and the requirements under sub-subparagraphs 292-170.04(5)(b)(iv) and (vi).

Consequently, the Commissioner is of the view that a deferred pensioner will continue to be regarded as a 'non-accruing member' within the meaning of that term in subregulation 292-170.04(5) of the ITAR, and that their amount of NTC will, therefore, continue to be 'nil'.

Question 9

Given the answer to question 8 above, it is not necessary to address question 9.

Question 10

Given the answer to question 8 above, it is not necessary to address question 10.

Question 11

Where a member of the Scheme held a defined benefit interest under the Scheme on 12 May 2009, for their amount of NTC to equal the concessional contributions cap for the 2009-10 or later financial years, subparagraph 291-170(4)(d) of the ITTPA⁶ requires that the conditions (if any) specified in the regulations are satisfied.

In that connection, regulation 292-170.07 of the ITAR requires certain conditions to be met. Among them is the following condition under subregulation 292-170.07(2):

A condition is that the new entrant rate for the defined benefit member, as worked out using Schedule 1A:

(a) has not increased since 12 May 2009; or

(b) has increased since 12 May 2009 only as a result of a change to the rules of the superannuation fund that increases a benefit as a result of change made to satisfy the requirements of the Superannuation Guarantee (Administration) Act 1992.

The Commissioner has been advised that the NER for members of the Scheme, calculated in a particular year in the past, has not since been re-calculated.

Where a fund benefit⁷ is a reversionary pension, subsection 3.8(2) of Schedule 1A to the ITAR requires that the value of the pension be increased by 10%. In the Actuary's opinion, this increase will have covered the proposed enhancement, so the NER last calculated would not change with the proposed enhancement (although the NERs would be increased in order to satisfy the requirements of the SGAA post-June 2013).

The Actuary has also advised, as noted before, that:

(a) there may possibly be a small number of existing pensioners at this point in time who would benefit directly and substantially from the proposed enhancement; and

(b) in the case of deferred pensioners and existing contributors, the probability of circumstances emerging for the proposed enhancement to apply is not very high.

As there is no change to the NER, the condition in subregulation 292-170.07(2) of the ITAR continues to be satisfied. Existing contributors under the Scheme are, therefore, able to continue to equate their NTC amount with the concessional contributions cap.

Question 12

Given the answer to question 11 above, it is not necessary to address question 12.

Question 13

Given the answers to questions 5 and 8 above, it is not necessary to address question 13.

Question 14

Subsection 5.1 (2) of Schedule 1A to the ITAR states that:

For the formula in section 1.8:

(a) in a financial year in which the member's accrued retirement benefit does not increase as a result of a change in benefit category or as a result of an exercise of discretion, X equals zero; and

(b) in any other financial year, X equals an amount worked out on advice from an actuary that represents the increase in the value of the accrued retirement benefit, if any, that accrued to the member as a result of the change in benefit category or as a result of the exercise of the discretion.

Subsection 6.1(2) of Schedule 1A to the ITAR states that:

For the formula in section 1.8:

(a) in a financial year in which the fund rules are not changed in a way that may result in an increase in a member's benefit, Y equals zero; and

(b) in any other financial year:

(i) if the reason for the change in fund rules is to satisfy a legislative requirement, Y equals zero; and

(ii) if the change is for any other reason, Y equals an amount worked out on advice from an actuary that represents the increase in the value of the accrued retirement benefit, if any, that accrued to the member as a result of the change in fund rules.

The reference to 'advice from an actuary' in the subsections quoted above envisages that in applying Subdivision 292-D of the ITAR⁸, the legislature intended that reliance be placed on the views of an actuary when changes in the value of member benefits are to be ascertained.

As noted before, if the fund benefit is a reversionary pension, the value of the pension is to be increased by 10% pursuant to subsection 3.8(2) of Schedule 1A to the ITAR. According to the Actuary, regardless of any changes in the probability of a reversionary pension emerging, the assumption an actuary would be required to use is that 10%. The Actuary, therefore, holds the opinion that there is no change in the value of a member's benefit entitlement. Accordingly they have assessed the value of 'X' and 'Y' as 'zero'.

As both X and Y are amounts worked out 'on advice from an actuary' and as there is no reason to dispute the Actuary's view on this, the Commissioner accepts that in this case it will not be necessary to work out the value of X and Y in the event of the proposed enhancement being put in place.

¹ Section 292-170 of the Income Tax Assessment Act 1997 (the ITAA 1997) previously dealt with NTC. That section was repealed by the Tax Laws Amendment (Fairer Taxation of Excess Concessional contributions) Act 2013 (the Amending Act), which received Royal Assent on 29 June 2013. The relevant provisions now fall under section 291-170 of the ITAA 1997 and section 291-170 of the ITTPA.

Regulations on NTC in the ITAR, previously made under section 292-170 of the ITAA 1997, continue to apply as if they had been made under section 291-170 of the ITAA 1997, or under section 291-170 of the ITTPA as the case may be. Reference should also be made to Items 116 and 117 under Part 7 of Schedule 1 to the Amending Act.

² Previously subsection 292-170(6) of the ITAA 1997.

³ Previously Subdivision 292-D of the ITAA 1997.

⁴ Previously subsection 292-170(8) of the ITAA 1997.

⁵ Consequent upon the enactment of the Tax Laws Amendment (Fairer Taxation of Excess Concessional Contributions) Act 2013 (the Amending Act), the reference in this subregulation to 'subsection 292-170(4) of the Act' should now be read as if it were a reference to 'subsection 291-170(4) of the Income Tax (Transitional Provisions) Act 1997. Reference should also be made to Item 116 (saving of regulations - notional taxed contributions) under Part 7 of Schedule 1 to the Amending Act refers.

⁶ Previously subparagraph 291-170(8)(d) of the ITAA 1997.

⁷ According to section 1.5 of Schedule 1A to the ITAR, "that part of a defined benefit interest which is sourced from contributions made into a superannuation fund or earnings on such contributions is referred to as the fund benefit.

⁸ Subdivision 292-D of the ITAR prescribes how notional taxed contributions are determined.