Bills Digest no. 80 2009–10
Tax Laws Amendment (2009 Measures No. 6) Bill
2009
WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.
CONTENTS
Passage history
Purpose
Schedule 1–Abolishing trust cloning and
providing CGT roll-over for certain trusts
Schedule 2–Loss relief for merging
superannuation funds
Schedule 3 – Exempt annuity business of
life insurance companies
Schedule 4–Deductible gift
recipients
Schedule 5–North Western Queensland
floods
Schedule 6–Spirit blending
Contact officer & copyright details
Passage history
Appropriation Bill (No. 3) 2009
2010
Date introduced: 25 November 2009
House: House
of Representatives
Portfolio: Treasury
Commencement: Royal Assent, or specific dates for particular
provisions. Briefly, these dates are:
- Schedule 2–Parts 1, 2 & 3 the day
after Royal Assent
- Schedule 2–Parts 4 & 5 1 July
2013
- Schedule 3–Part 1, Division
1 from 30 June 2000
- Schedule 3–Part 2, Division 1 22 June
2006
- Schedule 3–Part 2, Division 2 15 March
2007
- Schedule 4–Part 1 4 June 2009
- Schedule 5–Part 1 25 February 2009
- Schedule 5–Part 2 1 July 2011
- Schedule 6–Royal Assent. All other
provisions commence on the date Royal Assent is granted.
Links: The
relevant links to the Bill, Explanatory Memorandum and second
reading speech can be accessed via BillsNet, which is at http://www.aph.gov.au/bills/.
When Bills have been passed they can be found at ComLaw, which is
at http://www.comlaw.gov.au/.
This Bill amends the following
Acts for a range of taxation and related purposes:
- Income Tax Assessment Act 1997 (ITAA 1997)
- A New Tax System (Goods and Services Tax) Act 1999
(GST Act)
- Tax Laws Amendment (2006 Measures No. 2) Act 2006
(TLAB 2 2006)
- Superannuation Legislation Amendment (Simplification) Act
2007 (Simplification Act)
- Income Tax Assessment Act 1936 (ITAA 1936), and
- Excise Act 1901 (Excise Act).
The Bill contains six schedules, as follows:
- Schedule 1 proposes changes to the capital
gains tax (CGT) provisions to abolish the ‘trust
cloning’ exceptions of the ITAA 1997 and provide for the
roll-over of CGT when transferring assets between certain
non-discretionary trusts
- Schedule 2 contains amendments that will
remove potential impediments to superannuation fund consolidation
by allowing eligible entities to roll-over capital and revenue
losses and transfer previously realised losses when merging. These
measures will apply from 24 December 2008 to 30 June 2011
- Schedule 3 proposes retrospective amendments
to clarify the circumstances in which annuity income derived by
life insurance companies can be treated as non-assessable
non-exempt income
- Schedule 4 sets out minor amendments to the
list of deductible gift recipients
- Schedule 5 contains amendments that will
ensure income recovery subsidy payments to victims of the early
2009 north-west Queensland floods are exempt from income tax and
are not included as separate net income for the purposes of
calculating entitlement to certain tax offsets, and
- Schedule 6 proposes amendment to the Excise
Act to ensure that the blending of imported and domestic high
strength neutral spirits constitutes excise manufacture. This will
enable imported high strength neutral spirits to receive
concessional duty treatment.[1]
This Bill has been referred to the Senate Standing Committee on
Economics (Legislation Sub-Committee) for inquiry and report by 25
February 2010. Details of the inquiry are at
http://www.aph.gov.au/Senate/committee/economics_ctte/TLAB_6_09/index.htm
As the amendments in this Bill are unrelated, each schedule will
be outlined in separate sections below.
‘Trust cloning’ is the process where a new trust is
created that has the same terms and beneficiaries as an original
trust, so that assets can be transferred between them without
raising a capital gains tax (CGT) liability.[2]
Generally, capital gains arising from the increased value of an
asset are taxed when the ‘economic’ ownership of that
asset changes.[3] A
change of economic ownership usually occurs where assets are
transferred between trusts or where a trust is created over an
asset. For example, where a family trust transfers an asset to
another unrelated family trust a change in economic ownership
occurs and a CGT liability arises. Likewise, where a trust is
created over an asset a change of economic ownership occurs and a
CGT liability also arises.
Two exceptions to this general rule occur under
subsections 104-55(5) and
104-60(5) of the ITAA 1997. Briefly, under these
particular subsections, a CGT event does not occur (and therefore
no CGT liability arises) where:
- a taxpayer is a sole beneficiary of the trust that was either
created over the asset or into which the asset was transferred,
and
- this taxpayer is absolutely entitled to the asset in question
against the trustee (that is, the new trust in question is not a
discretionary trust in relation to that asset), and
- the trust in question is not a unit trust,[4] or
- where the asset is transferred from an existing trust into a
new trust (whether the new trust was created by this transfer of
the asset or it is an existing trust) and the beneficiaries and
terms of both trusts are the same.[5]
The potential tax mischief arises from the existing provisions
dealing with the last dot point above. The government considers
that these exceptions are being used to allow the transfer of
assets between individuals, frequently within family groups, that
result in less, or no, tax being paid in circumstances that would
normally give rise to a larger CGT liability.[6]
It is important to note that the provisions in the last dot
point allow the CGT-free transfer of assets between trusts that
have many beneficiaries, none of whom are necessarily entitled to
the asset in question. These trusts are known as discretionary
trusts, as it is up to the discretion of the trustee on how the
assets of the trust are distributed. In discretionary trusts, it is
quite possible for one person to contribute an asset to that trust,
or have the trust purchase this asset with funds contributed by
them, and have other individuals receive the benefits arising from
this asset.
Such benefits may be received free of any CGT liability.
Specifically, where an asset is transferred into the new trust, its
cost base for CGT purposes in that new trust is its market value at
the time of transfer. Normally, CGT is levied on the difference
between the cost base of the asset (that is, its purchase price)
and its sale price. Upon transfer into the new trust under
abovementioned provisions the portion of the difference between the
asset’s original cost base (when it was originally purchased
or transferred into the original trust), and its market value at
the time of transfer, is excluded for assessment for CGT purposes
when it is disposed of by the new trust. The proceeds of this
disposal may be paid to any number of trust beneficiaries.
In extreme cases it may be possible for an asset to be
transferred into a new trust under these provisions and then
immediately sold. Thus its cost base would be equal to its sale
price. There being no difference between the two amounts in these
circumstances CGT is entirely avoided.
Briefly, the proposed amendments in Schedule 1
remove the exemption from CGT where the assets are transferred to a
discretionary trust.
A number of submissions to Treasury during the policy
development process noted the various uses of trust cloning
unrelated to tax issues, such as:
- succession planning for family business
- asset protection for business,[7] and
- to facilitate the internal restructuring of various property
related unit trusts.[8]
The proposed amendments permit CGT transfers of assets where the
receiving trust:
- has a sole beneficiary, and
- that beneficiary absolutely entitled to the asset in question,
and
- the receiving trust is not a unit trust.
These proposed provisions may be used in succession planning for
a family business. Say a trust holds the assets of a business. Two
or more new trusts could be created by transfer of the relevant
assets. The beneficiaries of these new trusts, who would be
absolutely entitled to the assets in question, could be intended
recipients of the assets under the business succession plans.
Apparently, it is good business practice to protect business
assets by separating them from the operations of that
business.[9] The
above provisions could be used to transfer business assets to a new
trust that is separate from the operations of that business.
Part 2 of Schedule 1 contains
provisions that have as their objective ‘to ensue that CGT
considerations are not an impediment to the restructure of
trusts’, while also ensuring that these actions do not give
rise to inappropriate CGT consequences (Item 9 of
Schedule 1 new section 126-220 of
the ITAA 1997).
The proposed abolition of the trust cloning tax concession was
announced by the then Assistant Treasurer on 31 October
2008.[10] He also
announced the provision of limited CGT relief for the transfer of
assets between certain fixed trusts on 12 May 2009.[11]
There has been extensive consultation with legal, accounting and
taxation policy groups leading up to the proposed changes. Some
more recent highlights of this process have been:
- 29 April 2008: delivery of the Australian Taxation Office paper
on trust cloning at a conference[12]
- 31 October 2008: Assistant Treasurer and Minister for
Competition Policy and Consumer Affairs announces removal of CGT
trust cloning exception of CGT events E1 and E2 and invites
submissions on policy design[13]
- 5 November 2008: Treasury trust cloning discussion paper is
released[14]
- early December 2008: Treasury receives 11 submissions mainly
from legal and accounting groups[15]
- 12 May 2009: Assistant Treasurer and Minister for Competition
Policy and Consumer Affairs announces that a limited CGT roll-over
will apply for certain fixed trusts with same beneficiaries[16]
- September 2009: Draft legislation for proposed measures
released and comment invited from interested parties[17]
- late September to early October 2009: Treasury receives seven
submissions on draft legislation,[18] and
- December 2009: Treasury responds to submissions.[19]
Press comment on this particular measure has been scant.
However, the main comment is that the proposed changes
unnecessarily restrict the ability to transfer assets between
trusts without incurring a CGT liability.[20]
Industry submissions to Treasury in response to the release of
the exposure draft generally acknowledge that the current
provisions are too wide and may well lead to the undue avoidance of
CGT. However, these submissions generally consider that the
proposed changes are too narrow, and prevent many, mainly
discretionary, trusts from taking advantage of the proposed CGT
relief provisions upon the transfer of assets.[21]
Many submissions provided valuable technical comment on the
proposed legislation, which have either been adopted or were
rendered unnecessary by other changes that have been made. Despite
these valuable comments, Treasury has observed that the majority of
submissions actually opposed the proposed amendments.[22]
The existing provisions are capable of allowing the complete
evasion of CGT obligations and the proposed amendments deal with
this particular problem. Further, the proposed amendments do not
appear to prevent the use of trust cloning to deal with the non-tax
issues noted above.
That said, the range of circumstances where trust cloning may be
used in relation to these non-tax issues may well be restricted by
the proposed amendments.
The proposed changes are reported as having an unquantifiable
financial impact, but in any case that impact is expected to be
small.[23]
Items 1 and 2 of Schedule 1
repeal existing subsections 104-55(5) and 104-60(5) of the ITAA
1997 and replace these subsections with new text. This new text
restricts the exemption from CGT events E1 and E2 to situations
where:
- the taxpayer is the sole beneficiary of the trust either
created by a transfer of an asset or an existing trust that
receives the asset, and
- the taxpayer is absolutely entitled to the asset in question,
and
- the receiving trust is not a unit trust.
Effectively this restricts the CGT exemption only to trusts
meeting these criteria. The provisions that allow the CGT exemption
for events E1 and E2 to apply to discretionary trusts have been
removed.
Item 3 applies the amendments made in
Part 1 of Schedule 1 to CGT
events happening on or after 1 November 2008. This application date
was clearly stated in the media release first announcing this
particular measure.[24]
Item 9 inserts new
subdivision 126-G into the ITAA 1997 to deal with
the transfer of assets between certain trusts. As noted above, the
object of this new subdivision is to ensure that CGT considerations
are not an obstacle to the restructuring of certain trusts, but at
the same time ensuring that CGT is paid at the appropriate time
(new section 126-220).
Briefly, new section 126-225 of the ITAA 1997
sets out additional conditions under which an asset may be
transferred to another trust without raising a CGT obligation. The
main conditions are:
- an existing receiving trust has no other assets in it, save
those that are transferred under the provisions of this
subdivision, and
- the receiving trust has the same beneficiaries as the original
trust, with the same rights, and
- the market value of the assets transferred is the same as the
market value of those assets in the original trust just before the
transfer took place.
The general requirement that a receiving trust must not have any
other assets in it (save those also transferred under the
provisions of this subdivision) is a contentious one. It has been
argued that this requirement is too restrictive. Treasury has noted
that the requirement that the receiving trust is to be an empty
trust is an important integrity measure to prevent the
inappropriate sharing of gains and losses.[25]
For the CGT exempt transfer of assets between trusts,
new section 126-230 requires that:
- CGT event E4 is capable of happening,[26] and
- the beneficiary’s entitlements to these assets must not
be discretionary. That is, the beneficiary’s entitlement to
these assets is not subject to the discretion of the trustee.
Under the provisions of new section 125-235 of
the ITAA 1997 a CGT-free roll-over will not be allowed where:
- the receiving trust is a foreign trust for CGT purposes[27]
- the asset transferred is not ‘taxable Australian
property’ just after the transfer[28]
- the receiving trust(s) is subject to sections
102K or 102S of the ITAA 1936 (that is
the receiving trust cannot be a corporate unit trust or a public
trading trust), and
- a choice under a taxation law[29] is in force in respect of the asset being
transferred and the same type of choice (sometimes called an
election) is not in force in respect of that asset in the receiving
trust, and the absence of that choice in the receiving trust make a
difference in the calculation of that trust’s net income or
taxable income[30]
Item 11 requires that the provisions contained
in items 4 to 9 (effectively all
of new sub-division 126-G of the ITAA 1997) apply
to events happening on or after 1 November 2008.
Concluding
comments
It may be argued that the existing provisions of the ITAA 1997
(sections 104-55 and 104-60) have
not to date been used for widespread CGT avoidance. However, as the
paper given by the Australian Tax Office (ATO) in April 2008
demonstrates, the Commissioner of Taxation has been concerned about
problems in administering these sections. These provisions have
also been the subject to a number of clarifying rulings, indicating
that that these concerns have existed for some time.[31] An earlier press
article cited above may be taken as evidence that the possibility
of using these sections to avoid CGT obligations has been generally
known amongst tax professionals.[32]
Generally, the provisions of this Schedule insert new
Division 310 into the ITAA 1997. The new division deals
with the transfer of capital and income losses to a successor fund
when two superannuation funds merge.
The transfer of assets from one superannuation fund to another,
under a merger between the two funds, will typically trigger CGT
event A1 (section 104-10 of the ITAA 1997) and the
realisation of capital gains or capital losses for the transferring
fund as appropriate.[33]
Under current legislation net capital losses are extinguished on
the ending of the transferring fund, and are unavailable for use in
the successor fund. Had the transferring fund continued, they would
have been available to reduce that fund’s overall CGT
liability.[34] The
proposed new Division will allow the transfer of losses to a
successor fund when two superannuation funds merge.
The proposed changes are a temporary measure applying to mergers
that occur(ed) from 24 December 2008 to 30 June 2011.[35] The Government has
stated that it will review this measure after it has considered the
report of Australia’s Future Tax System Review.[36]
The number of superannuation funds regulated by the Australian
Prudential Regulation Authority (APRA) has declined steadily over
recent years, as the following table shows:
|
Table 1: Number of
APRA regulated superannuation entities June 2005 to September
2009
|
|
|
Fund type
|
Jun-05
|
Jun-06
|
Jun-07
|
Jun-08
|
Jun-09
|
Sep-09
|
|
Corporate
|
962
|
555
|
287
|
226
|
190
|
186
|
|
Industry
|
90
|
80
|
72
|
70
|
68
|
67
|
|
Public Sector
|
43
|
45
|
40
|
40
|
40
|
40
|
|
Retail
|
228
|
192
|
176
|
179
|
165
|
164
|
|
PST[37]
|
130
|
123
|
101
|
90
|
82
|
82
|
|
Totals
|
1453
|
995
|
676
|
605
|
545
|
539
|
Source: APRA[38]
In the above table, the fund type mainly refers to the broad
economic sector that provides the superannuation fund in question.
So, the corporate funds are those provided by large corporate
entities, such as Telstra, for their own employees. Industry funds
are those provide by both employee and employer organisations and
mainly (but not exclusively) are used by members of that industry.
Retail funds are provided by large fund managers, such as banks and
life insurance offices.
The above table does not include the number of small
superannuation funds (that is those with less than 5 members), as
they are not subject to the proposed changes and are regulated by
the ATO. The overall decline in superannuation fund numbers is part
of a larger trend stretching back over 10 years.
There are several causes of the above trend. Some funds are
simply wound up; their members have retired and the fund no longer
has a reason to exist. The business of some funds is transferred to
a new provider. For example, many corporate entities have decided
that they are not in the business of providing superannuation
services for their employees and have subcontracted this service
out to other providers (mainly retail and industry funds). Changes
in superannuation arrangements in the public sector have led to a
decline in number of funds provided by governments for their
employees. But by far the main reason behind the decline in the
number of superannuation funds is that they merge with another
superannuation fund.
The merging of superannuation funds may provide several
advantages to both members and fund providers, such as:
- gaining economies of scale in respect of the fixed costs of
running a fund. Such costs have increased with the move by APRA to
formal licensing of superannuation trustees[39]
- larger funds may have access to a wider range of investment
opportunities
- the very largest funds, often created by mergers, may be in a
position to adopt a more stable approach to investment management
where they become custodians of cash flows (from which benefits are
paid) rather than buyers and sellers of assets. All other things
being equal this will lessen the pressure to sell assets at
inappropriate times[40]
- some smaller funds perceive that they are unable to meet
APRA’s regulatory requirements, especially the requirements
for superannuation fund trustee licensing. A larger fund may have
better resources to meet these ongoing administrative
requirements[41]
- larger funds may be able to demand lower fees from service
providers (such as investment brokers) in return for an increased
volume of transactions,[42] and
- the transfer of members of several older, smaller,
superannuation funds into a newer fund cuts down overall
administration costs. This is of particular relevance to retail
superannuation providers that may have older, smaller,
superannuation funds with smaller memberships. The transfer into a
newer, larger, single fund eliminates the cost of continuing to run
several smaller funds.
The most specular recent example of superannuation funds merging
has been the creation of the AustralianSuper fund, from a merger of
the former Retirement Fund of Australia and the Superannuation
Trust of Australia in 2006. After a review of the new fund in 2007,
financial and investment research group ChantWest gave it a very
high rating.[43]
Reportedly, from January 2009, at least 10 superannuation funds
were intending to merge during that year in response to the
announcement of temporary tax relief granted to merging funds in
2008.[44] Those
reportedly taking advantage of the proposed tax relief are:
- National Catholic Superannuation Fund and Catholic Super
- Stevedoring Employers Retirement Fund and Seafarers Retirement
Fund, and
- Victorian Bar Superannuation Fund and Blake Dawson Partners
Superannuation Fund.[45]
It is interesting to note that the above list of possible
mergers (which is by no means exhaustive) features arrangements
between small funds in the same general industrial, religious or
occupational group. This point underscores the importance of
cultural factors when merging superannuation funds. It may also
indicate a limiting factor in arranging any further superannuation
fund mergers, as there is a limit to the number of funds that
service similar occupational, religious or occupational groups.
In December 2008, the then Minister for Superannuation and
Corporate Law announced that the Government would provide an
optional CGT roll-over for capital losses arising when two
superannuation funds, with at least 5 members or more, regulated by
APRA, merge before 1 July 2010.[46] This deadline was later extended to 1 July 2011,
and the scope of the proposed changes was extended to include
pooled superannuation trusts (PSTs) and a wider range of capital
losses.[47]
Both the policy and the implementing legislation have been the
subject of extensive consultation, as the following time line
suggests:
- December 2008: the then Minister for Superannuation and
Corporate Law announced that there would be an optional CGT loss
roll-over when two complying superannuation funds merge[48]
- January 2009: the then Minister for Superannuation and
Corporate Law released a discussion paper on the option capital
gains tax roll-over for complying superannuation funds[49]
- February 2009: Treasury receives 18 submissions from industry
and accountancy groups in response to the above mentioned
discussion paper[50]
- April 2009: date for ending temporary tax relief extended to 30
June 2010 and proposed relief expanded to include PSTs
- July 2009: exposure draft of legislation implementing this
measure released, and
- September 2009: Treasury had received 13 submissions in
response to the exposure draft of the legislation.[51]
Generally, industry groups welcome the proposed changes,
considering that they would benefit the industry. However, several
groups requested that the scope of the proposed changes be further
extended to include a wider range of situations.[52] Press comment on the proposed
changes was generally favourable.[53]
There is little doubt that the proposed changes will facilitate
the merger of smaller superannuation funds by allowing losses
realised by one superannuation fund to be carried into the new
fund. This capacity is quite important for superannuation funds, as
severe losses were experienced during the recent global financial
crises. The ability to retain these losses for use in a new entity
has been welcomed by the industry.
However, as noted above, the proposed changes may not cover the
entire range of situations where superannuation entities merge or
where it may be desirable to transfer assets between one fund and a
successor fund.
The Explanatory Memorandum notes that this particular measure
will have an unquantifiable, but small, revenue cost.[54]
Item 1 of this Part of Schedule 2 inserts
new Division 310 into the ITAA 1997. New
section 310-5 notes that the object of this new Division
is to facilitate the consolidation of the superannuation industry
by allowing certain merging superannuation funds to retain the
value, for income tax purposes, of certain losses that might
otherwise cease to be available as a result of the merger.
New sections 310-10, 310-15
and 310-20 of the ITAA 1997 allow the trustee of a
superannuation fund to transfer losses to a ‘continuing
[superannuation] fund’. For this transfer to take place all
the original fund’s members (except in the case of a PST)
must be transferred to one or more complying superannuation funds,
called the ‘continuing fund’ in this particular Bill.
Usually, the continuing fund will not be a ‘small
superannuation fund’. However, it should be noted that there
is no obligation on a trustee to transfer the losses in this
way.[55]
As noted above, a superannuation fund has to meet the conditions
prescribed in section 42 of the
Superannuation Industry (Supervision) Act 1993 (SISA) in
order to qualify as a complying superannuation fund for the
purposes of the ITAA 1997. Under section 955-1 of
the ITAA 1997 a small superannuation fund is a
complying superannuation fund with four or fewer
members.
New section 310-25 allows the transfer of any
or all losses incurred, in whole or in part to:
- a continuing superannuation fund
- a PST, or
- a life insurance company with a complying superannuation/First
Home Saver Account (FHSA) life insurance policy.[56]
New section 310-30 allows the transfer of any
net capital loss, or tax loss, incurred in an income year, earlier
than the one in which the transfer took place.
Under new section 310-45 of the ITAA 1997 an
entity may choose to roll-over (transfer) assets to a new
superannuation fund, if:
- that entity makes, or could choose to make, a transfer of
losses under the above mentioned sections of this Bill, and
- the original or source superannuation fund ceases to own the
said assets to which the choice to transfer the losses relates,
and
- the transfer of assets must happen in the income year that the
transferring entity completes the transfer of the losses, and
- the assets become the asset of the superannuation entity to
which the corresponding losses are transferred.
The overall requirement of this particular provision appears to
be that a transfer of losses must be accompanied by a transfer of
the assets in question.
Item 11 applies the changes made by
Parts 1 and 2 of Schedule
2 to events that occur during the period starting on 24
November 2008 and ending on 30 June 2011.
Though the proposed changes may not go as far as the
superannuation industry would have liked, they still remove
significant impediments to the merger of superannuation funds over
the set time period.
As noted above, the aim of Schedule 3 is to
clarify the circumstances in which income derived by life insurance
companies qualifies as non-assessable non-exempt income for
taxation purposes. It achieves this aim by amending the conditions
for an annuity to be classified as ‘exempt annuity business
of life insurance companies’ with apparent effect from 30
June 2000 and then again amending those conditions with effect from
1 July 2007.[57]
Simply put, an annuity is simply a regular series of payments.
Generally, annuities are sold by life insurance companies and are a
regular series of payments usually in exchange for a significant
amount of money. Generally, they take the form of an insurance
contract where the insurance company agrees to pay a specified
income, over a specified time frame to the life insured (be that
period one year or the rest of the insured person’s
life).
For taxation purposes the term annuity is defined in
section 995-1 of the ITAA 1997 to include:
(a) an
annuity, within the meaning of the
Superannuation Industry (Supervision) Act 1993; or
(b) a pension, within the meaning of the
Retirement Savings Accounts Act 1997 [RSA]
These latter Acts define an annuity as follows:
- in the SISA - annuity includes a benefit provided by a
life insurance company or a
registered organisation (generally associated with a trade
union), if the benefit is taken, under the regulations, to be an
annuity for the purposes of this Act[58]
- in the RSA – the term pension (except in the expression
old-age pension) means a benefit, if the benefit is taken,
under the regulations, to be a pension for the purposes of this
Act.[59]
As noted above, Schedule 3 is entitled the
‘Exempt annuity business of life insurance companies’.
But what exactly is an ‘exempt annuity’? Unfortunately,
there is no statutory definition of the term ‘exempt
annuity’.
A life insurance company may maintain a pool of segregated
assets (known as ‘segregated exempt assets’).
Segregated exempt assets must be used for the sole purpose of
discharging the company's liabilities under exempt life insurance
policies (ITAA 1997 section 320-225).
An exempt life insurance policy, in section 320-246 of the ITAA
1997 is (amongst other things) a life insurance policy held by the
trustees of a complying superannuation fund or a PST for the
discharge of that fund’s pension liabilities.
The ordinary income and statutory income derived from the
segregated exempt assets (being income relating to the segregation
period) is non-assessable non-exempt income under ITAA 1997
paragraph 320-37(1)(a).
It follows for the above-noted provisions that an exempt annuity
is one that is backed by exempt assets, provided under an exempt
life insurance policy and which produces non-assessable non-exempt
income.
Non-assessable non-exempt income is ordinary or statutory income
that is expressly made neither assessable income or exempt income.
This category of income was introduced in 2003 to prevent overlap
of the various other categories of income.[60]
The important point is how non-assessable non-exempt income is
treated for taxation purposes. In these particular circumstances
the inclusion of these annuities as exempt life insurance business
is to prevent double taxation, once in the hands of the life
insurance company and once in the hands of the annuity
recipient.[61] If
the annuity is not superannuation-based its income is generally
taxed in the hands of the recipient.
From 1 July 2007 income derived from a superannuation pension is
not subject to income tax (section 301-10 of the
ITAA 1997). This applies to the payment of a lump sum or an income
stream, provided these benefits:
- had previously been subject to the normal rate of income tax
applied to superannuation funds (that is benefits
‘taxed’ in the fund), and
- the recipient was age 60 years or over.
In these circumstances the benefits received are classed as
non-assessable non-exempt income for taxation purposes.
The importance of the provisions noted above is that there is a
clear legislative commitment to exempting all superannuation-based
income from income tax if the recipient is over 60 years of age and
the benefits were previously taxed within the fund. If
superannuation-based annuities, received by this class of person,
were taxed in the hands of the life insurance company, this outcome
would not occur. Hence there is a need to clarify that
superannuation-based annuities are included in the exempt annuity
business of life companies.
The annuity provisions of the ITAA 1936 (former subsection
110(1) and Part IX more generally) were rewritten in July 2000 and
inserted into the ITAA 1997.[62] These changes in wording and style were not
intended to change the operation of the law. However, concerns
about anomalies in the law have arisen due to subsequent changes in
the annuity provisions.[63] It may be the case that the current annuity conditions
(specifying what type of annuity may qualify as an exempt annuity
business of a life insurance company) may apply to a narrower range
of annuity contracts than was previously the case.[64] The proposed amendments are
intended to correct what essentially appears to be a series of
slight drafting errors that occurred during the rewrite of these
provisions and their insertion into the ITAA 1997.
The then Assistant Treasurer and Minister for Competition Policy
and Consumer Affairs announced this particular set of amendments on
12 May 2009.[65]
The Government released a discussion paper on this matter on 12
May 2009.[66] To
date, the outcome of these consultations has not been released.
To the extent that the proposed changes ensure that
superannuation-based immediate annuity payments continue to be tax
free in the recipient’s hands if they are over 60 years of
age the proposed changes are consistent with well-established
policy.
The Explanatory Memorandum notes that these proposed changes are
expected to have a small, but unquantifiable, revenue
impact.[67]
The structure of the provisions in Schedule 3
is unusual, in that Part 1 mainly amends the
current annuity conditions in section 320-246 ITAA
1997, with effect from 30 June 2000. Part 2 of
this schedule then amends the changes made in Part
1, with effect from 1 July 2007 (being the start of the
2007–2008 income year for most personal income tax
purposes).
Item 2 repeals subsections
320-246(3) to (5) of the ITAA 1997 and
inserts a new subsection 3. The effect of this amendment is to
rewrite the annuity conditions for such products to be classed as
exempt annuity business of life insurance companies in line with
the provisions of former subsection 110(1) of the ITAA 1936.
Comment
Part 1 is entitled ‘Amendments applying
from 30 June 2000’ and comprises two divisions: one amending
the ITAA 1997, and the other amending the Tax Laws Amendment
(2006 Measures No. 2) Act 2006. Clause 2 of
the Bill states that Division 1 of Part
1 commences on 30 June 2000, being immediately after the
commencement of item 57 of Schedule 1 to the Tax Laws Amendment
(2004 Measures No. 2) Act 2004.[68]
The amendments in Part 1 ensure that the
annuity conditions applying between 1 July 2000 and 30 June 2007
are consistent with the annuity conditions in the ITAA 1936
applying before 1 July 2000.
Item 4 repeals subparagraphs
320-246(e)(i) to (iii) and replaces these
subparagraphs with new text.[69]
Items 5 to 8 amend new
subsection 320-246(3) inserted by amendments in
Part 1.
Part 2 commences retrospectively on 15 March
2007, being the date when the Superannuation Legislation
Amendment (Simplification) Act 2007 commenced. Among other
things Schedule 1 of that Act repealed Division 10 of Part IX of
the ITAA 1936 and amended section 320-246 of the ITAA 1997.
Comment
The Explanatory Memorandum notes that the purpose of these
particular changes is to ensure that the annuity conditions do not
apply to immediate annuity policies that provide for
superannuation-based income streams.[70]
At first glance this may be read as suggesting that these
annuities would be subject to tax in the hands of the life
insurance company operating these policies. However, these
annuities are backed by segregated exempt assets. Income generated
by such superannuation-based assets is not subject to tax in the
hands of the life insurance company making the payments.[71] As noted above, if the
recipient is over 60 years of age these payments are also free of
personal income tax.
Item 11 applies the amendments made by
Division 1 of Part 2 of this
schedule to the 2007–2008 and later income years.
Part 1 of this Schedule amends the name of the
Dymocks charity in the list of current deductible gift recipients
in the ITAA 1997.
Part 2 adds two additional deductible gift
recipients to the current list of such entities in the ITAA 1997.
They are the Green Institute Limited and the United States Studies
Centre.
Part 3 applies the changes in Schedule
4 to the 2008–2009 and later income years.
As noted above, the amendments in Schedule 5
ensure that particular amounts paid to victims of the North Western
Queensland floods in early 2009 are not subject to income tax and
not included in the ‘separate net income’ of a person
receiving these payments.
These payments were announced by the Minister for Families,
Housing, Community Services and Indigenous Affairs in Parliament on
25 February 2009.[72]
Payments were made between February and April 2009, to persons
over 16 years of age who experienced a loss of income as a direct
result of the North Queensland and North Western Queensland floods
in January and February 2009.
A tax exemption and exclusion from the definition of
‘separate net income’ was introduced in March 2009 for
the Income Recovery Subsidy paid in respect of the North Queensland
flood.
The amendments in this schedule essentially introduce the same
tax concessions in respect of the payments made in respect of the
North Western Queensland flood, as apply to payments made in
respect of the North Queensland flood.[73]
The concept of ‘separate net income’ relates to the
income of a dependant of a tax payer and is used for calculating
that taxpayer’s entitlement to tax offsets (i.e. tax
rebates).
The ‘separate net income’ is the dependant’s
gross income (including salary and wages, interest, dividends,
business, rental and trust income, income from a partnership,
pensions and some social security payments) less expenses
that, in accordance with ordinary accounting and commercial
principles, are direct costs against that income. It is not the
same as that person’s taxable income (which is gross
assessable income less all deductions, including any
non-business deductions).[74]
These measures were announced in the Mid-Year Economic and
Fiscal Outlook 2009–10.[75]
Obviously, the exemption of these payments from assessable
income and from the definition of separate net income will assist
victims of these floods.
Item 1 of Schedule 5 amends the definition of
‘separate net income’ in subsection 159J(6) of the ITAA
1936. At first glance the proposed amendment is alarming because
this particular subsection is no longer in the statute, having been
repealed in 2009 by item 99 of Schedule 3 to the Tax Laws
Amendment (2009 Measures No. 1) Act 2009 (Act No. 27 of 2009).
Schedule 3 to that Act commenced on 27 March 2009.
Part 1 of Schedule 5 to the
current Bill is intended to commence (retrospectively) on 25
February 2009, being the date of the Minister’s announcement
mentioned above.
Thus the amendments in Part 1 of
Schedule 5 to the current Bill only operate
between 25 February 2009 and 27 March 2009. Assuming the flood
income subsidy payments were made during that period, they will be
exempt from income tax and also from inclusion in any assessment of
‘separate net income’ in the 2008–2009 income
year.[76]
The other unusual thing to note is that the amendments made by
Schedule 3 to the Tax Laws Amendment (2009
Measures No. 1) Act 2009 (item 102) apply in relation to
income years starting on or after 1 July 2009, and yet the payments
of the income subsidy (from about February to April 2009) do not
fall within that income year.
The Explanatory Memorandum notes that this measure will not have
a financial impact.[77]
Part 1
Item 1 seeks to amend the definition of
‘separate net income’ in subsection
159J(6) of the ITAA 1936, so that it does not include
Income Recovery Subsidy payments made for the North Western
Queensland floods of January and February 2009.
As noted above, this particular definition has been previously
repealed from the ITAA 1936, but amendments in item
1 will apply to a limited period of time before the
repeal.
Item 3 amends section 51-30 of
the ITAA 1997 so that income recovery subsidy payments, claimed
after 24 February, but before 13 April, 2009 are exempt income on
which personal income tax is not payable.
Part 2 of this schedule reverses the amendments
in Part 1 with apparent affect from 1 July 2011.
However, an application provision for this particular part is not
in this Schedule. This means that from 1 July 2011, any income
recovery subsidy payment for the North West Queensland floods is no
longer exempt from income tax.
Item 6 applies the amendments in Part
1 to the 2008–2009 year only. This means that these
exemptions apply only to income tax assessments for this particular
income year.
Schedule 6 amends the Excise Act 1901
(Excise Act) to ensure that the blending of certain high strength
neutral (HSN) spirits (i.e. with greater than 10 per cent volume in
alcohol) is treated as ‘excise manufacture’, to ensure
that imported HSN spirits qualify in the same manner as domestic
HSN spirits for the concessional spirits regime under the Excise
Act. Amendments in this schedule also give the Commissioner for
Taxation the power to exclude certain activities from being treated
as classified as ‘excise manufacture’ by legislative
instrument.[78]
Items 3.5 to 3.8 in the table
in the Schedule to the Excise Act operate to apply a
‘free’ rate of excise duty to certain high strength
neutral (HSN) spirits used generally for specified industrial,
manufacturing, scientific, medical, veterinary or educational
purpose.
Imported HSN spirits are subject to excise duty on importation
under the Customs Tariff Act 1995 unless they are to be
used as an input in ‘excise manufacture’ (i.e. the
production or manufacture in Australia of goods specified in the
table in the Schedule to the Tariff Act).[79]
If importers of HSN spirits blend or mix their product with a
domestic HSN spirit, then the mixed product enters the domestic
market at a ‘free’ (or concessional) rate.[80]
This measure was announced in the Mid Year Economic and Fiscal
Outlook 2009–10.[81]
Treasury released an exposure draft of the proposed amendments
on 12 October 2009.[82] To date, Treasury has not released comments received on
this material.
The main purpose of the proposed amendments appears to be to
give greater certainty to the excise-free status of imported HSN
spirits used in excise manufacture.
The Explanatory Memorandum notes that this measure will not have
a financial impact.[83]
Item 1 inserts new section
77FM into the Excise Act, having the following
effects:
- spirit blending is to be regarded as manufacture for the
purposes of the Excise Act, and
- the Chief Executive Officer of Customs may make a legislative
instrument specifying that in some circumstances spirit blending is
not spirit manufacture for the purposes of the Excise Act.
Members, Senators and Parliamentary staff can obtain further
information from the Parliamentary Library on (02) 6277 02 6277
2495.
[1].
Senate Standing Committee on
Economics, Inquiry into Tax Laws Amendment (2009 Measures No. 6)
Bill 2009, Information about the Inquiry, website, viewed
3 December 2009,
http://www.aph.gov.au/Senate/committee/economics_ctte/TLAB_6_09/info.htm
[2].
Cited in J Kehoe, ‘No more tax
breaks for cloned trusts’, Australian Financial
Review, 7 November 2008, p. 21.
[3].
Treasury, Abolish the capital
gains tax trust cloning exception, Discussion Paper, Canberra,
10 December 2008, p. 1.
[4].
‘A unit trust is a trust in
which the beneficial ownership of the trust property is divided
into a number of units. Although discretionary unit trusts do
exist, the property of a unit trust is normally held on trust
absolutely for the persons who for the time being are the holders
of units in the unit trust (although the unitholders may themselves
be the trustees of discretionary trusts) and there is normally no
discretion to redistribute the beneficial interests in capital or
income among the unitholders. A unit trust is governed by the same
principles as other trusts and there must be property vested in the
trustee for the benefit of beneficiaries. Like any other trust, a
unit trust imposes obligations with respect to the trust property;
and the trustee of a unit trust has, and in general is subject to,
the same duties, obligations and liabilities as the trustee of any
other trust’. (CCH 2009 Australian Master Tax Guide,
Topic 31-560 – Unit Trusts)
[5].
The existing specific provisions
preventing a CGT liability arising in these circumstances are
paragraphs 104-55(5)(b) and
104-60(5)(b) of the ITAA 1997. Effectively, one
part of the proposed amendments in Schedule 1
removes these subparagraphs.
[6].
Senator N Sherry (Assistant
Treasurer) Legislation to boost integrity by abolishing the
‘trust cloning’ exception, media release, no. 40,
Canberra, 2 September 2009.
[7].
M Northeast (Executive Director
Pitcher Partners), Media release of 31 October 2008 (No. 092);
Government Abolishes Trust Cloning Concession (“the proposed
amendments”), Submission to Treasury on trust cloning, 3
December 2008, and J Roberts (Vice President Taxation Institute of
Australia), Proposal to abolish the capital gains trust cloning
exception, Submission to Treasury on trust cloning, 5 December
2008.
[8].
R Fitzgerald (Executive Director
International & Capital Markets, Property Council of
Australia), Proposal to abolish the tax cloning exception,
Submission to Treasury on trust cloning, 8 December 2008.
[9].
M Northeast, ibid. G Bullock, and
‘Trust cloning gives ultimate independence’,
The Australian, 22 August 2007.
[10].
C Bowen MP (then Assistant Treasurer and
Minister for Competition Policy and Consumer Affairs),
Government abolishes trust cloning tax concession, media
release, no. 92, Canberra, 31 October 2008.
[11].
C Bowen MP (then Assistant Treasurer and
Minister for Competition Policy and Consumer Affairs),
Government acts to reduce compliance costs and improve tax
law, media release, no. 48, Attachment F, Canberra, 12 May
2009.
[12].
Australian Taxation Office, Some CGT aspects
of ‘trust cloning – an ATO perspective, Paper
delivered by G Davies at a seminar conducted by the Taxation
Institute of Australia, Windsor Hotel, Melbourne, 29 April 2008,
viewed 4 January 2010,
http://www.ato.gov.au/corporate/content.asp?doc=/content/00137188.htm
[13].
C Bowen MP (then Assistant Treasurer and
Minister for Competition Policy and Consumer Affairs),
Government abolishes trust cloning tax concession,
media release, ibid. CGT event E1 occurs where a trust is
created over an asset subject to CGT (subsection
104-55(1) of the ITAA 1997) and E2 occur where an asset is
transferred between two pre existing trusts (subsection
104-60(1) of the ITAA 1997).
[14].
Treasury, Abolish the capital gains tax
trust cloning exception, Discussion Paper, 5 November 2008,
viewed 4 December 2009,
http://www.treasury.gov.au/contentitem.asp?NavId=059&ContentID=1435
[15].
Treasury, Submissions: Exposure Draft -
Abolishing capital gains tax trust cloning exception, 10
December 2008, viewed 4 December 2009,
http://www.treasury.gov.au/contentitem.asp?ContentID=1448&NavID=059
[16].
C Bowen MP (then Assistant Treasurer and
Minister for Competition Policy and Consumer Affairs)
Government acts to reduce compliance costs and improve tax
law, op. cit.
[17].
Treasury, Exposure Draft – Abolishing
the capital gains tax trust cloning exception and providing a
roll-over for fixed trusts, op. cit.
[18].
Treasury, Submissions: Exposure Draft
– Abolishing the capital gains tax trust cloning exception
and providing a roll-over for fixed trusts, 14 October 2009,
viewed 4 January 2010,
http://www.treasury.gov.au/contentitem.asp?ContentID=1641&NavID=059
[19].
Treasury, Abolishing the capital gains tax
(CGT) trust cloning exception and providing a roll-over for fixed
trusts, Summary of Consultation Process, December 2009, viewed
4 January 2010,
http://www.treasury.gov.au/documents/1610/PDF/Consultation_Summary.pdf
[20].
J Kehoe, ‘No more tax breaks for cloned
trusts’, Australian Financial Review, 7 November
2008, p. 2; Sara Rich, ‘Law to halt CGT dodging by
trusts’, The Australian, 3 September 2009,
p. 2.
[21].
For example, Y El-Ansary, (Tax Counsel –
Institute of Chartered Accountants in Australia), Exposure
draft – Abolishing the capital gains tax trust cloning
exception and providing a roll-over for fixed trusts,
Submission to Treasury on trust cloning, 6 October 2009; M
Northeast (Executive director – Pitcher Partners),
Submission concerning abolishing the capital gains tax trust
cloning exception and providing a roll-over for fixed trusts
(“the proposed amendments”), op. cit.
[22].
Australian Government, Treasury, Abolishing
the capital gains tax (CGT) trust cloning exception and providing a
roll-over for fixed trusts, Summary of Consultation Process,
December 2009.
[23].
Explanatory Memorandum to Tax Laws Amendment
(2009 Measures No. 6) Bill 2009, p. 7 (hereafter referred to as
Explanatory Memorandum).
[24].
C Bowen MP (then Assistant Treasurer and
Minister for Competition Policy and Consumer Affairs),
Government abolishes trust cloning tax concession,
media release, op. cit.
[25].
Treasury, Abolishing the capital gains tax
(CGT) trust cloning exception and providing a roll-over for fixed
trusts, Summary of Consultation Process, op. cit.
[26].
CGT event E4 occurs where the trustee makes a
payment to a beneficiary and that payment is not included in that
beneficiary’s assessable income for taxation purposes
(subsection 104-70(1) of the ITAA 1997). The Explanatory
Memorandum, at page 16, notes that this requirement ensures that
discretionary trusts cannot make use of this sub-division’s
provisions.
[27].
Subsection 995-1 of the ITAA 1997 defines a
‘foreign trust for CGT purposes’ as one that is not a
resident trust for CGT purposes. The same section defines the
latter term as a trust where (for a trust that is not a unit trust)
a
trustee is an
Australian resident or the central management and control of
the trust is in Australia, or (for a unit trust) any property of
the trust is in Australia and the central control and management of
that trust is also in Australia; or that trust carries on a
business in Australia and Australia residents held more than 50 per
cent of the beneficial interest in the income or property of that
trust.
[28].
‘Taxable Australian property’ is
defined in subsection 995-1 of the ITAA 1997 by reference to
section 855-15 of the same Act.
[29].
Subsection 995-1 of the ITAA 1997 defines
‘taxation
law’ to mean an Act of which the
Commissioner has the general administration (including a
part of an Act to the extent to which the
Commissioner has the general administration of the Act); or
regulations under such an Act (including such a
part of an Act).
[30].
Income tax legislation provides taxpayers with a
number of choices or options. For example, the original trust may
have a family trust election in relation to the transferred asset
and a specific individual. If that same election or choice is not
in force, and it makes a difference in calculating the receiving
trusts income, a CGT obligation will arise in respect of the
transferred asset.
[31].
Australian Taxation Office, TR 2006/4
– Income tax: capital gains: meaning of the words ‘the
beneficiaries and terms of both trusts are the same’ in
paragraphs 104-55(5)(b) and 104-60(5)(b) of the Income Tax
Assessment Act 1997, Taxation ruling, 28 June 2006:
TD 2004/14 Income tax:
capital gains: does CGT event E2 in section 104-60 of the Income
Tax Assessment Act 1997 happen if a CGT asset is transferred
between two trusts and the beneficiaries and terms of both trusts
are the same?, Tax Determination, 21 April 2004.
[32].
G Bullock, ‘Trust cloning gives ultimate
independence’, op. cit.
[33].
CGT event A1 occurs on the disposal of a CGT
asset.
[34].
Treasury, Capital gains tax roll-over for
complying superannuation funds with capital loses Discussion
paper, Canberra, 16 January 2009, p. 2.
[35].
Item 11 of Schedule
2 to the Bill.
[36].
Senator N Sherry (then Minister for
Superannuation and Corporate Law) Optional CGT loss roll-over
for complying super fund, media release, no 101, Canberra, 23
December 2008.
[37].
PST stands for Pooled Superannuation Trust.
These entities are large superannuation funds that are run by fund
managers on a wholesale basis. Individual superannuation funds
place large amounts of funds in these vehicles. They are not open
generally to retail investors.
[38].
APRA, Statistics – Annual
Superannuation Bulletin, June 2008, Sydney 10 June 2009, p.
28; Statistics – Quarterly Superannuation
Performance, September 2009, Sydney, 10 December 2009, p.
7.
[39].
From 1 July 2006 all superannuation trustees
have to be licensed by APRA to be able to undertake this task. The
costs of licensing are large and the licensing process is complex.
For more information on this process see APRA, Superannuation
– Licensing and registering a superannuation entity,
information kit, Sydney, July 2004, viewed 6 January 2010,
http://www.apra.gov.au/Superannuation/upload/Superannuation-Licensing-Explanatory-guide-on-licensing-and-registration.pdf
[40].
B Dunstan, ‘A good thing can become even
better’, Australian Financial Review, 24 October
2009, p. 39.
[41].
B Swift, ‘Competition spurs super fund
mergers’, Australian Financial Review, 14 June 2006,
p. 60.
[42].
D Hughes, ‘Fees will bring on super fund
mergers’, Australian Financial Review, 29 July 2009,
p. 53.
[43].
B Dunstan, ‘A giant exposed: she’s
apples’, Australian Financial Review, 11 April 2007,
p. 36.
[44].
S Patten, ‘Tax relief paves way for
superannuation mergers’, Australian Financial
Review, 27 January 2009, p. 44.
[45].
D Hughes, ‘Fees will bring on super fund
mergers’, op. cit.
[46].
Senator N Sherry, (then Minister for
Superannuation and Corporate Law) Optional CGT loss roll-over
for complying super funds, op. cit.
[47].
Senator N Sherry (then Minister for
Superannuation and Corporate Law), Expansion of the optional
CGT loss roll-over for complying super funds that merge, media
release, no. 042, Canberra, 29 April 2009.
[48].
A superannuation fund has to meet the conditions
prescribed in section 42 of the
Superannuation Industry (Supervision) Act 1992 (SISA) in
order to qualify as a complying superannuation fund. Only complying
superannuation funds receive concessional tax treatment.
[49].
Senator N Sherry (then Minister for
Superannuation and Corporate Law), Minister releases discussion
paper on tax relief for merging super funds, media release,
no. 3, Canberra, 16 January 2009.
[50].
Treasury, Submissions: Optional capital
gains tax roll-over for complying superannuation funds with capital
losses, 23 February 2009, viewed 6 January 2010,
http://www.treasury.gov.au/contentitem.asp?ContentID=1486&NavID=037
[51].
Treasury, Submissions: Exposure draft
– superannuation funds loss roll-over, 14 September
2009, viewed 6 January 2010,
http://www.treasury.gov.au/contentitem.asp?ContentID=1621&NavID=037
[52].
B Grant (Secretary-General Law Council of
Australia), Exposure Draft: Tax Laws Amendment (2009 Measures
No. 6) Bill 2009: Roll-Over for merging superannuation funds,
Submission to Treasury, 27 August 2009; M Howes (Director –
Policy and Industry Practice, Association of Superannuation Funds
of Australia), Submission on Exposure Draft Legislation –
CGT roll-over for complying superannuation funds with capital
losses, Submission to Treasury, August 2009; B McBain (Chief
Executive Officer – Corporate Superannuation Association),
Exposure Draft – Superannuation Funds Loss
Roll-Over, Submission to Treasury, August 2009; J
O’Shaughnessy (Deputy Chief Executive Officer –
Investment and Financial Services Association of Australia),
Exposure Draft Superannuation Funds Loss Roll-Over
legislation, Submission to Treasury, 26 August 2009.
[53].
AAP, ‘Super fund mergers to be made
cheaper’, Canberra Times, 30 April 2009, p. 6; S
Patten, ‘Tax relief paves way for superannuation
mergers’, op. cit
[54].
Explanatory Memorandum, p. 8.
[55].
The use of the verb ‘can’ (as
opposed to ‘must’) in proposed subsections
310-10(1), 310-15(1) and 310-20(1)
indicates discretion on the part of the transferring entity.
Ideally the word ‘may’ would be better than
‘can’. See subsection 33(2A) of the Acts
Interpretation Act 1901.
[56].
The complying superannuation/FHSA insurance
policy is one of the two classes of taxable income of a life
insurance company, the other being the ordinary class. The
complying superannuation/FHSA class of taxable income replaced the
‘complying superannuation class of insurance policy’
from the 2008–2009 year to take account of the FHSA business
of a life insurance company. The complying superannuation/FHSA
class is taxed at the concessional rate of 15 per cent, the same
rate as that applying to other superannuation entities.
(CCH Australian Master Superannuation Guide 2009
– Topic 13-050 - Key Terms)
[57].
If the annuity is an ‘exempt life
insurance policy’, the life insurance company can segregate
assets to be used for the sole purpose of discharging its
liabilities under life insurance policies where the income derived
by the company from these policies is exempt from income tax. See
Subdivision 320-H of the ITAA 1997, including section 320-246.
[58]. Section 10, SISA.
Regulation 1.05 of the Superannuation Industry (Supervision)
Regulations 1994 (SIS Regulations) goes on to provide an exhaustive
definition of the term annuity. However, it is the tax treatment of
the income produced by these products that is the immediate concern
of Schedule 3.
[59].
Regulation 1.07 of the Retirement Saving
Accounts Regulations 1997 defines the term pension in very similar
terms to those of regulation 1.05 of the SIS Regulations noted
above.
[60].
CCH Australian Master Tax Guide 2009,
Topic 1-250 – Income.
[61].
Explanatory Memorandum, p. 67.
[62].
Ibid.
[63].
Thomson Reuters, Weekly Tax Bulletin,
27 November 2009, p. 2190.
[64].
Treasury, Discussion paper: Life insurance
companies – exempt annuity business, 12 May 2009, p. 2,
viewed 7 January 2010,
http://www.treasury.gov.au/contentitem.asp?NavId=037&ContentID=1527
[65].
C Bowen MP (then Assistant Treasurer and
Minister for Competition Policy and Consumer Affairs),
Government acts to reduce compliance costs and improve the tax
law, media release, no. 48, Canberra, 12 May 2009,
Attachment C.
[66].
Treasury, Discussion paper: Life insurance
companies – exempt annuity business, op. cit.
[67].
Explanatory Memorandum, p. 8.
[68].
Item 57 of Schedule 1 to that Act inserted
section 320-46 (Exempt life insurance policy) into the ITAA 1997,
so the amendments in the current Bill have the effect of amending
section 320-46 from that section’s commencement.
[69].
Item 1 of Part
1 amended subparagraphs 320-246(e)(ii)
and (iii).
[70].
Explanatory Memorandum, p. 68.
[71].
Section 320-37, ITAA 1997.
[72].
J Macklin MP (Minister for Families, Housing,
Community Services and Indigenous Affairs), ‘Response to
question without notice’, House of Representatives,
Debates, 25 February 2009, p. 1792.
[73].
Thomson Reuters, op. cit.
[74].
CCH 2009 Australian Master Tax Guide,
Topic 15-060 –What is separate net income?
[75].
Australian Government, Mid Year Economic and
Fiscal Outlook 2009–10, Canberra, 2 November 2009, p.
140, viewed 8 January 2010,
http://www.budget.gov.au/2009-10/content/myefo/download/MYEFO_2009-10.pdf
[76].
Item 6 of Schedule
5 of the current Bill states that the amendments in
Part 1 of this Schedule apply in relation to the
2008–2009 income year.
[77].
Explanatory Memorandum, p. 9.
[78].
Thomson Reuters, op cit., p. 2192. Any
legislative instrument is subject to the Parliamentary disallowance
procedures in Part 5 of the Legislative Instruments Act
2003.
[79].
Ibid.
[80].
Explanatory Memorandum, p. 83.
[81].
Australian Government, Mid Year Economic and
Fiscal Outlook 2009–10, op. cit., p. 134.
[82].
Treasury, Excise manufacture and spirits:
exposure draft legislation and draft explanatory material, 12
October 2009, viewed 8 January 2010,
http://www.treasury.gov.au/contentitem.asp?NavId=037&ContentID=1639
[83].
Explanatory Memorandum, p. 10.
Leslie Nielson
20 January 2010
Bills Digest Service
Parliamentary Library
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