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
Background
Main Provisions
Endnotes
Contact Officer and Copyright Details
Income Tax Rates Amendment (RSAs Provided by Registered
Organizations) Bill 1999
Date Introduced: 11 March 1999
House: Representatives
Portfolio: Treasury
Commencement: On the transfer
date for the purposes
of the Financial sector Reform (Amendments and transitional
Provisions) Act (No.1) 1999. This is the date at which
financial institutions and friendly societies will come under
Commonwealth jurisdiction. It will be promulgated by the
Governor-General in the Gazette.
To specify rates
of tax that apply to the retirement savings account (RSA) business
of friendly societies and other registered organisations.
The Financial System Inquiry (FSI) recommended
that the right to offer RSAs should be extended to any institution
able to offer capital backed deposit and investment products
subject to prudential regulation by the Australian Prudential
Regulation Authority (APRA).(1) If the Financial Sector Reform
(Amendments and Transitional Provisions) Bill (No.1) 1999 is
passed friendly societies will fall into this category.
What are Friendly Societies?
Australia's first friendly society was
established in NSW in 1830.(2) Friendly Societies are mutual
organisations. Traditionally, they offered sickness and accident
assurance products through benefit funds. During the 1980's, they
expanded significantly by introducing insurance bond investment
products which were tax-advantaged at the time. Although those tax
advantages have been removed, single premium bond and annuity
products are still a significant business. The FSI reported that
approximately $8 billion of assets are under friendly society
management.(3)
A uniform national scheme governing for the
prudential regulation of Friendly Societies was introduced from 1
October 1997. The essence of this regulatory scheme will be
continued under the Financial Sector Reform (Amendments and
Transitional Provisions) Bill (No.1) 1999 when friendly
societies come under the supervision of the Australian Prudential
Regulation Authority.
What are RSAs?
The passage of the Retirement Savings
Accounts Act 1997 enabled banks, building societies, credit
unions and life offices to offer a 'capital guaranteed'
superannuation product - the retirement savings account (RSA)-
without the trust structure that is typically associated with
superannuation. RSAs have the same tax advantaged treatment as
other superannuation products. Proponents of the introduction of
RSAs argued that the trust structure, which separates legal and
beneficial ownership and imposes fiduciary duties on trustees is
less relevant in the case of RSAs because the institutions offering
them are prudentially supervised.(4) The capital guarantee inherent
in the RSA is supported by balance sheets of the offering
institutions. It was also the Government's view that the
introduction of RSAs would increase competition in the
superannuation industry.
Competition should be further encouraged by
enabling friendly societies to offer RSAs. This bill sets the
taxation rates that will apply to friendly societies conducting
this business.
The main provisions are concerned with providing
appropriate tax treatment for the RSA business of friendly
societies. It must be seen in conjunction with the measure
contained in the Financial Sector Reform (Amendments and
Transitional Provisions Bill) 1999. Schedule 7 of that Bill
proposes an amendment in the Income Tax Assessment Act
1936 which will recognise the RSA business of friendly
societies.
This Bill amends the Income Tax Rates Act
1986 to specify the rates of tax that apply to the RSA
business of registered organisations.
Income credited by a friendly society to an RSA
will be taxed at the 15 per cent rate. Profits of the friendly
society will be taxed at the company rate of 36 per cent.
-
- Financial System Inquiry: Final Report, March 1997,
Recommendation 43.
- David Green and Lawrence Cromwell, Mutual Aid or Welfare State:
Australia's Friendly Societies, George Allen & Unwin, Sydney,
1984.
- Financial System Inquiry: Final Report, March 1997, p. 327.
- See discussion in Council of Financial Supervisors, Annual
Report 1997.
Mark Tapley
25 March 1999
Bills Digest Service
Information and Research Services
This paper has been prepared for general distribution to
Senators and Members of the Australian Parliament. While great care
is taken to ensure that the paper is accurate and balanced, the
paper is written using information publicly available at the time
of production. The views expressed are those of the author and
should not be attributed to the Information and Research Services
(IRS). Advice on legislation or legal policy issues contained in
this paper is provided for use in parliamentary debate and for
related parliamentary purposes. This paper is not professional
legal opinion. Readers are reminded that the paper is not an
official parliamentary or Australian government document.
IRS staff are available to discuss the paper's contents with
Senators and Members
and their staff but not with members of the public.
ISSN 1328-8091
© Commonwealth of Australia 1999
Except to the extent of the uses permitted under the
Copyright Act 1968, no part of this publication may be
reproduced or transmitted in any form or by any means, including
information storage and retrieval systems, without the prior
written consent of the Parliamentary Library, other than by Members
of the Australian Parliament in the course of their official
duties.
Published by the Department of the Parliamentary Library,
1999.
Back to top