Commonwealth Numbered Regulations - Explanatory Statements

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INCOME TAX AMENDMENT REGULATIONS 2002 (NO. 5) 2002 NO. 169

STATUTORY RULES 2002 No. 169

Issued by authority of the Minister for Revenue and Assistant Treasurer

Income Tax Assessment Act 1936

Income Tax Amendment Regulations 2002 (No. 5)

Section 266 of the Income Tax Assessment Act 1936 (the Act) provides that the GovernorGeneral may make regulations prescribing matters required or permitted by the Act to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to the Act.

Part 6 of the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations) provides that superannuation benefits must be preserved until a condition of release is met. These conditions include reaching the preservation age and retiring, or a release on compassionate or financial grounds.

The purpose of the proposed Regulations is to ensure that where a benefit is paid by a superannuation fund to a fund member who is leaving the fund and who has not satisfied the preservation requirements in Part 6 of the SIS Regulations, the payment will not be taxed concessionally as an eligible termination payment, but will instead be taxed at the marginal tax rates of the taxpayer.

A payment made from a complying superannuation fund to a member of the fund is generally treated as an eligible termination payment and is taxed at concessional rates. This concessional treatment is designed to encourage individuals to save for retirement. The trustee of a superannuation fund may only make a payment to a member if the requirements of Part 6 of the SIS Regulations are satisfied. A trustee that contravenes the SIS Regulations by knowingly or recklessly making a payment that does not satisfy Part 6 is subject to penalties, however under the present legislation the member that receives the benefit continues to enjoy concessional tax treatment as an eligible termination payment under the Act.

Benefits may be inappropriately accessed prior to retirement through various schemes such as production of false medical documents or simply having benefits transferred to a fund under the member's control where the benefits are then accessed for private use without regard to the legislative requirements. As these payments contravene the SIS Regulations, they should not receive concessional taxation treatment as an eligible termination payment.

Details of the amending Regulations are set out in the Attachment.

The amending Regulations commenced on gazettal.

ATTACHMENT

Income Tax Amendment Regulations 2002 (No. 5)

Explanation of the amendments

Regulation 1 - specifies the name of the Regulations as the Income Tax Amendment Regulations 2002 (No. 5).

Regulation 2 - provides that the Regulations would commence on gazettal.

Regulation 3 - provides that Schedule 1 amends the Income Tax Regulations 1936.

Schedule 1 amendments

Item 1 of Schedule 1 - provides that for the purposes of paragraph 26AFB(2)(c) of the Act, the standards mentioned in Part 6 of the SIS Regulations are prescribed.

The SIS Regulations specified require that superannuation benefits be preserved until a condition of release is met. These conditions include reaching the preservation age and retiring, or a release on compassionate or financial grounds. This will mean that payments made to superannuation fund members that do not meet the conditions of release in Part 6 of the SIS Regulations will be taxed at marginal tax rates.