Commonwealth Numbered Regulations - Explanatory Statements

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INCOME TAX REGULATIONS (AMENDMENT) 1995 NO. 383

STATUTORY RULES 1995 No. 383

Issued by the Authority of the Assistant Treasurer

Income Tax Assessment Act 1936

Income Tax Regulations (Amendment)

GENERAL OUTLINE

Background

Regulation 83 prescribes the amount of tax instalments to be deducted from payments of superannuation pensions or roll-over annuities where those payments are subject to a rebate under either section 159SM or section 159SU of the Income Tax Assessment Act 1936 (the Act). It enables payers to calculate the amount of tax instalment deductions from such payments subject to the rebate on a more frequent, eg, weekly, basis.

A rebate of tax is available on the post-30 June 1983 component of certain superannuation pensions and roll-over annuities (ie, annuities purchased with the rollover of an eligible termination payment - ETP) paid to taxpayers over the age of 55 or on death or disability, provided they first commenced to be payable on or after 1 July 1988. This rebate is incorporated in sections 159SJ-159SY of the Act and is fixed at that rate for the whole of the annuity term.

The rebate is calculated by multiplying the amount included in assessable income under section 27H of the Act (subject to certain reductions in the case of a superannuation pension) by the relevant final percentage. Prior to 1 July 1994, the final percentage was calculated according to a number of factors, including the date of commencement of the underlying pension or annuity and the post-1983 proportion of the capital value of the pension or annuity. From 1 July 1994, the 'final percentage' component of the rebate calculation contained in sections 159SM and 159SU of the Act, was replaced with a flat 15% rebate.

The flat 15% rebate is reduced if the rebatable proportion of the pension or annuity is less than 1 because the pension or annuity is in excess of the employee's reasonable benefit limit (section 140ZQ of the Act).

Purpose of regulations

The purpose of these regulations is to allow an employer to take into account the 15% rebate when deducting tax instalments from superannuation pensions and roll-over annuities. The 15% rebate is the standard rebate allowed under the Act. If the employee advises the employer that the rebatable proportion of die pension or annuity is less than 1, ie, the employee is entitled to less than the standard 15% rebate, the employer can, at the request of the employee, increase the amount of tax instalment deductions accordingly. Increasing the amount of tax instalments deducted from the pension or annuity enables the correct amount of tax to be deducted from those payments. This will overcome the possibility of the employee receiving a tax bill in respect of the pension or annuity payments in his or her final income tax assessment.

DETAILED NOTES ON THE REGULATIONS

Regulation 1

Regulation 1 provides that these regulations amend the Income Tax Regulations. The Regulations commence on the date of gazettal.

Regulation 2

2.1 Regulation 2.1 omits the formula in Paragraph (d) of Regulation 83 in relation to superannuation pension and substitutes it with a new formula which replaces the term 'final percentage' with 15%. This regulation also provides for the inclusion of a component known as the 'rebatable proportion of rebatable superannuation pension' in the formula.

2.2 Regulation 2.2 omits the formula in Paragraph (e) of Regulation 83 in relation to ETP annuity and substitutes it with a new formula which replaces the term 'final percentage' with 15%. This regulation also provides for the inclusion of a component known as the 'rebatable proportion of annuity' in the formula.

2.3 Regulation 2.3 omits the definition of 'final percentage'.

2.4 Regulation 2.4 inserts definitions of 'rebatable proportion of annuity' and 'rebatable proportion of rebatable superannuation pension 'into Regulation 83. The definition is designed to allow payers to assume that the rebatable proportion will be 1 unless otherwise advised by the recipient. This will make compliance with the regulations easier as it will enable payers to assume that the pension or annuity is fully rebatable unless advised otherwise by the recipient.

2.5 Regulation 2.5 provides that for the purposes of the definition of 'rebatable proportion of annuity and 'rebatable proportion of rebatable superannuation pension', the employee may specify a proportion of the rebatable superannuation pension or ETP annuity that is less than one in respect of a year of income by notice in writing to the employer. This enables an employee who is aware that their pension or annuity is not fully rebatable to instruct the payer to deduct a greater amount of tax from their payments. The employer is then able to deduct the correct amount of tax from their payments.