Commonwealth Numbered Regulations - Explanatory Statements

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INCOME TAX REGULATIONS (AMENDMENT) 1996 NO. 56

STATUTORY RULES 1996 No. 56

Issued by the Authority of the Assistant Treasurer

Income Tax Assessment Act 1936

Income Tax Regulations (Amendment)

Background

Subdivision 3 of the Income Tax Regulations is concerned with tax instalment deductions from eligible termination payments (ETPs). Regulation 97 concerns Interpretation and Regulation 98 prescribes the rate of tax instalment deduction from EM.

In the 1995-96 Budget, the then Treasurer announced an increase in the Medicare levy from 1.4% to 1.5%. The Medicare Levy Amendment Act 1995 (No. 56 of 1995) amended section 6 of the Medicare Levy Act 1986 to increase the rate to 1.5%. The Bill received Royal Assent on 28 June 1995 and the new rate commenced to apply from 1 July 1995.

A number of regulations affected by the changes have been amended accordingly. However, subdivision 3 has not been amended to reflect the increased rate. The regulations also contain references to provisions made obsolete by the new system of taxation of ETPs effective from 1 July 1994.

Purpose of the regulations

The purpose of these regulations is to allow an employer to apply the correct rates of tax instalment deductions when making ETPs. Increasing the amount of tax instalment deductions (by the increase in the rate of Medicare Levy) from EM 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 an ETP in his or her income tax assessment for the year in which the ET? was received.

An explanation of the Regulations appears below:

Regulation 1 - Commencement

Regulation 1 provides that these regulations commence on 1 June 1996.

Regulation 2 - Amendment

Regulation 2 provides that these regulations amend the Income Tax Regulations.

Regulation 3 - Regulation 97 (Interpretation)

Regulation 3.1 amends subregulation 97(2) to omit the definition of the term 'ISC directed commutation payment' (a payment directed by the Insurance and Superannuation Commission). This term is no longer relevant as it was omitted from the Income Tax Assessment Act 1936 (the Act) in 1992.

Regulation 3.2 amends subregulation 97(2) to insert definitions of 'dependant' and 'nondependant'.

Dependant: For the purposes of the Income Tax Regulations the term 'dependant' is to have the same meaning as given by subsection 27A(1) of the Act. A dependant will include a spouse (including a de facto spouse), children under 18 years of age and any person who is financially dependant.

Non-dependant: A definition of a non-dependant is required to distinguish circumstances where a superannuation death benefit is paid to a dependant from circumstances where such a payment is made to a non-dependant Where such a payment is made to a dependant it is not generally an ETP. However, where such a payment is made to a non-dependant it will be an ETP. The post-June 1983 component of the ETP is included in the non-dependant's assessable income under subsection 27B(1A) of the Act, but attracts a rebate under section 159SA of the Act. The rebate ensures that tax will not exceed 15% and 30% (+1.5% Medicare levy) on the taxed and untaxed elements respectively.

Regulation 4 - Regulation 98 (Rates of deduction - ETP)

Regulation 4.1 amends subregulation 98(1) to omit a reference to 'tables' and inserts a reference to only one 'table'. The amendments remove two tables and replace them with only one table.

Regulation 4.2 amends subregulation 98(1) to omit Tables 1 and 2 and replace them with a new Table. The new table incorporates the increased Medicare levy component.

Regulation 4.3 omits subregulation 98(1A) and inserts a new subregulation 98(1A). The new subregulation 98(1A) clarifies that the rates of deduction for the year of income commencing 1 July 1995 or later, as contained in the new Table inserted into subregulation 98(1), will not apply retrospectively. The amendments made by these regulations are to apply from 1 June 1996. New subregulation 98(1A) provides that for payments made in the period 1 July 1995 to 31 May 1996 the rate of deduction is to be the rate that would be applicable under subregulation 98(1) as in force during that period.

Regulation 4.4 omits subregulations 98(2) and 98(3) as those subregulations refer to the two Tables in subregulation 98(1) which have been omitted and replaced with one Table by virtue of these regulations. Those subregulations are also no longer required as they refer to repealed sections of the Act.

Regulation 4.5 amends subregulation 98(4) to substitute reference to 'Tables 1 and 2' with a reference to 'the Table'.

Regulation 4.6 amends paragraph 98(4)(a) to include a reference to death benefit ETPs included in a taxpayer's income by virtue of subsections 27B(1A)(a) and 27B(1A)(b) of the Act.

Regulation 4.7 omits subregulation 98(6) as that subregulation refers to amounts contained in the two Tables in subregulation 98(1) which have been omitted and replaced with one Table by virtue of these regulations. Subregulation 98(6) is also no longer required as it refers to repealed sections of the Act.

Regulation 4.8 omits subregulation 98(11) which relates to ISC-directed commutation payments. The regulation is no longer relevant as ISC directed commutation payments no longer arise.