Commonwealth Numbered Regulations - Explanatory Statements

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INCOME TAX REGULATIONS (AMENDMENT) 1997 NO. 191

STATUTORY RULES 1997 No. 191

Issued by the Authority of the Assistant Treasurer

Income Tax Assessment Act 1936

Income Tax Regulations (Amendment)

These regulations insert new regulation 177 and new schedule 14 to declare certain superannuation funds to be constitutionally protected for the purposes of subsection 267(1) of the Income Tax Assessment Act 1936 (the Act).

Section 266 of the Act provides that the Governor-General may make regulations prescribing matters required to give effect to the Act.

Background

As a result of amendments contained in Taxation Laws Amendment Act (No. 2) 1994 (No. 82 of 1994), all income derived by constitutionally protected superannuation funds is exempt from tax. The definition of 'constitutionally protected fund' in subsection 267(1) of the Act was also amended. The definition now provides that a fund will be constitutionally protected if it is declared by the Income Tax Regulations to be a constitutionally protected fund.

Essentially a fund is a constitutionally protected fund if the assets of the fund belong to a State of the Commonwealth. That is, a fund is a constitutionally protected fund unless the assets of the fund are held in trust in the ordinary legal sense.

Purpose

The amending regulations will insert new regulation 177 to declare the superannuation funds that are to be constitutionally protected for the purposes of subsection 267(1) of the Act. New schedule 14 lists the State Acts that establish the superannuation funds that will be constitutionally protected as a consequence of new subregulation 177(a).

The superannuation funds to be declared constitutionally protected has been compiled in consultation with the State Governments.

Details of the amending regulations are as follows:

Regulation 1.1 provides that the Income Tax Regulations be amended as follows. These regulations will commence on gazettal.

Regulation 2.1 provides that these regulations apply to an assessment to which section 104 of the Taxation Laws Amendment Act (No. 2) 1994 applies. That is, it is proposed to apply these regulations from the same year of income that the original amendments to exempt from tax all income derived by constitutionally protected funds apply from.

Consequently, the date of effect of the regulations will depend on the behaviour of the particular fund since 1 July 1988. Generally the regulations will apply to assessments made in respect of the 1993-94 and subsequent years of income. However, if a constitutionally protected fund has not paid income tax because it assumed that all of the income of the fund was exempt from tax, the proposed regulations will apply to assessments made in respect of the 1988-89 and subsequent years of income.

A constitutionally protected fund will be considered to have assumed that it was exempt from tax, and therefore be regarded as not having paid tax, if it paid benefits out as though they were wholly from an untaxed source.

The reason for having different application dates is to minimise the disruption to affected funds and the impact on members of constitutionally protected funds who received benefits between 1 July 1988 and 30 June 1993.

Regulation 3.1 inserts new regulation 177. New regulation 177 proposes that for the purposes of the definition of 'constitutionally protected fund' in section 267 of the Act, the funds established by the State Acts specified in new schedule 14 of the regulations, and the Police Occupational Superannuation Scheme established by Trust Deed in South Australia, are constitutionally protected funds.

Regulation 4.1 inserts new schedule 14 to list the State Acts that establish the superannuation funds that will be constitutionally protected as a consequence of new subregulation 177(a).