House of Representatives

Explanatory Memorandum

(Circulated by authority of the Acting Treasurer, the Hon J.S. Dawkins, MP)

MAIN FEATURES

The main features of these Bills are as follows:

TAXATION LAWS AMENDMENT (SUPERANNUATION) BILL 1989

Amendment of the Income Tax Assessment Act 1936 Taxation of eligible termination payments (ETPs) (Clauses 5 to 8 and 26)

This Bill will give effect to the proposal, announced in the 1988 May Economic Statement, to reduce the maximum rates of tax that apply to the post-June 1983 components of certain ETPs. The proposal complements the measures in the Taxation Laws Amendment Bill (No.6) 1988 ("the No.6 Bill") taxing for the first time the income of complying superannuation funds and approved deposit funds (ADFs) and certain contributions and rolled-over amounts (taxable contributions) paid to such funds, and taxing the formerly exempt income derived by life assurance companies and registered organisations from their complying superannuation and rollover annuity business. The proposal applies to ETPs paid on or after 1 July 1988 to the extent that they are attributable to one or more of these taxed sources.

The existing maximum rates of tax for post-June 1983 components of ETPs are, generally, to be reduced by 15 percentage points to the extent that the post-June 1983 component of an ETP is attributable to a taxed source (the taxed element). Existing rates will continue to apply to ETPs not attributable to a taxed source. The 15 per cent fall in the rates for taxed ETPs corresponds to, and is intended to compensate ETP recipients for, the 15 per cent rate of tax proposed to apply to taxable contributions. Reflecting the fact that the effect on end benefits of the contributions tax will be gradual, the reduction in the rates of tax is to be phased in over a period of up to 5 years commencing on 1 July 1988.

Under the existing law, two rates of tax may apply to the post-June 1983 component of an ETP paid to a person aged 55 or more. The low rate, presently 15 per cent, applies to the first $55,000 of post-June 1983 components received by a person over his or her lifetime. The high rate, presently 30 per cent, applies to any amount of post-June 1983 component exceeding the $55,000 low rate threshold. This Bill will increase the low rate threshold to $60,000 for the income year ending 30 June 1989. In addition, from 1 July 1989 the threshold will be indexed annually to movements in average weekly ordinary time earnings. The low and high rates are to be reduced to zero and 15 per cent respectively from 1 July 1992, with effect for all taxed elements, subject to the phasing in provisions referred to in the previous paragraph.

During the transitional period, the maximum rate of tax applicable to a taxed element or part of a taxed element (in the income year ending 30 June 1989 there are 10 possible rates) will depend on the age of the ETP recipient, the size of the taxed element and, broadly, the period during which the taxed element accrued in a taxed source. The longer an ETP accrued before 1 July 1988, when the relevant entity was exempt from tax, the longer is the transitional period and the higher is the transitional rate of tax applying to that class of taxed element.

The Bill will put these measures into effect by:

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identifying whether the post-June 1983 component of an ETP is attributable to a taxed source or to some other source (an untaxed source), or is attributable to both taxed and untaxed sources;

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to the extent that the post-June 1983 component of an ETP consists of a taxed element, further identifying the class of taxed element, by reference to its accrual period, and the relevant maximum rate or rates of tax applicable to that element; and

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providing a rebate of tax to ensure that the rate of tax paid in respect of the taxed and untaxed element of the post-June 1983 components of ETPs does not exceed the maximum rate or rates applicable to those elements.

Rebates for superannuation pensions and rollover annuities (Clause 26)

The Bill also gives effect to the announcements in the 1988 May Economic Statement and the statement of 20 June 1988 that superannuation pensions and rollover annuities taken from age 55 or as a death or disability benefit are to be subject to a 15 per cent rebate (phased in uniformly over 5 years according to the date on which the pension or annuity commences) on the part of the pension or annuity that is attributable to post-June 1983 service. The rebate, which is the counterpart of the proposed reduction in the rates of tax applying to ETPs, is intended to compensate superannuation pensioners and annuitants for the effect of the tax on taxable contributions which applies from 1 July 1988.

The rebate will ordinarily be calculated as a percentage of the amount of the pension or annuity that is included in assessable income. However, the rebatable amount of a pension is to be reduced by any amount specified in a notice from the fund as being, in effect, funded by employer contributions for the year in respect of which the fund is claiming a tax exemption, as announced in the statement of 11 August 1988.

The rebate percentage will be determined at the time the pension or annuity first commences to be payable and will apply in all subsequent income years. To deter exploitation of the phase-in of the maximum rebate, where a rebatable superannuation pension or annuity is commuted or a residual value is paid and the commutation amount or residual value is rolled over in whole or in part in purchasing a replacement annuity or into another superannuation fund, the rebate percentage of the original pension or annuity will carry over to the part of the replacement pension or annuity that is attributable to the roll-over payment. Similarly, where a reversionary pension or annuity is paid to a person after the death of the original pensioner or annuitant, the rebate percentage that applied to the original pension or annuity will continue to apply. Where a component of a rebatable pension or annuity is attributable to the roll-over of the post-June 1983 component of an unfunded ETP that was taxed at 15 per cent on roll-over, the component will carry entitlement to a rebate at 15 per cent, with no phase-in. Any other component will attract the applicable transitional rebate percentage, reduced where necessary to ensure that only the part of that component that accrues after 30 June 1983 attracts a rebate.

Gains and losses on disposal of assets - complying superannuation funds, complying ADFs and pooled superannuation trusts (PSTs) (Clauses 37, 38 and 62)

The Bill proposes amendments that will modify the application of the income tax law - in particular the capital gains and capital losses provisions contained in Part IIIA of the Income Tax Assessment Act 1936 ("the Act") - to disposals of assets by complying superannuation funds, complying approved deposit funds and PSTs ("complying entities").

Generally, the capital gains and capital losses provisions apply to the disposal of assets acquired after 19 September 1985. The provisions also apply in such a way that, if a gain or loss is taken into account under another provision of the law, it is not also treated as a capital gain or capital loss. Broadly, the existing law achieves this by excluding assets from the operation of Part IIIA or by reducing the gain or loss by amounts that have otherwise been taken into account. For disposals of certain assets by complying entities, these rules are to be modified.

All assets owned by complying entities at the end of 30 June 1988 will be taken to have been acquired on 30 June 1988 for Part IIIA purposes. Accordingly, Part IIIA will potentially have application to most assets owned by complying entities regardless of the actual date of acquisition of the asset.

To prevent the application of these provisions to gains or losses that accrued up to 30 June 1988, this Bill also proposes rules for determining the cost base of assets owned by complying entities on 30 June 1988. An asset will be deemed to have been acquired for an amount equal to either the costs incurred before 1 July 1988 in respect of the asset or the market value of the asset on 30 June 1988, whichever produces the smaller gain or loss. For example, if the market value of an asset exceeds the costs incurred in respect of the asset, market value will be used to determine if a capital gain has accrued on the disposal of the asset and costs will be used to determine if a capital loss has been incurred.

For assets owned on 30 June 1988, indexation of the asset's cost base will be available if the asset has been held at the time of disposal for at least 12 months from the actual acquisition date of the asset. Accordingly, indexation from 30 June 1988 will be available if an asset is sold during the 1988-89 financial year provided the asset has been owned for at least 12 months at the time of disposal.

This Bill also proposes amendments which will give Part IIIA a more dominant role in the application of the Act to the disposal of an asset (including one acquired after 30 June 1988) by a complying entity where Part IIIA applies (or would apply but for certain excluding provisions) in respect of the disposal of the asset. No amount will be included in the assessable income of a complying entity under section 25 of the Act or allowed as a deduction under section 51 unless the asset is a security (as defined) or the amount is a gain or loss attributable to currency exchange rate fluctuations. Apart from these exceptions, the capital gains and capital losses provisions will operate to the exclusion of section 25 and section 51 for the purpose of determining whether a gain or loss is taken into account in calculating taxable income.

The definition of security is based on the definition in Division 16E, but is modified to make it clear that it does not refer to shares in a company. The exclusion of securities and gains and losses attributable to currency exchange rate fluctuations from these modified Part IIIA rules does not mean that section 25 or section 51 will necessarily apply in these cases. However, their exclusion means that it is possible for those sections to apply, in the same way as they would for other taxpayers, according to the ordinary interpretation of what is assessable and allowable as a deduction - for example, receipts in the nature of interest received upon disposal of a security.

In addition, the Bill provides that if Part IIIA applies to the disposal of an asset, sections 25A and 52 of the Act will not apply. Section 25A and section 52 apply to profits or losses arising from the sale of property acquired for the purpose of profit-making by sale or from carrying on any profit-making undertaking or scheme other than those arising from the sale of property acquired after 19 September 1985.

As mentioned, the operation of sections 25, 25A, 51 and 52 can be overridden only if Part IIIA applies (or, but for certain exclusions, would apply) to the disposal. This means, for example, that the operation of those sections is not overridden if the asset disposed of by a complying entity constituted trading stock of the entity. This is because in its existing operation Part IIIA already provides that it does not apply to the disposal of trading stock.

The Bill also contains various transitional provisions in respect of assets owned by complying entities as at 30 June 1988.

Units in pooled superannuation trusts (PSTs) (Clause 39)

The Bill proposes amendments which will mean that disposals on or after 1 July 1988 of units in a pooled superannuation trust (PST) by certain taxpayers will not be subject to the capital gains and capital losses provisions of the Act or to sections 25, 25A, 51 and 52. The taxpayers affected by this are trustees of complying superannuation funds, complying approved deposit funds and PSTs and, in the following circumstances, life assurance companies and registered organisations. For a life assurance company, the exemption will apply if the unit in the PST is included in an insurance fund that consists solely of policies in respect of exempt annuity business or in respect of superannuation and rollover annuity business that is taxable at the rate of 15 per cent. For registered organisations, the unit needs to have been held solely in respect of business of the kinds just mentioned. These requirements are intended to be consistent with proposed regulations under the Occupational Superannuation Standards Act 1987 defining approved unitholders of PSTs.

Deduction for costs of death or disability cover (Clauses 43, 51 and 52)

This Bill proposes changes to ease the operation of the provision of the Act - being inserted by the No.6 Bill - which allows tax deductions in respect of premiums paid for insurance policies relating to the liability of a complying superannuation fund to provide death or disability benefits for members of the fund. The Bill will also provide an optional alternative basis for deducting the cost of providing for that liability. The new option adopts the actual death or disability benefits paid during the year as the base for calculating a "future service element" of those benefits and allows a deduction equal to that future service element. Once used, the optional basis must continue to be used by the fund unless the Commissioner of Taxation approves a change to a different basis.

The new provisions will have effect in relation to the taxable incomes of complying superannuation funds for the year of income in which 1 July 1988 occurs.

Exemption of income attributable to current pension liabilities (Clauses 47 and 54)

This Bill will also make changes to the provisions of the Act being inserted by the No.6 Bill which provide exemption from tax on that part of the income of a complying superannuation fund which is attributable to the fund's liabilities in respect of pensions which are currently payable. The existing proposed provision does this by way of a formula which calculates the proportion of a fund's total liabilities which are current pension liabilities. That provision is to be repealed and replaced with 2 optional methods for determining the exemption. It will be open to a fund to use either method or both, provided that the following conditions are satisfied.

The first option for a complying superannuation fund is available only where the fund segregates some of its assets so that those assets are invested, held in reserve or otherwise dealt with solely for the purpose of meeting the fund's current pension liabilities. If that occurs, the income derived from those so-called "segregated current pension assets" is exempt from tax.

The second option applies to the income derived from assets which are not segregated either solely to meet the fund's current pension liabilities or solely to meet the fund's liabilities which are not current pension liabilities. As with the existing provision, the extent of the exemption is determined by a formula. The new formula, however, excludes from the components any liabilities in respect of which assets have been segregated.

Both options will be available in respect of income derived by a complying superannuation fund on or after 1 July 1988.

Exemption of the income of PSTs, life assurance companies and registered organisations attributable to the current pension liabilities of superannuation funds (Clauses 14, 22 and 59)

The Bill includes provisions which, broadly speaking, entitle PSTs, life assurance companies and registered organisations to a "vicarious" exemption from tax in respect of the part of their income that is derived from their business with complying superannuation funds which, to the Commissioner's satisfaction, had it been derived directly by the funds would have been exempt under either of the options discussed in the previous section of this memorandum. PSTs will be entitled alternatively to claim the exemption in the proportion that the unitholdings of complying superannuation funds that are segregated current pension assets (see the explanation in the previous section) bear to the total unitholdings in the PST.

The amending provisions will apply to the income of PSTs, life assurance companies and registered organisations derived on or after 1 July 1988.

Provisions to ensure that certain persons will not suffer a detriment as a result of the taxation of superannuation contributions (Clauses 6 and 52)

Provisions are to be included in the income tax law by this Bill to ensure that the after-tax amounts of superannuation benefits will not be diminished as a result of the taxation of contributions to complying superannuation funds.

The principal groups of cases in which a detriment is possible and the corresponding proposed legislative treatment are as follows:

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death benefit cases: lump sum benefits paid to the dependants of a deceased person are not taxable under the existing law and, accordingly, the contributions tax cannot be compensated for by the 15 per cent reduction in the tax rates applicable to the post-June 1983 component of the benefit; the superannuation fund is to be allowed a special deduction designed to provide the fund with a sufficient tax saving to enable it to pay a benefit equal to what the benefit would have been had there been no tax on contributions.

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service mismatch cases: the rate at which contributions are made in respect of a taxpayer after 30 June 1988 may be disproportionately large compared with the rate prior to that date so that the taxpayer may not be able to derive the full benefit of the 15 per cent reduction in tax on a lump sum end benefit; the Commissioner of Taxation is to take such steps as are necessary (including allowing rebates and credits of tax) to compensate taxpayers aged 55 and over for the reduction in after-tax end benefits caused by the tax on contributions to complying superannuation funds.

The anti-detriment provisions are to apply to lump sum superannuation benefits received on or after 1 July 1988.

Anticipation of notices under the Occupational Superannuation Standards Act 1987 (Clause 61)

The status of a superannuation fund, approved deposit fund or pooled superannuation trust, so far as eligibility for the concessional 15 per cent tax on income is concerned, is conditional upon the relevant entity receiving, in relation to the year of income, a notice under the Occupational Superannuation Standards Act 1987 (OSS Act) to the effect that the entity has satisfied certain standards required by that Act or should be treated as having satisfied them. In addition, employer contributions made to a complying superannuation fund after 30 June 1988 may be exempt from tax if they are made in respect of a funding shortfall that existed at 30 June 1988. A fund with such a shortfall may seek a notice under the OSS Act that it has "pre-1 July 88 funding credits".

A fund or PST may not have received one or more of the relevant notices when the Commissioner of Taxation is ready to issue its tax assessment. Provisions are being inserted by this Bill to allow the Commissioner to anticipate the giving of the relevant notices for the purpose of issuing an assessment. Where an assessment has been issued by the Commissioner on the basis of an anticipated notice and the notice is not applied for within the time specified in the law, the Commissioner will be able to amend the assessment to give effect to the law as it applies in the absence of the relevant notice or notices.

Transfer of taxable contributions (Clause 49)

The No.6 Bill inserted provisions in the law which permitted complying superannuation funds and complying ADFs to transfer taxable contributions and the associated liability to tax to a life assurance company, registered organisation or PST. This Bill replaces those provisions and, in particular, removes the limitation that the liability could only be transferred to the extent that the contributions were applied in the purchase of units or policies of the transferee. The new provision allows a transfer of contributions tax liability to any PST, life assurance company or registered organisation in which the fund has an investment, up to an annual limit based on the highest value of the fund's investment in the transferee in the year of income concerned.

Transfers to life assurance companies and registered organisations are permitted, notwithstanding that the fund's investment is by way of a 'custodian' trust, an arrangement that permits small superannuation funds to invest in group life policies of a particular life assurance company.

Exemption for contributions funding pre-1 July 1988 accrued liabilities (Clause 49)

The Bill provides for the trustee of a complying superannuation fund to elect that an amount of employer contributions made to the fund is to be excluded from assessable income if the fund has a notice from the Insurance and Superannuation Commissioner (ISC) recognising the existence of an unfunded liability of the fund for benefits accrued prior to 1 July 1988. The amount of the unfunded liability is described in the legislation as a pre-1 July 88 funding credit. The amount specified in an election for a year of income is not to exceed the lesser of:

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the outstanding pre-1 July 88 funding credit balance just prior to the end of the year of income; and

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the total employer contributions for the year, reduced by the amount of any contributions that have already attracted an exemption as funding certain untaxed components of end benefits and the statutory proportion of the taxed elements of the post-June 1983 components of end benefits for the year.

The outstanding pre-1 July 88 funding credit balance will be indexed annually.

Provision will be made for the ISC to approve transfers of pre-1 July 88 funding credit balances in certain situations where members are transferred from one complying superannuation fund to another. The pre-1 July 88 funding credit balance may also be reduced upon the occurrence of events prescribed in regulations to be made under the Occupational Superannuation Standards Act 1987.

Taxation of the superannuation business of life assurance companies (Clauses 13 to 20)

This Bill will give effect to the proposal announced in the May 1988 Economic Statement to tax the formerly exempt superannuation business of life assurance companies, with effect from 1 July 1988. These amendments complement the proposed taxation of superannuation funds, ADFs and PSTs.

The superannuation business of a life assurance company consists of income derived by the company in respect of both life assurance policies owned by the trustees of superannuation funds, ADFs or PSTs and life assurance policies in relation to rollover annuities. The income referable to rollover annuity policies and policies held by a complying superannuation fund, complying ADF or PST is to be taxed at the rate of 15 per cent. Income referable to policies held by a non-complying superannuation fund or non-complying ADF is to be taxed at the top marginal rate of personal income tax (49 per cent for the 1988-89 income year).

The taxable income of a life assurance company referable to its superannuation business is to be determined generally in the same way as for other taxpayers, subject to certain exceptions:

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any part of a life assurance company's income relating to superannuation or rollover annuity policies that accrued before 1 July 1988, even if derived after 30 June 1988, is to be exempt;

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expenditure incurred in deriving superannuation premiums is to be deductible;

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where assets are disposed of by an insurance fund which contains superannuation or rollover annuity policies special capital gains tax rules apply to the part of any gains derived and losses incurred after 30 June 1988 which are referable to those policies; those rules are explained more fully earlier in these main features under the heading "Gains and losses on disposal of assets";

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where a complying superannuation fund or complying ADF has arranged for the transfer to a life assurance company of the liability to tax on all or part of the taxable contributions made to the fund or ADF during a year, the assessable income of the life assurance company is to include that amount of taxable contributions; and

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the assessable income of a life assurance company is also to include the post-June 1983 components of rolled-over unfunded ETPs paid by employers (eg. payouts known as golden handshakes) that are used to invest in annuity policies of a life assurance company.

In order to apply different tax rates as appropriate to the elements of the taxable income of a life assurance company, the Bill contains provisions which apportion the total taxable income of the company between the following components of taxable income:

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the component referable to policies held by complying funds or in respect of rollover annuities - taxed at 15%;

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the component referable to policies held by non-complying funds - taxed at the top marginal rate of personal income tax (49% in the 1988-89 year of income, 48% for 1989-90 and 47% for the 1990-91 and subsequent income years);

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the accident and disability insurance and residual life assurance component - taxed at the company tax rate (39%); and

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the non-statutory fund component - taxed at the company tax rate (39%).

In order to facilitate the division of the taxable income of a life assurance company into the above components, the Bill contains provisions for the apportionment of assessable income and allowable deductions into classes which correspond to those components. Assessable income referable to an insurance fund is to be apportioned between classes based on the proportion that the calculated liabilities for each class of policy included in the fund bears to the total calculated liabilities of the fund. Non-statutory fund income is to be allocated on a factual basis. Gains and losses on disposals of assets are also to be allocated to classes on a calculated liabilities basis. Allowable deductions are to be apportioned based on the proportion that the assessable income of a particular class bears to the total assessable income of the company. Deficits within a class (i.e., where deductions exceed assessable income for the year) and prior year losses of the company are to be deductible from the classes of assessable income in a specified order.

Application to State and Territory government insurance offices (Clauses 4 and 13-20)

The above arrangements are also to apply, from 1 July 1988, to the superannuation business (both complying and non-complying) of a public authority established by a law of a State or Territory which carries on life assurance business (described in the legislation as an SGIO). An SGIO will continue to be exempt from Commonwealth income tax on the income derived from its non-superannuation life assurance business. Under the State Acts covering SGIOs, the State Governments collect an amount equivalent to the Commonwealth income tax that would be payable on such business.

Other changes to the taxation of life assurance companies (Clauses 9, 10 and 13 to 20)

The Bill gives effect to proposals announced in the May 1988 Economic Statement to withdraw the intercorporate dividend rebate in respect of dividends derived from assets included in the insurance funds of a life assurance company and instead to allow franking rebates for the franked proportion of those dividends paid on or after 1 July 1988.

Dividends received by the insurance funds of a life assurance company will be treated as if they were received by an individual shareholder. That is, the amount included in assessable income in respect of a franked dividend is to be grossed up to include the amount of company tax attributable to the dividend (ie. the imputation credit), and the life assurance company will be entitled to a tax rebate equal to the amount of the imputation credit. Unlike other taxpayers, however, a life assurance company will be able to claim franking rebates in respect of franked dividends which are exempt (being income that is referable to exempt immediate annuity policies of an insurance fund).

The intercorporate dividend rebate will continue to be available to a life assurance company in respect of dividends derived from assets which are not included in its insurance funds (eg. assets included in the company's shareholders' funds). Franking rebates will not be available in respect of those dividends.

The Bill will also implement the proposal, announced in the May 1988 Economic Statement, to prevent a life assurance company from including in deductible general management expenses, expenses which would not be deductible for purposes of the general deduction provision of the Act, section 51. This will prevent a life assurance company from claiming a deduction for entertainment expenses, fringe benefits tax and other expenses for which deductions are denied under section 51 to other taxpayers. The amendment is to apply to expenditure incurred after 25 May 1988.

In the May 1988 Economic Statement it was announced that all expenses of a life assurance company are to be apportioned between exempt and assessable income with effect from the 1988-89 income year. This Bill contains provisions which implement that proposal. The law is to be amended so that deductions which do not relate exclusively to assessable income - that is, those deductions which have been determined without reference to the extent to which the relevant expenditure was incurred in deriving assessable income - are to be reduced by the proportion that the exempt income of the company bears to the total income of the company.

Non-resident life assurance companies (Clause 25)

The Bill will amend the existing income tax law to exempt from withholding tax all dividends derived from assets included in the Australian insurance funds of a non-resident life assurance company that is carrying on business at or through a permanent establishment of the company in Australia. At present, withholding tax is imposed on the unfranked amount of such dividends if, but for the withholding tax, the amount would be included in the assessable income of the non-resident company. Withholding tax is generally imposed at a rate of 30 per cent unless the dividend is paid to residents of countries with which Australia has a double tax treaty, in which case the rate is 15 per cent.

Under provisions in this Bill, dividends derived from assets included in the Australian insurance funds of such a non-resident life assurance company will be taxed by assessment. These companies will, however, be entitled to a franking rebate in respect of the franked proportion of dividends received from a resident company, in the same way as resident life assurance companies are.

The above amendments are to apply to dividends paid on or after 1 July 1988.

Rebate on life assurance bonuses (Clause 27)

The Bill will amend the Act to increase the rate of the rebate for bonuses received in respect of certain short-term life assurance policies. The rebate applies to assessable bonuses, being bonuses and other amounts in the nature of bonuses, received under life assurance policies issued by a life assurance company, friendly society or certain State government insurance offices, after 27 August 1982 which, depending on the date of commencement of the policy, are received either during the first 4 years or first 10 years of the policy.

It was announced in the May 1988 Economic Statement that the rate of the rebate is to be increased from 29 to 30 per cent in the case of bonuses received under a life assurance policy issued by a friendly society, and from 29 to 39 per cent in the case of bonuses received under a life assurance policy issued by a life assurance company. The new rates apply to all bonuses received on or after 1 July 1989.

Registered Organisations (Clauses 21 to 24)

The Bill will give effect to the proposals announced in the May 1988 Economic Statement to make the following changes to the taxation treatment of registered organisations:

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to tax the formerly exempt superannuation business of a registered organisation with effect from 1 July 1988; and

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to allow registered organisations franking rebates for the franked proportion of dividends paid to the organisations on or after 1 July 1988.

The arrangements for the taxation of the superannuation and rollover annuity business of life assurance companies, as outlined earlier, are generally to apply in the same manner to registered organisations. Similar to life assurance companies, a registered organisation's total taxable income is to be divided into components:

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complying superannuation and rollover annuity business component - taxed at 15%;

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non-complying superannuation business component - taxed at the top marginal rate of personal income tax (49% for 1988-89); and

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non-superannuation life assurance business and accident and disability business - taxed at 30%.

Unlike the treatment of life assurance companies, however, in order to determine the taxable income components for registered organisations, the assessable income, allowable deductions, and gains and losses on disposal of assets are to be apportioned between classes on the basis of the income arising from the particular class of business rather than on the basis of calculated liabilities. Deficits within a class and prior year losses of the organisation are to be set off in an order specified in the Bill.

Again as for life assurance companies, the Bill provides for a registered organisation to receive franking rebates for the franked proportion of dividends paid to the organisation on or after 1 July 1988, in place of the intercorporate dividend rebate.

The Bill will also extend with effect from 1 July 1988 the application of Division 8A of the Act, which contains the provisions for the taxation of registered organisations, to cover the taxation of all the life assurance business and accident and disability business of registered organisations other than friendly societies, in the same manner as it currently applies to friendly societies. Under the existing law, non-friendly society registered organisations are taxed only on their annuity business.

INCOME TAX RATES AMENDMENT BILL (NO.2) 1989

This Bill will amend the Income Tax Rates Act 1986 to set the rates of tax which are to apply to the components of taxable income of a life assurance company or registered organisation with effect for the year of income in which 1 July 1988 occurred and for subsequent years. The rates are set out in the notes above dealing with the new arrangements for taxing life assurance companies and registered organisations.

A more detailed explanation of the provisions of the Bills is contained in the following notes.