Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Chapter 1 - Actuary's certificates for account based income streams
Outline of chapter
1.1 Schedule 1 to this bill amends the Income Tax Assessment Act 1936 (ITAA 1936), removing the requirement for superannuation funds to obtain an actuary's certificate in order to qualify for exemption from tax on income derived by assets supporting certain current pension liabilities or for an exemption of a proportion of income attributable to certain current pension liabilities.
1.2 The amendments allow for the Income Tax Regulations 1936 (IT Regulations) to prescribe pensions for this purpose.
Context of amendments
1.3 The requirement to obtain an actuary's certificate first came into effect on 1 July 1990 and applied to pensions paid from defined benefit funds. The purpose of that measure was to ensure that superannuation funds were not avoiding tax by misstating the size of their pension liabilities or the value of assets required to support their pension liabilities.
1.4 Certain types of pensions have been introduced since then, that do not have a defined benefit. For example, an allocated pension is account based and does not have a guaranteed income stream. However, as the requirement to obtain an actuary's certificate applies to pensions generally, the requirement encompasses these pensions.
Summary of new law
1.5 Section 282 of the ITAA 1936 provides that any amount of normal assessable income derived by a complying superannuation fund from assets that, when the income is derived, are segregated current pension assets, is exempt from tax.
1.6 This bill amends the definition of 'segregated current pension assets' in section 273A of the ITAA 1936 so that in circumstances in which the only type of pension that a fund is paying is a type that is prescribed in the IT Regulations, an actuary's certificate is not required in order for assets to meet the definition of segregated current pension assets.
1.7 Section 283 of the ITAA 1936 provides an exemption of a proportion of income attributable to current pension liabilities.
1.8 This bill amends the calculation of the value of a fund's liabilities so that, in circumstances in which the only type of pension that a fund is paying is a type that is prescribed in the IT Regulations, an actuary's certificate is not required to value a fund's liabilities.
Comparison of key features of new law and current law
| New law | Current law |
|---|---|
| When a fund is paying pensions of the type prescribed in the IT Regulations and no other type of pension, an actuary's certificate is not required for assets supporting those pensions in order to meet the definition of segregated current pension assets. | An actuary's certificate is required in order for assets to meet the definition of segregated current pension assets regardless of the type of pension the particular assets are supporting (section 273A of the ITAA 1936). |
| When a fund is paying pensions of the type prescribed in the IT Regulations and no other type of pension, an actuary's certificate is not required in relation to the value of a fund's liabilities in order to determine the proportion of normal assessable income that is exempt income. | If a fund has current pension liabilities, in respect of which it has not segregated assets it must obtain an actuary's certificate in relation to the value of the fund's liabilities in order to determine the proportion of normal assessable income that is exempt income (section 283 of the ITAA 1936). |
Detailed explanation of new law
1.9 The amendments will insert subsections 273A(2) and (3), extending the definition of 'segregated current pension assets' in circumstances where a fund is paying pensions of the type prescribed in the IT Regulations and no other type of pension, to assets of the fund held in relation to pensions prescribed in the IT Regulations. [Schedule 1, item 1, subsections 273A(2) and (3)]
1.10 The amendments will insert subsection 283(2A) so that in circumstances where a fund is paying pensions of the type prescribed in the IT Regulations and no other type of pension, subsections 283(3) and (4) do not apply. [Schedule 1, item 2, subsection 283(2A)]
Application provisions
1.11 The amendments will commence from Royal Assent but will have no application unless and until regulations are made for the purposes of the amendments.