House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister for Housing and Assistant Treasurer, the Hon Michael Sukkar MP)

Chapter 3 Miscellaneous amendments

Outline of chapter

3.1 Schedule 3 to the Bill makes a number of minor and technical amendments to laws relating to taxation, superannuation, corporations and credit. These amendments are part of the Government's ongoing commitment to the care and maintenance of Treasury portfolio legislation.

3.2 These amendments make minor and technical changes to correct typographical and numbering errors, bring provisions in line with modern drafting conventions, repeal inoperative provisions, remove administrative inefficiencies, address unintended outcomes and update references, ensuring Treasury laws improve to operate as intended.

Context of amendments

3.3 Minor and technical amendments are periodically made to Treasury legislation to remove anomalies, correct unintended outcomes and improve the quality of laws. Making such amendments gives priority to the care and maintenance of Treasury portfolio legislation.

3.4 The process was first supported by a recommendation of the 2008 Tax Design Review Panel, which was appointed to examine how to reduce delays in the enactment of tax legislation and improve the quality of tax law changes. It has since been expanded to all Treasury portfolio legislation.

Summary of new law

3.5 These minor and technical amendments address technical deficiencies and legislative uncertainties in laws relating to taxation, superannuation, corporations and credit by:

•

correcting spelling and typographical errors;

•

updating references to Gazettal notices to bring provisions into line with modern drafting conventions;

•

addressing unintended outcomes;

•

reducing unnecessary red tape;

•

fixing incorrect legislative references;

•

enhancing readability and administrative efficiency; and

•

repealing redundant and inoperative provisions.

Detailed explanation of new law

Part 1 - Amendments commencing the day after Royal Assent

Amendments to the Australian Securities and Investments Commission Act 2001

3.6 Part 1 of the Schedule repeals the note to subsection 8(2) of the Australian Securities and Investments Commission Act 2001. This note is redundant as it refers to section 44 of the Financial Management and Accountability Act 1997 which was repealed by the Public Governance, Performance and Accountability Act 2013. [Schedule 3, item 1, note to subsection 8(2) of the Australian Securities and Investments Commission Act 2001]

3.7 Part 1 also corrects a drafting error in the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Act 2019. The Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Act 2019 sought to introduce a stronger penalty framework into the Australian Securities and Investments Commission Act 2001 by increasing civil penalty amounts and expanding the methods by which a civil penalty could be calculated. However due to a drafting error, this outcome was not achieved.

3.8 The amendments address the drafting error by clarifying that the maximum pecuniary penalty for the contravention of a civil penalty provision is 5,000 penalty units for an individual and 50,000 penalty units for a body corporate. These amendments ensure the Government's objectives of the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Act 2019 are achieved. [Schedule 3, items 2 and 3, paragraphs 12GBCA(1)(a) and 12GBCA(2)(a) of the Australian Securities and Investments Commission Act 2001]

3.9 The amendments to correct the error in the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Act 2019 apply from the day Schedule 2 to that Act commenced. The retrospective application of the amendments is consistent with the Government's intention to strengthen corporate and financial sector penalties and ensures that a period does not exist where the affected parties could avoid penalties for contravening civil penalty provisions. [Schedule 3, item 9, section 326 of the Australian Securities and Investments Commission Act 2001]

3.10 Part 1 of the Schedule also ensures that ASIC may disclose certain information relating to 'relevant providers' (certain financial advisers) to monitoring bodies of compliance schemes to enable them to perform their functions or exercise their powers under Part 7.6 of the Corporations Act 2001. Under Part 7.6 of the Corporations Act 2001, a monitoring body must monitor and enforce compliance with a Code of Ethics by a relevant provider that is covered by a compliance scheme. [Schedule 3, item 4, paragraph 127(4)(e) of the Australian Securities and Investments Commission Act 2001]

3.11 The amendments to ensure that ASIC may disclose certain information to monitoring bodies apply in relation to disclosures of information made on or after the day of Royal Assent, regardless of whether ASIC obtained the information it is disclosing before, on or after that date. [Schedule 3, item 9, section 326 of the Australian Securities and Investments Commission Act 2001]

3.12 Further amendments are made to correct two numbering errors. Part 23 inserted by item 2 of Schedule 2 to the Treasury Laws Amendment (2017 Measures No. 1) Act 2017 is renumbered as Part 24 and the only section contained in that Part is renumbered as section 308. Part 26 inserted by item 1 of Schedule 12 to the Treasury Laws Amendment (Australian Consumer Law Review) Act 2018 is renumbered as Part 26A and the only section contained in that Part is renumbered as section 314A. These amendments ensure that every Part and every section in the Australian Securities and Investments Commission Act 2001 have a unique number. [Schedule 3, items 5 to 8, Parts 23 and 26 and sections 302 and 315 of the Australian Securities and Investments Commission Act 2001]

Amendments to the Competition and Consumer Act 2010

3.13 Part 1 of Schedule 3 amends the Competition and Consumer Act 2010 to clarify that classes of matters may be referred to a Division of the ACCC. This reflects the ACCC's existing practice of using specialist Divisions to consider similar matters. It streamlines the process for referring matters to a specialist Division by ensuring that a separate referral is not required in respect of every matter. The Chairperson has the power to vary or revoke a direction. The amendments also gives the ACCC the flexibility to continue to consider any matters falling into a class of matters referred to a Division that is different from the Division to which the maters were referred. [Schedule 3, items 10 to 12, paragraph 8A(6)(b) and subsections 19(2), 19(3A) of the Competition and Consumer Act 2010]

3.14 For the avoidance of doubt, the new law states that a direction made by the ACCC to refer matters to a Division is not a legislative instrument. This subsection is merely included to assist readers. It is not an actual exemption from that provision. [Schedule 3, item 13, subsection 19(8) of the Competition and Consumer Act 2010]

3.15 Further amendments are made to streamline the process for varying a notice to produce information issued under sections 51ADD or 95ZK of the Competition and Consumer Act 2010. The existing process for varying a notice issued under sections 51ADD or 95ZK is administratively burdensome as the variation must be made by the ACCC (for section 51ADD notices) or the Chairperson (for section 95ZK notices), rather than a member of the ACCC. This disadvantages recipients of the notices as most of the variations are to extend the time period for producing information. The amendments streamline the process for varying a notice by providing that a single member of the ACCC may make the variation. [Schedule 3, items 14, 15 and 17, subsections 51ADE(2) to (5), 95ZK(3A) and (3B) of the Competition and Consumer Act 2010]

3.16 The process for extending the time period in a section 51ADD or 95ZK notice to produce is further streamlined by including a delegation power. A member of the ACCC may delegate the power to extend the time period specified in a notice to an SES employee or an acting SES employee of the ACCC. This delegation power is appropriate as it is sufficiently narrow, and will only apply to variations of time. Further, SES employees and acting SES employees will have the requisite knowledge to assess the suitability of granting the variation. Delegations will also speed up the ACCC's decision-making, providing certainty to affected stakeholders. Under the new provisions, delegates must also comply with any direction given by the member of the ACCC. [Schedule 3, items 15 and 18, subsections 51ADE(3) to (5), 95ZK(10) and (11) of the Competition and Consumer Act 2010]

3.17 The amendments to the process for varying notices to produce mirror recent amendments to the process for varying section 155 notices contained in the Treasury Laws Amendment (2019 Measures No. 1) Act 2019.

3.18 Part 1 of Schedule 3 also corrects an error in the provisions governing collective bargaining notices. Section 93AB contains two collective bargaining notification frameworks - one that applies to the cartel provisions (subsection 93AB(1A)) and one that applies to the competition provisions in Part IV (subsection 93AB(1)). The framework for the cartel provisions was inserted after the framework for the competition provisions was established.

3.19 The requirements for collective bargaining notices in the remainder of section 93AB were intended to apply to both notification frameworks. However, the section reference in subsection 93AB(9) was not amended after the introduction of the cartel provision notification framework. Part 1 correct this section reference. [Schedule 3, item 16, subsection 93AB(9) of the Australian Securities and Investments Commission Act 2001]

Amendments to the Corporations Act 2001

Amendments to the external administration provisions

3.20 Schedule 3 makes several amendments to the external administration provisions.

3.21 First, it clarifies how the rules relating to the transfer of books operate where an external administrator is appointed concurrently with a controller and the controller ceases to act:

•

if at the time the controller ceases to act, there is a new appointment of a registered liquidator (either as controller or external administrator), the former controller must transfer the books to the new appointee within 5 business days after the appointment; and

•

if at the time the controller ceases to act, there is no new appointment of a registered liquidator, the 'former controller' must transfer the books to the existing external administrator within 5 business days after ceasing to act.

[Schedule 3, items 20 and 21, paragraph 422C(1)(c) and subsections 422C(2) and (2A) of the Corporations Act 2001]

3.22 Second, it amends the reporting requirements for administrators of a deed of company arrangement in section 445HA of the Corporations Act 2001 to require them to lodge with ASIC, in the prescribed form, a copy of the notice of contravention of the deed that was given to creditors. This information is already prepared as it must be provided to creditors under subsection 445HA(2). The change enables ASIC to approve a form, thereby promoting consistency. It also provides ASIC with information to assist it to monitor instances where there is, or is likely to be, a material contravention of a deed of company arrangement. [Schedule 3, item 23, subsection 445HA(2) of the Corporations Act 2001]

3.23 Third, the requirement for a notice of contravention given by a director to an administrator to be in a prescribed form is repealed. There is no form that is currently prescribed and ASIC has indicated that it has no intention to prescribe a form in the future. [Schedule 3, item 22, subsection 445HA(1) of the Corporations Act 2001]

3.24 Fourth, Part 1 of Schedule 3 amends section 90-26 of the Insolvency Practice Schedule to give the Court the discretion to extend the review period where it appoints a reviewing liquidator. Formerly, the Court only had this discretion in circumstances where it appointed a replacement reviewing liquidator. [Schedule 3, item 31, paragraph 90-26(4)(c) of Schedule 2 to the Corporations Act 2001]

Other miscellaneous amendments to the Corporations Act 2001

3.25 Part 1 also corrects several drafting errors and updates the drafting of various provisions so that they accord with modern drafting conventions.

3.26 It corrects the penalty in the small business guide in Part 1.5 of the Corporations Act 2001 to clarify that a director who fails to perform their duties may be guilty of a criminal offence with a penalty of up to 15 years imprisonment. The penalty for directors was increased to 15 years imprisonment in the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Act 2019 but the small business guide, which is not operational, was not updated. The amendment in this Bill ensures that the small business guide is consistent with the Act. [Schedule 3, item 19, paragraph 5.3 of the small business guide in Part 1.5 of the Corporations Act 2001]

3.27 Part 1 also inserts a new item into the table in the outline of Part 7.10A. This Part was inserted by the Treasury Laws Amendment (Putting Consumers First-Establishment of the Australian Financial Complaints Authority) Act 2017 to set up an external dispute resolution scheme for financial complaints but the outline was not updated at that time. [Schedule 3, item 24, table item 10A in section 760B of the Corporations Act 2001]

3.28 Amendments are made to bring the delegation powers in sections 890C, 1101J and 1345A of the Corporations Act 2001 into line with modern drafting conventions. These sections provide that various entities and individuals can delegate 'any' of the delegable functions and powers to certain specified persons. Part 1 amends these sections to allow for the delegation of 'all or any' of the functions and powers. The amendments clarify the operation of existing delegation powers and make it clear that all the relevant functions and powers can be delegated together. They do not alter the scope of the functions or powers that may be delegated or the persons to whom those functions or powers may be delegated. Any delegations or regulations in force before this change remains in force. [Schedule 3, items 25 and 27 to 30, subsections 890C(3), 1101J(1), 1345A(1) to (1AA) and 1667(1) and (2) of the Corporations Act 2001]

3.29 Finally, amendments are made to remove the hyphen from the phrase 'self-managed superannuation fund' in section 1053 of the Corporations Act 2001 to ensure the term is consistently expressed across the Act. [Schedule 3, item 26, paragraphs 1053(4)(a) to (c) of the Corporations Act 2001]

Amendments to the International Monetary Agreements Act 1947

3.30 Part 1 updates the note to the definition of IMF loan agreement 2016 in section 3 of the International Monetary Agreements Act 1947 to list the Australian Treaty Series number of the Treaty. [Schedule 3, item 32, note to the definition of "IMF loan agreement 2016" in section 3 of the International Monetary Agreement Act 1947]

3.31 There has also been a renewal of the IMF's New Arrangements to Borrow. An amendment is made to the definition of 'New Arrangements to Borrow' in section 3 to include the new decision number. The new decision has comprised a treaty action for the purposes of Australia's domestic treaty-making process. As a result, a note has been inserted to list the Australian Treaty Series number of the Treaty. [Schedule 3, item 33, the note to the definition, of 'New Arrangements to Borrow' in section 3 of the International Monetary Agreement Act 1947]

Amendments to the National Consumer Credit Protection Act 2009

3.32 Part 1 amends the definition of financial year in subsection 100(6) of the National Consumer and Credit Protection Act 2009 to make it clear that the definition of financial year in section 323D of the Corporations Act 2001 only applies to bodies corporate to which that section applies. In all other cases, a financial year means a year ending on 30 June. [Schedule 3, item 34, paragraphs 100(6)(a) and (b) of the National Consumer Credit Protection Act 2009]

3.33 Part 1 corrects an error in the section reference in existing section 151. That section deals with a lessor's obligation to assess unsuitability, but refers to section 130, dealing with reasonable inquiries a credit provider must make. Paragraph 151(d) is amended to instead refer to section 153, which deals with reasonable inquiries that a lessor must make. [Schedule 3, item 35, paragraph 151(d) of the National Consumer Credit Protection Act 2009]

3.34 Part 1 also expands existing paragraph 263(d) of the National Consumer Credit Protection Act 2009 to capture alleged or suspected contraventions of the laws referred to in that provision. This amendment is consistent with the initial policy intention of the provision as expressed in paragraph 6.99 of the explanatory memorandum to the National Consumer Credit Protection Bill 2009. The amendment to paragraph 263(d) applies to contraventions that have occurred before, on or after the commencement of the item. [Schedule 3, items 36 and 46, paragraph 263(d) and Schedule 10 to the National Consumer Credit Protection Act 2009]

3.35 A reference to the Bankruptcy Act 1966 is also updated to reflect the modern drafting practice of only referring to the full name of the Act once in a subsection. [Schedule 3 item 37 subsection 50(8) of the National Credit Code]

3.36 Part 1 corrects an anomaly in paragraph 150(1)(b) of the National Credit Code to provide that, if a comparison rate is included 'or required to be included' under Part 10 of the National Credit Code, then the advertisement must comply with Division 2 of that Part. This ensures that the provision continues to apply to persons that breach their requirement to include the comparison rate. [Schedule 3, item 38, paragraph 150(1)(b) of the National Credit Code]

3.37 Part 1 also amends section 150 of the National Credit Code to provide that, if the advertised credit would be provided under a small amount credit contract, then subsection 150(3) (regarding the requirements for an advertisement that includes an annual percentage rate) does not apply. Small amount credit contracts must not charge interest and therefore should not include an annual percentage rate. [Schedule 3, item 39, subsection 150(3A) of the National Credit Code]

Amendments to the National Consumer Credit (Transitional and Consequential Provisions) Act 2009

3.38 Schedule 3 to the National Consumer Credit (Transitional and Consequential Provisions) Act 2009 is repealed. This Schedule to be repealed commenced on 1 April 2010, made its amendments and then became spent. A cross-reference to the Schedule in a table is also removed. [Schedule 3, items 40 and 45, subsection 2(1) and Schedule 3 to the National Consumer Credit (Transitional and Consequential Provisions) Act 2009]

3.39 References to the Legislative Instruments Act 2003 are also updated so that they refer to the Legislation Act 2003. The Legislative Instruments Act 2003 was renamed the Legislation Act 2003 as a result of reforms in 2015. [Schedule 3, items 41 to 43, subsection 6(4) and paragraph 6(5)(a) of the National Consumer Credit (Transitional and Consequential Provisions) Act 2009 and subitem 41(6) of Schedule 2 to that Act]

3.40 A spelling error ('one-fourtieth') is also corrected. [Schedule 3, item 44, subitem 43(2) of Schedule 2 of the NCCP Transitional Act]

Amendments to the Product Grants and Benefits Administration Act 2000

3.41 Part 1, together with the Treasury Laws Amendment (Miscellaneous Amendments) Regulations 2019, effect red tape reduction by moving the only requirement currently prescribed in the Product Grants and Benefits Administration Regulations 2000 into the Product Grants and Benefits Administration Act 2000.

3.42 Regulation 4B of the Product Grants and Benefits Administration Regulations 2000 requires that an applicant for registration for entitlement to a product stewardship (oil) benefit must comply with relevant Commonwealth, State or Territory legislation relating to oil recycling operations or enterprises.

3.43 Regulation 4B also prescribes that the Commissioner must refuse such an application if an authority informs the Commissioner that the applicant does not comply with the legislation. Part 1 inserts an equivalent requirement into subsection 9(3A) of the Product Grants and Benefits and Administration Act 2000. The Treasury Laws Amendment (Miscellaneous Amendments) Regulations 2019 will then repeal the Product and Benefits Administration Regulations 2000 as it will then be inoperative. [Schedule 3, item 48, paragraph 9(3A)(ba) of the Product and Benefits Administration Act 2000]

3.44 An additional amendment is made to section 9 of the Product Grants and Benefits and Administration Act 2000 to clarify that the recycling obligations relate to oil. [Schedule 3, item 47, subparagraph 9(3A)(b)(i) of the Product and Benefits Administration Act 2000]

3.45 The amendments apply to applications made after the commencement of Part 1 of the Bill. The Regulations continue to apply to any applications made before Part 1 commences. [ Schedule 3, item 49]

Amendments to the Superannuation Industry (Supervision) Act 1993

Involved in a contravention

3.46 Part 1 amends the Superannuation Industry (Supervision) Act 1993 to clarify when a person has been 'involved' in a contravention of a provision, other than an offence provision.

3.47 A person is involved in a contravention of a provision that is not an offence if, and only if, the person:

•

has aided, abetted, counselled or procured the contravention;

•

has induced, whether by threats or promises or otherwise, the contravention;

•

has been in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to, the contravention; or

•

has conspired with others to effect the contravention.

[Schedule 3, items 50 and 53, sections 17 and 194 of the Superannuation Industry (Supervision) Act 1993]

3.48 This amendment applies to contraventions happening on or after the commencement of the amendment. [Schedule 3, item 51]

Applying the fee cap on low superannuation balances

3.49 Part 1 of Schedule 3 makes amendments to apply the existing fee cap on low balances when a product is only held for part of an income year.

3.50 The Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019 amended the Superannuation Industry (Supervision) Act 1993 to apply a cap on the fees that could be charged by a superannuation trustee when the balance of a product held by a member was less than $6,000 at the end of the year. The Act did not provide for a fee cap where the member has a balance of less than $6,000 but ceases holding the product part way through the fund's income year.

3.51 Part 1 amends the Superannuation Industry (Supervision) Act 1993 to replace the current application provision at paragraph 99G(1)(b) with an application provision that covers when a member ceases holding the product part way through the fund's income year and at that time the balance of the product is less than $6,000. [Schedule 3, item 52, paragraph 99G(1)(b) of the Superannuation Industry (Supervision) Act 1993]

Amendments to the Superannuation (Unclaimed Money and Lost Members) Act 1999

3.52 Part 1 of the Bill amends sections 16, 20QB and 24C of the Superannuation (Unclaimed Money and Lost Members) Act 1999 to remove the requirement for superannuation providers to include in the statement provided to the Commissioner, information about money that ceases to be unclaimed or accounts that cease to be in-active low balance accounts or lost member accounts during the period that begins from the unclaimed money day and ends immediately before the day on which the statement is given to the Commissioner. The amendments are being made to remove this unnecessary reporting obligation because the information collected is not used for any purpose. [Schedule 3, items 54, 59 and 60, sections 16, 20QB and 24C of the Superannuation (Unclaimed Money and Lost Members) Act 1999]

3.53 Part 1 also amends the definition of 'inactive low balance account' so that an account is not an 'inactive low balance account' if the member has elected to maintain insurance on that account by making an election under subsection 68AAA(2) of the Superannuation (Industry) Supervision Act 1993. This amendment applies on or after 30 June 2019. [Schedule 3, items 55 and 56, subparagraph 20QA(1)(a)(viii) of the Superannuation (Unclaimed Money and Lost Members) Act 1999]

3.54 Further amendments are made to two of the exceptions to the definition of 'inactive low balance account' to ensure that they give effect to the policy intent.

3.55 First, the exception relating to member elections is revised. Formerly, the Superannuation (Unclaimed Money and Lost Members) Act 1999 provides that the member may make an election to the Commissioner if the member does not want his or her account to be an 'inactive low balance account'. This is impractical because it is the superannuation provider who determines that the account is an inactive low balance account. For this reason, the exception is amended so that the member makes this election directly to the superannuation provider rather than the Commissioner. [Schedule 3, item 57, subparagraph 20QA(1A)(b)(iv) of the Superannuation (Unclaimed Money and Lost Members) Act 1999]

3.56 This amendment applies from 30 June 2019 and in a manner consistent with members' instructions. However, section 7 of the Acts Interpretation Act 1901 has the effect that an election made prior to the commencement of these amendments remains valid. [Schedule 3, item 58]

3.57 Second, Part 1 amends the exceptions to the definition of 'inactive low balance account' to remove a redundant provision. Formerly, the Superannuation (Unclaimed Money and Lost Members) Act 1999 provides that an account is not an inactive low balance account if the superannuation provider is owed an amount in respect of the member. This provision is inoperable and therefore redundant. [Schedule 3, item 57, subparagraphs 20QA(1A)(b)(iv) and 20QA(1A)(b)(v) of the Superannuation (Unclaimed Money and Lost Members) Act 1999]

Amendments to the Treasury Laws Amendment (2018 Measures No. 4) Act 2019

3.58 Part 1 of the Bill amends the Treasury Laws Amendment (2018 Measures No. 4) Act 2019 to update the commencement for Part 2 of Schedule 3 to that Act.

3.59 The Treasury Laws Amendment (2018 Measures No. 4) Act 2019 received Royal Assent on 1 March 2019. Part 2 of Schedule 3 to that Act includes amendments requiring employers to report salary sacrificed amounts paid to their employees' superannuation funds under the Single Touch Payroll reporting regime.

3.60 The commencement of Part 2 of Schedule 3 was contingent on the commencement of the salary sacrifice measure contained in Schedule 2 to the Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 2) Act 2019. The Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 2) Bill 2017 was introduced into the House of Representatives on 14 September 2017. That Bill lapsed when the Parliament was prorogued prior to the 2019 Federal Election.

3.61 The salary sacrifice measure was enacted as Schedule 7 to the Treasury Laws Amendment (2019 Tax Integrity and Other Measures No. 1) Act 2019.

3.62 The amendments in this Bill update the commencement rule for Part 2 of Schedule 3 to the Treasury Laws Amendment (2018 Measures No. 4) Act 2019 to reflect that the salary sacrifice measure is now contained in Schedule 7 to the Treasury Laws Amendment (2019 Tax Integrity and Other Measures No. 1) Act 2019. Part 2 of Schedule 3 will now commence on the later of the commencement of Schedule 7, or the commencement of the amendments in this Bill (being the day after they receive the Royal Assent). [Schedule 3, item 61, subsection 2(1) (table item 4) of Treasury Laws Amendment (2018 Measures No. 4) Act 2019]

3.63 The revised commencement ensures that the reporting requirements in Part 2 of Schedule 3 apply after both the time that both the salary sacrifice measure and the amendments to the revised commencement commence.

Amendments to the Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019

3.64 Part 1 amends the Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019 to correct a referencing error in item 38 to Schedule 3 of that Act and ensure that the original policy intent is achieved.

3.65 Item 30 of Schedule 3 of the Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019 inserted paragraph 20QA(1)(a) of the Superannuation (Unclaimed Money and Lost Members) Act 1999. However, item 38 of Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019 incorrectly states that paragraph 20QA(1)(a) of the Superannuation (Unclaimed Money and Lost Members) Act 1999 is inserted by item 8. Part 1 of the Schedule corrects this incorrect reference. [Schedule 3, item 62, subitem 38(2) of Schedule 3 to the Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019]

3.66 The amendment also modifies the application provision in respect of the time period to determine whether an account in an inactive low balance account with respect to RSAs and approved deposit funds and other criteria, aligning with the original intent. [Schedule 3, item 62, subitem 38(2) of Schedule 3 to the Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019]

Part 2 - Amendments commencing first day of the next quarter

Amendments to the Fringe Benefits Tax Assessment Act 1986

Meaning of taxi

3.67 The Bill amends the definition of 'taxi' in the Fringe Benefits Tax Assessment Act 1986 to resolve administrative difficulties with the former definition which resulted from the deregulation of the taxi industry and the introduction of ride sharing providers entering into the market.

3.68 Formerly, the Fringe Benefits Tax Assessment Act 1986 defined a taxi as 'a motor vehicle licenced to operate as a taxi'. As a result of ride sharing providers entering into a market that has been the subject of considerable regulatory reform in recent years, this has become difficult to administer as the meaning of 'licensed to operate as a taxi'. The meaning is now highly contentious and may differ considerably between the States and Territories depending on their licensing laws.

3.69 To avoid these difficulties and remove unintended restrictions on market innovation and competition, the new law replaces references to a 'taxi' with 'a motor vehicle used for taxi travel (other than a limousine)'. The term 'taxi travel' is defined as having the same meaning as in the A New Tax System (Goods and Services Tax) Act 1999, namely, 'travel that involves transporting passengers by taxi or limousine, for fares'. This preserves the existing policy of covering common or ordinary vehicles used for basic travel involving transporting passengers for a fare by way of a car or other motor vehicle but not including limousines. While the fringe benefits tax exemption is designed to minimise compliance costs for businesses providing basic private transport to their employees, it is not intended to support the provision of taxpayer subsidised luxurious motor vehicle transport. [Schedule 3, items 63 to 67 and 69 to 70, paragraph 7(7)(a), subparagraphs 8(2)(a)(i) and 8(2)(a)(ia), subparagraph 47(6)(aa)(i), subsections 58Z(1) and (2) and definition of 'taxi' and definition of 'taxi travel' in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986]

3.70 'Limousine' is not defined in the draft law and carries its ordinary meaning as it does in the A New Tax System (Goods and Services Tax) Act 1999 and the A New Tax System (Luxury Car Tax) Act 1999. The Federal Court of Australia has provided guidance on meaning of limousine in those contexts in Uber B.V. v Commissioner of Taxation 247 FCR 46 and Dreamtech International Pty Ltd and Commissioner of Taxation 187 FCR 352.

3.71 This amendment applies to the 2019-20 fringe benefits tax year and later fringe benefit tax years. [Schedule 3, item 71]

Meaning of 'fringe benefit'

3.72 The Bill amends an incorrect section reference in the definition of 'fringe benefit' in section 136 of the Fringe Benefits Tax Assessment Act 1986.

3.73 Formerly, the definition of 'fringe benefit' excluded a payment made, or liability incurred, to a person to the extent that the payment or liability is deemed to not be income because of subsection 65(1A) of the Income Tax Assessment Act 1936. Subsection 65(1A) of the Income Tax Assessment Act 1936 provided that if an amount paid to an associated person is not allowed as a deduction by the Commissioner then that amount is deemed not to be income of the associated person.

3.74 Subsection 65(1A) was repealed by the Tax Laws Amendment (Repeal of Inoperative Provisions) Act 2006 and section 26-30 of the Income Tax Assessment Act 1936 now governs the non-deductibility of relative's travel expenses.

3.75 Accordingly, the reference to subsection 65(1A) in the definition of 'fringe benefit' is replaced with a reference to section 26-35. [Schedule 3, item 68, paragraph (p) of the definition of 'fringe benefit' in subsection 136(1) of the Fringe Benefits Tax Assessment Act]

3.76 The amendment applies to fringe benefits tax years starting on 1 April 2014 and later fringe benefits tax years. This makes the amendment retrospective but only as far back as the Fringe Benefits Tax amendment period extends. Taxpayers have been applying the law in the way that it was intended to apply. The retrospective application ensures that the law aligns with returns that have been lodged and ensures that fringe benefits tax is not payable on non-deductible payments to relatives. As such, it does not adversely affect the rights or interests of stakeholders. [Schedule 3, item 71]

Amendments to the Income Tax Assessment Act 1997 and the Income Tax (Transitional Provisions) Act 1997

Amendments to the rules relating to gifts and contributions

3.77 Part 2 amends the listing of the Royal Society for the Prevention of Cruelty to Animals Western Australia in the Income Tax Assessment Act 1997 as a deductible gift recipient to reflect its change of name. This amendment applies in relation to gifts or contributions made on or after 24 July 2018, the date on which its name changed. While the application of the amendment is retrospective, it does not adversely affect the rights of any entity. [Schedule 3, items 72 and 73, table item 4.2.10 in subsection 30-45(2) of the Income Tax Assessment Act 1997]

3.78 Part 2 also removes a requirement for a donor of cultural property to advise the Art Secretary if it elects to spread the tax deduction associated with the donation of cultural property. This information is not used by the Arts Secretary and accordingly the requirement imposes an unnecessary regulatory burden. Minor consequential amendments are made to remove references to the repealed requirement. [Schedule 3, items 74 to 76, the note to section 30-248(5) and sections 30-248(5) and 30-249C of the Income Tax Assessment Act 1997]

Complying superannuation entities - streamlining of terms

3.79 Amendments are made to a number of provisions that reference 'complying superannuation fund', 'complying approved deposit fund' and 'pooled superannuation trust' so that they use the collective term 'complying superannuation entity'. This accords with modern drafting practices and improves the readability of the provisions. [Schedule 3, items 77 to 79, 84 to 88, 94 to 103, 112 and 120, subparagraph 70-10(2)(b)(i), table item 12 in section 109-60, table item 14 in section 112-97, paragraph 207-45(d), subparagraphs 210-70(1)(b)(i)-(iii) and 210-170(1)(b)(ii), paragraphs 210-170(2)(a) and 230-460(11)(b), subsections 295-10(1), 295-25(1), 295-85(1) and 295-90(1), section 295-105, paragraph 295-173(a), subsection 295-545(1), subsection 295-550(1), the note to subsection 295-555(1), section 727-125 and paragraph (a) of the definition of 'complying superannuation life insurance policy' in subsection 995-1(1) of the Income Tax Assessment Act 1997]

Company loss recoupment rules - concessional tracing rules for widely held entities with a new interposed entity

3.80 Part 2 amends the continuity of ownership test in the Income Tax Assessment Act 1997 so that the interposition of a holding company between the tested company and a less than 10 per cent direct stakeholder does not, of itself, cause a failure of the continuity of ownership test.

3.81 A company can deduct prior year losses only if it satisfies the continuity of ownership test or the similar business test. Division 166 of the Income Tax Assessment Act 1997 makes it easier for widely held companies and eligible Division 166 companies to satisfy the continuity of ownership test by, among other things, making it unnecessary for the company to trace through to the beneficial owners of certain stakes.

3.82 Section 166-225 of the Income Tax Assessment Act 1997 applies where a company has a direct stake in the tested company that carries rights to less than 10 per cent of the voting power, dividends or capital distributions. In these circumstances, it is not necessary to trace through to the ultimate beneficial owners of the company. This is achieved by treating all direct stakes of less than 10 per cent as being held by a single notional entity that is a person (other than a company).

3.83 Further, section 166-230 of the Income Tax Assessment Act 1997 provides a similar concession where a stakeholder has an indirect stake in the tested company that carries rights to less than 10 per cent of the voting power, dividends or capital distributions. In these circumstances, the ownership tracing rules are applied as though the top interposed entity (in which the ultimate beneficial owners directly hold an interest) held the relevant stake and was a person (other than a company).

3.84 These amendments provide that if, during the test period, a holding company is interposed between the tested company and the less than 10 per cent direct stakeholders, the stake is attributed to the interposed company from that time onwards, rather than to the single notional entity to whom the stake was initially attributed to under section 166-225 of the Income Tax Assessment Act 1997. [Schedule 3, items 80 and 81, paragraph 166-230(3)(d) and subsections 166-230(5) and (6) of the Income Tax Assessment Act 1997]

3.85 This means that the new holding entity will be taken to hold the relevant percentage of stakes formerly held by the single notional entity throughout that specific test period, for as long as the conditions of section 166-230 of the Income Tax Assessment Act 1997 are satisfied.

3.86 The amendment also clarifies that immaterial (or negligible) changes to the proportion of shareholding held by the direct stakeholders as a result of the interposition will not cause the failure of the modified continuity of ownership test (For example, an interposition that involves share sale facilities for a small number of foreign shareholders because complying with foreign securities laws is too onerous). [Schedule 3, items 80 and 81, paragraph 166-230(3)(d) and subsections 166-230(5) and (6) of the Income Tax Assessment Act 1997]

3.87 Where a new interposed entity is taken to have held the less than 10 per cent direct stakes that would have otherwise been attributed to a single notional entity, the minimum interests rule will continue to apply such that any indirect stakes of less than 10 per cent in the tested company attributed to the new interposed entity will (collectively) be restricted to the direct stakes attributed to the single notional entity at the start of the test period. [Schedule 3, item 82, subsections 166-270(3) and (4) of the Income Tax Assessment Act 1997]

3.88 As a result, the interposition of a holding company between the tested company and a less than 10 per cent direct stakeholder does not, of itself, cause a failure of the continuity of ownership test.

3.89 These amendments apply to the interposition of an entity that occurs on or after 1 July 2018. The amendments have been sought by affected taxpayers so that they do not need to undertake time consuming and unnecessary tracing where the ultimate beneficial ownership of the tested company has not changed. No taxpayers is disadvantaged by the retrospective application of these amendments. [Schedule 3, item 83]

Superannuation - downsizer

3.90 The amendments make three changes to section 292-102 of the Income Tax Assessment Act 1997 to ensure that the provisions relating to downsizer contributions operate as intended.

3.91 The first change ensures that an individual can make a downsizer contribution in respect of the proceeds from a property that was held by their spouse where the property is a pre-CGT asset that would have been subject to the main residence exemption if it had been acquired on or after 20 September 1985.

3.92 One of the eligibility requirements to make a downsizer contribution is that the individual for whom the contribution is made must satisfy a main residence test. This test is satisfied where the capital gain or loss made by an individual in respect of the disposal of the interest in the dwelling is disregarded by the main residence provisions under Subdivision 118-B of the Income Tax Assessment Act 1997. The downsizer rules apply two legislative assumptions to ensure that individuals can satisfy this test where the interest in a dwelling is:

•

not subject to capital gains tax (including Subdivision 118-B of the Income Tax Assessment Act 1997) because the interest in the dwelling was acquired prior to 20 September 1985; or

•

held by the individual's spouse, rather than by the individual.

3.93 However, the existing assumptions do not apply correctly for a disposal of an interest in a dwelling that was acquired prior to 20 September 1985 and held by the individual's spouse.

3.94 The amendments address this issue by modifying the assumption for interests held by an individual's spouse. In such cases, the individual is assumed to have acquired the interest on or after 20 September 1985 in working out whether any capital gain or loss from the interest would be disregarded under Subdivision 118-B of the Income Tax Assessment Act 1997. [Schedule 3, item 89, subparagraph 292-102(1)(d)(ii) of the Income Tax Assessment Act 1997]

3.95 The second change ensures that the cap on the amount of downsizer contributions that an individual can make is calculated correctly where their spouse has previously made a downsizer contribution in relation to another property.

3.96 An individual can make downsizer contributions up to the lesser of $300,000 and the sum of the capital proceeds that they or their spouse received from the disposal of their property. Although both spouses can make contributions from the disposal of one property, the total contributions they make between them cannot be more than the capital proceeds from the disposal of their interests in that property (for example, if a couple receives $500,000 for the disposal of their property and one spouse makes a downsizer contribution of $300,000, the other spouse can only make a downsizer contribution of up to $200,000).

3.97 However, there is a technical issue with the way the maximum contributions are calculated where an individual's spouse has already made a downsizer contribution in relation to the disposal of an interest in another property. Specifically, such contributions are treated in the same way as disposals from the same property, and as such reduce the maximum amount of the downsizer contributions that an individual can make.

3.98 The amendments correct this issue by ensuring that the maximum amount of downsizer contributions that an individual can make are only reduced by their spouse's downsizer contributions if their spouse's contributions were made in respect of the disposal of interests in the same property. [Schedule 3, item 90, paragraph 292-102(3)(b) of the Income Tax Assessment Act 1997]

3.99 These first two changes apply in relation to a disposal of an ownership interest in a dwelling if the contract for the disposal is entered into on or after 1 July 2018. [Schedule 3, item 91]

3.100 This application is aligned with that of the original amendments that introduced the downsizer provisions, meaning that they can apply in respect of disposals of interests that have already occurred. This retrospective application is appropriate as the changes are wholly beneficial to taxpayers (because they allow them to make downsizer contributions when they would otherwise be ineligible to do so).

3.101 The third change addresses a different issue with the way that the maximum amount of downsizer contributions are calculated. This change ensures that the market value substitution rule in section 116-30 of the Income Tax Assessment Act 1997 (which applies generally in working out an amount of capital proceeds) cannot increase the amount of the capital proceeds from the disposal of their ownership interests in a dwelling. [Schedule 3, item 92, subsection 292-102(3A) of the Income Tax Assessment Act 1997]

3.102 This outcome is consistent with the original intent of the cap on downsizer contributions, which were intended to be based on the actual proceeds received from the sale of an individual's home. The market value substitution rule continues to apply more generally in working out any actual tax liability that an individual or their spouse has in respect of the disposal of their interest in a dwelling (although such disposals will generally be exempt because of the main residence exemption in Subdivision 118-B of the Income Tax Assessment Act 1997).

3.103 The change applies in relation to a disposal of an ownership interest in a dwelling if the contract for the disposal is entered into on or after the day the amendments receive Royal Assent. [Schedule 3, item 93]

3.104 This ensures that the amendments apply on a prospective basis only, which is appropriate as they can reduce the maximum amount of downsizer contributions that an individual can make.

Rollover Restructure Threshold Change

3.105 Part 2 amends section 328-430 of the Income Tax Assessment Act 1997 to allow an entity that is connected with or an affiliate of a small business entity to access the small business restructure rollover in relation to an interest of the small business entity even if the small businesses entity has aggregated turnover of between $2 million to $10 million. Previously, due to a drafting error, while the rollover was available to the entity carrying on the business in this situation, entities affiliated or connected with a small business entity were only able to access the rollover if the small business entity was a CGT small business entity - that is, had aggregated turnover of less than $2 million. [Schedule 3, item 104, subparagraph 328-430(1)(d)(ii) of the Income Tax Assessment Act 1997]

3.106 The amendment commences from the date of commencement of the Tax Laws Amendment (Small Business Restructure Roll-over) Act 2016. The retrospective application is wholly beneficial to affected taxpayers and does not adversely affect the rights of any taxpayer. [Schedule 3, item 105]

Correcting section references

3.107 Part 2 also corrects section references in the Income Tax Assessment Act 1997 and the Income Tax (Transitional Provisions) Act 1997.

3.108 Section 705-55 of the Income Tax Assessment Act 1997 incorrectly refers to a repealed section (former section 705-50) rather than section 705-47. This section reference is corrected. [Schedule 3, item 106, section 705-55 of the Income Tax Assessment Act 1997]

3.109 An incorrect cross-reference in the heading to subsection 705-75(1A) is also amended and some minor structural improvements are made to that section. The cross-referencing error arose when the consolidation tax cost setting rules were amended in 2018. [Schedule 3, item 107 to 109, section 705-75 of the Income Tax Assessment Act 1997]

3.110 The 2018 amendments excluded liabilities that give rise to an income tax deduction from the 'allocable cost amount' (with some limited exceptions). The 'allocable cost amount' is one of the elements used to reset the tax costs of the assets of an entity when that entity joins a consolidated group or multiple entry consolidated group.

3.111 Consistent with the 2018 amendments, the amendments apply in relation to an entity that becomes a subsidiary member of a consolidated group or multiple entry consolidated group under an arrangement that commenced on or after 1 July 2016. [Schedule 3, item 110]

3.112 Retrospective application is appropriate in this instance to ensure that taxpayers who have been applying the law as intended are not disadvantaged and to prevent other taxpayers from obtaining unexpected windfall gains. Further, retrospective application is necessary to maintain symmetry between the entry and exit tax cost setting rules. That is, it prevents unintended consequences from arising for future exit tax cost setting calculations when a subsidiary member subsequently leaves the consolidated group or multiple entry consolidated group.

3.113 An incorrect cross-reference in the consolidation rules (paragraph 716-440(1)(e) of the Income Tax Assessment Act 1997) is also corrected. [Schedule 3, item 111, paragraph 716-440(1)(e) of the Income Tax Assessment Act 1997]

3.114 Finally, section 40-830 of the Income Tax Assessment Act 1997 has been renumbered to section 40-840 of the Income Tax Assessment Act 1997. This amendment fixes a numbering error. [Schedule 3, item 123, section 40-840 of the Income Tax (Transitional Provisions) Act 1997]

Meaning of foreign equity distribution

3.115 Part 2 of the Schedule corrects an error with the meaning of foreign equity distribution by replacing 'a foreign resident' with 'not a Part X Australian resident (within the meaning of Part X of the Income Tax Assessment Act 1936)'. [Schedule 3, item 113, section 768-10 of the Income Tax Assessment Act 1997]

3.116 Subdivision 768-A of the Income Tax Assessment Act 1997 treats certain income received by an Australian corporate tax entity from a foreign resident company as non-assessable non-exempt income.

3.117 Subdivision 768-A of the Income Tax Assessment Act 1997 replaced the now repealed section 23AJ of the Income Tax Assessment Act 1936 in 2014 as part of a modernisation and update of the exemption. In doing so the condition that the paying company be 'not a Part X Australian resident' was changed to being a 'foreign resident'. The change in wording inadvertently resulted in some dividends paid by dual resident companies to Australian residents being treated as assessable income for the Australian resident.

3.118 To ensure that no taxpayers are disadvantaged by the change in meaning, this amendment is being applied retrospectively to the commencement date of the original provision on 17 October 2014. No taxpayer are disadvantaged by retrospective application of the amendments. [Schedule 3, item 114]

Cross-border transfer pricing guidance

3.119 Part 2 updates subsection 815-135(2) of the Income Tax Assessment Act 1997 which specifies relevant guidance for the purposes of determining arm's length conditions. The amendments update the guidance to the most recent version of the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations which was adopted by the OECD's Committee of Fiscal Affairs on 19 May 2017 and published on 10 July 2017. This version of the OECD guidance material incorporates revisions made as a result of the Aligning Transfer Pricing Outcomes with Value Creation, Actions 8-10 - 2015 Final Reports of the OECD published 5 October 2015 and therefore paragraph 815-135(2)(aa) of the Income Tax Assessment Act 1997 is repealed. [Schedule 3, items 115, 116 and 117, subsection 815-135(2) of the Income Tax Assessment Act 1997]

3.120 The amendments also remove a redundant reference to paragraph 815-135(2)(aa) in subsection 815-135(3) of the Income Tax Assessment Act 1997. [Schedule 3, item 118, subsection 185-135(3) of the Income Tax Assessment Act 1997]

3.121 These amendments apply in respect of tax (other than withholding tax) in relation to income years starting on or after 1 July 2017 and in respect of withholding tax, in relation to income derived, or taken to be derived, in income years starting on or after 1 July 2017. [Schedule 3, items 119 of the Income Tax Assessment Act 1997]

3.122 Retrospective application is appropriate in these circumstances because it provides greater certainty to taxpayers by commencing shortly after the OECD's Committee on Fiscal Affairs adopted the 2017 guidance material. This consolidated guidance material is already commonly referred to by taxpayers and is consistent with the transfer pricing rules in Division 815 of the Income Tax Assessment Act 1997. No taxpayer is disadvantaged by the retrospective application.

Definition of Employment Secretary

3.123 Part 2 of the Bill amends the definition of Employment Secretary in the Income Tax Assessment Act 1997 so that it is consistent with recent machinery of government changes.

3.124 The definition of 'Employment Secretary' previously referred to the Secretary of the Department administering the Fair Work (State Referral and Consequential and Other Amendments) Act 2009. Responsibility for that Act has now moved to a different Department. Accordingly, the definition of 'Employment Secretary' is amended to refer to the Secretary of the Department responsible for employment policy. [Schedule 3, item 121, definition of 'Employment Secretary' in subsection 995-1(1) of the Income Tax Assessment Act 1997]

3.125 The amendment to the definition of 'Employment Secretary' describes the Secretary by using the same language as in the substituted reference order made by the Department and the Administrative Arrangement Order. It does not refer to a particular Act because there are no Acts within that Department's portfolio which fall within the Department's core function. Using a description of the Department reduces the likelihood of further amendments being required following future machinery of government changes.

3.126 The amendment to the definition in the Income Tax Assessment Act 1997 also updates the definition of Employment Secretary used in the Income Tax Assessment Act 1936 and Schedule 1 to the Taxation Administration Act 1953. These two Acts both rely on the definition in the Income Tax Assessment Act 1997 (see subsections 6(1AA) and (1) of Income Tax Assessment Act 1936 and section 3AA of Schedule 1 to the Taxation Administration Act 1953).

Amendments to the Taxation Administration Act 1953

Correcting section references

3.127 Part 2 corrects a section reference in the note to subsection 8AAZLGB(4) of the Taxation Administration Act 1953. [Schedule 3, item 132, note to section 8AAZLBG of the Income Tax Assessment Act 1997]

Requirement to give notice or make information available in relation to fund payments

3.128 Part 2 amends the Taxation Administration Act 1953 to clarify the existing provisions to ensure that where a withholding managed investment trust, custodian or other entity is required to give a notice or make available details on their website in relation to a fund payment under subsections 12-395(2) or 12-395(5), the notice or information made available on the website must specify the extent to which the payment is, or is attributable to, an amount that would be non-concessional MIT income if certain provisions are disregarded. [Schedule 3, items 125 and 126, paragraphs 12-395(3)(ac) and 12-395(6)(ac) of Schedule 1 to the Taxation Administration Act 1953]

3.129 These amendments apply in relation to notices given or details made available on or after the day after Royal Assent. [Schedule 3, item 127]

Service of documents

3.130 Part 2 makes several amendments to give the force of law to the treaty obligations relating to the service of documents in Article 17 of the OECD Convention on Mutual Administrative Assistance in Tax Matters.

3.131 First, the Commissioner is given the power to serve documents on a person at an overseas address if the Commissioner is satisfied that the person has an overseas address and the service is in accordance with an agreement between Australia and the foreign country. The Commissioner does not require the Court's leave to effect this service. [Schedule 3, item 128 to 130, subdivision 255-C in Schedule 1 (heading), section 255-35 in Schedule 1, section 255-40(3) of Schedule 1 to the Taxation Administration Act 1953]

3.132 Second, the Commissioner is given the power to serve documents on entities in Australia on behalf of foreign revenue authorities. This power applies when a foreign government agency has made a request for the service of a document on an entity in Australia in relation to taxes imposed under a foreign law and the request is in accordance with an agreement between Australia and the foreign country. Such a request is referred to as a foreign service of document request. [Schedule 3, item 122, definition of 'foreign service of document request' in subsection 995-1(1) of the Income Tax Assessment Act 1997 and items 132 to 134, heading to Division 263, section 263-55, 263-60 and 263-65 of Schedule 1 to the Taxation Administration Act 1953]

3.133 The service of the document is to be effected in the same way as the Commissioner may serve a similar document under an Australian taxation law. If the document is in a foreign language and the entity being served would not be able to understand the document, the Commissioner must also serve a translation of the document into English or a summary of the document in English. The Commissioner must be satisfied that the translation or summary document is accurate. The Commissioner may be satisfied of a translation's or summary's accuracy by ensuring that appropriate processes and procedures have been adhered to, including the ATO using accredited translation services or, consistent with the Convention, by requiring foreign revenue authorities to certify that a translation provided to the Commissioner for service in Australia has been produced using accredited or recognised (in Australian or overseas) translation services. [Schedule 3, item 134, subsection 263-65(3) and (4) of Schedule 1 to the Taxation Administration Act 1953]

3.134 Part 2 repeals section 255-45 in Schedule 1 to the Taxation Administration Act 1953 and relocates elements of it Division 350. This section is designed to achieve harmonisation as Division 350 in Schedule 1 to the Taxation Administration Act 1953 already covers general rules relating to evidence. The amendment does not substantively change the effect of the law. [ Schedule 3, items 131 and 143, section 350-12 in Schedule 1 to the Taxation Administration Act 1953]

3.135 Part 2 moves sections 255-50 and 255-55 in Schedule 1 to the Taxation Administration Act 1953 to Division 350. Division 350 contains all of the general rules about evidence. [Schedule 3, items 131 and 144, sections 255-50, 255-55, 350-20 and 250-25 in Schedule 1 to the Taxation Administration Act 1953]

3.136 Certificates issued under section 255-45 in Schedule 1and statement or averments under section 255-50 are preserved by section 7 of the Acts Interpretation Act 1901 and can continue to be used in proceedings to recovery tax related liabilities.

3.137 Additional material is inserted into the Guide to Division 350 to make it clear that the Division also deals with procedural and evidentiary matters relating to proceedings to recover an amount of a tax-related liability. This is designed to assist the reader to navigate the Act. [Schedule 3, item 142, section 350-1 in Schedule 1 to the Taxation Administration Act 1953]

Application of significant global entity penalties to subsidiary entities

3.138 Part 2 of the Schedule corrects an anomaly in the law by ensuring the appropriate penalties apply for an entity that is both:

•

a subsidiary member of a consolidated group or a multiple entry consolidated group; and

•

a significant global entity.

[Schedule 3, items 135 to 139, paragraphs 284-90(1A)(a), 284-90(1B)(a) and 286-80(4A)(b) and subparagraph 286-80(4A)(b)(iii) of Schedule 1 to the Taxation Administration Act 1953]

3.139 Section 284-90 of Schedule 1 to the Taxation Administration Act 1953 determines the amount of a penalty that a taxpayer is liable to pay if the taxpayer gives, for example, a false or misleading statement in relation to a taxation law.

3.140 Similarly, section 286-80 of Schedule 1 to the Taxation Administration Act 1953 determines the amount of a penalty that a taxpayer is liable to pay if a taxpayer fails to give a return, notice, statement or other document to the Commissioner that is required to be given under a taxation law.

3.141 The amount of penalty payable by an entity under section 284-90 or 286-80 of Schedule 1 to the Taxation Administration Act 1953 depends on the size of the entity. A higher penalty is payable if, among other things, the entity has received an income tax assessment for the relevant income year and is a significant global entity.

3.142 These amendments apply from the date of introduction of this Bill into the House of Representatives. [Schedule 3, item 141]

Changes to the functions of departments following recent machinery of government changes

3.143 Amendments are also made to the table which lists the situations where taxation officers may disclose protected information without committing an offence. These changes were made necessary after the recent machinery of government changes which resulted in some of the functions of the Department of Employment moving to the Attorney-General's Department.

3.144 The amendments split table item 4 into several sub-items. Table item 4 previously covered disclosures from the Student Assistance Secretary or the Employment Secretary that were for the purpose of administering any Commonwealth law relating to pensions, allowances of benefits. However, the functions of the Student Assistance Secretary and the Employment Secretary are now split across two departments. As a result separate table items are required to provide exceptions for the disclosure of information from:

•

the Student Assistance Secretary that are for the purpose of administering any Commonwealth law relating to pensions, allowances or benefit; and

•

the Employment Secretary for the purpose of administering the Fair Entitlements Guarantee Act 2012 or any other Commonwealth law relating to pensions, allowances or benefits.

[Schedule 3, item 145, subsection 355-65(2) in Schedule 1 (table item 4)]

3.145 For further information about the definition of Employment Secretary, see above.

Part 3 - Updates to references to Gazettal notices

3.146 Part 3 of Schedule 3 updates provisions which refer to Gazettal notices to bring the provisions up-to-date with modern drafting practice. The Legislative Instruments Act 2003 (now the Legislation Act 2003) established a comprehensive regime for the management of all Commonwealth legislative instruments and introduced two main types of instruments (legislative instruments and notifiable instruments). Many of the sections in Treasury Acts were introduced prior to the Legislative Instruments Act 2003 and need to be updated to ensure that they use legislative instruments and notifiable instruments, rather than notices published in the Gazette.

3.147 Amendments are made to the A New Tax System (Goods and Services Tax) Act 1999 to reflect the fact that Commissioner determinations and tax return requirements are now made by legislative instrument. Inoperative material in section 79-100 of the A New Tax System (Goods and Services Tax) Act 1999 is also repealed. [Schedule 3, items 146-154, subsections 79-100(1), 79-100(2), 79-100(3) and 79-100(6), 131-60(1), subparagraph 151-45(1)(a)(i) and paragraph 162-60(1)(a) of the A New Tax System (Goods and Services Tax) Act 1999

3.148 Section 12 of the Australian Prudential Regulation Authority Act 1998 and section 64 of the Business Names Registration Act 2011 are amended to require the Minister to use a legislative instrument to direct APRA or ASIC, rather than a notice published in the Gazette. This does not change the substantive effect of either provision because directions to agencies are not disallowable and do not sunset as per the Legislation (Exemption and Other Matters) Regulation 2015. [Schedule 3, items 155-156 and 160-162, subsections 12(1) and 12(5) of the Australian Prudential Regulation Authority Act 1998 and subsections 64(1) and (5) of the Business Names Registration Act 2011]

3.149 A transitional provision is included to ensure that a direction given under the Business Names Registration Act 2011 which is in force immediately before the amendments to section 64 commences continues to remain in force. This means that those directions do not need to be remade. [Schedule 3, item 163, section 1 of Schedule 3 to the Business Names Registration Act 2011]

3.150 Section 6A of the Banking Act 1959 is amended to ensure that the Treasurer uses a legislative instrument to disapply the Banking Act 1959 to an external Territory, rather than a notice in the Gazette. [Schedule 3, items 157-159, section 6A of the Banking Act 1959]

3.151 Section 9 of the Census and Statistics Act 1995 is amended to require the Statistician to use a legislative instrument to prescribe the matters in relation to which statistical information is to be collected instead of a notice published in the Gazette. Section 10 of that Act is amended to require the Statistician to use a notifiable instrument to require persons to complete a form or furnish the form to the Statistician. [Schedule 3, items 164-166, paragraph 9(1)(b) and subsection 10(2) of the Census and Statistics Act 1995]

3.152 Section 8 of the Commonwealth Places (Mirror Taxes Act) 1998 is amended to ensure that modifications are prescribed in an instrument and registered on the Federal Register of Legislation. Arrangements, variations and revocations under section 9 must also be made by way of a notifiable instrument. [Schedule 3, items 167-168, paragraph 8(5)(a) and subsection 9(4) of the Commonwealth Places (Mirror Taxes Act) 1998]

3.153 Subsection 63(5) of the Export Finance and Insurance Corporations Act 1991 is repealed. Subsection 63(5) ensures that the tax concessions provided in respect of holders of Commonwealth issued Treasury bonds and notes do not extend to securities issued by the Export Finance Corporation. The concessions for Commonwealth issued Treasury bonds and notes have since be removed. As a result, subsection 63(5) has become inoperative. [Schedule 3, item 169, subsection 63(5) of the Export Finance and Insurance Corporations Act 1991]

3.154 An amendment is made to section 6 of the Federal Financial Relations Act 2009 to require the Minister to use a notifiable instrument to determine certain amounts related to GST revenue. [Schedule 3, items 170 and 171, subsections 6(1) and (6) of the Federal Financial Relations Act 2009]

3.155 The Financial Sector (Shareholdings) Act 1998 is also amended to ensure that the Treasurer uses a notifiable instrument to grant, modify or revoke an approval to exceed the shareholding limit in a financial sector company. [Schedule 3, items 172-201, subsections 14(1), 14(2), 14(4), 15(1), 15(4), 15(5), 15(7), 15A(5), 16(1), 16(2), 16(2A), 16(6), 17(3), 17(4), 17(6) to (9) and 18(1) to (4) of the Financial Sector (Shareholdings) Act 1998]

3.156 The Fringe Benefits Tax Assessment Act 1986 is updated so that the Commissioner must use a legislative instrument to determine the threshold amount below which an instalment of tax does not become due and payable by the employer. [Schedule 3, item 202, subsection 111(3) of the Fringe Benefits Tax Assessment Act 1986]

3.157 Amendments are also made to update references to Gazettal notices in the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997. Notifiable instruments are to be used for:

•

declarations by the Minister relating to whether a person is an offshore banking unit in section 128AE of the Income Tax Assessment Act 1936;

•

the Commissioner to call for a return to be made by the master of a particular ship or the agent or other representative of the owner or charterer of the ship under paragraph 130(1)(a) of the Income Tax Assessment Act 1936;

•

the Minister to recognise an event as a disaster under section 30-86 of the Income Tax Assessment Act 1997; and

•

the Commissioner to exempt an entity from complying with Australian accounting standards in section 820-960 of the Income Tax Assessment Act 1997.

[Schedule 3, items 208-215, 231 and 235-239, subsections 128AE(2), 128AE(2AA), 128AE(2AC), 128AE(2A), 128AE(2C), 128AE(3), subsections 130(1) and (2) and paragraph 160ZZZC(a) of the Income Tax Assessment Act 1936 and 30-86(2) and (3), 820-960(1A), 820-960(4) and (5), sections 820-962 and 820-965 and paragraphs 820-990(1)(a) and 820-995(1)(a) of the Income Tax Assessment Act 1997]

3.158 Legislative instruments are to be used to:

•

call for a return to be made by the masters of all ships included in a class of ships or by the agents or representatives of the owners or charterers of all ships in the class of ships under paragraph 130(1)(b) of the Income Tax Assessment Act 1936;

•

require and set the date for lodgement of income tax returns under section 161 of the Income Tax Assessment Act 1936;

•

declare an arrangement to be, or not be, a unit trust under section 202AB of the Income Tax Assessment Act 1936;

•

to bring to an end the effect of a class of tax file number declarations under subsection 202CA(3) of the Income Tax Assessment Act 1936;

•

to direct investment bodies around retaining records under section 202EH of the Income Tax Assessment Act 1936;

•

to declare an overseas aid deductible gift recipient under subsection 30-85(2) of the Income Tax Assessment Act 1997; and

•

require corporate tax entities to give a franking return (sections 214-5 and 214-15 of the Income Tax Assessment Act 1997).

[Schedule 3, items 214, 216-225, 228-230, 232 and 234, section 130, subsections 161(1) and 161(1A), paragraph 160ZZZC(a), definition of 'unit trust' in section 202A, sections 202AB, 202B and 202CA and subsections 202EH(1)-(3)of the Income Tax Assessment Act 1936 and subsections 30-85(2)-(4), and sections 214-215 of the Income Tax Assessment Act 1997]

3.159 Amendments are also made to subsection 23AB(4) of the Income Tax Assessment Act 1936 to reflect the fact that regulations are no longer gazetted but are instead registered. [Schedule 3, item 204, subsection 23AB(4) of the Income Tax Assessment Act 1936]

3.160 Several redundant provisions in the Income Tax Assessment Act 1936 are also repealed. First, the definition of 'Commonwealth securities' is no longer required as the term 'Commonwealth securities' now only appears in paragraph 82SA(5)(b) and the definition adds little to no interpretative value in the context of that provision. Second, subsections 128AB(2), 202B(3) and 202B(4) and Division 7 of Part VA are redundant as there are now standardised provisions for approving forms. [Schedule 3, items 203 and 205-207, 221, 226-227, definition of 'Commonwealth securities' in subsection 6(1), paragraph 82SA(5)(b), subsections 128AB(1)-(2), subsections 202B(3) and 202B(4), paragraph 202F(1)(f) and Division 7 of Part VA of the Income Tax Assessment Act 1936]

3.161 A typographical error in subsection 214-5(6) of the Income Tax Assessment Act 1997 is also corrected. [Schedule 3, item 233, subsection 214-5(6) of the Income Tax Assessment Act 1997]

3.162 Amendments are made to the Insurance Acquisitions and Takeovers Act 1991 to ensure that restraining orders and divestment orders in relation to arrangements resulting in the acquisition or takeover of an insurance business are made and revoked by way of notifiable instrument. Amendments are also made to section 61 which restricts when certain orders may come into operation to reflect the fact that the orders are registered on the Federal Registration of Legislation, rather than published in the Gazette. [Schedule 3, items 240-252, section 43, subsections 44(1) and 44(2), sections 46 and 47, subsection 48(1), section 57, subsections 58(1) and 58(2), section 60, subsections 61(1), 61(2) and 62(1) of the Insurance Acquisitions and Takeovers Act 1991]

3.163 The Insurance Contracts Act 1984 is amended to ensure that regulations made to limit an insurer's right to refuse to pay an amount in relation to an identified event must now be published on the Federal Register of Legislation instead of being notified in the Gazette. [Schedule 3, item 253, subsection 35(3) of the Insurance Contracts Act 1984]

3.164 Section 4A of the International Tax Agreement Act 1953 is updated to require the Treasurer to publish information about a tax treaty coming into force by registering a notifiable instrument. [Schedule 3, item 254, subsection 4A(2) of the International Tax Agreements Act 1953]

3.165 The Payment Systems and Netting Act 1998 and the Payment Systems (Regulation) Act 1998 are also updated. A notifiable instrument must be used by the Reserve Bank of Australia for authorities (and change authorities), exemptions and notifications of action and to declare that a section of the Payment Systems and Netting Act 1998 does not apply to a particular contract for a short period. A legislative instrument must be used to designate a payment system or declare that the Payment Systems (Regulation) Act 1998 does not apply to a specified facility or class of facilities. Provisions which were made redundant by the passage of the Legislation Act 2003 are also repealed. [Schedule 3, items 255-291, subsection 15(1) and 15(2) of the Payment Systems and Netting Act 1998 and subsections 9(3), 11(1)-11(3), 12(1), 12(3) and 12(4), paragraph 13(a) and sections 14, 15, 18, 23, 25, 27, 28, 29 and 30 of the Payment Systems (Regulation) Act 1998]

3.166 Further, the requirement for the Minister to set the manner and form in which information is to be produced by an oil producer in the Petroleum Excise (Prices) Act 1987 is updated so that it is done by way of legislative instrument instead of Gazette. [Schedule 3, item 292, subsection 6(2) of the Petroleum Excise (Prices) Act 1987]

3.167 In the Reserve Bank Act 1959, amendments are made to require the Treasurer to use a legislative instrument to disapply the Act to an external territory or determine denominations of bank notices. [Schedule 3, items 293-296, sections 6A and 35 of the Reserve Bank Act 1959]

3.168 The Tax Agent Services Act 2009 is amended to require a notifiable instrument to be used:

•

by the Commissioner to approve a scheme where tax agent services can be provided on a voluntary basis without registration; and

•

by the Tax Practitioners Board to notify the public of certain decisions.

[Schedule 3, items 297-301, subsections 30-25(1) and 40-20(1), paragraphs 50-10(1)(e) and (2)(e), subsection 50-10(5) and section 60-140 of the Tax Agent Services Act 2009]

3.169 Similar amendments are made to update references to Gazettal notices in the Taxation Administration Act 1953.

•

A legislative instrument is to be used to vary the amounts required to be withheld for a class of entities. A written notice is to be used to vary the amounts for a particular entity.

•

A legislative instrument is to be used to make withholding schedules.

•

A written notice is to be used to vary the requirements of section 16-153 of Schedule 1 (annual reports - other payments) for a particular entity. A legislative instrument is to be used to vary the requirements for a class of entities.

•

A written notice is to be used to exempt a particular entity from giving a payment summary. A legislative instrument is to be used for an exemption that applies to a class of entities.

•

A legislative instrument is to be used to withdraw an instalment rate.

•

A notifiable instrument is to be used to publish notice of the making of a public ruling or the withdrawal of a public ruling.

[Schedule 3, items 302-321, subsection 15-15(3), 15-25(1), 15-25(3), 15-25(4), 15-25(5), 16-153(7) and 16-180(2), paragraph 45-90(1)(b), subsection 350-10(1), 357-100, 358-5(4), 358-20(1), 358-20(2), 358-20(4), 362-5(3), 362-20(1)-(3), 446-5(5) and 446-5(5) in Schedule 1 to the Taxation Administration Act 1953]

3.170 The Commissioner has already moved to using legislative and notifiable instruments for these purposes and the amendments reflect existing practice.

3.171 Finally, the Terrorism Insurance Act 2003 is updated to require the Minister to use a legislative instrument to declare a terrorism act or reduce the Commonwealth's liability by publishing a reduction percentage. The Minister is to use a notifiable instrument to give directions to Corporations in relation to the performance of their functions and exercise of their powers. [Schedule 3, items 322-324, subsections 6(1) and (8) and 38(1) and (6) of the Terrorism Insurance Act 2003]

3.172 Transitional provisions are included to preserve all existing instruments, approvals, notices, declarations, decisions, variations and exemptions that were in force immediately before the amendments in Part 3 commence. [Schedule 3, item 163, section 1 of Schedule 3 to the Business Names Registration (Transitional and Consequential Provisions) Act 2011, items 325 and 326]

Part 4 - Amendments commencing on 1 July 2017

Capped defined benefit income streams

Background

3.173 Since 1 July 2017, there has been a limit on the total amount of superannuation that can be transferred into the retirement phase. This limit is referred to as the transfer balance cap, with the general transfer balance cap set at $1.6 million for the 2017-18 financial year.

3.174 A person's transfer balance account is a record of the events that count towards their transfer balance cap.

3.175 A person's transfer balance is calculated as the sum of the person's transfer balance credits less their transfer balance debits. Transfer balance credits reflect the value of the interest that supports the person's superannuation income stream. A transfer balance debit arises for certain transfers out of the retirement phase, such as when a person commutes a superannuation income stream.

3.176 An individual who exceeds their transfer balance cap may commute part of their superannuation income stream to reduce their transfer balance below their cap. An individual may also decide to voluntarily commute their income stream, either in full or partially, for example, to change superannuation providers.

3.177 Currently, the calculations set out in Subdivision 294-D of the Income Tax Assessment Act 1997 for determining the transfer balance debit that arises when a capped defined benefit income stream (as set out at items 3 to 7 of the table in subsection 294-130(1) of the Income Tax Assessment Act 1997) is commuted do not always operate as intended. There are issues where a relevant capped defined benefit income stream is fully commuted or is partially commuted.

Full commutation

3.178 For a commutation of a capped defined benefit income stream as set out in items 3 to 7 of the table in subsection 294-130(1) of the Income Tax Assessment Act 1997, the transfer balance debit for a full commutation of the superannuation income stream is currently required to be calculated by reference to the first superannuation income stream benefit the individual is entitled to receive after the commutation occurs.

3.179 However, in the case of a full commutation the individual is not entitled to receive any further payments after the commutation occurs because the income stream has ceased, in which case the transfer balance debit will be nil. This is not the correct outcome and was not the original policy intent of the legislation.

Partial commutation

3.180 For a commutation of a capped defined benefit income stream as set out in items 3 to 7 of the table in subsection 294-130(1) of the Income Tax Assessment Act 1997, the transfer balance debit for a partial commutation of the income stream is currently required to be calculated by comparing the special value of the pension the person is entitled to receive just before the partial commutation occurs and the special value of the pension that the person is entitled to receive just after the partial commutation (see paragraph 294-145(1)(b)).

3.181 However, the amount required to be paid for a market linked pension in a financial year is determined on 1 July of that year and is not adjusted to take into account any partial commutations that are made during the year.

3.182 This means that the amount derived by applying the formula in paragraph 294-145(1)(b) to such a pension is zero and, hence, the transfer balance debit arising on the partial commutation is also nil.

3.183 These unintended outcomes create the potential for an individual to incorrectly exceed their transfer balance cap and may result in an amount needing to be commuted and a potential tax liability. This is not the correct outcome and was not the original policy intent of the legislation.

Amendments

3.184 Part 4 of Schedule 3 replaces existing subsections 294-145(1) and (6) of the Income Tax Assessment Act 1997 with the new subsections (1), (1A), (1B), (6) and (6A).

3.185 The new subsections provide that, in the case of a full commutation of a capped defined benefit income stream covered by items 3 to 7 of the table in subsection 294-130(1) of the Income Tax Assessment Act 1997, the transfer balance debit is the debit value of the superannuation interest that supported the superannuation income stream just before the commutation takes place. [Schedule 3, items 327 and 328, subsections 294-145(1), (6) and (6A) of the Income Tax Assessment Act 1997]

3.186 The debit value of the superannuation interest just before the full commutation is the amount of the original transfer balance credit in respect of the superannuation income stream less the sum of the following amounts:

•

the amount of any transfer balance debits (other than a debit arising under item 4 of the table in subsection 294-80(1) of the Income Tax Assessment Act 1997) in respect of the income stream before the commutation;

•

the total amount of superannuation income stream benefits the person was entitled to receive before the start of the financial year in which the commutation takes place; and

•

the greater of:

-

the sum of the superannuation income stream benefits paid during the financial year in which the commutation takes place; or

-

the minimum amount required to be paid under regulations 1.07B and 1.07C of the Superannuation Industry (Supervision) Regulations 1994 or regulation 1.08 of the Retirement Savings Account Regulations 1997 (the regulations) during the financial year in which the commutation takes.

[Schedule 3, items 327 and 328, subsections 294-145(1), (6) and (6A) of the Income Tax Assessment Act 1997]

Example 3.1 : Full commutation of a market linked pension

Daniel was the recipient of a market linked pension (MLP1) from before 1 July 2017 and this was the only superannuation income stream he was receiving on 1 July 2017. The transfer balance credit that arose in his transfer balance account on 1 July 2017 was $1,829,697 (being the special value of his market linked pension at that time).

In the 2017-18 income year, Daniel received superannuation income stream benefits from the pension totalling $91,485. In the 2018-19 income year, he received superannuation income stream benefits from the pension totalling $91,941 (the minimum amount required to be paid to Daniel under the regulations). The account balance of MLP1 as at 30 June 2019 is $1,218,994.

As at 30 June 2019, no transfer balance debits have arisen in Daniel's transfer balance account in respect of his market linked pension.

Daniel fully commutes MLP1 on 30 June 2019. The debit that arises from this commutation is calculated as:

•

the original transfer balance credit in respect of the pension ($1,829,697); less

•

the amount of any transfer balance debits that have arisen in respect of the pension (nil); less

•

the total amount of superannuation income stream benefits Daniel was entitled to receive before the start of the 2018-19 financial year ($91,485); less

•

the greater of the superannuation income stream benefits Daniel has received in the 2018-19 financial year, and the minimum amount required to be paid to him under the regulations ($91,941).

Therefore, the debit that arises in Daniel's transfer balance account as a result of the commutation is $1,646,271.

Due to the regulatory restrictions associated with market linked pensions, after the commutation, Daniel is required to commence a new market linked pension. As the new market linked pension (MLP2) is not a capped defined benefit income stream, the transfer balance credit that arises reflects its opening account balance of $1,218,994. Following this credit, Daniel's transfer balance is $1,402,420. This figure is calculated as the net balance of Daniel's transfer balance account after the following amounts have been accounted for:

•

the original credit for MLP1; less

•

the debit for MLP1; plus

•

the new credit for MLP2.

That is $1,829,697 - $1,646,271 + $1,218,994 = $1,402,420.

3.187 The amendments also provide that, in the case of a partial commutation of a capped defined benefit income stream that is covered by items 3 to 7 of the table in subsection 294-130(1), the transfer balance debit is the lesser of:

•

the debit value that would arise if the commutation was a full commutation; and

•

the amount of the superannuation lump sum that results from the partial commutation.

[Schedule 3, items 327 and 328, subsections 294-145(1), (1B), (6) and (6A) of the Income Tax Assessment Act 1997]

3.188 The existing method for calculating the transfer balance debit for a partial commutation of a capped defined benefit income stream referred to in items 1 and 2 of the table in subsection 294-130(1) has not changed. [Schedule 3, items 327 and 328, subsections 294-145(1) and (1A) of the Income Tax Assessment Act 1997]

Example 3.2 : Partial commutation of a market linked pension

Lani was the recipient of a market linked pension from before 1 July 2017 and this was the only superannuation income stream she was receiving on 1 July 2017. The transfer balance credit that arose in her transfer balance account on 1 July 2017 was $1,863,050 (being, the special value of her market linked pension at that time).

On 30 September 2019, as part of finalising her divorce, Lani is required to transfer $500,000 of her superannuation to her ex-husband. Lani partially commutes her market linked pension by $500,000 and transfers it to her ex-husband's superannuation fund.

The transfer balance debit that arises in Lani's transfer balance account as a result of the partial commutation on 30 September 2019 is the lesser of:

•

the debit that would arise if there was a full commutation; and

•

the amount of the superannuation lump sum that is paid as a result of the partial commutation.

If the market linked pension were fully commuted, a debit would arise of $1,548,600 (applying the calculation method for full commutations described in Example 1.1).

Therefore, the debit that arises in Lani's transfer balance account as a result of the partial commutation is $500,000 (the lesser of $1,548,600 and $500,000). After the partial commutation, the balance in her transfer balance account is $1,363,050.

Application and commencement

3.189 The amendments commence on 1 July 2017 and apply from that date. [Item 4 of the table in subclause 2(1) and Schedule 3, item 330]

3.190 The amendments will apply retrospectively as they ensure that the legislative gives effect to the original policy intention. The amendments are wholly beneficial for affected taxpayers. Specifically, the retrospective application of the amendments ensures that individuals who received a debit with nil value upon a previous commutation will retrospectively receive a debit that has a value greater than nil, increasing their capacity to hold amounts in the retirement phase (subject to the individual's transfer balance cap).

Death benefit rollovers

3.191 The Treasury Laws Amendment (Fair and Sustainable Superannuation) Act 2016 amended the Income Tax Assessment Act 1997 to include superannuation death benefits for dependants in the definition of 'roll over superannuation benefits'.

3.192 This has meant that, since 1 July 2017, a death benefit that is rolled over by a dependant will receive a taxation treatment that is consistent with that of member benefits that are rolled over. Namely, the rolled over benefit will not be treated as a superannuation contribution and will be non-assessable non-exempt income.

3.193 This amendment was intended to provide flexibility for dependants and allow them to rollover lump sums to a fund of their choice.

3.194 However, an unintended tax consequence arises where the superannuation lump sum death benefit that is rolled over comprises an untaxed element created by the application of section 307-290 of the Income Tax Assessment Act 1997. Section 307-290 applies to create an untaxed element in a superannuation lump sum death benefit in circumstances where all of the following apply:

•

a member of a superannuation fund dies before reaching their last retirement day (usually age 65);

•

a superannuation fund has claimed or will claim deductions for costs arising from certain insurance policies (or its future liability to pay death or disability benefits) that relate to the member;

•

the deductions or future deductions relate to the superannuation lump sum.

3.195 Circumstances where there may be a sufficient relationship between the lump sum and the deductions include the cases where the fund that pays the lump sum is either the same fund as the fund that claimed the deductions in relation to the member or is a successor fund to the fund that claimed the deductions for the member.

3.196 Currently, where the lump sum death benefit is paid directly from the fund to a dependant, the benefit will be tax free in the dependant's hands because of section 302-60 of the Income Tax Assessment Act 1997 (notwithstanding that section 307-290 may apply to create an untaxed element). Equally, if a deceased's benefits in the fund are used instead to pay a superannuation income stream to a dependant from the fund, section 307-290 does not apply.

3.197 However, if instead the lump sum death benefit is rolled over by the dependant to a different fund (Fund 2) the untaxed element created by the application of section 307-290 will be included in the assessable income of Fund 2 under item 2 of the table in subsection 295-190(1) of the Income Tax Assessment Act 1997.

3.198 This has the consequence of reducing the amount of the gross benefit originally available to commence an income stream for the dependant from Fund 2 by the amount of the tax paid on the untaxed element. This treatment is unintended and may operate to penalise individuals that exercise choice and change funds.

3.199 The amendments to the Income Tax Assessment Act 1997 ensure that rolling over death benefits does not have these unintended tax consequences. This is done by amending table item 2 in paragraph 295-190(1) to exclude an amount that is an element untaxed in the fund created by the application of subsection 307-290(4) of the Income Tax Assessment Act 1997. [Schedule 3, item 329, item 2 of the table in subsection 295-190(1) of the Income Tax Assessment Act 1997]

Application and commencement

3.200 The amendments commence on 1 July 2017 and apply from that date. [Item 4 of the table in subclause 2(1), and Schedule 3, item 330]

3.201 The amendments will apply retrospectively as they ensure that the legislative gives effect to the original policy intention. The amendments are wholly beneficial for affected taxpayers.