Explanatory Memorandum
(Circulated by the authority of the Treasurer, the Hon John Dawkins, M.P.)Chapter 6 Allocated annuities
Summary of proposed amendments
Purpose of amendment: To ensure that income derived by an annuity provider in respect of allocated annuity policies is exempt from tax and that allocated annuities are not qualifying securities for Division 16E purposes.
Date of Effect: Annuities purchased on or after 22 December 1992.
Background to the legislation
Division 7 of Part 1 of Taxation Laws Amendment (Superannuation) Act 1992 made appropriate amendments to the income tax law to recognise allocated pensions and allocated annuities as pensions and annuities for income tax purposes. Division 5 of Part 3 made the necessary amendments to the Occupational Superannuation Standards Act 1987 (OSSA). Statutory Rule No 463 of 1992 was made on 24 December 1992 to insert pension and annuity standards in the Occupational Superannuation Standards Regulations.
The amendments did not adequately ensure that the income derived by life assurance companies and registered organisations in respect of allocated annuity policies is exempt from tax.
It is also necessary to ensure that allocated annuities are treated as annuities for Division 16E purposes. The term qualifying security is defined in subsection 159GP(1). Annuities, other than annuities which fall within subsection 159GP(10), are specifically excluded from this definition. As allocated annuities are not annuities within the ordinary meaning of the term they do not get the benefit of this exclusion and therefore may be qualifying securities.
Explanation of proposed amendments
Tax treatment of allocated annuity funds in the annuity provider's hands
Income derived by life assurance companies that relates to immediate annuities which qualify as eligible policies is exempt from tax under section 112A. The proposed amendments ensure that allocated annuities purchased wholly with ETP moneys that meet the minimum standards specified under OSSA qualify as eligible policies. Consequently the income derived by life assurance companies which relates to such annuities will be exempt from tax. [Clause 30]
The proposed amendments also ensure that income derived by registered organisations that relates to allocated annuity policies purchased wholly with ETP moneys that meet the minimum standards specified under the OSSA will be exempt from tax. [Clause 31]
The proposed amendments ensure that allocated annuities purchased wholly with ETP moneys that meet the minimum standards specified under OSSA are not qualifying securities for Division 16E purposes. [Clause 32]