Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)1
General outline and financial impact
1.1 Amends the Income Tax Rates Act 1986 to impose a rate of tax on the RSA business of friendly societies and other registered organizations.
1.2 Date of effect: The date that is the transfer date for the purposes of the Financial Sector Reform (Amendments and Transitional Provisions) Act (No 1) 1999 (Clause 2).
1.3 Proposal announced: Not previously announced.
1.4 Financial impact: Negligible.
1.5 Compliance cost impact: No additional compliance costs.
Background to the legislation
1.6 As part of the Financial Sector Reform, it is proposed to allow friendly societies to operate retirement savings accounts (RSAs). The Financial Sector Reform (Amendments and Transitional Provisions) Bill 1999 proposes to amend the Income Tax Assessment Act 1936 (the Tax Act) to recognise the RSA business of friendly societies and other registered organizations.
1.7 This Bill amends the Income Tax Rates Act 1986 (the Rates Act) to specify the rates of tax that apply to the RSA business of registered organizations.
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Explanation of items
2.1 The amendments to the Tax Act proposed in the Financial Sector Reform (Amendments and Transitional Provisions) Bill 1999 establish the RSA class of assessable income for friendly societies or other registered organizations. The RSA class of assessable income is split into two components:
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- the RSA category A component; and
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- the RSA category B component.
2.2 Items 1,2 and 3 of the Schedule insert definitions of the RSA category A component, the RSA category B component and the RSA combined component into subsection 3(1) of the Rates Act. The terms have the same meaning as in the Tax Act.
2.3 Items 4 and 5 of the Schedule amends subsection 23(4) of the Rates Act to specify that:
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- the RSA category A component of the RSA combined component of taxable income of a registered organization is taxed at a rate of 15 per cent; and
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- the RSA category B component of the RSA combined component of taxable income of a registered organization is taxed at a rate of 36 per cent.
2.1 This will ensure that the RSA business of friendly societies or other registered organizations will be taxed at the same rate that applies to the RSA business of competing entities.
2.2 Item 6 of the Schedule makes a consequential amendment to ensure that subsection 23(4BA) of the Rates Act, which specifies the rate of tax on the RSA business of banks and other financial institutions, does not apply to the RSA business of registered organizations.