Income Tax Assessment Amendment Regulations 2007 (No. 3) (103 of 2007)

Schedule 1 Amendments

[2] Part 2, after Subdivision 292-C

insert

Subdivision 292-D Modifications for defined benefit interests

292-170.01 Definitions

In this Subdivision:

employer-sponsor has the meaning given by subsection 16 (1) of the SIS Act.

RSE licensee has the same meaning as in the SIS Act.

sub-fund , in relation to a defined benefit member of a superannuation fund, means an arrangement in the fund which satisfies the following conditions:

(a) there are separately identifiable assets and separately identifiable beneficiaries;

(b) the interest of each beneficiary is determined by reference only to the conditions governing that arrangement;

(d) the employer-sponsor deals with each of the defined benefit members at arm’s length.

superannuation fund includes a reference to a sub-fund relating to a defined benefit member or defined benefit members of the fund.

292-170.02 Notional taxed contributions - contributions for funds with 5 or more defined benefit members

(1) For subsection 292-170 (1) of the Act, this regulation explains the meaning of notional taxed contributions for a financial year in respect of the defined benefit interest of a member of a superannuation fund:

(a) that has 5 or more defined benefit members; or

(b) to which subregulation (3), (4), (5) or (6) applies.

(2) The notional taxed contributions are the contributions that are determined by the trustee to be notional taxed contributions, using the method set out in Schedule 1A.

(3) If a superannuation fund has 5 or more defined benefit members on 1 July 2007, subregulation (2) is taken to continue to apply in relation to the fund even if the number of defined benefit members of the fund becomes less than 5 at any time on or after 1 July 2007.

(4) If:

(a) a superannuation fund had 5 or more defined benefit members at any time before 1 July 2007; and

(b) the fund had fewer than 5 defined benefit members on 1 July 2007; and

(d) the trustee of the fund is an RSE licensee; and

(e) the employer-sponsor deals with each of the defined benefit members at arm’s length;

subregulation (2) is taken to apply in relation to the fund.

(5) If:

(a) a superannuation fund ( fund 1 ) satisfies the conditions in subregulation (3) or (4); and

(b) the defined benefit members of the fund are transferred to another fund ( fund 2 ) on or after 1 July 2007 (whether directly or through a series of transfers between superannuation funds); and

(d) the employer-sponsor deals with each of the defined benefit members of fund 2 at arm’s length;

subregulation (2) is taken to apply in relation to fund 2.

(6) If:

(a) a superannuation fund has no defined benefit members on 30 June 2007; and

(b) a person becomes a defined benefit member of the fund after that date;

subregulation (2) is taken not to apply in relation to the fund unless the number of defined benefit members (including the person) is at least 50 and the employer-sponsor of the fund deals with each of the defined benefit members at arm’s length.

292-170.03 Notional taxed contributions - contributions for funds where regulation 292-170.02 does not apply

(2) If the trustee receives a contribution in a month, the trustee must allocate the contribution to a member of the fund:

(a) within 28 days after the end of the month; or

(b) if it is not reasonably practicable to comply with paragraph (a) - within a longer period that is reasonable in the circumstances.

(3) For subregulation (2), the trustee must allocate the contribution having regard to the present and prospective liabilities of the fund to its members.

(4) The notional taxed contributions are the amounts of assessable contributions under Subdivision 295-C of the Act which have been allocated to the member in the financial year.

(5) An amount that is allocated from a reserve is to be treated as having been allocated by the superannuation provider in a way that is covered by subsection 292-25 (3) of the Act unless:

(a) the amount is allocated from a reserve used solely for the purpose of enabling the fund to discharge all or part of its liabilities (contingent or not), as soon as they become due, in respect of superannuation income stream benefits that are payable by the fund at that time; and

(b) any of the following applies:

(i) the amount has been allocated to satisfy a pension liability of the plan paid during the financial year;

(ii) on the commutation of the income stream, except as a result of the death of the primary beneficiary, the amount is allocated to the recipient of the income stream, to commence another income stream, as soon as practicable;

(iii) on the commutation of the income stream as a result of the death of the primary beneficiary, the amount:

(A) is allocated to a death benefits dependant to discharge liabilities in respect of a superannuation income stream benefit that is payable by the plan as a result of the death; or

(B) if sub-subparagraph (A) does not apply - is paid as a superannuation lump sum and as a superannuation death benefit;

as soon as practicable.

(6) If the amount has been allocated from a reserve in lieu of a contribution to the fund (less any allowance for tax) which would have been assessable income of the fund, the amount that is allocated is to be multiplied by 1.176.

Example

An employer has an obligation to make a $1 000 contribution. Instead of the employer making a contribution to the fund, the trustee allocates $850 to the member’s account (which is an amount equivalent to the amount that would be credited to the account after tax was paid).

For subregulation (6), the amount of $850 is to be multiplied by 1.176 to work out the amount that is taken to be allocated.

292-170.04 Notional taxed contributions - nil amount

(1) For subsection 292- 170 (4) of the Act, this regulation sets out circumstances in which the amount of the notional taxed contributions for a financial year in respect of the defined benefit interest of a member of a superannuation fund is nil.

(2) A circumstance is that:

(a) the defined benefit interest is held in a public sector superannuation scheme; and

(b) none of the interest is sourced to any extent from:

(i) contributions made into a superannuation fund; or

(ii) earnings on such contributions;

unless the interest is an element taxed in the fund that is attributable to 1 or more roll-over superannuation benefits.

(3) A circumstance is that:

(a) subregulation 292-170.02 (2) applies, or is taken to apply, in relation to the superannuation fund; and

(b) the member is a non-accruing member of the fund, in accordance with subregulations (4), (5) and (6), for the whole of the financial year.

(4) For paragraph (3) (b), a defined benefit member of a superannuation fund is a non-accruing member of the fund for the whole of a financial year if, for the whole of the financial year:

(a) the member’s membership of the fund consists only of the member receiving pension payments from the superannuation fund; and

(b) any of the following applies:

(i) the pension payments are always the same amount;

(ii) the pension payments are paid from an account that relates only to the member, and no employer contributions are paid to the account for the benefit of the member;

(iii) the pension payments increase at rates that are consistent with the rates prescribed under the rules of the fund that applied when the pension commenced to be paid.

(5) For paragraph (3) (b), a defined benefit member of a superannuation fund is a non-accruing member of the fund for the whole of a financial year if, for the whole of the financial year:

(a) the member has a benefit entitlement in the fund, but no employer-provided benefits have accrued to the member; and

(b) the rules of the fund provide that the benefit:

(i) is not to increase in nominal terms; or

(ii) is to increase at a rate that reflects general price increases (for example, in accordance with the Consumer Price Index); or

(iii) is to increase at a rate reflecting the general level of salary growth or salary growth for relevant fund membership (for example, in accordance with average weekly earnings, or average weekly ordinary time earnings, published by the Australian Statistician); or

(iv) is to increase at the rate (if any) at which the salary on which the member’s benefit is based increases; or

(v) is to increase at a rate reflecting the earning rate of the assets of the fund or the part of the fund to which the member belongs; or

(vi) in the case of a deferred benefit - is to increase at a rate that reflects any reduction in the expected period in which pension payments are to be made and any deferral of the date when payments will start; or

(vii) is to increase at a regular rate, or a rate worked out using a formula, that an actuary considers will not result in an increase that is more than the greatest of the increases mentioned in subparagraphs (i) to (vi).

(6) For the purposes of determining whether a defined benefit member is a non-accruing member of the fund for a period, any employer contributions paid to the fund for the period to meet partially, or wholly, unfunded benefit liabilities of the fund are not to be treated as employer contributions for the benefit of the member for the period.

292-170.05 Notional taxed contributions - other conditions (paragraph 292-170 (6) (d) of the Act)

(1) For paragraph 292-170 (6) (d) of the Act, this regulation:

(a) applies in relation to a superannuation fund in relation to which subregulation 292-170.02 (2) applies, or is taken to apply; and

(b) sets out the conditions that are to be satisfied in relation to establishing whether notional taxed contributions for a financial year in respect of a defined benefit interest are equal to the concessional contributions cap for the financial year.

Note Subsection 292-170 (6) of the Act explains when a member’s notional taxed contributions for the financial year in respect of a defined benefit interest are equal to the concessional contributions cap for the financial year. This includes satisfying conditions specified in the Regulations.

(2) A condition is that between 5 September 2006 and the time at which the new entrant rate for the defined benefit member is worked out using Schedule 1A:

(a) the rules of the superannuation fund have not changed to improve the member’s benefit; and

(b) the member has not moved to a new benefit category.

(3) A condition is that the new entrant rate for the defined benefit member, as worked out using Schedule 1A:

(a) has not increased since it was first worked out using Schedule 1A; or

(b) has increased since it was first worked out using Schedule 1A only as a result of a change to the rules of the superannuation fund that increases a benefit as a result of a change to a notional earnings base that is made to satisfy the requirements of the Superannuation Guarantee (Administration) Act 1992.

(4) A condition is that the method of calculating superannuation salary:

(a) has not been changed, in a way that would increase the salary, since 5 September 2006; or

(b) has changed since 5 September 2006 only as a result of a change to the rules of the superannuation fund that increases a benefit as a result of a change to a notional earnings base that is made to satisfy the requirements of the Superannuation Guarantee (Administration) Act 1992.

(5) A condition is that:

(a) the rate of superannuation salary has increased, since 5 September 2006, by:

(i) more than 50% in 1 year; or

(ii) more than 75% over 3 years; and

(b) the employer-sponsor advises the trustee that the increase in salary is on an arm’s length basis.

(6) A condition is that the trustee or employer-sponsor of the superannuation fund has not exercised a discretion to pay a benefit that is greater than the benefit that was assumed for the purpose of calculating the new entrant rate since 5 September 2006.

(7) For subregulation (5), a trustee must notify the Commissioner, in writing, of an increase in the rate of superannuation salary that exceeds the rate specified in subparagraph (5) (a) (i) or (ii) as soon as practicable after the increase occurs.

292-170.06 Notional taxed contributions - other conditions (paragraph 292-170 (7) (e) of the Act)

(1) For paragraph 292-170 (7) (e) of the Act, this regulation:

(a) applies in relation to a superannuation fund in relation to which subregulation 292-170.02 (2) applies, or is taken to apply; and

Note Subsection 292-170 (7) of the Act explains when a member’s notional taxed contributions for the financial year in respect of a defined benefit interest that has been transferred to another fund are equal to the concessional contributions cap for the financial year. This includes satisfying conditions specified in the Regulations.

(2) A condition is that between 5 September 2006 and the time at which the new entrant rate for the defined benefit member is worked out using Schedule 1A:

(a) the rules of the superannuation fund have not changed to improve the member’s benefit; and

(b) the member has not moved to a new benefit category.

(3) A condition is that the new entrant rate for the defined benefit member, as worked out using Schedule 1A:

(a) has not increased since it was first worked out using Schedule 1A; or

(4) A condition is that the method of calculating superannuation salary:

(a) has not been changed, in a way that would increase the salary, since 5 September 2006; or

(5) A condition is that:

(a) the rate of superannuation salary has increased, since 5 September 2006, by:

(i) more than 50% in 1 year; or

(ii) more than 75% over 3 years; and

(b) the employer-sponsor advises the trustee that the increase in salary is on an arm’s length basis.

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