NTLG Superannuation Technical Sub-group minutes - 4 December 2007

^[H1]Meeting details

Venue :	The Radisson Hotel and Suite Sydney
Date :	4 December 2007
Start :	9.30am	Finish :	3.30pm
Chair :	Cheryl-Lea Field
Contact :	Cindy Baker	Contact phone :	(02) 6216 2762

Attendees

Cheryl-Lea Field (Chair)	Tax Office
Cindy Baker (secretariat)	Tax Office
Emma Haines (for agenda items 7 and 9)	Tax Office
Andrew Lee	Tax Office
Andrew Allan	Tax Office
Gwen Miller	Tax Office
Jonathan Woodger	Tax Office
Bruce Haine	Tax Office
Robin Halls	Tax Office
Robert Jeremiah	Small Independent Superannuation Funds Australia (SISFA)
Liz Goddard	Taxation Institution of Australia (TIA)
Michael Perry	Taxpayers Australia (TA)
Robert Hodge	Association of Super Funds Australia (ASFA)
Valya Prouzos	Australian Prudential Regulation Authority (APRA)
David Shirlow	Investment and Financial Services Association (IFSA)
Helen Brady	IFSA
David Kettlestring	Association of Taxation and Management Accountants (ATMA)
Susan Orchard	Institute of Chartered Accountants in Australia (ICAA)
Virakon Sengchanh	Financial Planning Association (FPA)
Darren Wynen	National Tax and Accountants Associations (NTAA)
Michael Davison	CPA Australia (CPA)

Apologies

Mat Hanscombe	Tax Office
Reece Agland	National Institute of Accountants (NIA)
Andrea Slattery	Self-Managed Super Fund Professionals' Association of Australia (SPAA)
Delia Rickard	Australian Securities and Investment Commission (ASIC)
Tony Keir	ASFA
Jennifer Batrouney S.C.	Law Council of Australia (LCA)

^[H2]Agenda items

NTLG agendas, minutes and related papers are not binding on the Tax Office or any of the other bodies referred to in these papers. The Commissioner of Taxation has instilled a more open philosophy and process with the National Tax Liaison Group. As such, minutes of NTLG meetings are published well before the meeting date on which members accept or modify the minutes under normal meeting protocols. This version of the minutes is available for member associations to share more widely on the understanding that formal endorsement is yet to occur.

1.1 Opening and introductions

Cheryl-Lea Field opened the meeting. Committee members were welcomed and introduced. The agenda for the meeting was confirmed.

1.2 Acceptance of minutes

It was noted that one of the member's names was spelt incorrectly. This is to be amended and minutes from the 4 September 2007 meeting were endorsed, and final version will be available on www.ato.gov.au

1.3 Status of action items

Meeting discussion
The Chair explained to members what the reference numbers mean. For example, NTLGSPR040907/1 - means NTLG Superannuation Technical Sub-group meeting 4 September 2007/action item 1.

The status of the action items below has been updated to reflect the meeting.

Action item :	NTLGSPR040907/01 Issue: Agenda item 2 - Review of forum The Tax Office to circulate procedures for escalation of an issue to the committee. This is to be included with the minutes.
Status :	Closed Time line to be distributed with minutes.
Action item :	NTLGSPR040907/01 Issue: Agenda item 2 - Review of forum The Tax Office to update charter and circulate to members for comments.
Status :	Closed Charter amended to reflect membership and circulated to members, with draft minutes.
Action item :	NTLGSPR040907/02 Issue: Agenda item 2 - Review of forum The Tax Office to review the agendas of future meetings and will advise members when additional time is required and a whole day aligned with the SCC will be scheduled. Advice will be provided on timing of meeting, once agenda items are received.
Status :	Closed Dates for 2008 meetings were tabled at 4 December 2007 meeting and accepted by member.
Action item :	NTLGSPR040907/03 Issue: Agenda item 5 - Super interest The Chair noted that further discussion on this item is to be carried over to the next meeting and will explore an out-of-session discussion with members prior to that meeting.
Status :	Closed A further discussion paper was distributed to members and was discussed under agenda item 7 of 4 December 2007 meeting.
Action item :	NTLGSPR040907/04 Issue: Agenda item 6 - Top 10 interpretive/administrative issues The Chair is to ensure this agenda item continues to cover all issues raised by members.
Status :	Closed This will continue to be a standing agenda item.
Action item :	NTLGSPR040907/05 Issue: Agenda item 8.2 - In-house asset, transitional rule The Tax Office is to provide a copy of the fact sheet to members for discussion at the December meeting of the NTLG Superannuation Technical Sub-group.
Status :	The fact sheet will be sent out of session for members to comment, once it has been technically cleared.
Action item :	NTLGSPR040907/06 Issue: Agenda item 8.3 - Disability payment and employment termination payment IFSA suggested that the Tax Office's fact sheet should deal with the rollover of a disability benefit.
Status :	Closed Added to list of products to be considered.
Action item :	NTLGSPR040907/07 Issue: Agenda item 8.3 - Disability payment and employment termination payment To rename heading from Employment Termination Payment to Disability Payments and Employment Termination Payment.
Status :	Closed Heading has been amended on minutes and published on www.ato.gov.au on 12 November 2007.
Action item :	NTLGSPR040907/08 Issue: Agenda item 8.5 - Meaning of contributions Meaning of contributions - for discussion at December meeting.
Status :	This item was discussed under agenda item 11. This issue is currently still open under PTI 960.
Action item :	NTLGSPR040907/09 Issue: Agenda item 10 - Other business - allocations from reserves of complying SPR plans Date and time for a discussion on allocation of reserves and the definition of primary beneficiary to be decided by the Chair and communicated to members.
Status :	Closed To be discussed as part of agenda item 12 - issue concerning current pension liability.
Action item :	NTLGSPR040907/10 Issue: Agenda item 10 - Other business - APRA licensing The Tax Office will inform members of the tax consequences of RSE licensing expenses issue.
Status :	Closed Expenses incurred to preserve and protect the profit yielding structure are capital in nature. The Tax Office opinion is an RSE license fee does not have the character of an operating or working expense and is not part of the day to day activities of the trustee.

Action items referred from SCC

Action item :	NTLGSCC0605/08 Issue: Agenda item 3 - Previous action items Reversionary pensions, current pension liability. The Tax Office is considering the need to explain the meaning of reversionary pension in light of the proposed measures to simplify and streamline superannuation.
Status :	Closed This action item was addressed and finalised at agenda item 6 under priority interpretive/administrative issues.

1.4 Annual review of forum

¦ Forum change of name.

¦ Forum review questionnaire - to be handed out and sent electronically at conclusion of meeting.

¦ Agenda items are to be received by the association.

¦ Responsibilities of member.

Meeting discussion
The Chair informed members that the NTLG Superannuation Technical Sub-committee will now be known as the NTLG Superannuation Technical Sub-group.

The NTLG Superannuation Technical Sub-group secretariat provided an annual review questionnaire to members and briefly outlined its purpose, to improve Tax Office consultation with members. Members were asked to complete the questionnaire and return it to the NTLG secretariat by post to:

PO Box 900
Civic Square ACT 2608

or via email to NTLGSPRSubcommittee@ato.gov.au by 14 December 2007.

The Chair asked members for their thoughts on how the new timelines for the submission of issues had operated for this meeting. It was noted that some members were concerned about calling for agenda items so early. The Chair noted that we are willing to negotiate timeframes. However, members are to complete the template with as much information as possible.

The NTLG Chair and secretariat advised all members of the dates for the 2008 meeting and notified members that the Commissioner will attend either the June or September meeting which will be held in Canberra.

All members were happy with the proposed dates for 2008 and dates were accepted.

Action item :	NTLGSPR041207/01 Members were asked to complete the questionnaire and return it to the NTLG secretariat by post to PO Box 900 Civic Square ACT 2608 or via email to NTLGSPRSubcommittee@ato.gov.au by 14 December 2007.
Status :	Closed Secretariat to send questionnaire out electronically and members to complete by 14 December 2007.
Action item :	NTLGSPR041207/02 Confirm meeting venue for June and September meeting for March 2008 meeting
Status :	Closed Secretariat to confirm the Commissioner's availability to attend either the June or September meeting in Canberra.

1.5 Update on recently published and withdrawn Rulings, Practice Statements and ATO Interpretive Decisions (ATO IDs)

¦ Provide members with an update of recently published and withdrawn Rulings, Practice Statements and ATO ID's.

SPR COE published products since 4 September 2007

Product	Title/subject	Date published
ATO ID 2007/195	Superannuation: Government Co-Contributions: do trust beneficiaries have business income	2 November 2007
ATO ID 2007/199	Superannuation Guarantee: Existing employee elections after 30 June 2007	2 November 2007
ATO ID 2007/205	Income tax: Assessability of Superannuation contributions made in favour of local government councillors	15 November 2007
ATO ID 2007/212	Superannuation: Transitional redundancy payments	23 November 2007
ATO ID 2007/213	Superannuation: Excess contributions tax: amendment to reduce liability - release authority	23 November 2007
ATO ID 2007/214	Superannuation: Excess contributions tax: amendment to increase liability - release authority	23 November 2007
ATO ID 2007/219	Income tax: Deduction for increase amount of superannuation lump sum death benefit	30 November 2007

SPR COE withdrawn products since 4 September 2007

Product	Title/subject	Date withdrawn
ATO ID 2001/6	Superannuation Superannuation: contributions deductions ( withdrawn )	2 November 2007
ATO ID 2002/288	Income tax Superannuation contributions - deductions and rebates: contributions for spouse of controlling shareholder. ( withdrawn )	2 November 2007
ATO ID 2003/678	Income tax Superannuation: deduction for personal contributions - section 82AAT notice. ( withdrawn )	2 November 2007
ATO ID 2004/340	Superannuation Personal superannuation contributions made by member over age 70. ( withdrawn )	2 November 2007
ATO ID 2006/134	Superannuation Deduction for personal superannuation contributions - 'eligible person' in relation to a year of income. ( withdrawn )	2 November 2007
ATO ID 2006/303	Income tax Superannuation: deductions for contributions made for eligible employees. ( withdrawn )	2 November 2007
ATO ID 2006/304	Income tax Employer superannuation contributions: controlling interest. ( withdrawn )	2 November 2007
ATO ID 2006/19	Income tax Superannuation deductions and the research and development tax concession. ( withdrawn )	16 November 2007
ATO ID 2007/99	Superannuation Deductions for personal superannuation contributions: employees receiving periodic workers' compensation payments. ( withdrawn )	16 November 2007
ATO ID 2007/144	Superannuation Deductibility of superannuation contributions made for directors of a passive investment company. ( withdrawn )	16 November 2007
ATO ID 2007/145	Superannuation Deductibility of superannuation contributions for directors of a corporate trustee. ( withdrawn )	16 November 2007
ATO ID 2002/42	Superannuation Reasonable benefit limits: extension of time to register a transitional reasonable benefit limit (TRBL). ( withdrawn )	16 November 2007
ATO ID 2002/82	Superannuation Reasonable benefit limits: determination of an arms length salary. Use of renumeration survey. Recognition of high level of risk and responsibility. ( withdrawn )	16 November 2007
ATO ID 2002/88	Superannuation Reasonable benefit limits: determination of arms length salary. Special circumstances. ( withdrawn )	16 November 2007
ATO ID 2003/16	Income tax Reasonable benefit limits: definition of 'salary'. ( withdrawn )	16 November 2007
ATO ID 2003/20	Superannuation Reasonable benefit limits: discretion for excessive lump sum amount. ( withdrawn )	16 November 2007
ATO ID 2003/29	Superannuation Reasonable benefit limits: previous benefits. ( withdrawn )	16 November 2007
ATO ID 2003/146	Superannuation Reasonable benefit limits: discretion for excessive lump sum amount. ( withdrawn )	16 November 2007
ATO ID 2003/475	Superannuation Reasonable benefit limits - residual capital value. ( withdrawn )	16 November 2007
ATO ID 2003/808	Superannuation Reasonable benefit limits: effect of changing the terms of a superannuation pension after the date of commencement. ( withdrawn )	16 November 2007
ATO ID 2004/130	Superannuation Reasonable benefit limits: highest average salary. ( withdrawn )	16 November 2007
ATO ID 2002/125	International tax Assessability of an Australian sourced pension paid to a resident of Canada.	December 2007
ATO ID 2002/186	Income tax Assessability of an Australian sourced pension paid to a resident of the United States.	December 2007
ATO ID 2002/202	Income tax Assessability of an Australian sourced pension paid to a resident of the United Kingdom.	December 2007
ATO ID 2002/280	Income - double tax Assessability of an Australian sourced pension by a resident of Switzerland.	December 2007
ATO ID 2003/45	International tax Assessability of an Australian sourced pension paid to a resident of the Philippines.	December 2007
ATO ID 2003/298	Income tax Assessability of Australian sourced superannuation pension paid to a resident of Poland.	December 2007
ATO ID 2003/680	Income tax Assessability of Australian sourced government superannuation pension received by resident of France.	December 2007
ATOID 2005/153	Income tax Assessability of an Australian superannuation pension received by a resident of the United Kingdom.	December 2007
ATO ID 2006/166	Income tax Assessability of an allocated pension from an Australian resident public superannuation fund received by a resident of Japan.	December 2007
ATO ID 2002/191	Income tax Assessability of superannuation annuity received from non-resident fund by a resident taxpayer.	December 2007
ATO ID 2003/717	Income tax Assessability of Swedish superannuation pension received by an Australian resident.	December 2007
ATO ID 2004/547	Income tax Assessability of United Kingdom (UK) government pension received by an Australian resident.	December 2007
ATO ID 2004/549	Income tax Assessability of United Kingdom (UK) annuity received by an Australian resident.	December 2007
ATO ID 2004/550	Income tax Assessability of annuity paid from South African superannuation fund to an Australian resident.	December 2007
ATO ID 2004/778	Income tax Assessability of retirement pension received from France by a resident taxpayer which includes amounts not assessable for French tax purposes.	December 2007
ATO ID 2005/259	Income tax Assessability of government pension income received by an Australian resident from the United States.	December 2007

Self Managed Superannuation Fund Rulings and Determinations

Rulings program item.	Title (abbreviated)	Status
SMSFR 2007/D2 (Item 1982)	Giving financial assistance prohibited under paragraph 65 (1)(b) of the SISA	Draft published on 26 September 2007. Comments received being considered in the preparation of the final ruling which is due for publication June 2008.
SMSFR 2007/D1 (Item 1983)	The nature of the sole purpose test in section 62 of the SISA and incidental benefits	Draft published on the 5 September 2007. Comments received being considered in the preparation of the final ruling which is due for publication June 2008.
SMSFD 2007/D1 (Item 2226)	When is a dividend or trust distribution received for the purposes of paragraph 71D(1) of the SISA	Draft published on the 5 September 2007. Comments received being considered in the preparation of the final determination. This will be our first Final Determination, which is due to be published February 2008. We are however trying to bring forward our publication date to 19 December 2007.
Ruling (Item 1981)	Application of section 66 of the SISA to in specie contributions	Draft discussed at August Rulings Panel. Draft expect to be published for comment February 2008.
Ruling (Item 2225)	Business real property in relation to self managed superannuation funds.	Draft discussed at December Rulings Panel. Draft expected to be published for comment March 2008.
SMSFD 2007/D2 (Item 2310)	Scope of application of subregulation 13.22D(3) of the SISR	Draft published 17 October 2007. Comments received being considered in the preparation of the final determination which is due for publication February 2008.
Determination (Item 2429)	Valuation of units in unit trust related to an SMSF	Draft due for publication 19 December 2007.
Rulings (Item 2486)	Unpaid Trust Distributions	Draft to be discussed at 6-7 December 2007 Rulings Panel. Draft expected to be published for comment 26 March 2008.
Determination (Item 2508)	Death Benefit Nominations	Draft to be discussed at 6-7 December 2007 Rulings Panel. Draft expected to be published for comment 5 March 2008.

Meeting discussion
The meeting discussed that ATO ID 2007/219 income tax - Deduction for increased amount of superannuation lump sum death benefit, was not included on this list circulated prior to the meeting. That particular ATO ID was published on 30 November 2007. 2007/219 is an updated version of ATO ID 2006/290.

The Chair informed members that the first final SMSF regulator's ruling is scheduled to be published 19 December 2007. It deals with when a dividend or trust distribution is received for the purposes of paragraph 71D(1) of the SIS Act.

The Tax Office also expects to publish a new draft SMSF Determination on that date. The draft determination will deal with the valuation of units in a related unit trust for in-house asset purposes.

Members were thanked for the comments that they provided on the draft rulings published to date, as they were valuable in clarifying the key issues to be addressed in the final product.

1.6 Stakeholder questions - prioritising

¦ Stakeholder Q and A previously received via simpler super mailbox to be prioritises or removed.

 

Action item:	SSPR1207/1 Issue 9 From 1 July 2007, rollovers from one super fund to another with an invalidity component will not be separately itemised (assuming the sending super fund will include this component as part of the tax free amount). How will the receiving fund know that the client has previously received an invalidity component and thus avoid the mistake of recalculating this component again should the client provide another claim with relevant medical certificates? That is, will it be possible for a member to claim the concession more than once? The issue arises due to the reference to termination of employment being removed from the legislation (to ensure extend the concession to the self-employed).
Status:	Closed Previously answered in agenda item 5.7(e) of the 5 June 2007 minutes. (Extract of minutes attached).
Action item:	SSPR1207/2 Issue 208 Does a commutation include payment of a residual capital value at the end of an income stream? Whether commutation of an income stream would include payment of a residual capital value on termination of an income stream. Such a lump sum payment may arise at the termination of a short-term RCV income stream or when an income stream ends as a result of the death of a pensioner. We would be happy to discuss these further with the Tax Office and Treasury. Payments from an income stream that are not 'superannuation income streams benefits' ITR 995-01.03 states that "A payment from an interest that supports a superannuation income stream is not a superannuation income stream benefit if:(b) the person to whom the payment is made elects, before a particular payment is made, that that payment is not to be treated as a superannuation income stream benefit". If this payment is not a superannuation interest, what is the nature of the payment?
Status:	Closed Question relates to agenda item 11 - Issues concerning current pension liability. It will not be answered until the issues surrounding the meaning of current pension liability are fully explored. The NTLG Sub-group will be advised of an answer through this process.
Action item :	SSPR1207/3 Issue 209 Contributions immediately applied to the purchase of an income stream. We understand that Treasury's intention is to ensure that if a contribution is immediately applied to the purchase of an income stream (rather than being added to a member's existing accumulation account within a fund), the income stream's tax components should be calculated taking account of the components held within a member's accumulation account. However, several IFSA members believe that the regulations have not achieved this outcome and can be interpreted in a way such that they do not require aggregation in these circumstances (that is, that the contribution applied to the purchase of the income stream is quarantined) - resulting in a significant loophole. We seek confirmation of the Tax Office's interpretation.
Status :	Closed Refer to attached SPR Interest Paper and meeting discussion.
Action item :	SSPR1207/4 Issue 280 We understand that it is intended to allow income streams that commenced prior to 1 July 2007 to be maintained as separate interests from commencement on an ongoing basis after 1 July 2007. This would mean that such income streams would be isolated at commencement and not taken into account in the calculation of tax components of a future benefit that a member may receive from another account within a fund. While we understand that the Regulations commence on 1 July 2007, IFSA is concerned that the use of the word 'commences' in 307-200.05 may be interpreted in a way that requires aggregation for income streams paid before 1 July 2007. We seek confirmation that this is not the case.
Status :	Closed Previously answered in agenda item 5.7(f) of the 5 June 2007 minutes. (Extract of minutes attached)
Action item :	SSPR1207/5 Issue 361 Can the Tax Office confirm whether or not tax components calculated at 1 July 2007 would have to be recalculated if a member submits a new 82AAT notice (or a variation of a previous notice) after 1 July 2007?
Status :	Closed Previously published on www.ato.gov.au

Meeting discussion
The Chair explained the different reference numbers. SSPR1207/01 - means Simpler Super - received 12 July 2007 (this is purely for NTLG Sub-group purposes) and the issue number is the number it originally designated when it was received through the stakeholder Q and A process for Simpler Super.

Members were advised that these questions originated when externals had questions regarding Simpler Super. After reviewing the stakeholder questions and talking with the Superannuation business line, it was realised that these questions require a more substantive response.

Members were asked to notify the Chair if they believe there are any outstanding stakeholder questions that have not been listed.

Action item :	NTLGSPR041207/03 Members were asked to notify the Chair if they believe there are any outstanding stakeholder questions that have not been listed.
Status :	Out of session: All members

1.7 Top 10, interpretative/administrative issues

This list is an up-dated version of the list provided to members at the September 2007 meeting. It is for discussion purposes only. The proposed timing is indicative and is intended to provide members with a sense of its current priority in the Tax Office's work on hand.

Interpretative/administrative issue	Proposed timing	Current status
1. When will the Commissioner exercise his discretion to consider a contribution to a superannuation fund to be attributable to a different year for the purposes of the contributions caps? [B-1]	5 June meeting: July/August 2007. 4 September meeting: late 2007	In progress
2. Legislative instrument covering the exceptions to the 12 month rule in relation to employment termination payments. [B-2]	5 June meeting: June 2007. 4 September meeting: September 2007	SPR 2007/1 published on 12 November 2007 Item: Closed
3. Residency of super funds [B-3]	5 June: Draft to be circulated to members in late 2007.	In progress
4. 5 June: Does the new definition of segregated current pension assets have the same meaning as in the former section 273A? 4 September: Updated topic - Exempt income of a super fund. [B-4]	Draft to be circulated to members in late 2007.	In progress
5. 5 June: How is a superannuation interest valued? 4 September: Updated topic - issues related to superannuation interest.	Dependant on final product.	Before release, issues to be further discussed with NTLG members 4 December 2007.
6. 5 June: What is a contribution to a superannuation fund and when is it taken to have been made? 4 September: Updated topic - Deductibility of personal superannuation contributions. [B-10]	2008	Fact Sheet published on www.ato.gov.au Updated formal Tax Office view anticipated in 2008.
7. 5 June: New topic - What is income from carrying on a business for co-contributions purposes? [B-13]	September 2007	ATO ID 2007/195 published 2 November 2007 Item: Closed
8. 5 June: New topic - Bona fide redundancy and approved early retirement schemes - updating current Tax Office in TR 94/12 view to reflect new rules. [B-9]	Late 2008	In progress. Review of ruling added to rulings program.
9. 4 September: New topic - Meaning of Dependency (raised at NTLG meeting of 4 September 2007).	2008	In progress

Meeting discussion
Members were advised that the list would no longer appear as a standing agenda item as the items in it will form part of the Tax Office's business as usual workload.

One member raised an issue in relation to the residence of self-managed superannuation funds. They asked whether the ruling or some other Tax Office product could explain the transition from the old law to new law works in practice. For example, if a trustee returned to Australia for more than 28 days in the 2006-07 income year, is that relevant to determining whether the trustee is ordinarily resident in the 2007-08 income year. It was suggested that this could be mentioned in SMSF news.

Another member noted that it may not be necessary for the Tax Office to provide guidance on meaning of 'dependant' as the Superannuation Complaints Tribunal has considered the matter in a number of cases and sufficient guidance should be found from those cases. As there was further discussion on this point, members were asked to consider whether the Tax Office should publish some guidance and to provide examples where such guidance might be useful.

Action item :	NTLGSPR041207/04 Meaning of 'dependancy'.
Status :	Out of session: Members to give detailed examples of meaning of dependency by 1 February 2008. Email NTLG secretariat: NTLGSPRSubcommittee@ato.gov.au

1.8 Super interest

¦ This reflects the feedback we received from our previous discussion paper.

¦ For general discussion.

How many superannuation interests does a member of a superannuation fund have in their fund?

10. A 'superannuation interest' is defined, relevantly for present purposes, as 'an interest in a superannuation fund'. When read in context, the Commissioner considers that this definition generally refers to the rights of persons who have proprietary interests in trusts, interests under a trust that confer no proprietary interest in the assets of the trust, purely contractual rights (for example to a right to an annuity) and statutory rights to superannuation benefits.

11. Accordingly, 'interest in' a fund refers to a distinct claim of any kind against a fund, whether it be proprietary in character or not. However, various regulations made under the income tax law modify this general principle by creating special rules for what constitutes a superannuation interest.

12. Against this background, the following sets out the Commissioner's view as to what constitutes a superannuation interest in relation to the different kinds of superannuation fund.

13. This document deals only with superannuation funds and not with approved deposit funds, retirement savings accounts or superannuation annuities.

A. Self-managed superannuation funds (SMSFs)

14. An amount that supports a superannuation income stream that is commenced from an SMSF is treated as a separate interest from immediately after the income stream commences (that is, once its tax free component and taxable component proportions have been determined). In the case of multiple income streams commenced from the same SMSF, each income stream commenced gives rise to a separate interest from the interest to which each other income stream gives rise.

15. Except for that case, a member of an SMSF always has just one interest in the SMSF.

B. Superannuation funds other than SMFS and public sector superannuation schemes (PSSS)

16. An amount that supports a superannuation income stream that is commenced from a fund of this kind is treated as a separate interest from immediately after the income stream commences (that is, once its tax free component and taxable component proportions have been determined). In the case of multiple income streams commenced from the same fund, each income stream commenced gives rise to a separate interest from the interest to which each other income stream gives rise.

17. Except for that case, it is a question of fact whether the various amounts, benefits and entitlements that a member has in a fund constitute one interest or several interests in the fund. The principle described in paragraph 2 above should be applied in addressing that question.

18. If a member has separate accounts in a fund, the Commissioner accepts that an account constitutes a separate interest so long as, viewed as an objective matter, the account reflects a claim of the kind described in paragraph 2 that is separate and distinct from other claims of that kind that the member has against the fund. For example, if the member has bought separate 'products' under a separately documented process whereby the member acquires distinct sets of legal rights against the trustee.

19. By contrast, merely purporting to divide a member's entitlements into separate accounts as a bookkeeping exercise, such as the separate bookkeeping for investments against which a person had a single claim, without any such objective basis does not establish that there are separate interests.

C. Public sector superannuation schemes (including constitutionally protected funds)

20. The same principles as for the funds covered by section B above apply. However, for many public sector superannuation schemes (PSSS) the source of the various rights and obligations of scheme members is the legislation establishing the PSSS rather than a trust deed or a contract. An objective basis for discerning separate interests in the one scheme is likely therefore to be found in the relevant legislation than in any equitable or contractual relationship between trustee and member.

21. There is one extra rule. If a benefit is partly sourced from contributions to the scheme and earnings on those contributions and partly from some other source, the member's interest is separated into two interests: one interest that consists of the contributions to the scheme and the earnings on those contributions; and one interest consisting of the remainder of the interest. (For this purpose the 'contributions and earnings' are reduced by the amount specified in any notice given under s307-285 for the benefit.)

D. Anti-avoidance

22. Nothing in this document should be read as precluding the normal operation of the general anti-avoidance provisions in Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936). The creation or manipulation of separate superannuation interests by way of blatant, artificial or contrived arrangements for the sole or dominant purpose of obtaining a tax benefit may attract the operation of Part IVA. Practice Statement PS LA 2005/24 explains how the Commissioner interprets and administers Part IVA.

Comments received from members, prior to meeting:

ASFA's comments

¦ More guidance should be provided on Small APRA Funds (SAFs). Many SAFs are merely an SMSF with a different trustee structure. For these funds, being treated as an SMSF for this purpose may be appropriate. However, it should be noted that some SAFS are a vehicle for the benefits of the residual members of a corporate scheme for executives. As such, they may retain a more complex benefit structure, including a mixture of defined benefit and accumulation benefits.

¦ If SAFs are not considered separately then consideration needs to be given as to whether the anti-avoidance section should deal with the post 1 July 2007 creation of an additional account with distinguishing features for an existing member of the fund.

¦ The section on anti-avoidance would benefit from the inclusion of an example to flesh out the basic principle enunciated. Such an example could be:

An existing member, after 1 July 2007, opens an additional account in the same division of the fund. There are no features that distinguish the member's interests in the new account from the interest in the original account. The member directs non-concessional contributions to this account with the concessional contributions continuing to be made to the original account. The advantage of opening the second account is that you achieve a higher tax free proportion than would be achieved if all contributions were paid to a single account.

It could be argued that the sole or dominant purpose of the activity/scheme (that is, opening a new account and streaming contributions) is to obtain a tax benefit on the payment of any benefit from the new account (that is, increasing the tax free portion of the benefit paid).

¦ A clear statement is needed as to who any action under Part IVA would be taken against. ASFA's understanding is that the Tax Office would act against the member/beneficiary as it is that person that the income is assessed to and who has received the benefit. Any action under the Tax Administration Act or other act should only be taken against a trustee where the trustee is actively involved (complicit) in the avoidance activity.

IFSA's comments

I write concerning the draft position paper released by the Tax Office regarding a superannuation interest. IFSA welcomes the opportunity to provide comments on the paper and wishes to thank the Tax Office for engaging with industry on this critical issue during this busy period. IFSA is generally supportive of the Tax Office's position as set out in the current position paper.

IFSA is a national not-for-profit organisation which represents the retail and wholesale funds management, superannuation and life insurance industries. IFSA has over 140 members who are responsible for investing over $1 trillion on behalf of more than ten million Australians.

Characteristics of a separate interest

IFSA interprets the Tax Office's position paper to allow a superannuation trustee:

¦ to treat interests in different products separately for taxation purposes, and

¦ to treat separate accounts within the same product separately for taxation purposes when, for example, the accounts are issued pursuant to separate application forms (paragraph 9).

On that basis, superannuation funds are generally able to operate according to existing arrangements. In this context, we would appreciate the Tax Office's confirmation that the situations set below are viewed as 'separate and distinct from other claims of that kind that the member has against the fund'.

IFSA cites the following scenarios which, although not exhaustive, present situations where a member legitimately has a separate account in a fund, therefore constituting a separate interest:

¦ where an interest originally in a different 'product' in a fund is transferred, by intra fund transfer, to another 'product' in the same fund in which the member also has an existing interest/account (this is done to rationalise 'products')

¦ where a person maintains separate interests/accounts in the one 'product' in a fund with a different beneficiary or set of beneficiaries nominated on each account (this could be due to the fund rules allowing only one nomination per account or a desire to separate accounts and death benefit entitlements due to complex family structures)

¦ where a person holds an interest in a personal superannuation account in a fund as well as an interest in a standard employer-sponsored account in the same fund, and

¦ where an interest originally in a different fund is transferred, without consent, to an eligible rollover fund in which the member has an existing interest/account.

Anti-avoidance provision

The Tax Office's position paper indicates that a separate interest exists where a member/person has bought separate products or accounts under a separately documented process whereby the member acquires a distinct set of legal rights against the trustee. Therefore, IFSA considers that control over the creation of an interest lies with the member because a product issuer is unable to monitor or restrict a customer from submitting multiple applications for the same product.

IFSA is supportive of the anti-avoidance provisions, although notes that it is not practical for a superannuation provider to ascertain the intention of a member or prospective member when holding more than one account in a superannuation entity. Accordingly, the liability for engaging in and upholding the anti-avoidance provisions rests with the Tax Office and, in this context, IFSA wishes to confirm that any additional taxes or penalty must be applied to the member (rather than the fund).

Meeting discussion
The Tax Office explained that the paper circulated to this meeting differs in only two significant ways from the version discussed at the September 2007 meeting. First, paragraphs 7-10 emphasise that a member should be able to point to distinct legal claims against the superannuation provider. For example, if there is a separate contractual arrangement in relation to a particular benefit, then there may be a separate superannuation interest.

Secondly, a paragraph has been added dealing with the operation of Part IVA. It acknowledges that Part IVA may apply to the creation or manipulation of separate superannuation interests by way of artificial or contrived schemes. The Tax Office is still considering what more can be said in relation to Part IVA. It may be possible to develop some examples of situations where Part IVA will be applied.

Several members expressed a view that, from a policy perspective, small APRA regulated funds should be treated in the same way as self-managed superannuation funds. Failing that, consideration should be given to providing guidance directed specifically at these funds.

Members suggested that when it comes to the application of Part IVA, the issue should be considered in light of any action taken by a member of the fund after 30 June 2007. The change made to the regulations relating to superannuation interest were designed to deal with situations where because of legacy systems issues, it would have been impossible to identify all of the accounts or interests of a particular individual. Any examples of the application of Part IVA will be of assistance to everyone.

Some members provided draft written comments prior to the meeting but indicated they were generally supportive of the approach taken in the Tax Office's paper. However, they asked for confirmation that it would be possible to create a separate pension interest pursuant to the terms of a new product disclosure statement (PDS) notwithstanding that a member might have an existing accumulation account with the product provider. The Tax Office confirmed that would be possible provided that the fund could clearly show two distinct and separate legal obligations to the member under the terms of the PDS and fund rules.

Next steps:

The Tax Office will be publishing information on www.ato.gov.au based on the paper tabled.

1.9 Progress of Litigation

¦ Provide members with an update on recent cases of significance.

Kerr v Commissioner of Taxation [2007] AATA 1732 (5 September 2007)

This case dealt with a reasonable benefits limit (RBL) excessive benefit determination.

The taxpayer received an Eligible Termination Payment (ETP) in 2000 on his retirement and, based on the information obtained from the Tax Office and his financial planner, invested funds in various superannuation products.

The taxpayer's superannuation arrangements failed to meet the requirement for the higher pension RBL and part of his pension payments were determined to be excessive and therefore, not subject to the 15% tax rebate.

The Taxpayer appealed against the decision of the Commissioner and put forward two suggested scenarios to resolve the situation, including the exercise of the discretion to find 'special circumstances' pursuant to section 140ZB of the ITAA.

The Tribunal did not accept the taxpayer's suggestion for an alternative solution as it did not comply with the legislation. Whilst accepting that this created a form of financial hardship on the taxpayer, the Tribunal's view was that his situation is not so unusual or uncommon that it constitutes 'special circumstances' in terms of the legislation - the result of not applying the discretion to find 'special circumstances' in this case did not result in a situation which is unjust, unreasonable or inappropriate in relation to the taxpayer.

Raelene Vivian, suing in her capacity as the Deputy Commissioner of Taxation (Superannuation) v Fitzgeralds [2007] FCA 1602

This was a civil penalty case which had been brought by a Deputy Commissioner of Taxation pursuant to subsection 197(1) of the Superannuation Industry (Supervision) Act 1993 (SISA). The respondents were a husband and wife (Mr and Mrs Fitzgeralds) who were the trustees of a superannuation fund known as the Axent Group superannuation fund.

Before Mr and Mrs Fitzgeralds became the trustees of the fund, the fund had two members (Mr and Mrs Fitzgeralds) and its sole trustee was a company, Antrend Proprietary Limited ('Antrend') (of which Mr and Mrs Fitzgeralds were the directors). The principal asset of the fund was an industrial property at Nerang in Queensland purchased by Antrend (as the trustee) sometime in 1997.

In February 2001, the Supreme Court of Queensland ordered that Antrend be wound up. In May 2001, the liquidator of Antrend commenced a proceeding against Mr Fitzgeralds claiming the sum of $129,994. Subsequently, the liquidator caused the Nerang property to be sold and the sale was handled by solicitors for Mr and Mrs Fitzgeralds in their capacity as trustees of the fund. The proceeds of sale of the Nerang property, after deduction of legal expenses, were dispersed to Mr Fitzgeralds personally and to the liquidator on Mr Fitzgerald's behalf in satisfaction of the claim against him.

The Court found that Mr and Mrs Fitzgeralds (as trustees of the fund) had contravened the sole purpose provisions of SISA, firstly, by permitting the Nerang property to be sold and, secondly, by making payments referred to above and thereby causing the fund to be maintained for purposes other than a purpose described in subsection 62(1) of the SISA. Further, Mr and Mrs Fitzgeralds provided financial assistance using the resources of the fund to a member of the fund, namely, Mr Fitzgeralds, in contravention of subsection 65(1) of the SISA.

Having regard to the circumstances of the case, the Court found it appropriate to impose penalties in respect of Mr Fitzgeralds' contraventions of $20,000, and that in respect of Mrs Fitzgeralds' contraventions of $10,000.

Meeting discussion
Members were particularly interested in the Fitzgerald case as it highlighted the dangers of not having sufficient evidence to identify that assets were owned by the individuals in their capacity as trustees of the self managed superannuation fund. The members encouraged the Tax Office to publicise the outcome of this case, possibly via the SMSF newsletter.

Action item :

NTLGSPR041207/05 That the Tax Office consider including some information in SMSF news on the three following issues: ¦ the Fitzgeralds case and the fact that there was insufficient evidence that the assets were assets of the SMSF ¦ the new residency rules, and the fact that they are used to test residency as of 1 July 2007, and ¦ the transfer of an existing life policy into a super fund and the implications of section 66.

Status :

The Tax Office currently considering including this information in future SMSF newsletters.

1.10 Technical issues raised by members

1.10.1 Insurance policies

23. Can an insurance policy be transferred from a member to a superannuation fund?

24. What is the tax treatment of an insurance payment made from a policy which has been transferred from a member to the superannuation?

25. What is the tax treatment of a death benefit when not deduction is claimed in the year the payment is made although a deduction may have been claimed in prior periods?

Background information:

An insurance policy is an annually renewable product with the removal of the RBL provisions a number of trustees have sought to transfer these policies to a superannuation fund. One argument is that as this is an annually renewable product this is merely a transfer of an existing arrangement. There is no acquisition from the member. Is there a tax implication of the transfer should a death benefit be paid?

Alternatively an SMSF has an insurance policy from its commencement date. The fund claims a deduction annually. In the final year the trustee elects not to claim a deduction. Is the payment from the policy assessable or not?

Further information sought and provided as follows:

What would be the purpose of the transfer of the policy from the member to the SMSF?

The member may have held the policy personally as the benefit paid upon death would trigger an excess RBL in order to pay a pension to the member in this circumstance a testamentary trust would be required upon the death of the member. With the removal of RBLs the client may wish to transfer the policy to the fund. One pension comprising of insurances and accrued benefits can be paid to dependants in the event of the member's death.

What advantages does transferring an existing policy provide over the alternative of an SMSF taking out a policy in its own right?

The advantages of transferring the policy are:

¦ that there are no medical requirements as these were done at the commencement of the policy, and

¦ that the fund meets ongoing payments and therefore the costs of insurance are reduced. For example, if I pay $1000 of after tax dollars for insurance and my tax rate exceeds 15% I am able to maximise savings by contributing the grossed up $1000 and paying 15% tax. Reducing tax and increasing savings.

What is the nature of the policy? For example is it a life, key-man, trauma or other type of policy?

Policies will usually be life, disability, income protection. Key man and trauma are less likely as they do not payout a benefit when the event occurs unless the member dies or meets a disability definition.

Who owned the policy prior to its transfer to the SMSF? For example, was it the member or an employee or other?

Generally the owner is the member or relative; that is spouse or the employer, that is, company.

What exactly is being transferred to the SMSF under the policy? Are rights being transferred, and if so what rights?

The ownership of the policy is transferred, the fund will take on responsibility for future premiums and will claim the benefit should a claim event occur.

On transfer how do the rights and obligation associated with the policy change?

Who is the insured person or what is the insured event? Does this change after the transfer?

The insured and event would remain the same.

Who are the beneficiaries under the policy? Does this change after the transfer?

Who pays the premiums under the original policy? Does this change after the transfer?

Death benefit beneficiaries are identified by the will or insurer upon the death of the insured death. Therefore there should be no change.

Is it intended that a claim will be made for a superannuation contribution when the policy is transferred to the SMSF?

The policy is transferred at renewal and the SMSF would make the contribution in future periods. This may be met from future contributions.

Industry view/suggested treatment:

The transfer is not an acquisition from a member it is merely a change of owner when made at the policy anniversary as the fund pays any future premiums. The tax treatment does not vary from current tax arrangements.

The payment is not assessable when a claim is made in the year no deduction is claimed.

I was particularly focused on Section 66 but if there is an implication on Reg. 1.03 and S62, this is also useful.

Technical references:

Nil

Impact on client:

The changes arising from simpler super have seen financial advisors review and restructure insurance arrangements. Uncertainty in relation to these matters can result in incorrect tax treatment of death benefits.

Tax Office response:

As the questions asked are very broad, the Tax Office can only offer responses in similar broad terms.

In preparing a response, we have focused only a policy that is a life policy as defined in the Life Insurance Act 1995 (the Life Act). Under the Life Act, a life policy includes certain disability policies.

26. Transfer of the policy from member to an SMSF

Requirements for transferring a life policy

It is clear from the Life Act that a life policy can be assigned. However, sections 200-203 of the Life Act set out certain requirements that must be met. The assignment must be by way of a memorandum of transfer (the form of which is prescribed by regulations), signed by both the transferor, transferee, and an officer of the life company, the assignment must be endorsed on the policy or an annexure to it and the assignment must be registered in a register of assignments kept by the life company.

If a member of a self-managed superannuation fund were to seek to transfer a life policy held in his or her own name to the trustees of the self-managed superannuation fund, we assume it remains necessary to follow this procedure even if the individual is one of the trustees of the fund.

Further, we assume that this process must be followed even if the transfer occurs at the time of the renewal of the policy. Were this not the case we believe it would be necessary to treat the policy as a completely new policy. This would appear not to be the intention having regard to the suggestion that a medical examination would not be required. Further, we presume that accrued bonuses, accrued discounts on premiums or other rights in recognition of premiums previously paid by the member or the length of time that the member held the policy is meant to be retained.

Section 66 of SIS Act

In light of the previous paragraph, it is highly likely that we would consider the assignment to be an acquisition of an asset from a related party that is prohibited by section 66 of the SIS Act.

Further, if the policy is acquired from a member of the fund, or a relative of a member of the fund, the acquisition would not come within the exception for certain in-house assets in subparagraph 66(2A)(a)(iii) of the SIS Act.

Section 62 of SIS Act

The question states that the transferred policies may be life, disability, income protection, or less commonly key-man or trauma.

Sole purpose test questions arise depending on the nature of the policy transferred. For example APRA Circular II.A.4 says 'An unreasonable diversion of contributions as premiums for the contingent trauma cover would be difficult to reconcile with the sole purpose test and the fundamental retirement objective of superannuation.' It would appear questionable from a sole purpose perspective if the policy is not a good fit with the self-managed superannuation funds benefit structure and is transferred to get a tax benefit in respect of premiums (although the SMSFR 2007/D1 on the sole purpose test states that 'The Commissioner considers that, in a SIS Act context, superannuation tax concessions, although a form of benefit, are not a factor when applying the sole purpose test'.

Contribution

The transfer of the life insurance policy may represent a contribution of property. If that is the case, a method needs to be established to calculate the amount of the contribution for the purposes of allocating an account to the credit of a member, the contributions caps, deductions and co-contributions.

27. What is the tax treatment of an insurance payment made from a policy which has been transferred from a member to the superannuation fund?

Assuming that the relevant policy is a policy of insurance on the life of an individual as described in item 5 of the table in subsection 118-300(1) of the ITAA 1997 (that is, a term policy) any capital gain or loss made on a payment made in satisfaction of the policy may be disregarded. Nor is the amount ordinary income assessable under section 6-5 of that Act.

28. What is the tax treatment of a death benefit when no deduction is claimed in the year the payment is made although a deduction may have been claimed in prior periods?

The tax treatment of a superannuation death benefit that is a superannuation lump sum paid by a superannuation fund from the proceeds of an insurance policy is determined having regard to whether the trustee of the fund has been, or is to be, claimed under section 295-465 or 295-470 of the ITAA 1997 (or former sections 279 or 279B of the ITAA 1936). The benefit will include an element untaxed in the fund if a deduction has been, or is to be, claimed by the trustee.

Meeting discussion
Several members suggested that the answer would need to distinguish between term life policies and other life policies. It was suggested that the arrangement would be most likely to relate to a term life policy under which there are no accrued benefits. The representative for the ICAA said the answer would be reviewed and if necessary follow-up questions would be submitted.

Action item :	NTLGSPR041207/06 Insurance policies
Status :	ICAA to provide more specific questions and further background information if necessary by 1 February 2008. Email NTLG secretariat: NTLGSPRSubcommittee@ato.gov.au

1.10.2 Capital gains tax (CGT) cap election

If an individual is not personally 'required' to lodge a tax return for the income year, are they prevented from satisfying s.292-100(2)(b)(i) or s.292-100(7)(b)(i)?

Background information:

For a contribution relating to the 15 year retirement exemption or CGT retirement concession to count towards the $1 million CGT cap, an individual is, amongst other things, required to make a contribution into superannuation by the later of the day they are required to lodge their tax return for the relevant income year and 30 days after receipt of the capital proceeds (s.292-100(2) and (7)).

The day you are required to lodge your tax return is determined by legislative instrument and generally set as 31 October (for example, refer legislative instrument ID: 2006/LC/001). The instrument sets out who is required to lodge a return (for example, refer to Table A - item 4, 'Carried on a business', item 15, 'derived assessable income from dividends or distributions and franking credits that exceeded $6000' and Table C - 'taxable income exceeded $6000').

If a taxpayer did not carry on a business and has taxable income less than $6,000 they are not 'required' to lodge a return (presumably they may still lodge if desired?).

Therefore the date set out in the determination does not apply as they are not required to lodge.

However, for the purposes of claiming the exemption there are differences in the timing of tax returns - for example:

¦ Retirement exemption

If an individual taxpayer elects to use the retirement exemption under subdivision 152-D, they need to make a choice under s.152-305. How to make the choice is set out under s.103-25.

S.103-25 states that the choice must be made by the day you lodge your tax return for the relevant income year or within further time permitted by the Commissioner.

It would appear erroneous that a taxpayer may lodge a tax return as evidence that they have made the choice for CGT relief but if they are not 'required' to lodge a return then for the purposes of the CGT cap they must contribute the proceeds within 30 days of receipt of proceeds.

¦ 15-Year exemption

'Choice' must be made as per s.103-25 - but this does not apply where 15 year rule applies as capital gain is disregarded - also, for the purposes of amounts that may count towards the CGT cap, capital proceeds are included (that is, no CGT event required).

S.103-25 only states when the choice must be made and that lodging a tax return is evidence that choice has been made.

Again - if an individual received proceeds they wish to count toward the CGT cap and are not 'required' to lodge a tax return, the proceeds must be paid into super with 30 days.

Industry view/suggested treatment:

The wording in section s.292-100(2)(b)(i) or s.292-100(7)(b)(i) assume the taxpayer must lodge a return.

Industry view is that individual taxpayers should be permitted to make the contribution to their super fund by the day taxpayers in general are required to lodge their tax return (that is, 31 October), even if they are exempt from lodging a return for the relevant income year.

Non-SMSFs must still report the contribution to the Tax Office in the Member Contributions Statement (MCS) by 31 October.

Technical References:

Refer above.

Impact on Clients:

Small business clients who are not required to pay income tax for the income year are disadvantaged and will have to contribute the proceeds to the super fund within 30 days of receipt of the proceeds in order to be counted towards their CGT cap. Many small business clients may assume they have until they are required to lodge their tax return for the income year.

In addition, many small business clients may not know whether they will be required to lodge a tax return for the income year (especially if they sell their business at the start of the income year) and are therefore forced to contribute the proceeds into super within 30 days of receipt to ensure they will count towards their CGT cap.

Explanation:

Requirement to lodge a tax return under the 'Lodgment of Return Legislative Determination'.

The legislative determination 'Lodgment of returns in accordance with the ITAA 1936, the ITAA 1997, the Taxation Administration Act 1953 (TAA 1953) and the SIS Act 1993 for the year of income ended 30 June 2007' (TPAL 2001/7) sets out who is required to lodge an annual return, in the approved form, and the due date for lodgment.

The legislative determination requires a person who has made a net capital loss or is entitled to apply a net capital loss of an earlier income year, or a company or trust estate that has unapplied net capital losses of more than $1,000, or a company transferring a capital loss to lodge a tax return.

A person carrying on a business is also required to lodge a tax return.

A person who is eligible for a government superannuation co-contribution is also required to lodge a tax return. Superannuation contributions that qualify for the CGT small business concession exclusions from the caps are eligible contributions for the purposes of the co-contributions.

Therefore, it would seem that most individuals who are likely to be making a contribution covered by section 292-100 of the ITAA 1997 are also likely to be lodging a tax return.

The contributions standards in regulation 7.04 of the SIS regulations 1994 (The SIS Regulations) are relevant.

All CGT small business contributions will be member contributions for the purposes of the SIS regulations. Further, all member contributions will be fund-capped contributions as defined in sub regulation 7.04(7) of the SIS regulations unless the fund is informed that the contribution is covered by the personal injury or CGT small business contributions exclusions. Accordingly, if a CGT small business contribution exceeds an individual's non-concessional contribution cap, the fund will be required by sub regulations 7.04(3) and (4) of the SIS regulations to return the amount in excess of the cap to the person. Funds should encourage members to provide the 'CGT cap election' (Nat 71161) with their contributions.

Meeting discussion
There was no discussion as the members accepted that the answer was appropriate.

1.10.3 Tax deduction of personal superannuation contributions and notice variations

Question 1

Sub-section 290-170(2) provides that a notice to claim a deduction for contributions is not valid where:

¦ the notice is not in respect of the contribution;

¦ the trustee or RSA provider no longer holds the contribution; or

¦ the trustee or RSA provider has begun to pay a superannuation income stream based in whole or part on the contribution.

The industry's view is that, provided personal contributions of the amount set down in the notice have been made in the applicable financial year AND the amount of the tax free component remaining in the member's account covers the value of personal contributions specified in the notice, the notice can be accepted regardless of the sequence of benefit payments/pension commencement and contributions made to the account.

Is the Tax Office prepared to accept that as long as sufficient tax free funds are held in the member's accumulation account just before the member 'gave the notice of intent to claim a tax deduction' for their personal contributions in a particular year that a valid notice may be given?

Example :

Rachel's superannuation interest is valued at $150,000 ($50,000 tax free, $100,000 taxable). Rachel makes a $50,000 personal contribution in March 2008 which would be counted against the tax free component of her superannuation interest at the time it is received. Her total superannuation account balance is $200,000 ($100,000 tax free, $100,000 taxable).

Assume Rachel commences a pension for $180,000 in May 2008 leaving $20,000 ($10,000 tax free, $10,000 taxable) in her account. Rachel then rolls $40,000 (all tax free) into her fund in June 2008 just prior to lodging a notice in September 2008. Her total account balance is $60,000 ($50,000 tax free, $10,000 taxable). Is Rachael eligible to lodge a valid notice to claim a tax deduction for all or part of the $50,000 contribution?

Background

The example in the Explanatory Memorandum (EM) to Tax Laws Amendment (Simplified Superannuation) Bill 2006 and supporting Bills (paragraph 1.54) indicates that where residual funds remain in a member's account after a partial rollover (which would also presumably apply to commencement of a pension using part of the account balance), then a valid notice may be given.

We believe that this would also apply if after a partial rollover or commencement of a pension, the member has sufficient funds in the account just prior to giving the notice but where this may have occurred by virtue of additional contributions and/or rollovers. Provided the personal contributions were made in the year and there is sufficient tax free in the account to cover the value stipulated in the notice, then the trustee should be able to accept the notice.

We believe the intent of the provisions was to provide clarity to trustees in the law so that a notice did not have to be accepted and tax paid if the value of the tax free in the member's account was insufficient to cover the amount in the notice. That is, the intent was to correct/clarify the provisions in the ITAA 1936 as alluded to in the EM to amendments to 82AAT(1C) in Taxation Laws Amendment (Superannuation) Bill 1993 so that if there was not sufficient benefits in the account the fund would not be obligated to act on the notice:

'No adjustment can be made once a member leaves a fund because once benefits have been paid out it is too late for the fund to make the necessary adjustments (New subsection 82AAT[1C])'.

Question 2

Can an eligible person vary the notice of intent to claim a deduction under S.290-180(3A) under the same conditions?

Example :

Rachel's superannuation interest is valued at $150,000 ($50,000 tax free, $100,000 taxable). Rachel makes a $50,000 personal contribution in March 2008 which would be counted against the tax free component of her superannuation interest at the time it is received. Her total superannuation account balance is $200,000 ($100,000 tax free, $100,000 taxable).

Rachel lodged a notice to claim 100% of her $50,000 personal contribution in April 2008. Rachel commences a pension for $180,000 in May 2008 leaving $20,000 in her account ($5,000 tax free, $15,000 taxable). Rachel then rolls $40,000 (all tax free) into her fund in June 2008. The total account is now $60,000 ($45,000 tax free, $5,000 taxable). Is Rachel eligible to lodge a notice to vary (up to $45,000) the original notice of intent to claim a deduction?

Background information:

History

S 290-180(3A) inserted by No 15 of 2007, S 3 and Sch 3 item 15, applicable to the 2007-2008 income year and later years.

Refer above.

Industry view/suggested treatment:

As long as sufficient tax free funds remain in the accumulation phase (at a fund level) then taxpayers should be able to lodge a valid 'notice of intent to claim a tax deduction' in respect of personal contributions made in a particular financial year - this is regardless of the source of those funds.

Note that (tax free) amounts contributed by way of rollover would not in themselves be deductible to a member as these amounts are not personal contributions. However a tax free rollover may allow a valid notice to subsequently be lodged if the tax free amount specified in the notice is equal to or less than the amount of personal contributions made during the year.

Technical references

EM to Tax Laws Amendment (Simplified Superannuation) Bill 2006 and supporting Bills.

S 1.54 An example of when the trustee or RSA provider no longer holds a contribution is where the member has requested a partial rollover of the superannuation benefit which includes the contribution covered in the notice.

Example 1.2

Rachel's superannuation interest is valued at $5,000 (tax free component). She makes a $10,000 personal contribution in March 2008 which would be counted against the tax free component of her superannuation interest at the time it is received. Her total superannuation account balance is $15,000.

In June 2008, Rachel requests to rollover $6,000 leaving her with a balance of $9,000. She then lodges a notice in September 2008 advising that she intends to claim a deduction on the $10,000 contribution made in the 2007-08 income year.

As her account balance is only $9,000, all of the $10,000 contribution is no longer held by the trustee and therefore the notice is not valid. However, if Rachel were to lodge a notice for $9,000, this would be valid. The trustee would then convert the $9,000 from a tax free component to a taxable component and include this amount in the fund's assessable income.

Validity of notices

s.290-170(2)

The notice is not valid if at least one of these conditions is satisfied:

(a) the notice is not in respect of the contribution

(b) the notice includes all or a part of an amount covered by a previous notice, or

(c) when you gave the notice:

(i) you were not a member of the fund or the holder of the RSA

(ii) the trustee or RSA provider no longer holds the contribution, or

(iii) the trustee or RSA provider has begun to pay a *superannuation income stream based in whole or part on the contribution .

History

S 290-170(2) amended by No 15 of 2007, S3 and Sch 4 item 3, by substituting 'contribution' for 'contributions' in paragraph (c)(iii), effective 15 March 2007.

S.290-180 notice may be varied by not revoked or withdrawn.

290-180(3A)

The variation is not effective if, when you make it:

(a) you were not a member of the fund or the holder of the RSA

(b) the trustee or RSA provider no longer holds the contribution; or

(c) the trustee or RSA provider has begun to pay a superannuation income stream based in whole or part on the contribution.

Impact on clients:

Provides greater flexibility and clarity for trustees to accept tax deduction notices (where otherwise valid) for member's personal super contributions notwithstanding a partial rollover or commencement of a pension during the year.

There is no impact on trustees from an 'out of pocket' taxation perspective. Record keeping requirements if one account closed and another account exits.

Tax Office response:

Question 1:

Subsection 290-170(2) provides that a notice to claim a deduction for contributions is not valid where:

¦ the notice is not in respect of the contribution

¦ the trustee or RSA provider no longer holds the contribution; or

¦ the trustee or RSA provider has begun to pay a superannuation income stream based in whole or part on the contribution.

Answer:

No. The sequence of events is essential to determining the validity of a section 290-170 notice. A notice will be invalid if it is given to the fund after a personal contribution has been taken into account when determining the proportions of an income stream that has commenced.

Explanation :

The receipt of a notice of intention to deduct a personal contribution effectively turns a contribution that would be taken into account in determining the contributions segment (and subsequently the tax free component) of a superannuation interest into a contribution that would be taken into account in determining the taxable component of the interest. This means that upon receipt of a valid notice, the contributions segment of the person's interest will be reduced by the amount nominated in the notice.

Subsection 290-170(2) of the ITAA 1997 provides guidance on the validity of notices. That subsection provides:

The notice is not valid if at least one of these conditions is satisfied:

(a) the notice is not in respect of the contribution

(b) the notice includes all or a part of an amount covered by a previous notice, and

(c) when you gave the notice:

(i) you were not a member of the fund or the holder of the RSA

(ii) the trustee or RSA provider no longer holds the contribution; or

(iii) the trustee or RSA provider has begun to pay a *superannuation income stream based in whole or part on the contribution.

The law requires that the notice be in respect of the contributions made in the relevant financial year that are still held by the fund and not be the subject of an income stream based in whole or part in the contribution.

Where an income stream has commenced to be paid that is based in whole or part on the contributions, the conditions are not satisfied and the notice is not valid. This is the case even if a subsequent amount containing a tax free component is rolled into the fund from another fund. A deduction cannot be claimed in respect of a contribution in the form of a rollover superannuation benefit - section 290-5.

In the example submitted with the question, Rachel has a superannuation interest valued at $150,000 ($50,000 tax free and $100,000 taxable). Rachel makes a $50,000 personal contribution in March 2008 which is, at that stage, a non-concessional contribution that would be counted as part of contributions segment (and subsequently the tax free component). Her total superannuation account balance is subsequently $200,000 ($100,000 tax free, $100,000 taxable).

Rachel could at this point in time lodge a section 290-170 notice to claim a deduction for an amount in that income year of up to $50,000. That is, any amount up to the amount she has made as a personal contribution in that year.

If, before lodging a section 29-170 notice, she were to commence a pension for $180,000 the fund would have to determine the proportions of her superannuation interest and apply those proportions to the pension and residual accumulation interest. (Half of the interest at that time would be taken to be the tax free component, meaning the pension interest would comprise a $90,000 tax free component of the total $180,000 and the residual accumulation interest would comprise a $10,000 tax free component of the total $20,000.) Subparagraph 290-170(2)(c)(iii) would mean she could not lodge a valid notice for any amount of the $50,000 contributions made in March.

However, having regard to example 1.2 in the EM to the Tax Laws Amendment (Simplified Superannuation) Bill 2006 the outcome is different if Rachel were to roll over an amount instead of commencing a pension.

In that example Rachel, by rollover, reduces the amount of her contributions segment below the amount contributed in the relevant financial year. She contributed $10,000 but her contributions segment remaining in the fund is only $9,000. A notice can now only be given in respect to the $9,000 remaining in the contributions segment of her interest in the fund. If she were to lodge a notice for more than this amount it would be invalid. If an invalid notice is made she can not vary this notice down, see response to Question 2 below.

Using the figures provided in the example to this query, suppose before lodging a section 290-170 notice, Rachel were to rollover $180,000 in May leaving $20,000 ($10,000 tax free and $10,000 taxable). The EM indicates she could lodge a valid notice for an amount up to $10,000 of the $50,000 contributions made in March. The payment of a rollover does not have the effect of making the notice invalid under 290-170(2).

It does not matter that the amount Rachel rolls over to her fund includes a tax free component. That contribution cannot be deducted - see section 290-5.

The Tax Office considers that the inconsistency in the effect of 290-170 notices between the commencement of a pension, the payment of a rollover or the payment of a lump sum may be required to be addressed by an amendment. The Tax Office intends to draw the matter to the attention of the Treasury.

Question 2:

Can an eligible person vary the notice of intent to claim a deduction under s.290-180(3A) under the same conditions?

Answer :

No. Once a taxpayer lodges a valid notice, the amount of the notice can not be varied down, if the contribution to which the notice relates is the basis (in whole or in part) of an income stream. The taxpayer will be bound by the original notice. The exclusions in subsection 290-180(3A) operate in the same way as those in subsection 290-170(2).

Meeting discussion
Some members stated that they did not agree with the Tax Office's draft answer. They believed that Treasury had intended to overcome a problem with the notice requirements of the ITAA 1936. The new provision was meant to allow funds to simply enquire whether the member's account held enough personal contributions to allow the notice to be given. The Tax Office stated that the interaction of the notice provisions with the proportioning rule that applies for benefits has to be considered in this case and the new provisions do not appear to operate as simply as was being suggested.

The Tax Office had sought, but not received, input from Treasury as to the policy intention underlying the change prior to the meeting.

Several of the members suggested the answer should not be finalised advising that they would make a further submission to the Tax Office on the issue.

The Chair agreed to defer finalisation of the answer until the March 2008 meeting.

Action item :	NTLGSPR041207/07 Tax deduction of personal superannuation contributions and notice variations.
Status :	IFSA, ASFA and CPA to provide further submissions on their alternative view for discussion at next meeting. Submissions by 1 February 2008. Email NTLG secretariat: NTLGSPRSubcommittee@ato.gov.au

1.10.4 Non-geared unit trusts and investment in listed securities

Can a self managed superannuation fund invest in a non-geared unit trust (refer to Division 13.3A of the SIS Regulations) and satisfy the exclusion from the in-house asset rules under S.71(1)(j) of the SIS Act where the unit trust holds shares in a publicly listed company?

Background information:

As a general rule, an investment by a SMSF in a related unit trust falls within the definition of an in-house asset as contained within S.71 of the SIS Act. As a consequence, an SMSF's investment in the related unit trust cannot exceed 5% of the fund's overall assets. Refer to S.82 of the SIS Act.

However, the 5% in-house investment restriction mentioned above does not apply where the related unit trust satisfies the conditions contained in Division 13.3A of the SIS Regulations. Broadly speaking, a related unit trust will satisfy the conditions contained in Division 13.3A, and thus be excluded from the in-house investment restrictions, where the unit trust satisfies the following restrictions:

¦ the unit trust has no borrowings or loans

¦ the unit trust does not have any investments in any other entity

¦ the unit trust does not have a charge (for example, mortgage) over any of its assets

¦ the unit trust does not own any assets that were acquired from a related party, or were previously owned by a related party (except business real property) of the fund

¦ the unit trust has not entered into a lease agreement with a related party of the fund (unless the lease is legally binding and relates to business real property), and

¦ the unit trust has not entered into a loan, or other form of financial assistance, to a related party of the fund.

Importantly, under 13.22C(2)(f)(i) of the SIS Regulations (and as mentioned above), the assets of the non-geared unit trust cannot include 'an interest in another entity'.

Unfortunately, the SIS regulations fail to provide a statutory definition to the concept of an interest in another entity. It would therefore appear that the concept of what constitutes an interest in another entity takes on its ordinary meaning. It is our interpretation that the concept of an interest in another entity would be broadly defined and include an interest held by the unit trust in another company or trust, irrespective of whether the other entity was listed on an approved stock exchange.

That is, an investment by an SMSF in a non-geared related unit trust will be subject to the in-house asset rules (that is, the 5% in-house asset restriction) where the unit trust holds shares or units listed on an approved stock exchange.

However, the above result appears to be rather anomalous when one considers that the SIS Act specifically allows an SMSF to purchase shares or units listed on an approved exchange directly from a related party, provided the acquisition occurs for market value. Refer to S.66(2) of the SIS Act.

Industry view/suggested treatment:

It is our interpretation that the in-house asset rules would apply where an SMSF purchases units in a related non-geared unit trust which holds shares or units that are listed on an approved stock exchange. Refer to Division 13.3A.

Technical references:

Division 13.3A of the SIS Regulations

S.66 of the SIS Act

S.71 of the SIS Act

Impact on clients:

It has become increasingly popular for SMSFs to invest in related non-geared unit trusts as a form of investment structuring.

Anecdotally, a number of NTAA members have suggested that some of their clients may have inadvertently breached this condition, although it is impossible to place a precise number on the funds affected.

Tax Office response:

The Tax Office agrees that an investment by an SMSF in a non-geared related unit trust will be subject to the in-house asset rules where the unit trust holds shares or units listed on an approved stock exchange.

The investment in the related unit trust will not be excluded from the in-house asset rules under paragraph 71(1)(j) of the SISA as it does not meet the requirements of subparagraphs 13.22B(2)(f)(i) or 13.22C(2)(f)(i) of the SISR. By holding shares in a publicly listed company the related unit trust is holding an 'interest in another entity'.

The purpose of the exclusion to the in-house asset rules, provided by Division 13.3A of the SISR, was to provide increased flexibility for small superannuation funds in the way they hold business real property.

The following extract from the regulation impact statement to the explanatory statement to the SIS amendment regulations 2000 (No. 2) which amended the SISR to include Div 13.3A explains the intended limited scope of the exclusion.

The broad policy objective is to provide increased flexibility for small superannuation funds in the way in which they hold business real property, while preserving the broader objectives in respect of retirement income policy.

The more specific policy objective is to provide a class of related companies and trusts, that can be used by small superannuation funds and related parties to jointly invest in business real property, without the investment by the superannuation fund being treated as an in-house asset.

Some submissions received during consultation advocated that the exception should apply to a related company or trust that undertakes a wider range of activities, such as investing in other entities that a superannuation fund could invest in. However, this would go beyond the objective of the exception, which is to provide a means of jointly holding business real property. Superannuation funds can hold interests in other entities directly.

We are intending to publish ATO IDs dealing with this issue.

Meeting discussion
It was agreed that the Tax Office response was appropriate. The Tax Office informed members they were currently creating a small series of ATO IDs to provide guidance in relation to this issue. The representative from the CPA questioned whether the Commissioner would be prepared to exercise his discretion under paragraphs 71(1)(e) or (f) of the SIS Act. The Tax Office stated that it would be unlikely that the discretion would be exercised in these circumstances as it would effectively circumvent the clear policy intent.

1.10.5 Disability payments

Issue raised:

Disability payments

Is a payment of benefits accrued after a person is disabled eligible to receive the 15% rebate?

Background Information:

A client who is only 47 but is permanently disabled (meets the two doctors' definition). She invests a windfall gain ($500,000) into super as a $50,000 concessional and $450,000 non-concessional contribution.

She then started an allocated pension pre 1 July 2007 the treatment is:

¦ she met the permanent incapacity definition - hence could access her benefits, and

¦ she met the definition of disability pension in 159SJ (because all that definition requires is the two doctor's certificates) and hence could receive the 15% rebate.

Under the new provisions:

S 301-40 gives you the 15% offset before preservation as long as the income stream is a disability superannuation benefit. However, one arm of the definition of disability superannuation benefit [s 995-1(1)] is that 'the benefit is paid to a person because he or she suffers from ill-health'.

Is there a nexus between the disability benefit and the rebate?

Industry view/suggested treatment:

The legislation is unclear. However, we would take the view that as there was no intention to amend the interpretation of the legislation the rebate should apply to benefits accrued after the person becomes disabled.

Technical references:

TAA 1936 - 159SJ

ITAA 1997 - S30 - 40/S995 - 1(1)

Impact on Clients:

A change in the treatment in disability benefits would need to be clearly communicated to advisors to ensure tax is accurately self assessed.

Tax Office response:

The Tax Office is not able to respond to this query through the NTLG process because there are a number of threshold questions surrounding disability payments which we are currently considering.

The issues currently under consideration include:

¦ establishing disability in the context of income tax and prudential regulations

¦ the timing of medical certificates for certification purposes where the receipt of a superannuation benefit occurs some time after disability, and

¦ the extent to which a benefit is a disability superannuation benefit where it is unlikely that a person can be gainfully employed in the capacity of their employment at the time of disability but can nonetheless be gainfully employed in a range of other vocations.

While the Tax Office is considering its position on these questions we would welcome any submissions by members on these issues to assist us in our analysis. We will also undertake to consult with the group as and when we progress this matter.

Meeting discussion
The Tax Office spoke briefly the response contained in the meeting agenda including noting that dot point 2 is relevant to the consideration of Pitcher's case where the judge made comments about when medical certificates acknowledging the disability need to be obtained, particularly in the case where there is a significant time lag between the event that causes the disability and the payment of the benefits.

There was a general consensus that the issues raised in the Tax Office response and related issues are worthy of clarification and that, in some significant respects, the new ITAA 1997 provisions carry over uncertainties that existed with the old ITAA 1936 provisions in this area.

Action item:	NTLGSPR041207/08 Disability payments.
Status:	Members to provide submissions or specific examples to the NTLG Mailbox: NTLGSPRSubcommittee@ato.gov.au For discussion at March 2008 meeting.

1.11 Issues concerning current pension liability

Background:

A previously advised, the NTLG Sub-group received questions from members relating to current pension liability. These issues have already been escalated internally in the Tax Office for special consideration.

Whilst the NTLG Superannuation Technical Sub-group are keen to discuss these cases, we will not be providing detailed answers at this meeting. We are currently considering what will be the Tax Office view.

The issues currently being considered in relation to this matter include:

¦ when will an interest that supports a superannuation income stream be taken to have ceased for tax purposes and how may such an interest cease

¦ when will a payment from an interest that supports a superannuation income stream be taken to be a superannuation lump sum for tax purposes

¦ what is a commutation

¦ what is a residual capital value; and

¦ when will a pension that is payable on the death of a primary beneficiary be taken for tax purposes to be a reversionary pension as opposed to a new pension.

While the Tax Office is considering its position on these questions we would welcome any submissions by members on these issues to assist us in our analysis. We will also undertake to consult with the group as and when we progress this matter.

Questions raised by NTLG members to date:

Pro rata pensions for commutations

¦ When a pension is commuted is the day of the commutation included in the calculation for the pro rata? Does this vary between pension types?

Release authority and meaning of commutation for proportioning purposes

¦ If a release authority is given to a superannuation provider that holds a superannuation interest in the form of a pension that commenced to be paid prior to 1 July 2007, is the payment of an assessment of excess contributions tax from that interest treated as a commutation and therefore a 'trigger event' for proportioning purposes?

Payments that are not superannuation income stream benefits

1A. Under income tax regulation 995-1.03, if a payment is not a superannuation income stream benefit, how is the payment to be treated and taxed?

1B. If the payment is a superannuation lump sum, is it to be treated as a commutation?

1C. For the purposes of proportioning, if the payment is a super lump sum (and not a commutation), how do you calculate the tax free/taxable components?

2. Double tax arrangements - can the Tax Office advise whether there are any issues with Double Tax Agreements where the income stream is NOT taxed at source but rather the country of residency of the recipient?

3. Do the minimum/maximum payment requirements under SIS still need to satisfied?

Meeting discussion
The Chair informed members of what the process is for priority technical issues (PTI). The PTI process looks at a range of technical issues, all of which are significant some of which are precedential. These PTI's may result in:

¦ Rulings

¦ Determinations, and

¦ strategic litigation.

The Tax Office's most senior technical people are allocated to PTI's.

Members were advised that this particular issue was being dealt with via the PTI process, due to the re-write of Part IVA.

A member suggested that the law may result in a different treatment of a payment from income tax and SIS regulatory perspectives. For example, the election to treat an amount as a lump sum payment under the income tax regulation 995-1.03 will not necessarily be relevant to the treatment of the payment from the perspective of the pension standards in the SIS regulations. For example, a person may elect to treat an amount as a lump sum superannuation benefit as up to $140,000 can be received tax free. That should not automatically mean that a pension interest from which the amount has been commuted.

Another member suggested that the structure of large funds is predicated on the presumption that all payments from a pension interest are pension payments, regardless of circumstances such as the death of a member. As such, it makes sense that the income tax exemption should carry through to the last payment unless it is clear there has been some mischief, such as a deliberate delay in the payment. As long as benefits are released as soon as practicable consistently with the payment standards of the SIS regulations, the Tax Office should not be concerned about the fund's exempt income.

The same member expressed the view that a commutation requires an element of choice. That is, the member has called for payment of all or part of their benefits early. However, it does appear from the drafting of some of the SIS regulations that the word 'commutation' is used to cover things that are not consistent with that suggestion.

Whether a pension liability continues past the death of the member was also discussed. A view was expressed that this question is to be answered having regard to the nature of the pension. For example, for an allocated pension, anything payable after death might be considered to be a payment of residual capital value not a commutation. In a term allocated pension, the pension survives the member's death because it is payable for the fixed term. Whereas an allocated pension probably ceases in so far as income payments are concerned on the member's death.

A member urged the Tax Office to bear in mind the treatment of various payments for social security purposes in considering the issue. All payments are treated as income payments for those purposes.

Action item :	NTLGSPR041207/09 Discussion paper to be tabled at March 2008 meeting.
Status:	Tax Office to distribute discussion paper prior to March meeting with agenda.
Action item :	NTLGSPR041207/10 Current pension liability Members to provide any examples they may have to the NTLG mailbox
Status:	Members to provide further examples by 1 February 2008 to the NTLG Mailbox: NTLGSPRSubcommittee@ato.gov.au

1.12 Other business

The Chair provided an update from the main NTLG on transitional release authority. Refer to main NTLG minutes .

Action item :	NTLGSPR041207/11 Transitional release authority.
Status:	Members to provide further examples by 31 December 2007 to the NTLG Mailbox: NTLGSPRSubcommittee@ato.gov.au

The reference to transitional release authorities prompted some discussion about contribution issues. The Tax Office advised that it has been considering when a contribution is made in preparing a draft income tax ruling on contributions.

A member stated that there have been a number of problems with contributions and rollovers that were to occur around 30 June 2007. For example, brokers returned off-market share transfer forms because the wrong number (that is, holder identification number rather than broker sponsor number) was used.

The Tax Office confirmed that the timing of an in specie contribution is being considered. Several members strongly urged the Tax Office not to align the making of the contribution with registration of transfer of ownership. They suggested the contribution should be accepted as being made when equity would recognise an equitable interest in the property has passed.

The member also said a number of ETP rollovers were delayed due to incorrect paperwork. In that case who bears the responsibility for crystallising the components of the amount? How should auditors determine the responsibility?

Instalment Warrants

There was discussion on the issue that had recently been raised at the main NTLG by the TIA concerning the emerging issue of 'do it yourself' instalment warrants where there are related party arrangements, for example through a related party lender. The discussion raised some potential issues around section 66 of the SIS Act and the acquisition of assets from a related party. It was agreed that a separate discussion on this issue was appropriate and as a means to initiate that discussion the original question submitted by the TIA would be circulated to members seeking their views and giving the opportunity to raise additional questions.

Action item :	NTLGSPR041207/12 Instalment warrants. Members to provide examples/interpretation of their views on instalment warrants. Based on examples received, the Chair to hold an instalment warrant discussion with SPR Senior Executive (SES) and other interested members.
Status:	Members to provide further examples and nominate their interest in joining the phone hook-up by 21 December to the NTLG Mailbox: NTLGSPRSubcommittee@ato.gov.au
Action item :	NTLGSPR041207/13 Instalment warrants. Secretariat to circulate original question received from TIA.
Status:	Closed Secretariat circulated to members 12 December 2007.

Choice fund form

The Chair was advised that the choice of fund form has gone from two pages to five pages and the preamble that has been written includes technical errors. This was also raised with the Superannuation Consultative Committee (SCC) on Monday 3 December 2007 meeting.

Action item :	NTLGSPR041207/14 Choice funds form. The choice funds form contains technical errors.
Status:	Closed Secretariat circulated to members 12 December 2007.

Contribution standard

If a member provides a fund with a variation to the amount to be deducted and that variation results in the member exceeding their non-concessional contributions cap, is the fund required to return any part of the contribution? The other members suggested that they did not think regulation 7.04 of the SIS Regulations works in that way.

Excess non-concessional contributions

A member raised a concern about the operation of the exclusion for certain capital gains tax amounts. The following material was submitted following the meeting.

Section 292-100 provides a separate $1 million CGT cap for certain non-concessional contributions from either the small business retirement exemption or the small business 15 year exemption. The contribution can generally be counted against the $1m CGT cap, provided that the contribution is made to a complying fund, and a choice in the approved form is made to apply the contribution against the cap.

In this regard, S.292-100(2)(a) provides that a contribution of all or part of the capital proceeds from a CGT event from which a capital gain was disregarded under S.152-105 (relating to 15 year exemption individuals) can potentially be counted against the CGT cap.

For companies and trusts that disregarded a capital gain under the 15 year exemption the following conditions must be satisfied:

292-100(4) The requirement in this subsection is met if:

(a) just before a * CGT event, you were a * CGT concession stakeholder of an entity that could, under section 152-110, disregard any * capital gain arising from the CGT event (or would be able to do so, assuming that a capital gain arose from the event)

(b) the entity makes a payment to you within two years after the CGT event

(c) the contribution is equal to all or part of your stakeholder's participation percentage (within the meaning of subsection 152-125(2)) of the * capital proceeds from the CGT event (but not exceeding the amount of the payment mentioned in paragraph (b)), and

(d) the contribution is made within 30 days after the payment mentioned in paragraph (b).

Although 292-100(4)(c) indicates that the exemption could apply to the stakeholders percentage of the capital proceeds , the amount is capped to the payment made by the entity within two years (refer S.292-100(4)(b)).

The payment amount (that is, for the purposes of the cap in S.292-100(4)(c)) to a CGT concession stakeholder is set out under S.152-125. In relation to a capital gain, the 'exempt amount' (that is, which can be paid out to the stakeholder under the two yr rule in S.15-125 and be exempt from tax) is limited to the disregarded capital gain (refer to S.152-125(1)(a)(i). Therefore, it appears that S.292-100(4)(b) in many instances will restrict the non-concessional contribution that can be counted against the $1m CGT cap to the stakeholder's percentage of the disregarded capital gain (and not the capital proceeds).

This appears contrary to situation for individuals (outlined above) and also contrary to the policy intent (refer to paragraph 1.104 of the EM) which states:

A CGT concession stakeholder of an entity that had a capital gain disregarded under Subdivision 152-B (or would have if certain conditions are met) is also entitled to use the CGT cap in the above instances. However, the entity must make a payment to that person within two years of the CGT event and that person must make a contribution within 30 days of that payment for the contribution to qualify for the CGT cap. The amount of the contribution is limited to the person's stakeholder's control percentage of the capital proceeds up to the CGT cap amount . (Emphasis added).

Meeting discussion:

The Tax Office to provide a response at March 2008 meeting.

^[H20]Next meeting

4 March 2008.