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1996
THE PARLIAMENT OF THE
COMMONWEALTH OF AUSTRALIA
HOUSE OF
REPRESENTATIVES
RETIREMENT SAVINGS
ACCOUNTS (CONSEQUENTIAL AMENDMENTS) BILL 1996
SUPPLEMENTARY
EXPLANATORY MEMORANDUM
Amendment to be moved on behalf of the
Government
(Circulated by authority of
the Assistant Treasurer, Senator the Hon Rod Kemp)
80621 Cat.
No. 96 5912 9 ISBN )644 496940
AMENDMENTS TO RETIREMENT SAVINGS ACCOUNTS (CONSEQUENTIAL AMENDMENTS) BILL
1996
GENERAL OUTLINE OF THE AMENDMENTS
The amendments to
the Retirement Savings Accounts (Consequential Amendments) Bill 1996 are
intended to enhance the effectiveness and efficiency of the new regime for
regulating retirement savings accounts (RSAs). Various technical amendments are
made in order to clarify the taxation treatment of RSAs, amend the requirements
regarding constitution of the Superannuation Complaints Tribunal and ensure the
wording of certain provisions achieves the effect intended.
In
particular, the amendments will:
• limit the scope of who may be
regarded as a ‘representative of an RSA provider’ for the purposes
of the Superannuation (Resolution of Complaints) Act
1993;
• enable the Superannuation Complaints Tribunal to be
constituted by any three Tribunal members;
• modify the regime that
applies to tax RSA providers to:
− remove concerns that the provisions could result in the double taxation of amounts credited to RSAs;
− ensure that the RSA component of an RSA provider’s taxable income is not reduced by tax paid in relation to an RSA that is withdrawn by the RSA provider from the RSA; and
− ensure that RSA providers cannot offset losses against RSA
income;
• ensure that the intercorporate dividend rebate available
under section 46 and 46A applies appropriately to life assurance
company RSAs; and
• insert a missing word and ensure that the tax
file number provisions that apply to ordinary bank accounts do not apply to
RSAs.
FINANCIAL IMPACT STATEMENT
There is no financial impact
as a result of these amendments.
EXPLANATORY NOTES ON THE AMENDMENTS
TO THE RETIREMENT SAVINGS ACCOUNTS (CONSEQUENTIAL AMENDMENTS)
BILL 1996
Schedule 2 - Item 14
1. Amendment (1) amends item 14 of
Schedule 2 of the Retirement Savings Accounts (Consequential Amendments) Bill
1996 (RSA(CA) Bill) to narrow the scope of the definition of
‘representative of an RSA provider’ for the purposes of the
Superannuation (Resolution of Complaints) Act 1993 (SRC
Act).
2. As a result of the amendment, a ‘representative of an RSA
provider’ will be limited to only those agents, employees or officers of
the RSA provider, or associate of the RSA provider, who engage in conduct in
relation to RSAs.
3. This will ensure that the RSA provider will not be
made accountable before the SCT for the sales misconduct of persons who have no
formal link to the provider. At present the definition is too broad and could
conceivably cover persons such as solicitors or accountants in respect of whose
advice the RSA provider has no control.
Schedule 2 - Item
17
4. Amendment (2) inserts new items 17A and 17B in Schedule 2 of
the RSA(CA) Bill. Items 17A and 17B will amend section 9 of the SRC Act so that
any three members of the Superannuation Complaints Tribunal (SCT) can
constitute a panel, as directed by the Chairperson. One of these Tribunal
members would be nominated by the Chairperson to preside at the
meeting.
5. The amendment will remove the requirement for the Chairperson
or Deputy Chairperson to be present and preside at all review
meetings.
6. The amendment is intended to enable the SCT to hold a
greater number of reviews. This will assist the SCT in dealing with the
increased number of complaints expected to be received as a result of the
expansion of the SCT’s jurisdiction to also include complaints concerning
RSAs.
7. Schedule 13 of the Bill makes amendments to the Income Tax
Assessment Act 1936 to implement appropriate income tax treatment in
relation to Retirement Savings Accounts (RSAs).
8. The amendments are
explained in the following order:
• Amendments 19 to 25, which
amend Schedule 13 to modify the regime that applies to tax RSA providers that
are financial institutions to:
− remove concerns that proposed
paragraph 299B(b) could result in the double taxation of amounts credited
to RSAs;
− ensure that the RSA component of an RSA provider's
taxable income is not reduced by tax paid in relation to an RSA that is
withdrawn by the RSA provider from the RSA; and
− ensure that RSA
providers cannot offset losses against RSA income.
• Amendments 9
to 16, which amend Schedule 13 to modify the regime that applies to tax RSA
providers that are life assurance companies in the same
way.
• Amendments 3 to 8, which amend Schedule 13 to ensure that
the intercorporate dividend rebate available under section 46 and 46A
applies appropriately to life assurance company RSAs.
• Amendments
17 and 18, which amend Schedule 13 to insert a missing word and to ensure that
the tax file number provisions that apply to ordinary bank accounts do not apply
to RSAs.
9. Items 125 inserts a regime to appropriately tax RSA providers
that are financial institutions. Amendments 19 to 25 amend that
regime to:
• remove concerns that proposed paragraph 299B(b)
could result in the double taxation of amounts credited to
RSAs;
• ensure that the RSA component of an RSA provider’s
taxable income is not reduced by tax paid in relation to an RSA that is
withdrawn by the RSA provider from the RSA; and
• ensure that RSA
providers cannot offset losses against RSA income.
10. Chart 1
illustrates the taxation treatment of an RSA provider that is a financial
institution following the amendments. The Chart replaces Chart 1 in the
Explanatory Memorandum to the Bill.
Taxable income of an RSA provider
11. New
section 299A provides that new Division 7A of
Part IX sets out how to calculate the taxable income of an RSA provider that is
a financial institution (that is, an RSA provider that is a bank, building
society or credit union). [Amendment 20]
12. New section 299B provides that the taxable income
of an RSA provider includes all taxable contributions made during the year of
income to RSAs provided by the RSA provider. [Amendment 21]
Investment income derived by RSA providers is included in the RSA
provider’s assessable income under the ordinary provisions of the income
tax law.
13. New section 299C is modified so that it now sets
out how to calculate the RSA amount rather than the RSA component of taxable
income. The RSA amount is the sum of:
• all taxable contributions
made during the year of income to RSAs [new
paragraph 299C(2)(a)];
• all amounts (other than
contributions) credited during the year of income to RSAs reduced by amounts
credited to RSAs that are paying out current pensions (see paragraphs 221
to 227 of the Explanatory Memorandum to the Bill) [new
paragraph 299C(2)(b) and subsections 299C(3) - (5)];
less any amounts paid or withdrawn from RSAs other than benefits paid
to, or in respect of, the holders of RSAs [new
subsection 299C(2)] or tax paid in respect of RSAs [new
subsection 299C(2A)].
[Amendments 22 and
23]
14. New section 299CA operates to ensure that RSA
providers cannot offset losses against RSA income. The new section applies
if:
• the taxable income of the RSA provider is less than the RSA
amount [new paragraph 299CA(a)]; or
• the RSA
provider has no taxable income [new
paragraph 299CA(b)].
15. In these
circumstances:
• the RSA provider is taken to have both a taxable
income and a tax loss for the year of income [new
paragraph 299CA(c)];
• the taxable income is equal to
the RSA amount [new paragraph 299CA(d)];
and
• the tax loss is taken to be the amount that would have been
the RSA provider’s tax loss if the RSA amount were not income derived
[new
paragraph 299CA(e)].
[Amendment 24]
16. New subsection 299D(1) divides the taxable income
of an RSA provider that is a financial institution into the RSA component and
the standard component.
17. The RSA component of taxable income is the
RSA amount worked out under new section 299C. [New
subsection 299D(2)]
18. The standard component of taxable
income is any amount remaining after deducting the RSA component from taxable
income. [New
subsection 299D(3)]
[Amendments 19 and 25]
Example
19. The
Livingston Bank has taxable income of $100 000. It received taxable
contributions in RSAs of $220 000 during the year of income. No earnings
were credited to RSAs and no amounts were withdrawn, except to pay tax on
taxable contributions. Therefore, the RSA amount calculated under new
section 299C is $220 000.
20. New
section 299CA will apply so that the Livingston Bank will have both
a taxable income and a tax loss for the year of income. The taxable income will
be the RSA amount of $220 000. This amount will be allocated to the RSA
component of the Livingston Bank’s taxable income and will be subject to
tax at a rate of 15 per cent. The tax loss will be the amount that would have
been the tax loss if no taxable contributions were derived - that is,
$120 000.
21. If in this example the Livingston Bank had a tax loss
of $50 000, new section 299CA would apply so that its
taxable income would be $220 000 and its tax loss would be
$270 000.
22. Item 71 inserts a regime to appropriately tax RSA providers that
are life assurance companies. Amendments 9 to 16 amend that regime
to:
• remove concerns that proposed paragraph 116DAB(b) could
result in the double taxation of amounts credited to RSAs;
• ensure
that the RSA component of an RSA provider’s taxable income is not reduced
by tax paid in relation to an RSA that is withdrawn by the RSA provider from the
RSA; and
• ensure that RSA providers cannot offset losses against
RSA income.
23. Chart 2 illustrates the taxation treatment of an RSA
provider that is a life assurance company following the amendments. The Chart
replaces Chart 2 in the Explanatory Memorandum to the Bill.
24. New section 116DAA provides that new
Subdivision AA of Division 8 of Part III sets out how to
calculate the taxable income of an RSA provider that is a life assurance
company. [Amendment 11]
25. New section 116DAB provides that the taxable
income of an RSA provider that is a life assurance company includes all taxable
contributions made during the year of income to RSAs provided by the RSA
provider. [Amendment 12] Investment income derived by RSA
providers is included in the RSA provider’s assessable income under the
ordinary provisions of the income tax law.
26. New section 116DAC is modified so that it now sets
out how to calculate the RSA amount rather than the RSA component of taxable
income. The RSA amount is the sum of:
• all taxable contributions
made during the year of income to RSAs [new
paragraph 116DAC(2)(a)];
• all amounts (other than
contributions) credited during the year of income to RSAs reduced by amounts
credited to RSAs that are paying out current pensions (see paragraphs 269
to 273 of the Explanatory Memorandum to the Bill) [new
paragraph 116DAC(2)(b) and
subsections 116DAC(3) - (5)];
less any amounts
paid or withdrawn from RSAs other than benefits paid to, or in respect of, the
holders of RSAs [new subsection 116DAC(2)] or tax paid in
respect of RSAs [new
subsection 116DAC(2A)].
[Amendments 13 and
14]
27. Amounts which are included in assessable income as part
of the RSA amount, because they come within the scope of new
paragraph 116DAC(2)(a) or (b), are allocated to the general fund
component of assessable income under new
paragraph 116CE(2)(ab). [Amendment 10]
28. New subsection 116DAD(1) divides the taxable
income of an RSA provider that is a life assurance company into the RSA
component and the standard component.
29. The RSA component of taxable
income is the RSA amount worked out under new section 116DAC.
[New subsection 116DAD(2)]
30. The standard component
of taxable income is any amount remaining after deducting the RSA component from
the general fund component of taxable income. [New
subsection 116DAD(3)]
[Amendments 9 and 15]
31. Amendment 16 inserts new
section 116DADA which operates to ensure that RSA providers cannot
offset losses against RSA income. The new section applies if:
• the
RSA provider has no taxable income [new
paragraph 116DADA(1)(a)];
• the RSA provider has no
general fund component of taxable income [new
paragraph 116DADA(1)(b)]; or
• the general fund
component of taxable income of an RSA provider is less than the RSA amount
[new paragraph 116DADA(1)(c)].
32. In these
circumstances, new subsection 116DADA(2) applies
if:
• the RSA provider has no taxable income; or
• the
taxable income of the RSA provider is less than the RSA amount.
33. The
consequences of new subsection 116DADA(2) applying are
that:
• the RSA provider is taken to have both a taxable income and
a tax loss for the year of income [new
paragraph 116DADA(2)(a)];
• the taxable income is
equal to the RSA amount [new
paragraph 116DADA(2)(b)];
• the tax loss is taken to
be the amount that would have been the RSA provider’s tax loss if the RSA
amount were not income derived [new
paragraph 116DADA(2)(c)];
• the general fund component
of taxable income and the RSA component of the general fund component are equal
to the RSA amount [new paragraph 116DADA(2)(d)];
and
• all other components of taxable income are taken to be nil
[new paragraph 116DADA(2)(e)].
34. If
the circumstances in new subsection 116DADA(1) apply and the
taxable income of the RSA provider is equal to or greater than the RSA amount,
then new subsection 116DADA(3) provides
that:
• the general fund component of taxable income and the RSA
component of the general fund component are taken to be equal to the RSA amount
[new paragraph 116DADA(3)(a)]; and
• the
difference between the RSA amount and the amount that would, but for new
subsection 116DADA(3), have been the general fund component is
applied to reduce the other components of taxable income in the following
order:
• if the RSA provider is an ordinary life assurance
company - AD/RLA;
• CS/RA;
• NCS [new
paragraph 116DADA(3)(b)].
Example
35. The
Isis Life Company has taxable income of $50 000. It received taxable
contributions in RSAs of $140 000 during the year of income. No earnings
were credited to RSAs and no amounts were withdrawn, except to pay tax on
taxable contributions. Therefore, the RSA amount calculated under new
section 116DAC is $140 000. New
section 116DAB and new paragraph 116CE(2)(ab)
will operate to allocate the whole of Isis Life's taxable income to the general
fund component (because it effectively represents taxable contributions).
36. New section 116DADA will apply to Isis Life
because its general fund component of taxable income ($50 000) is less than
the RSA amount ($140 000) - new paragraph 116DADA(1)(c).
As Isis Life’s taxable income is less than the RSA amount, new
subsection 116DADA(2) will apply so that Isis Life will have both a
taxable income and a tax loss for the year of income. The taxable income will be
the RSA amount of $140 000. This amount will be allocated to the RSA
component of the general fund component of Isis Life’s taxable income and
will be subject to tax at a rate of 15 per cent. The tax loss will be the amount
that would have been the tax loss if no taxable contributions were
derived - that is, $90 000.
37. New
subsection 116DADA(3) would apply if in this example Isis Life had
taxable income of $530 000 which, applying section 116CJ of the
Income Tax Assessment Act 1936, consists of:
• general fund
component of $50 000
• AD/RLA component of $190 000;
and
• CS/RA component of $290 000.
38. In these
circumstances new section 116DADA will apply to Isis Life
because its general fund component of taxable income ($50 000) is less than
the RSA amount ($140 000) - new paragraph 116DADA(1)(c).
As Isis Life’s taxable income ($530 000) is greater than the RSA
amount, new subsection 116DADA(3) will apply so that the
general fund component of Isis Life’s taxable income will be the RSA
amount of $140 000. This amount will be allocated to the RSA component of
the general fund component of Isis Life’s taxable income and will be
subject to tax at a rate of 15 per cent. The difference between the RSA amount
($140 000) and the general fund component of taxable income worked out
under section 116CJ ($50 000) of $90 000 will be applied to
reduce the AD/RLA component of Isis Life’s taxable income to
$100 000.
39. Amendments 3 to 8 ensure that the intercorporate
dividend rate applies appropriately to life assurance companies that offer
RSAs.
40. Items 17 to 24 of Schedule 13 of the Bill
amend section 46 and section 46A to replace references to the non-fund
component of assessable income of a life assurance company with references to
the standard component of assessable income of a life assurance
company.
41. However, under the new arrangements there are two rates of
tax applicable to the general fund component (the standard component rate and
the 15 per cent RSA component rate).
42. Amendments 3 to 8
ensure that the intercorporate dividend rebate provisions appropriately refer to
the tax rate on the standard component of the general fund component of
assessable income of a life assurance company.
43. Amendments 17 and 18 relate to the application of
TFNs
44. Item 107 of Schedule 13 of the Bill inserts
new paragraph 202(k) into the Income Tax Assessment Act
1936. Amendment 17 amends Item 107 to
insert a missing word in new
subparagraph 202(k)(ii).
45. Amendment 18
ensures that RSA providers that qualify as financial institutions under
section 202A of the Income Tax Assessment Act 1936 will not be
subject to the TFN rules that apply to interest bearing accounts or interest
bearing deposits in relation to RSAs. The effect of the amendment is to ensure
that RSA providers are only required to comply with the superannuation TFN
provisions in relation to RSAs. [New Items 107A and 107B]