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INCOME TAX REGULATIONS (AMENDMENT) 1994 NO. 461

INCOME TAX REGULATIONS (AMENDMENT) 1994 NO. 461

EXPLANATORY STATEMENT

STATUTORY RULES 1994 No. 461

Issued by the Authority of the Treasurer

Income Tax Assessment Act 1936

Income Tax Regulations (Amendment)

Section 266 of the Act provides that the Governor-General may make regulations prescribing matters required to give effect to the Act.

These regulations propose to amend Income Tax Regulations (the Regulations) to:

•       outline the method for calculating transitional lump sum reasonable benefit limits (RBL) and transitional pension RBL as proposed in section 140ZE of the Act;

•        specify the pension valuation factors for the purposes of section 140C of the Act,

•        specify the pension and annuity standards under section 140L of the Act, and

•       outline the information required on notices issued in accordance with section 140M and section 140Q of the Act.

Transitional RBL

The purpose of RBL is to limit the amount of concessionally taxed superannuation benefits received by a person. Section 140ZD of the Act was introduced with effect from 1 July 1994 to specify the new flat dollar RBL which replace the previous salary linked RBL. From that date the lump sum RBL is $400 000 and the pension RBL is $800 000. Those amounts are indexed by movements in average weekly ordinary time earnings (AWOTE).

However, to ensure that the long-term savings plans of those people approaching retirement are not unduly disturbed by the change in RBL arrangements, section 140ZE allows for a higher transitional lump sum RBL or transitional pension RBL calculated in accordance with a method specified in the Regulations. The Regulations outline the method for calculating transitional lump sum RBL and transitional pension RBL.

Pension valuation factors

Section 140ZO of the Act specifies the method for working out the capital value of a superannuation pension so that the pension can be measured for RBL purposes. For fife time pensions, the capital value of the pension is based on the pension valuation factor. The pension valuation factor is defined in section 140C to mean the factor ascertained in accordance with the Regulations. The Regulations specify the pension valuation factors for the purposes of section 140C.

Pension and annuity standards

Under section 140ZF of the Act, a pension or annuity will be measured against the lump sum RBL unless it satisfies the pension and annuity standards. Section 140L provides that a pension or annuity will meet the pension and annuity standards only if, under the Regulations, it is treated as meeting those standards. The Regulations specify the pension and annuity standards for the purposes of section 140L.

Notice requirements

Section 140M of the Act requires the payer of a superannuation benefit to give a notice to the Commissioner of Taxation containing information (which is specified in the Regulations) in relation to the benefit that will enable the Commissioner to make an RBL determination.

Similarly, section 140Q of the Act requires the payer of a benefit which is rolled-over by the recipient, where the benefit represents the commutation, or residual capital value, of a pension or annuity, to give a notice to the Commissioner containing the information specified in the Regulations.

The Regulations outline the information required on notices issued in accordance with section 140M and section 140Q of the Act.

Details of the regulations are as follows:

Subregulation 1.1 provides that these Regulations will commence on 1 July 1994. The Regulations start from 1 July 1994 so that people who received benefits that are counted for reasonable benefit limit (RBL) purposes between 1 July 1994 and the date of Gazettal of the Regulations are able to benefit from the higher transitional RBL arrangements.

Subregulation 2.1 provides that the Income Tax Regulations will be amended as set out in the amending regulations.

Subregulation 3.1 inserts new Part 5A (comprising new regulations 46 to 53M) into the Income Tax Regulations. New Part 5A contains regulations relating to RBL.

Division 1: Interpretation and preliminary matters

New regulation 46 provides that Divisions 2 and 3 of new Part 5A (which relate to transitional RBL) are made under section 140ZE of the Income Tax Assessment Act 1936 (the Act) for transitional purposes only.

Definitions

New subregulation 47(1) introduces a number of definitions which are relevant to Part 5A. Most of the definitions are essentially the same as those that were previously in the Occupational Standard Superannuation Regulations (OSS Regulations).

The definitions of 'HAS-based lump sum RBL', 'HAS-based pension RBL', 'lump sum reasonable benefit multiple' and 'pension reasonable benefit multiple' are of fundamental significance when working out the amount of a person's transitional RBL and are explained below. The remaining definitions in subregulation 47(1) are explained, where necessary, in the explanation of the operative provisions.

HAS-based lump sum RBL

A person's 'HAS-based lump sum RBL' is the amount worked out by multiplying his or her highest average salary (HAS) by the amount of his or her lump sum reasonable benefit multiple'. The amount of the person's lump sum reasonable benefit multiple for transitional RBL purposes depends on when the person's eligible service period commenced.

If the person's eligible service period commenced on or after 1 July 1990, the lump sum reasonable benefit multiple is calculated by dividing the amount obtained from applying the lump sum RBL scale by the person's HAS as at 30 June 1994. The lump sum RBL scale for transitional RBL purposes is:

Amount of HAS

First $46 640

Plus

amounts between $46 640 and $86 610

plus

amounts over $86 610

Multiple

7



5



3

If the person's eligible service period commenced before 1 July 1990, the lump sum reasonable benefit multiple is calculated using the formula:

(Old SP x Old RBM) + (New SP X New RBM)

where:

Old SP is the proportion of days in the eligible service period that occurred before 1 July 1990;

Old RBM is the Old Reasonable Benefit Multiple. The method for calculating Old RBMs is contained in new Schedule 2A (see subregulation 4.1 . Generally the Old RBM for lump sums is 7. If a person-has more than one Old RBM, he or she should use the highest Old RBM for transitional RBL purposes;

New SP is the proportion of days in the eligible service period that occurred after 30 June 1990;

New RBM is the person's lump sum reasonable benefit multiple calculated by dividing the amount obtained from applying the lump sum RBL scale by the person's HAS as at 30 June 1994.

HAS-based pension RBL

A person's 'HAS-based pension RBL' is the amount worked out by multiplying his or her HAS by the amount of his or her 'pension reasonable benefit multiple'. The amount of the person's pension reasonable benefit multiple for transitional RBL purposes depends on when the person's eligible service period commenced.

If the person's eligible service period commenced on or after 1 July 1990, the pension reasonable benefit multiple is calculated by using the formula:

  M x 15

HAS

where:

M is the amount calculated by applying the pension RBL scale.

The pension RBL scale for transitional RBL purposes is:

Amount of HAS

First $46 640

Plus

amounts between $46 640 and $86 610

plus

amounts over $86 610



Multiple

0.75



0.55



0.35

If the person's eligible service period commenced before 1 July 1990 the pension reasonable benefit multiple is calculated using the formula:

(Old SP x Old RBM) + (New SP x New RBM)

where:

Old SP is the proportion of days in the eligible service period that occurred before 1 July 1990;

Old RBM is the Old Reasonable Benefit Multiple. The method for calculating Old RBMs is contained in new Schedule 2A (see subregulation 4.1. Generally the Old RBM for pensions is 11.25. If a person has more than one Old RBM, he or she should use the highest Old RBM for transitional RBL purposes;

New SP is the proportion of days in the eligible service period that occurred after 30 June 1990;

New RBM is the person's pension reasonable benefit multiple calculated by dividing the amount obtained by applying the pension RBL scale by the person's HAS as at 30 June 1994.

Example 1

Robert joined his employer's superannuation fund when he started working for his employer on 1 December 1990. Robert's HAS is $90 000. Robert wants to work out his HAS-based lump sum RBL and HAS-based pension RBL.

The amount obtained by applying the lump sum RBL scale to Robert's HAS is:

(46 640 x 7) + ($39 970 x 5) + ($3 390 x 3) = $536 500

Robert's lump sum reasonable benefit multiple is:

$536 500 = 5.961

$90.000

Robert's HAS-based lump sum RBL is:

$90 000 x 5.961 = $536 500

The amount obtained by applying the pension RBL scale to Robert's HAS is:

(46 640 x 0.75) + ($39 970 x 0.55) + ($3 390 x 0.35) = $58 150

Robert's pension reasonable benefit multiple is:

$58 150 x 15 = 9.692

$90 000

Robert's HAS-based pension RBL is:

$90 000 x 9,692 = $872 280

Example 2

Amy has several benefit entitlements that are counted for RBL purposes. Her longest eligible service period in respect of those benefit entitlements starts on 1 July 1970. Amy's HAS is $140 000. Amy has an Old RBM of 7 in respect of her lump sum benefit and 11.25 in respect of her pension benefit. Amy wants to work out her HAS based lump sum RBL and HAS-based pension RBL.

The amount obtained by applying the lump sum RBL scale to Amy's HAS is:

(46 640 x 7) + ($39 970 x 5) + ($53 390 x 3) = $686 500

Amy's New RBM for lump sums is:

$686 500 = 4.904

$140 000

Amy's lump sum reasonable benefit multiple is:

(20/24 x 7) + (4/24 x 4.904) = 6.65

Amy's HAS-based lump sum RBL is:

$140 000 x 6.65 = $931000

The amount obtained by applying the pension RBL scale to Amy's HAS is:

(46 640 x 0.75) + ($39 970 x 0.55) + ($53 390 x 0.35) = $75 650

Amy's New RBM for pensions is:

$75 650 x 15 = 8.105

$140 000

Amy's pension reasonable benefit multiple is:

(20/24 x 11.25) + (4/;4 x 8.105) = 10. 726

Amy's HAS-based pension RBL is:

$140 000 x 10.726 = $1 501 640

Eligible service period

Eligible service period . is defined, in relation to an eligible termination payment (ETP), in subsection 27A(1) of the Act and, in relation to a superannuation pension, in subsection 140C(1) of the Act. Generally, the eligible service period is the period of fund membership or the period of employment to which fund membership relates (whichever is longer). Eligible service period also includes any period that moneys are held in a roll-over fund.

The eligible service period is relevant for working out that part of a benefit entitlement which is counted for transitional RBL purposes.

New subregulation 47(2) provides that, for the purposes of the definitions of 'lump sum reasonable benefit multiple' and 'pension reasonable benefit multiple', if a person has more than one benefit entitlement, the eligible service period is deemed to be the longest eligible service period in relation to the person's benefit entitlements.

This assumes that a person would maximise their eligible service period for all benefits by rolling the whole of his or her benefit entitlements into one roll-over vehicle prior to taking the benefits and counting them for RBL purposes. The effect of subregulation 47(2) is to maximise the person's lump sum reasonable benefit multiple and pension reasonable benefit multiple.

If a person has no benefit entitlements as at 30 June 1994, his or her eligible service period will be taken to have started on or after 1 July 1990 for transitional RBL purposes.

New subregulation 48 (which introduces rules for working out ETPs for transitional RBL purposes) also has an impact on eligible service period. One effect of new subregulation 48 is that, for transitional RBL purposes, the eligible service period is deemed to end on 30 June 1994. This presumption is necessary because, depending on a person's age, the amount of transitional RBL is based on vested benefits as at 30 June 1994 and on a person's HAS-based RBL as at 30 June 1994.

Salary

New subregulations 47(3) and 47(4) clarify some factors relating to the definition of 'salary' in subregulation 47(1). The proposed subregulations are identical to provisions previously in the OSS Regulations. The definition of 'salary' is relevant for working out a person's HAS-based lump sum RBL and HAS-based pension RBL.

Salary for transitional RBL purposes is essentially income from personal exertion aggregated from all sources and includes:

•       the value of benefits provided to a minister or full-time member of a religious order in respect of that person's religious work;

•       the value of benefits provided by public benevolent institutions (including public hospitals) in respect of the employment of an employee;

•       the value of housing benefits provided to an employee and his or her spouse and children where the employee is an employee of a government, religious. or non-profit body and where the employer provides live-in care for people who are elderly or mentally or physically handicapped;

•       remuneration paid to the director of a company; and

•       personal exertion income of an Australian citizen or resident earned overseas (converted into Australian currency at the rate that is the average of the exchange rates applicable at the start and the end of the income year in which the overseas salary was received).

Salary does not include:

•       a distribution from a trust estate;

•       allowances to cover expenses incurred on behalf of a person's employer;

•       eligible termination payments, superannuation pensions or annuities and payments received on termination of employment in respect of accrued annual leave or accrued long service leave; and

•       earnings on investments.

The amount of a person's salary must be increased by his or her share of net business income, or reduced by his or her share of net business losses, from a business carried on either alone or in partnership.

If the person is an associate of the employer, his or her salary may be adjusted to reflect the amount that would be payable to the person if he or she was not an associate. In determining whether an associated person's salary should be adjusted, the Commissioner must have regard to the nature of the work performed, the hours worked and the salary that would be payable to a person who is not an associate of the employer for performing similar work for similar hours.

Vested superannuation benefits

New subregulation 47(5) defines vested superannuation benefits for transitional RBL purposes. The definition of vested superannuation benefits is relevant for working out the transitional RBL of people who are less than 50 years of age on 1 July 1994. The vested superannuation benefit of a person is the sum of the vested superannuation benefits of all their superannuation entitlements.

In broad terms, the amount of a person's vested superannuation benefits is that part of any benefit that is counted for RBL purposes that the person would get if he or she left the fund or terminated employment on 30 June 1994. The amount of a particular vested superannuation benefit depends on the source of the benefit. A person's vested superannuation benefits also include the adjusted RBL amounts of any benefits previously received (see subregulation 47(6)).

Benefits which are. not counted for RBL purposes are specified in subsection 140ZC(2) of the Act and not included in working out a person's vested superannuation benefits.

Vested superannuation benefits are based on the RBL amount of a benefit entitlement. To work out the RBL amount of the benefit entitlement it is necessary to notionally break the benefit up into its different ETP components assuming that the eligible service . period ends on 30 June 1994 (see new regulation 48). If a person has different benefit options on leaving a fund (eg, a lump sum option or a deferred pension option), the value of the benefit for working out the person's vested superannuation benefits will be based on the option with the highest value.

If a person is a member of a personal superannuation fund or has benefits in an approved deposit fund (ADF), his or her vested superannuation benefits will usually be based on the amount of his or her accumulated benefits on 30 June 1994. The accumulated benefit in a superannuation fund or ADF is the amount in the fund actually vested to the member. In most cases it will be the member's account balance. In other words, the accumulated benefit is the amount that would be paid to the member if he or she voluntarily left the fund on 30 June 1994. The accumulated benefit does not include any unallocated reserves or the benefit that would be payable on the death or disability of the member.

If a person is a member of an employer-sponsored superannuation fund, his or her vested superannuation benefits will usually be based on the amount payable to the member if he or she resigned on 30 June 1994 or the amount payable to the member if he or she was made redundant, or was retrenched, on 30 June 1994.

If the amount payable from a superannuation fund on redundancy or retrenchment is not specified in the trust deed but is a matter for the trustee's discretion, the amount that will be taken into account for the purpose of determining the person's vested superannuation benefit will be the amount payable under the ordinary exercise of the trustee's discretion as reflected by past experience of the fund.

Moreover, no part of the benefit payable to the person if he or she became redundant will be treated as concessional component of an ETP (except an amount of concessional component that has previously been rolled-over and crystallised in the fund).

Lump sum benefit entitlement in a superannuation fund or ADF

If the person has a benefit entitlement in the form of a lump sum in a superannuation fund or ADF, the vested superannuation benefit is highest of the following amounts:

•       the RBL amount (worked out under section 140ZH of the Act) of the person's accumulated benefit on 30 June 1994;

•       the RBL amount (worked out under section 140ZH of the Act) of the benefit payable to the person if he or she resigned on 30 June 1994; and

•       the RBL amount (worked out under section 140ZH of the Act) of the benefit payable to the person if he or she became redundant on 30 June 1994.

The RBL amount calculated under section 140ZH of the Act is the sum of:

•        100% of the retained amount of the pre-July 83 component of the benefit;

•       100% of the taxed element of the retained amount of the post-June 83 component of the benefit; and

•       85% of the untaxed element of the retained amount of the post-June 83 component of the benefit.

Deferred annuity benefit entitlement

If the person has a benefit entitlement in the form of a deferred annuity in a life assurance company or registered organisation, the vested superannuation benefit is the RBL amount (calculated under section 140ZI of the Act) of the benefit payable if he or she commuted the entitlement on 30 June 1994.

The RBL amount calculated under section 140ZI of the Act is, so far as is relevant, the whole of the value of the benefit reduced by:

•        the retained amount of the undeducted contributions of the benefit; and

•        the retained amount of the concessional component of the benefit.

Benefit entitlement under a contract of employment

If the person has a benefit entitlement in the form of a lump sum payable under a contract of employment, the vested superannuation benefit is the highest of the following amounts:

•       the RBL amount (worked out under section 140ZJ of the Act) of the benefit payable to the person under the contract if he or she resigned on 30 June 1994; and

•       the RBL amount (worked out under section 140ZJ of the Act) of the benefit payable to the person under the contract if he or she became redundant on 30 June 1994.

The RBL amount calculated under section 140ZJ of the Act depends on whether or not the employee is an associate of the employer. If the employee is an associate of the employer as at 30 June 1994, the RBL amount for transitional RBL purposes is the sum of

•        100% of the retained amount of the pre-July 83 component of the benefit; and

•        85% of the retained amount of the post-June 83 component of the benefit.

If the employee is not an associate as at 30 June 1994, the RBL amount is 85% of the retained amount of the post-June 83 component of the benefit. For these purposes the benefit is assumed to have been paid after 30 June 1994 (see new regulation 48). This will ensure that 85% of the post-June 83 component (and not just a portion of 85% of the post-June 83 component) of a benefit entitlement under a contract of employment will be counted for transitional RBL purposes. That is, the factor in the table in paragraph 140ZJ(1)(b) will be that for 1994-95 and later years.

An amount payable under a contract of employment will be included in vested superannuation benefits for transitional RBL purposes only if it is capable of quantification as at 30 June 1994. If the benefit is contingent on some future event (such as future performance) no amount will be included in the calculation of a person's-vested superannuation benefits.

Pension entitlement in a superannuation fund

If the person has a benefit entitlement in the form of a pension that has not become payable in a superannuation fund, the vested superannuation benefit is the highest of the following amounts:

•       the RBL amount (worked out under section 140ZK of the Act) of the person's accumulated benefit on 30 June 1994;

•        the RBL amount (worked out under section 140ZK of the Act) of the capital value of the benefit payable to the person if he or she resigned on 30 June 1994; and

•       the RBL amount (worked out under section 140ZK of the Act) of the capital value of the benefit payable to the person if he or she became redundant on 30 June 1994.

A pension will be considered to have not become payable for these purposes only if the first day of the period to which the pension relates has not occurred. If the first day of the period to which the pension relates has occurred, the capital value of the pension will be included. in a person's vested superannuation benefits under subregulation 47 (6) as a benefit previously received.

The capital value of the benefit is calculated in accordance with section 140ZO and section 140ZP of the Act. The RBL amount calculated under section 140ZK is:

•       if the pension entitlement is a rebatable superannuation pension - the capital value of the pension;

•       if the pension entitlement is not a rebatable superannuation pension - the amount worked out using the formula:

Capital value x Pre - July 83 esp + (0. 8 x Post - June 83 esp)

                                Total eligible service period(esp)

For transitional RBL purposes, if the pension entitlement is in a taxed superannuation fund, the pension entitlement will be assumed to be an entitlement to a rebatable superannuation pension.

RBL amount of benefits previously received

New subregulation 47(6) provides that, for the purpose of working out a person's vested superannuation benefit, the sum of the adjusted RBL amounts of benefits previously received (indexed up to the quarter ending 30 June 1994) will be added to the sum of amounts worked out under subregulation 47(5). The adjusted RBL amount of previous benefits is calculated in accordance with section 140ZA of the Act.

In working out the adjusted RBL amount for transitional RBL purposes, the formula ill subsection 140ZA(4) is modified so that the numerator is the index number for the quarter ending 30 June 1994. In addition, subsection 140ZA(5) does not apply for transitional RBL purposes so that the RBL amount of all previous benefits will be indexed up to 30 June 1994 regardless of when they were received.

Any benefit that is counted for RBL purposes that was received by a person prior- to 1 July 1994 and rolled-over after 30 June 1994 will be counted as a benefit previously received.

Example 3

Robert (from Example 1) has accumulated benefits in his employer's superannuation fund of $220 000 (including $40 000 undeducted contributions) as at 30 June 1994. On redundancy, Robert is entitled to a lump sum benefit from the fund of 3 times contributions plus interest (ie, $660 000 as at 30 June 1994).

The fund, which is a taxed superannuation fund, does not provide a pension entitlement. Robert does not have any other benefit entitlements that are counted for RBL purposes and has not previously received any benefits.

Robert's vested superannuation benefits for transitional RBL purposes are $620 000 (ie, $660 000 -$40 000).

Example 4

Amy (from Example 2) has the following benefits which are counted for RBL purposes as at 30 June 1994:

•        $340 000 in a personal superannuation fund (including $60 000 undeducted contributions);

•        $270 000 in an employer-sponsored superannuation fund (including $30 000 undeducted contributions) - the benefit payable on redundancy from this fund is simply the accumulated entitlement;

•       $250 000 in an ADF (no undeducted contributions, $40 000 concessional component).

Amy's contract of employment provides that at the completion of her contract, or if her contract is terminated early because her position becomes redundant, she is entitled to a bonus payment of $120 000.

Amy also has a benefit that was previously received and counted for RBL purposes. The indexed value of that previously received benefit as at 30 June 1994 is $40 000.

The value of Amy's vested superannuation benefit is:

Benefit in personal superannuation fund ($340 000 - $60 000) - $280 000

Benefit in employer sponsored superannuation fund ($270 000 - $30 000) - $240000

Benefit in ADF ($250 000 - $40 000) - $210 000

Benefit payable under contract of employment - $120 000

Benefit previously received - $40 000

Total vested superannuation benefit - $890 000

Application of definitions in section 140C of the Act

New subsection 47(7) will provide that, unless a contrary intention appears, the definitions in section 140C of the Act will apply to the regulations in new Part 5A.

Benefit entitlement deemed to be paid

New regulation 48 proposes that for transitional RBL purposes a benefit entitlement in a fund, under a deferred annuity contract or under a contract of employment, on 30 June 1994 is deemed to be the retained amount of an ETP or to commence as a pension. The purpose of new regulation 48 is to ensure that the references to the RBL provisions in the Act (which are based on an ETP having been paid or a pension having commenced) will operate effectively for transitional RBL purposes. New regulation 48 also ensures that:

•       the eligible service period in relation to a benefit entitlement ends on 30 June 1994 for the purposes of working out transitional RBL; and

•        the amount taken into account for transitional RBL purposes representing an entitlement under a contract of employment is presumed to be paid after 30 June 1994. This will ensure that 85% of the post-June 83 component (and not just a portion of 85% of the post-June 83 component) of a benefit entitlement under a contract of employment will be counted for transitional RBL purposes. That is, the factor in the table in paragraph 140ZJ(1)(b) will be that for 1994-95 and later years.

Highest average salary (HAS)

New regulation 49 contains special rules relating to HAS. Generally speaking, HAS is a person's highest average salary over any 3 consecutive financial years before the 1994-95 financial year (subregulation 47(1)). Subregulation 49(1) proposes that if a person has not earned salary for 3 consecutive financial years, his or her HAS will be:

•       if he or she earned salary for 2 full consecutive financial years - his or her average salary over those 2 years;

•       if he or she earned salary for 1 full financial year but less than 2 full consecutive financial years - his or her salary for that financial year;

•       in any other case - his or her final annualised salary.

Subregulation 49(2) provides that if a person's HAS does not include the 1993-94 financial year, his or her HAS will be indexed by movements in AWOTE up until the quarter ending 30 June 1994. However, HAS will not be indexed if the application of the index factor results in a decrease in HAS (subregulation 49(3)). In all cases where HAS is indexed and the result is not a multiple of $10, HAS will be increased to the nearest multiple of $10 (subregulation 49(4)).

Division 2: Specific RBL

Division 2 of Part 5A deals with specific RBL. New regulation 50 provides that Division 2 applies subject to Division 1.

Commissioner's discretion

New regulation 51 provides that the Commissioner may determine a higher transitional lump sum RBL and/or transitional pension RBL than that determined under other regulations in special circumstances. Special circumstances are considered on a case-by-case basis and will primarily arise in the following situations:

•       where difficulties arise in valuing benefits for transitional RBL purposes in some defined benefit plans or under some unfunded superannuation arrangements;

•       where an executor of a deceased estate establishes that the deceased person had a higher transitional RBL; and

•       where the benefits provided by a superannuation fund commenced to be redesigned prior to 1 July 1994 and are fully supported by minutes or other supporting documentation but have not been reflected in the fund's trust deed or rules.

Special circumstances do not include:

•       unexpected increases in benefits arising from higher than expected earnings or from the allocation of surplus;

•       benefits in excess of a deceased member's transitional RBL that may be payable to a beneficiary on the death of the member.

People aged under 45 on 1 July 1994

New regulation 52 specifies the transitional RBL for a person aged under 45 on 1 July 1994 (subregulation 52(1)).

Transitional lump sum RBL

Subregulation 52(2) provides that a person aged under 45 on 1 July 1994 will have a transitional lump sum RBL if:

•        the amount of his or her vested superannuation benefits exceed $400 000; and

•       the amount of his or her HAS-based lump sum RBL exceeds $400 000.

Subregulation 52(3) provides that if a person aged under 45 on 1 July 1994 has a transitional lump sum RBL, the amount of that RBL is (subject to regulation 53B) the lesser of:

•        the amount of his or her vested superannuation benefits as at 30 June 1994; and

•       the amount of his or her HAS-based lump sum RBL.

Transitional pension RBL

Subregulation 52(4) provides that a person aged under 45 on 1 July 1994 will have a transitional pension RBL if:

•       the amount of his or her vested superannuation benefits exceed $800 000; and

•       the amount of his or her HAS-based pension RBL exceeds $800 000.

Subregulation 52(5) provides that if a person aged under 45 on 1 July 1994 has a transitional pension RBL, the amount of that RBL is (subject to regulation 53B) the lesser of:

•       the amount of his or her vested superannuation benefits as at 30 June 1994; and

•       the amount of his or her HAS-based pension RBL.

Example 5

Assume Robert (from Example 1) is aged under 45 on 1 July 1994. Robert has:

•       a HAS-based lump sum RBL of $536 500;

•       a HAS-based pension RBL of $872 280; and

•       a vested superannuation benefit of $620 000.

Robert will have a transitional lump sum RBL because both the amount of his vested superannuation benefit and the amount of his HAS-based lump sum RBL are greater than $400 000, The amount of Robert's transitional lump sum RBL is $536 500 (ie, the lesser of his vested superannuation benefit of $620 000 and his HAS-based lump sum RBL of $536 500).

Robert will not have a transitional pension RBL because the amount of his vested superannuation benefit ($620 000) is less than the ordinary pension RBL of $800 000.

Example 6

Assume Amy (from Example 2) is aged under 45 on 1 July 1994. Amy has:

•        a HAS-based lump sum RBL of $931000;

•        a HAS-based pension RBL of $1501640; and

•       a vested superannuation benefit of $890 000.

Amy will have a transitional lump sum RBL because both the amount of her vested superannuation benefit and the amount of her HAS-based lump sum RBL are greater than $400 000. The amount of Amy's transitional lump sum RBL is $890 000 (ie, the lesser of her vested superannuation benefit of $890 000 and her HAS-based lump sum RBL of $931 000).

Amy will also have a transitional pension RBL because both the amount of her vested superannuation benefit and the amount of her HAS-based pension RBL are greater than $800 000. The amount of Amy's transitional pension RBL is $890 000 (ie, the lesser of her vested superannuation benefit of $890 000 and her HAS-based pension RBL of $1 501 640).

People aged between 45 and 50 on 1 July 1994

New regulation 53 specifies the transitional RBL for a person aged 45 or more but less than 50 on 1 July 1994 (subregulation 53(1)).

Transitional lump sum RBL

Subregulation 53(2) provides that a person aged between 45 and 50 on 1 July 1994 will have a transitional lump sum RBL if.

•       the amount of his or her HAS-based lump sum RBL exceeds $400 000; and

•       the amount obtained by applying the following formula exceeds $400 000:

Vested superannuation benefit + (HAS - based lump sum RBL - Vested superannuation benefit) x N

                                                                                             1826

where N is the number of days by which the person's age on 1 July 1994

exceeds the person's age on his or her 45th birthday

[Note that 1826 is the number of days in the period 1 July 1944 to 30 June 1949]

Subregulation 53(3) provides that if a person aged between 45 and 50 on 1 July 1994 has a transitional lump sum RBL, the amount of that RBL is (subject to regulation 53B) the lesser of:

•       the amount worked out applying the above formula; and

•       the amount of his or her HAS-based lump sum RBL.

Transitional pension RBL

Subregulation 53(4) provides that a person aged between 45 and 50 on 1 July 1994 will have a transitional pension RBL if:

•       the amount of his or her HAS-based pension RBL exceeds $800 000; and

•       the amount obtained by applying the following formula exceeds $800 000:

Vested superannuation benefit + (HAS - based pension RBL - Vested superannuation benefit) x N

                                                                       1826

where N is the number of days by which the person's age on 1 July 1994 exceeds the person's age on his or her 45th birthday

[Note that 1826 is the number of days in the period 1 July 1944 to 30 June 19491

Subregulation 53(5) provides that if a person aged between 45 and 50 on 1 July 1994 has a transitional pension RBL, the amount of that RBL is (subject to regulation 5313) the lesser of:

•       the amount worked out applying the above formula; and

•       the amount of his or her HAS-based pension RBL.

Example 7

Assume Robert (from Example 1) has his 48th birthday on 30 June 1994. Robert has:

•       a HAS-based lump sum RBL of $536 500;

•       a HAS-based pension RBL of $872 280; and

•       a vested superannuation benefit of $620 000.

The amount calculated applying the formula in subregulation 53(2) is:

$620 000 + ($536 500 - $620 000) x 1096 = $569 882

                                               1826

Robert will have a transitional lump sum RBL because both the amount worked out applying the formula in subregulation 53(2) and the amount of his HAS-based lump sum RBL are greater than $400 000. The amount of Robert's transitional lump sum RBL is $536 500 (ie, the lesser of the amount of $569 882 worked out applying the formula and his HAS-based lump sum RBL of $536 500).

The amount calculated applying the formula in subregulation 53(4) is:

$620 000 + ($872 280 - $620 000) x 1096 = $771 423

                        1826

Robert will not have a transitional pension RBL because the amount worked out applying the formula in subregulation 53(4) ($771423) is less than the ordinary pension RBL of $800 000.

Example 8

Assume Amy (from Example 2) has her 49th birthday on 30 June 1994. Amy has:

•       a HAS-based lump sum RBL of $931000;

•       a HAS-based pension RBL of $1 501 640; and

•       a vested superannuation benefit of $890 000.

The amount calculated applying the formula in subregulation 53(2) is:

$890 000 + ($931000 - $890 000) x 1461 = $922 804

                         1826

Amy will have a transitional lump sum RBL because both the amount worked out applying the formula in subregulation 53(2) and the amount of her HAS-based lump sum RBL are greater than $400 000. The amount of Amy's transitional lump sum RBL is $922 804 (ie, the lesser of the amount of $922 804 worked out applying the formula and her HAS-based lump sum RBL of $931000).

The amount calculated applying the formula in subregulation 53(4) is:

$890 000 + ($1 501 640 - $890 000) x 1461 = $1 379 379

                        1826

Therefore, Amy will also have. a transitional pension RBL because both the amount worked out applying the formula in subregulation 53(4) and the amount of her HASbased pension RBL are greater than $400 000. The amount of Amy's transitional pension RBL is $1379 379 (ie, the lesser of the amount of $1 379 379 worked out applying the formula and her HAS-based pension RBL of $1 501 640).

People aged 50 or more on 1 July 1994

New regulation 53A specifies the transitional RBL for a person aged 50 or more on 1 July 1994 (subregulation 53A(1)).

Transitional lump sum RBL

Subregulation 53A(2) provides that a person aged 50 or more on 1 July 1994 will have a transitional lump sum RBL if the amount of his or her HAS-based lump sum RBL exceeds $400 000.

Subregulation 53A(3) provides that if a person aged 50 or more on 1 July 1994 has a transitional lump sum RBL, the amount of that RBL is (subject to regulation 53B) the amount of his or her HAS-based lump sum RBL.

Transitional pension RBL

Subregulation 53A(4) provides that a person aged 50 or more on 1 July 1994 will have a transitional pension RBL if the amount of his or her HAS-based pension RBL exceeds $800 000.

Subregulation 52(5) provides that if a person aged 50 or more on 1 July 1994 has a transitional pension RBL, the amount of that RBL is (subject to regulation 53B) the amount of his or her HAS-based pension RBL.

Example 9

Assume Robert (from Example 1) is aged 50 or more on 1 July 1994. Robert has:

•       a HAS-based lump sum RBL of $536 500; and

•       a HAS-based pension RBL of $872 280.

Robert will have a transitional lump sum RBL because the amount of his HAS-based lump sum RBL is greater than $400 000. The amount of Robert's transitional lump sum RBL is $536 500 (ie, the amount of his HAS-based lump sum RBL).

Robert will also have a transitional pension RBL because the amount of his HAS-based pension RBL is greater than $800 000. The amount of Robert's transitional pension RBL is $872 280 (ie, the amount of his HAS-based pension RBL).

Example 10

Assume Amy (from Example 2) is aged 50 or more on 1 July 1994. Amy has:

•       a HAS-based lump sum RBL of $931000; and

•       a HAS-based pension RBL of $1501640.

Amy will have a transitional lump sum RBL because the amount of her HAS-based lump sum RBL is greater than $400 000. The amount of Amy's transitional lump sum RBL is $931000 (ie, the amount of her HAS-based lump sum RBL).

Amy will also have a transitional pension RBL because the amount of her HAS-based pension RBL is greater than $800 000. The amount of Amy's transitional pension RBL is $1501640 (ie, the amount of her HAS-based pension RBL).

Amount of transitional RBL

New regulation 53B makes adjustments to the amount of a person's transitional RBL where appropriate and also provides a mechanism to identify the actual amount of a person's transitional RBL when a benefit is taken.

Discounting of transitional lump sum RBL

Subregulation 5313(1) discounts the amount of a person's transitional lump sum RBL calculated under subregulation 52(3), 53(3) or 53A(3) if he or she takes a benefit before age 55. In these circumstances the amount of transitional lump sum RBL is discounted by 2.5% per annum for each whole year in the period between the person's birthday immediately preceding the day on which the benefits are received or commence to be payable (or, if the benefit is paid on the recipient's birthday, on that birthday) and the person's 55th birthday. Discounting does not apply to the transitional pension RBL. The discounting provisions that apply to transitional RBL are similar to those that apply to flat dollar RBL.

Determining the amount of a person's transitional RBL

Subregulation 53B(2) identifies the amount of a person's transitional lump sum RBL and/or transitional pension RBL. In the 1994-95 year of income, the amount of transitional RBL is (subject to subregulation 53B(1)) the amount worked out under regulation 52, 53 or 53A. In subsequent years the amount of transitional RBL is that amount indexed in accordance with movements in AWOTE.

Special transitional RBL

Subregulation 53B(3) provides that the amount of a person's transitional RBL worked out under regulation 53B is subject to the amount of any special transitional RBL worked out under regulation 53C or regulation 53D. If a person has an amount worked out under regulation 53C or regulation 53D which is higher than the ordinary transitional RBL worked out under regulation 53B, the person's transitional RBL for that benefit will be that higher amount.

15 February 1990 balances in roll-over funds

New regulation 53C retains the transitional arrangements that applied under the OSS RBL regime to people who had balances in roll-over funds on 15 February 1990.

Subregulation 53C(1) provides a mechanism for comparing the amount worked out under regulation 53C with the amount of an ordinary transitional RBL worked out under regulation 53B.

A person will qualify for a special transitional RBL under regulation 53C only if he or she held moneys in a roll-over fund on 15 February 1990.

People aged under 50 on 15 February 1990

If a person aged under 50 on 15 February 1990 held moneys in a roll-over fund on that date, the amount of his or her transitional lump sum RBL will be the greater of:

•       the amount of his or her ordinary transitional lump sum RBL worked out under regulation 53B; and

•       the aggregate of rolled-over amounts held on his or her behalf as at 15 February 1990 in ADFs, life assurance companies and/or registered organisations.

The amount of the person's transitional pension RBL will be the greater of:

•       the amount of his or her ordinary transitional pension RBL worked out under regulation 53B; and

•       the aggregate of rolled-over amounts held on his or her behalf as at 15 February 1990 in ADFs, life assurance companies and/or registered organisations.

People aged 50 or more on 15 February 1990

If a person aged 50 or more on 15 February 1990 held moneys in a roll-over fund on that date, the amount of his or her transitional lump sum RBL will be the greater of:

•       the amount of his or her ordinary transitional lump sum RBL worked out under. regulation 53B; and

•       the aggregate of rolled-over amounts held on his or her behalf as at 15 February 1990 in ADFs, life assurance companies and/or registered organisations, together with earnings accrued on those amounts.

The amount of the person's transitional pension RBL will be the greater of:

•       the amount of his or her ordinary transitional pension RBL worked out under regulation 53B; and

•       the aggregate of rolled-over amounts held on his or her behalf as at 15 February 1990 in ADFs, life assurance companies and/or registered organisations, together with earnings accrued on those amounts.

For these purposes earnings on amounts held in defined benefit funds on 15 February 1990 are taken to accrue at a rate of 10% per annum. (subregulation 53C(2)).

Amounts withdrawn from a fund in which a person has a 15 February 1990 balance

Any amounts withdrawn from a fund in which a person has a 15 February 1990 balance are applied first against amounts rolled-over to the fund after that day before being applied to the amount in the fund as at 15 February 1990 (subregulation 53C(3)).

Example 11

Jock had moneys invested in an ADF as at 15 February 1990. He was 52 years of age at that time. Jock withdraws his moneys in the ADF on 30 June 2002. The balance of his account at the time is $980 000, The amount of Jock's ordinary transitional RBL (indexed by movements in AWOTE) worked out under subregulation 53B(2) are:

•       ordinary transitional lump sum RBL - $750 000;

•       ordinary transitional pension RBL $1 200 000.

Jock's transitional lump sum RBL in respect of his benefit from the ADF worked out under regulation 53C will be $980 000 (ie, the greater of the amount received from the ADF in which Jock had a 15 February 1990 balance ($980 000) and the amount of his ordinary transitional lump sum RBL ($750 000)).

Jock's transitional pension RBL will not be increased by the operation of regulation 53C because the amount received from the ADF in which Jock had a 15 February 1990 balance ($980 000) is less than the amount of his ordinary transitional pension RBL of $1 200 000.

Members of certain superannuation funds on 15 August 1989

New regulation 53D retains the transitional arrangements that applied under the OSS RBL regime to people who were members of certain superannuation funds on 15 August 1989.

A person will qualify for a special transitional RBL under new regulation 53D only if he or she was a member of a superannuation fund on 15 August 1989 and the governing rules of that fund at that date allowed for the provision of a pension to the person.

If a person qualifies for a special transitional RBL under new regulation 53D, the amount of his or her transitional lump sum RBL will be the greater of:

•       the amount of his or her ordinary transitional lump sum RBL worked out under regulation 53B; and

•       the capital value of the pension under the governing rules of the fund as at 15 August 1989.

The amount of the person's transitional pension RBL will be the greater of:

•       the amount of his or her ordinary transitional pension RBL worked out under regulation 53B; and

•       the capital value of the pension under the governing rules of the fund as at 15 August 1989.

Example 12

Celeste was a member of a superannuation fund as at 15 August 1989. The capital value of her pension entitlement in that fund is $1 300 000. The amount of Celeste's ordinary transitional RBL (indexed by movements in AWOTE) worked out under subregulation 53B(2) are:

•       ordinary transitional lump sum RBL - $850 000;

•       ordinary transitional pension RBL - $1 200 00.

Celeste's transitional lump sum RBL in respect of her benefit in the superannuation fund worked out under regulation 53D will be $1 300 000 (ie, the greater of the capital value of the pension from the superannuation ($1 300 000) and the amount of Celeste's ordinary transitional lump sum RBL ($850 000)).

Celeste will also have a transitional pension RBL in respect of her benefit in the superannuation fund worked out under regulation 53D of $1 300 000 (ie, the greater of the capital value of the pension from the superannuation ($1 300 000) and the amount of Celeste's ordinary transitional pension RBL ($1 200 000)).

Division 3: Procedural matters

Division 3 of Part 5A contains some procedural matters relating to transitional RBL.

Registration of transitional RBL

New regulation 53E provides that a person's transitional RBL must be registered by 31 December 1996 or such later date as the Commissioner allows. The purpose of the 31 December 1996 time limit is to encourage the collection and transmission of the necessary information while that information is readily available. Once registered, the ATO will keep records of the amount of transitional RBL. However, the Commissioner has a discretion to allow registration of a transitional RBL after 31 December 1996.

The requirement to register a transitional RBL only applies, of course, to the amount of an ordinary transitional RBL worked out under regulation 53B. Special transitional RBL worked out under regulation 53C or regulation 53D can only be worked out at the time the relevant benefit is paid.

New regulation 53F provides that registration for a transitional RBL must be in a form approved by the Commissioner.

Division 4: Ordinary RBL regulations

Division 4 of Part SA contains regulations relating to Division 14 of Part Ill of the Income Tax Assessment Act. The regulations concern RBL matters other than transitional RBL.

Definitions

New regulation 53G defines the 'SIS Regulations' to mean the Superannuation Industry (Supervision) Regulations as in force from time to time.

Pension valuation factors

New regulation 53H identifies the pension valuation factors for the purposes of section 140C of the Act to be the factors specified in Schedule 1B of the SIS Regulations. The pension valuation factors are relevant for working out the capital value of a superannuation pension for RBL purposes under section 140ZO of the Act.

Pension and annuity standards

New regulation 53J specifies the pension and annuity standards in accordance with section 140L of the Act. Under section 140ZF of the Act, a pension or annuity is measured against the lump sum RBL unless it satisfies the pension and annuity standards.

New regulation 53J provides that a pension or annuity will meet the pension and annuity standards if it meets the standards set out:

•       in the case of a pension in subsection 1.06(2) of the SIS Regulations; or

•       in the case of an annuity in subsection 1.05(2) of the SIS Regulations.

Notice requirements

New regulation 53K specifies the information required to be given to the Commissioner of Taxation by the payer of a superannuation benefit in accordance with section 140M of the Act. Section 140M requires the payer of a superannuation benefit to give a notice to the Commissioner containing the information specified in the Regulations.

The information required is the information specified in new Schedule 2B of the Regulations. The information required is necessary to enable the Commissioner to make an RBL determination in respect of the benefit.

New regulation 53L specifies the information required to be given to the Commissioner by the payer of a superannuation benefit in accordance with section 140Q of the Act. Section 140Q requires the payer of a benefit which is rolled over by the recipient where the benefit represents the commutation, or residual capital value, of a pension or annuity, to give a notice to the Commissioner containing the information specified in the Regulations.

The information required is the information specified in new Schedule 2B of the Regulations. The information required is necessary to enable the Commissioner to make an RBL determination in respect of the benefit.

Interpretation of Schedules 2A and 2B

New regulation 53M provides that the definitions in Division 1 of Part 5A of the Regulations apply to the interpretation of Schedule 2A (subject to clause 1 of that Schedule) and Schedule 2B.

Subregulation 4.1 inserts new Schedule 2A and Schedule 2B into the Income Tax Regulations.

Schedule 2A - Calculation of Old Reasonable Benefit Multiples

Schedule 2A outlines the method for calculating Old Reasonable Benefit Multiples (RBM's). Old RBM's are relevant for working out the lump sum reasonable benefit multiple and the pension reasonable benefit multiple for transitional RBL purposes. Essentially Schedule 2A is identical to the previous Schedule 2 of the OSS Regulations.

A person is entitled to an Old RBM in respect of a particular benefit if part of the eligible service period attributable to that benefit occurred before 1 July 1990. Generally, the Old RBM is:

•       for benefits assessed against the lump sum - 7; or

•       for benefits assessed against the pension - 11.25.

However, a person may have a greater Old RBM if:

•       he or she was a member of a superannuation fund, on 30 June 1990 the rules of which at 25 May 1988 provided benefits greater than the RBL then. generally in force;

•       he or she has a benefit in an ADF, a life assurance company, a registered organisation or a superannuation fund which consists wholly or partly. of an ETP rolled-over from a superannuation fund provided that the whole of the ETP (other than undeducted contributions or concessional component) was rolled-over from the original superannuation fund and that the person was a member of the original superannuation fund on 30 June 1990 or ceased to be a member between 16 February 1990 and 30 June 1990; or

•        he or she has a benefit in a public sector superannuation fund and had before 1 July 1990 deferred all of his or her benefits in the fund (other than undeducted contributions and concessional component) until at least 30 June 1990.

If any one of these circumstances applies, the trustees of the member's superannuation fund are required to calculate the greater Old RBM and advise the member in writing. The method for calculating the greater Old RBM is set out in clauses 6 to 10 of Schedule 2A.

Schedule 2B - Information required under regulations 53K and 53L

Schedule 2B specifies the information required under regulation 53K and regulation 53L. Essentially the information required is that which is necessary to enable the Commissioner to make an RBL determination. The type of information required in relation to a benefit depends on whether the benefit is:

•       an ETP;

•       a superannuation pension (other than an allocated pension); or

•       an annuity or an allocated pension.

An allocated pension is defined in clause 1 of Schedule 2B to mean a pension where the relevant trust deed does not fully define either:

•       the rate of payment of the pension; or

•       the basis of variations in the rate of payment of the pension.

An allocated pension is essentially a pension arrangement where a person has his or her own account and regularly draws down an amount of income from the account within minimum and maximum parameters set out in the SIS Regulations. The pension continues until death or until the account is exhausted. Allocated pensions are also commonly known as cash-back pensions.

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