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Income Tax Rates Amendment (RSAs Provided by Registered Organizations) Bill 1999



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Bills Digest No. 142  1998-99

 

Income Tax Rates Amendment (RSAs Provided by Registered Organizations) Bill 1999

Warning:

This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

Contents

 

 

Passage History

Income Tax Rates Amendment (RSAs Provided by Registered Organizations) Bill 1999

Date Introduced:  11 March 1999

House: Representatives

Portfolio: Treasury

Commencement: On the transfer date for the purposes of the Financial sector Reform (Amendments and transitional Provisions) Act (No.1) 1999 .  This is the date at which financial institutions and friendly societies will come under Commonwealth jurisdiction. It will be promulgated by the Governor-General in the Gazette.

Purpose

To specify rates of tax that apply to the retirement savings account (RSA) business of friendly societies and other registered organisations.

Background

The Financial System Inquiry (FSI) recommended that th e right to offer RSAs should be extended to any institution able to offer capital backed deposit and investment products subject to prudential regulation by the Australian Prudential Regulation Authority (APRA).(1) If the Financial Sector Reform (Amendments and Transitional Provisions) Bill (No.1) 1999 is passed friendly societies will fall into this category.

What are Friendly Societies?

Australia’s first friendly society was established in NSW in 1830.(2) Friendly Societies are mutual organisations. Tradi tionally, they offered sickness and accident assurance products through benefit funds.  During the 1980’s, they expanded significantly by introducing insurance bond investment products which were tax-advantaged at the time. Although those tax advantages have been removed, single premium bond and annuity products are still a significant business. The FSI reported that approximately $8 billion of assets are under friendly society management.(3)

A uniform national scheme governing for the prudential regulation of Friendly Societies was introduced from 1 October 1997.  The essence of this regulatory scheme will be continued under the Financial Sector Reform (Amendments and Transitional Provisions) Bill (No.1) 1999 when friendly societies come under the supervision of the Australian Prudential Regulation Authority.

What are RSAs?

The passage of the Retirement Savings Accounts Act 1997 enabled banks, building societies, credit unions and life offices to offer a ‘capital guaranteed’ superannuation product - the retirement savings account (RSA)- without the trust structure that is typically associated with superannuation.  RSAs have the same tax advantaged treatment as other superannuation products.  Proponents of the introduction of RSAs argued that the trust structure, which separates legal and beneficial ownership and imposes fiduciary duties on trustees is less relevant in the case of RSAs because the institutions offering them are prudentially supervised.(4) The capital guarantee inherent in the RSA is supported by balance sheets of the offering institutions.  It was also the Government’s view that the introduction of RSAs would increase competition in the superannuation industry. 

Competition should be further encouraged by enabling friendly societies to offer RSAs. This bill sets the taxation rates that will apply to friendly societies conducting this business.

Main Provisions

The main provisions are concerned with providing appropriate tax treatment for the RSA business of friendly societies.  It must be seen i n conjunction with the measure contained in the Financial Sector Reform (Amendments and Transitional Provisions Bill) 1999 .  Schedule 7 of that Bill proposes an amendment in the Income Tax Assessment Act 1936 which will recognise the RSA business of friendly societies. 

This Bill amends the Income Tax Rates Act 1986 to specify the rates of tax that apply to the RSA business of registered organisations.

Income credited by a friendly society to an RSA will be taxed at the 15 per cent rate.  Profits of the friendly society will be taxed at the company rate of 36 per cent.

Endnotes

1. Financial System Inquiry: Final Report, March 1997, Recommendation 43.

2. David Green and Lawrence Cromwell, Mutual Aid or Welfare State: Australia’s Friendly Societies, George Allen & Unwin, Sy dney, 1984.

3. Financial System Inquiry: Final Report, March 1997, p. 327.

4. See discussion in Council of Financial Supervisors, Annual Report 1997.

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Contact Officer

Mark Tapley

25 March 1999

Bills Digest Service

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