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Fixed interest complying approved deposit funds

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The Government has decided to am end the income tax law in relation to the special exemption available to certain fixed interest complying approved deposit funds (ADFs) to overcome a technical problem . Section 290A of the

Income Tax Assessment Act 1936 gives effect to the exemption.

The exemption excludes from the 15% earnings tax, a part of the assessable income of ADFs that derive m ost of their income as interest and accordingly receive minimal or no benefits from im putation credits. The exemption lessens the im pact of the 1988 superannuation changes on those people close to retirem ent who had invested in fixed interest investments.

The exemption applies to income that is referable to deposits held in ADFs at 25 M ay 1988 (the date of the Economic Statem ent that announced the changes to the taxation arrangem ents applying to superannuation) by 2 groups of depositors. The first group consists of those people w ho were aged 55 or older at 25 May 1988. The second group are those w ho were aged 50 or older at that date and w ho had deposits in the ADF consisting of a bona fide redundancy paym ent, an invalidity paym ent or an approved early retirem ent scheme payment.

Subject to certain rules, the exem ption is available w here an ADF receives at least 90% of its investm ent income as interest, in the form of interest or amounts included in respect of long term discounted securities. This test does not take into account other assessable profits arising from the disposal of securities.

Given that the disposal of securities is a norm al activity of these investment bodies, the Government has decided to am end section 290A so that such profits are taken into account in the same w ay as interest in working out whether an

ADF has satisfied the 90% test. For this purpose, securities will include debentures, bonds, bills of exchange, deposits w ith banks and other loans.

As w ith section 290A, it is proposed that the am endm ent will have effect from 1 July 1988.




Contact: Deidre Gerathy Telephone: (06) 263 3805