Issue 116 - 1 December 2005

	Issue 116, 1 December 2005 Welcome to the latest issue of Thomson’s Tax & Accounting Insight, your free news service for tax and accounting professionals.		Articles in this edition include: ‘Cloning’ of trusts Tax law to be cut by around 30% by repealing inoperative provisions Superannuation contributions splitting between spouses: revised draft regulations released Thomson special offers and product alert Editorial Enquiries: Tel: 1300 304 197 LRA.Support@thomson.com Copyright: Thomson Legal & Regulatory Limited ABN 64 058 914 668 35 Cotham Road Kew Vic 3101 All rights reserved. To subscribe, please click here. To unsubscribe, please reply to this email with Unsubscribe in the heading. Disclaimer: The information contained in this bulletin neither represents nor is intended to be legal or professional advice. While every care has been taken in its preparation, no person should act specifically on the basis of the material contained herein. If expert assistance is required, competent professional advice should be obtained. Privacy Policy
	‘Cloning’ of trusts A capital gains tax (CGT) event (disposal) occurs if a trust is created over a CGT asset or an asset is transferred to an existing trust. However, an exemption is available where an asset is transferred and the beneficiaries and terms of both the transfer trust and the recipient trust are the same. It may be possible, therefore, to avoid CGT on the transfer of an asset between two related trusts, provided the trusts are almost identical. The Tax Office has recently released a draft tax ruling which explains what is required in order for the ‘beneficiaries and terms’ of two trusts to be considered the same so as to be exempt from CGT events E1 and E2. Broadly, the following features must be the same for the two trusts at the time of transfer: the beneficiaries must be the same; the beneficiaries must benefit in the same way; both trusts must have the same vesting date; both trusts must be governed by the same state laws; and the terms of the trusts must be the same. The features of the two trusts that do not need to be the same include: the trustee; the names of the trusts; the commencement dates of the trusts; the settlor; and the trust property. If the trusts have an appointor or guardian, the Tax Office takes the view that the identity of those parties must be the same for both trusts. Consistency is also required in relation to family trust elections. CAUTION: Taxpayers need to consider the application of other taxes such as stamp duty when transferring assets between trusts. A detailed review of the relevant deeds will also be required to ensure that the CGT exemption is available. This article first appeared in Thomson’s Client Alert Newsletter Service. Client Alert is a monthly newsletter that promotes your business and develops your client’s awareness of upcoming tax issues. To find out more, click here. Return to TOP
	Tax law to be cut by around 30% by repealing inoperative provisions On 24 November 2005, the Treasurer announced that the government plans to cut the volume of current tax law by close to 30%. He said the Board of Taxation has been reviewing the tax legislation with a view to initiating ways to promote the ease of use of the income tax law. The board has now provided a report to the government on provisions of the tax law that are inoperative and can be repealed. The Treasurer said the board estimates that up to 28% or 2,100 pages, of the Attorney-General’s Department’s Scaleplus (now ComLaw) version of the combined Income Tax Assessment Acts (ITAAs) can be repealed. Inoperative provisions are those that have ceased to apply to taxpayers, either because they have no effect after a date in the past or because all the transactions they did affect have now concluded. The board’s report identifies an estimated 2,135 pages of inoperative provisions in the Attorney-General’s Department’s Scaleplus version of ITAA 1936 and ITAA 1997 (overwhelmingly located in ITAA 1936) that could be repealed subject to the government’s legislative processes and the outcome of any public consultation on the provisions that the government considers appropriate. The board says this represents around 44% of the Scaleplus version of ITAA 1936 and 28% of the same version of the two Acts combined. The board warns that it remains possible that the repeal of some provisions could lead to unintended consequences, essentially reflecting the complexity of current law that has built up over many years. It says there may therefore be benefit in the government undertaking further processes (e.g. public consultation) to reduce as far as possible the risk of such unintended consequences. The Treasurer confirmed that the government would undertake further consultation on the draft legislation to repeal the inoperative provisions. A draft Bill is expected to be ready for release early next year. In brief, the board made 4 recommendations: The board has identified an estimated 2,135 pages of inoperative provisions of the Attorney-General’s Department’s Scaleplus versions of ITAA 1936 and ITAA 1997. The board recommends that these provisions be repealed and the tax publishers be asked to move repealed provisions of the two Acts from their annual publications into less frequently published hard copy or on-line archive volumes. The list of proposed repeals is included in the board’s report at <www.taxboard.gov.au/content/inoperative_provisions/index.asp>. The board recommends that, prior to repeal, appropriate checking and legislative development be undertaken as part of the government’s usual legislative process. The board recommends that the government also consider undertaking a process of public consultation on an exposure draft Bill to repeal the identified inoperative provisions. The board recommends that the government consider developing appropriate savings provisions to enable the application of a repealed provision to be restored, if necessary, to address any unintended consequences, and to ensure that repeal of an inoperative provision would not affect the operation of a provision of any Act that depends on the repealed provision. The board’s report is available on its website at <www.taxboard.gov.au/content/inoperative_provisions/index.asp>. More details can be found in the Treasurer’s press release No 102, 24 November 2005. This article first appeared in Thomson’s Weekly Tax Bulletin (Issue 49, 25 November 2005). Weekly Tax Bulletin is the most comprehensive and informative tax news service available in Australia. It provides, in clear terms, the most accurate record of tax and related developments. Weekly Tax Bulletin covers everything from cases, new legislation, tax rulings and major announcements to detailed practitioner articles. Special coverage is given to year-end tax planning, the Federal Budget and newly introduced tax legislation, as well as major tax developments. To find out more, click here. Return to TOP
	Superannuation contributions splitting between spouses: revised draft regulations released On Tuesday 22 November 2005, Treasury released revised draft superannuation contributions splitting regulations to address some of the issues arising from the public consultation period. The revised draft SIS Regulations and Income Tax Regulations, which propose to allow spouses to split their superannuation contributions from 1 January 2006, are available on the Treasury website at <www.treasury.gov.au>. Maximum splittable amount While the draft regulations originally issued on 12 October 2005 allowed a member to split up to 100% of their splittable contributions with their spouse, the revised regulations define the ‘maximum splittable amount’ as: 85% of the ‘deductible contributions’ made in the financial year (e.g. taxable contributions under section 274 of ITAA 1936 such as employer contributions, superannuation guarantee contributions or salary sacrificed contributions); and 100% of ‘personal contributions’ made in the financial year for which no tax deduction is allowable and therefore not subject to contributions tax (e.g. undeducted contributions). The 85% limit was adopted as a simple means of ensuring that only the total amount of deductible contributions, net of the 15% contributions tax payable by the receiving fund, can be split. Application to split New SIS Regulation 6.44 provides that a member of a regulated superannuation fund may, in a financial year, apply to the trustee of the fund to roll over, transfer or allot an amount of benefits, for the benefit of the member’s spouse, that is equal to an amount of the splittable contributions made by, for, or on behalf of the member in the previous financial year. The application must also include a statement by the member’s spouse to the effect that the spouse is aged less than the relevant preservation age (i.e. currently age 55) or is aged between the relevant preservation age and 65 years, but does not consider themself to be permanently retired (and hence cannot immediately access the amount if transferred to them). This replaces the original requirement for a receiving spouse to declare that they hadn’t satisfied certain conditions of release in Schedule 1 of the SIS Regulations. An applicant must also specify the amounts of deductible contributions and/or personal contributions that the applicant wishes to split. Invalid applications An application will be invalid if the member has already made an application in respect of that year and that application has been given effect to or is still being processed. This effectively limits members to one valid application per year for administrative simplicity. An application will also be invalid if the amount requested to be split exceeds the maximum splittable amount (i.e. 85% for deductible contributions and 100% for personal contributions). In addition, a superannuation trustee can only accept a member’s contributions splitting application where the conditions in proposed SIS Regulation 6.45 are satisfied, i.e.: the application complies with SIS Regulation 6.44; the trustee has no reason to believe that the statement mentioned in SIS Regulation 6.44 (which requires the receiving spouse to confirm that they are either between their relevant preservation age and 65 and not permanently retired or that they are under their preservation age) is untrue; the amount to which the application relates is not more than the maximum splittable amount for the relevant financial year. If the application relates to splitting of personal contributions, then the trustee can only give effect to the application where the amount specified is less than or equal to the undeducted contributions component that would form part of the eligible termination payment (ETP) that would be payable if the member withdrew their entire benefit at the time of the trustee giving effect to the split. If the application relates to splitting of deductible contributions, then the trustee can only give effect to the application where the amount specified is less than or equal to the taxed post-June 1983 component that would form part of the ETP that would be payable if the member withdrew their entire benefit at the time of the trustee giving effect to the split. Time limit A trustee that accepts a valid application must roll over, transfer or allot the amount of benefits for the benefit of the receiving spouse within 90 days after receiving the application. Contributions splitting is not mandatory To acknowledge that splitting contributions is entirely voluntary on superannuation funds, the revised regulations include a note in SIS Regulation 6.45 stating that: ‘A superannuation fund may voluntarily provide a service that allows a member to rollover, transfer or allot an amount to the applicant’s spouse (a ‘splittable contribution’). The fund is not required to offer the service.’ This article first appeared in Thomson’s Super News Alert (Wednesday 23rd November 2005); delivered two to three times a week to specifically cover superannuation developments as they happen. It is ideal for specialist practitioners who need to keep fully up-to-date with the latest superannuation developments without searching through large quantities of general tax news and information. To find out more, click here. Return to TOP
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