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B32/1994 TAXATION CHANGES - UNDEDUCTED PURCHASE PRICE EFFECTIVE 1 JULY 1994
DATE OF ISSUE: 3 AUGUST 1994
Taxation changes - Undeducted Purchase Price effective 1 July 1994
The purpose of this Departmental Instruction is to provide details on how the 1 July 1994 tax changes, relating to the Undeducted Purchase Price (UPP), affect the assessment of superannuation pensions and immediate annuities purchased with rollover money (rollover immediate annuities).
2.For service pension purposes, the assessable value of an Australian superannuation pension or rollover immediate annuity is calculated by reference to the UPP. UPP is the portion of superannuation pension or immediate annuity which represents the return of employer contributions for which a tax deduction was not previously received. The UPP is defined by reference to the Income Tax Assessment Act.
3.From 1 July 1994, there will be a number of changes to the tax rules for certain superannuation products, in particular to the UPP. This will not affect payments of service pension as this department will continue to use the pre 1 July 1994 definition of UPP.
Tax treatment of UPP
4.For tax purposes, UPP is used to determine the deductible amount for superannuation pensions and rollover immediate annuities. Prior to 1 July 1994, the tax definition of UPP comprises components (including pre and post 30 June 1983 contributions) that have not received concessional tax assistance. This calculation of UPP for the deductible amount is also used for the income test treatment of superannuation pensions and rollover immediate annuities.
5.From 1 July 1994 the UPP is calculated using only the post June 1983 contributions that have not received concessional tax assistance. This change reduces the deductible amount and impacts on the tax assessment of superannuation pensions and rollover immediate annuities. For example, the assessable value of a superannuation pension will be greater as the UPP will be a smaller amount. The purpose of this change is to provide greater consistency in the taxation treatment of pensions and annuities.
6.The change in the tax definition of UPP will only affect superannuation pensions and rollover immediate annuities wholly purchased by way of roll-over of an eligible termination payment (ETP) on or after 1 July 1994.
DVA calculation of UPP from 1 July 1994
7.DVA will continue to use the pre 1 July 1994 tax definition for UPP. This means that service pensioners who purchase superannuation pensions or rollover immediate annuities by rolling over their eligible ETP, will be treated similarly irrespective of whether they purchased the pensions or annuities before, on or after 1 July 1994.
8.This treatment of UPP is consistent with the DSS policy announced by the Minister for Social Security on 23 June 1994.
How to obtain UPP information for superannuation pensions or rollover immediate annuities
9.The GOSP currently states that:
'Annual UPP can be obtained from a person's income tax return. The tax assessment notice will also be requested to confirm that this amount was an allowable deduction. Alternatively, a person may have a letter from the Australian Taxation Office stating the amount which he/she may claim as an annual deduction'.
10.For superannuation pensions and rollover immediate annuities purchased on or after 1 July 1994 this no-longer applies as the UPP for tax purposes will not include the pre July 1983 component. To obtain the correct details for the UPP and the deductible amount you will need to contact the relevant superannuation fund or product provider. You must ensure that the fund or provider understands that even though the superannuation pension or rollover immediate annuity was purchased on or after 1 July 1994, the pre 1 July 1994 definition of UPP applies for service pension purposes. This will ensure that any pre July 1983 contributions that have not received concessional tax assistance will be included.
11.Negotiations are currently being held with the superannuation industry to ensure that this information is made available.
Amendments to the GOSP and form D2721 (Information on your superannuation pension)
12.Amendments to the GOSP outlining the changed tax assessment of UPP will be prepared for the next available GOSP amendment release.
13.The form D2721 will be amended once the negotiations with the superannuation industry are completed.
14.Legislative amendments will be proposed to ensure that departmental policy is supported by the Veterans' Entitlements Act 1986.
15.If you have any enquiries in relation to this matter please call John Fely on
06 289 6440.
NATIONAL PROGRAM DIRECTOR