Income Tax Assessment (1997 Act) Regulations 2021

Valuation charges and procedural codes. Applications for a Commissioner’s valuation of a gift (s 30‑212.02) or conservation covenant (s 31‑15.02) must be made in the approved form, accompanied by a deposit (up to $1,000 for covenants) and any advance payment requested by the Commissioner. A valuation certificate must state, for a covenant, the market value of the land before and after the covenant and the difference (s 31‑15.08(3)(c)-(f)). The final charge is a debt due to the Commonwealth; non‑complying applications are treated as having no effect (ss 30‑212.06, 31‑15.06).

Exempt entities and exempt income. Tables in ss 50‑50.01 and 50‑50.02 name specific institutions located or pursuing objectives outside Australia that qualify under paragraphs 50‑50(1)(c) and (d) of the Act. Some, such as the MITRE Corporation (until 30 June 2022) and the Kiribati Phoenix Islands Protected Area Conservation Trust (until 30 June 2023), carry end dates. Section 51‑5.01 prescribes particular ADF allowances paid under the 2013 allowances determination and the conditions determination, and payments under ss 14 and 14B of the Ombudsman Regulations 2017.

Employee share scheme - unlisted rights. An individual may elect to value an unlisted right (exercisable within 15 years) at market value or under the statutory method in ss 83A‑315.02 to 83A‑315.09. The method computes a “calculation percentage” = (market value of underlying share ÷ lowest exercise price) × 100%. If <50%, value is nil. If 50% to <110%, value = lowest exercise price × a percentage drawn from tables that assume a risk‑free interest rate of 4%, dividend yield of 4% and volatility of 12%. If ≥110%, value = exercise price × [base percentage + (excess × additional percentage)] from a further table. A tie‑breaker rule deems a value at the boundary of two ranges to fall in the lower range (s 83A‑315.08(2), 83A‑315.09(3)).

Notional taxed contributions - defined benefit members. Funds with 5 or more defined benefit members (and certain grandfathered, successor, or new large DB funds) must use the method in Schedule 1A (s 291‑170.02). Other funds determine notional taxed contributions as assessable contributions allocated under SIS Reg 7.11, plus certain reserve allocations (multiplied by 1.176 if in lieu of a contribution that would have been assessable), excluding allocations from a pension reserve that satisfy specific pension liability or commutation purposes (s 291‑170.03). Nil notional taxed contributions apply to unfunded public sector scheme interests and to non‑accruing members (on‑hold or pensioned) for the whole year (s 291‑170.04).

Equalisation of notional taxed contributions with the concessional cap. Transitional provisions permit a member’s notional taxed contributions to equal the basic concessional contributions cap only if very strict conditions are met since 5 September 2006 (for relevant 2006 interests) or 12 May 2009 (for relevant 2009 interests). These include no benefit‑improving rule changes, no unauthorised salary calculation method changes, no increase in the new entrant rate (except to satisfy SGAA requirements), no discretionary benefit increases, and superannuation salary growth not exceeding 50% in one year or 75% over three years (unless the employer‑sponsor confirms arm’s length terms and the trustee notifies the Commissioner in writing as soon as practicable) (ss 291‑170.05, 291‑170.07).

Transfer balance account. A retirement phase recipient of a deferred superannuation income stream receives a credit equal to the consideration paid (s 294‑25.01). Commutation of a capped defined benefit income stream with a direct rollover into a life expectancy or market‑linked stream generates a credit equal to the item 2 value of the new stream (immediately after a corresponding debit) (s 294‑25.02); a successor fund transfer of such a stream creates a credit equal to the debit on the old stream (s 294‑25.03). The special value of an interest supporting a prescribed income stream (other than certain carved‑out interests) is annual entitlement × 16, where annual entitlement is the first benefit after the relevant time divided by days in the payment period, multiplied by 365 (s 294‑135.01). Special rules apply to certain successor fund transferred streams and to permanent incapacity pensions where no TBAR was lodged before the 2024 amending regulations, giving a lesser of two statutory valuations.

Pre‑1 July 1988 funding credits. Method 1 requires an actuary to calculate the discounted present value of pre‑1 July 88 liabilities and available assets on a basis consistent with Part 9 of the SIS Regulations, apportioning membership (generally linearly) and excluding specified liability classes (s 295‑265.02‑.04). Method 2 notionally updates prior‑year values and is available only in the first or second income year after a Method 1 year, and only if the actuary decides it is appropriate (s 295‑265.01(8)). Both the actuary and the provider must retain documentation for at least 5 years.

Debt/equity non‑contingent obligations. Sections 974‑135.03, 974‑135.04 and 974‑135.05 provide that certain term cumulative subordinated notes and perpetual cumulative subordinated notes are not prevented from being non‑contingent obligations merely because they are subject to insolvency, capital adequacy, profitability, negative earnings, or non‑viability trigger conditions, provided detailed criteria are met. A non‑viability condition typically requires write‑off or conversion to ordinary shares or mutual equity interests upon a regulator’s notice (s 974‑135.05).

Farm management deposits. Schedule 1C prescribes mandatory statements for application forms, covering the purpose of the scheme, tax consequences, and important rules. Early repayment without losing tax benefits is permitted in limited circumstances, including natural disaster where Category C recovery assistance has been provided under the Disaster Recovery Funding Arrangements 2018 (s 393‑40.01).

Other definitions and schedules. The Regulations define “constitutionally protected fund” by listing 21 State Acts (s 995‑1.03), define “superannuation annuity” (s 995‑1.05), “terminal medical condition” (s 995‑1.06), “approved stock exchange” (Sch 3, 85 exchanges), and provide valuation factors for superannuation income streams and lump sums (Sch 1B, 1C).

• Donors of property and grantors of conservation covenants seeking a Commissioner’s valuation.
• The specific exempt institutions listed in ss 50‑50.01, 50‑50.02 and 50‑55.01, and ADF members receiving prescribed allowances.
• Private health insurers required to issue statements to the PHIIB.
• Primary producers holding livestock and farm management deposit holders.
• Employees and their employers with unlisted rights under an employee share scheme.
• Superannuation fund trustees, administrators and actuaries, particularly those managing funds with defined benefit members (including public sector schemes, constitutionally protected funds, and large funds).
• Individual superannuation members with defined benefit interests, transfer balance account holders with capped defined benefit income streams, and death benefit dependants of military or police personnel.
• State higher level office holders subject to Division 293.
• Entities translating foreign currency amounts for income tax purposes, and CFC attributable taxpayers.
• Issuers of subordinated notes: ADIs, APRA‑regulated entities, and their subsidiaries, and entities regulated by comparable foreign prudential regulators.

Valuation applicants. Must lodge in the approved form, pay a deposit ≤$1,000 and any advance payments within 14 days (or extended time allowed); a certificate is issued only after full payment. Non‑compliant applications are treated as having no effect (ss 30‑212.04‑.06, 31‑15.04‑.06).

Private health insurers. Must provide a complying‑policy statement in the approved form within 14 days of a PHIIB request (s 61‑220.01).

Superannuation trustees and actuaries. Trustees may make an irrevocable election in approved form to be a complying fund for the purposes of the personal contribution deduction condition, or to prescribe defined benefit contributions (ss 290‑155.01, 290‑155.05). They must calculate notional taxed contributions under the applicable method (Sch 1A or s 291‑170.03), determine nil circumstances accurately, and for cap equalisation must ensure strict conditions are met and notify the Commissioner in writing where a salary increase exceeds the limits. Providers must engage an actuary for pre‑1 July 1988 funding credit calculations; the actuary must follow professional standards, retain documentation for at least 5 years, and provide sufficient information for another actuary to verify the certification. The provider must likewise retain supporting documentation (ss 295‑265.01(2),(6),(10), 295‑265.02(2),(3), 295‑265.05(2),(3)).

Employment share scheme participants. Have the right to elect market value or the statutory regulatory method for valuing unlisted rights (s 83A‑315.01).

Farm management deposit providers. Must include the exact prescribed statements on application forms and must not deduct fees from the principal of a deposit (Sch 1C cl 2).

Foreign currency translation. An entity may elect in writing to apply forex realisation events 1, 2 and 4 on a weighted average basis (s 775‑145.01). It may make an irrevocable election to translate from functional currency to Australian dollars at the year‑end rate (s 960‑80.03); attributable taxpayers of a CFC must use the exchange rates from the CFC’s financial accounts if prepared under s 820‑960(1C)/(1D) (s 960‑80.02).

Debt/equity characterisation. The provisions operate automatically to preserve non‑contingent obligation status for eligible notes, subject to all criteria being met at the time of issue.

The Regulations themselves do not typically create standalone penalty provisions. Instead, enforcement operates through the architecture of the parent Acts and the Taxation Administration Act 1953.

• Valuation applications that do not comply with formal requirements or for which an advance payment is not made in time must be treated as having no effect (ss 30‑212.06, 31‑15.06). The valuation charge is a debt due to the Commonwealth recoverable in a court of competent jurisdiction (s 30‑212.07(3); s 31‑15.07 applies correspondingly).
• A farm management deposit used to offset interest on non‑primary production debts attracts an administrative penalty of up to 200% of the offset (Sch 1C cl 3(8)). Failure to quote a TFN or ABN to the FMD provider results in withholding at the top marginal tax rate plus the Medicare levy (Sch 1C cl 3(7)).
• Failure by a superannuation provider or actuary to retain required documentation, or incorrect calculations of notional taxed contributions or pre‑1 July 1988 funding credits, may result in the loss of the relevant concessional treatment and expose the fund or member to amended assessments and general interest and shortfall penalties under the TAA.
• Failure by a private health insurer to provide the required statement within 14 days may attract administrative penalties under the TAA.

The Regulations are made primarily under the ITAA 1997; specific provisions (notably ss 291‑170.05 and 291‑170.07) are made under the Income Tax (Transitional Provisions) Act 1997 (s 3).

Superannuation legislation. The Regulations interact heavily with the Superannuation Industry (Supervision) Act 1993 and the Superannuation Industry (Supervision) Regulations 1994 (SIS Regs). Key reference points include Div 7.2 (allocations), reg 7.11 (assessable contributions), reg 6.44 (contributions‑splitting), Part 9 (actuarial valuations), Sch 1 (conditions of release), and regs 1.05, 1.06 and 1.06A (income stream standards). The Retirement Savings Accounts Act 1997 and RSA Regulations are also referenced for similar concepts.

Prudential and banking laws. The debt/equity safe harbours interact with the Banking Act 1959 (s 11CAA for “mutual equity interests”, Attachment H to prudential standard determination No. 4 of 2017 for preference shares) and with APRA prudential standards for Tier 1 capital and non‑viability triggers.

Other Commonwealth laws. The Superannuation Guarantee (Administration) Act 1992 is given specific exceptions within the notional taxed contribution equalisation conditions. The Defence Act 1903, Defence Force Retirement and Death Benefits Act 1973, Military Superannuation and Benefits Act 1991, and Ombudsman Regulations 2017 are referenced for exempt allowances and income stream exclusions. The Disaster Recovery Funding Arrangements 2018 determine eligibility for early FMD repayment. The Income Tax Rates Act 1986 and Medicare Levy Act 1986 govern the withholding rate on FMDs. The Corporations Act 2001 and accounting standards underlie the foreign currency translation election using audited financial reports.

Transitional integration. Chapter 7 (Parts 1000‑1 to 1000‑9) carefully manages the interaction between the 2021 Regulations and the repealed ITAR 1997, ensuring that pre‑commencement elections, certificates, valuations and choices continue to have effect and that later amending regulations apply with appropriate transitional rules.

The Regulations are a 2021 remake that commenced at the “commencement time” and generally apply to income years starting at or after that time (s 1000‑1.02). They consolidate predecessor instruments.

Specific amendments subsequently made include:

• Treasury Laws Amendment (Miscellaneous and Technical Amendments) Regulations 2021, which amended s 291‑25.01 effective from the 2021‑22 financial year (Part 1000‑2).
• Treasury Laws Amendment (Allowing Commutation of Certain Income Streams) Regulations 2022, enabling commutation of capped defined benefit income streams into life expectancy or market‑linked income streams and prescribing associated transfer balance credits and debits (ss 294‑25.02, 294‑80.02A).
• Treasury Laws Amendment (Enhancing Superannuation Outcomes) Regulations 2022, which changed work test exemptions; s 290‑165.01 preserves the earlier provisions for historical application.
• Income Tax Assessment Amendment (Transfer Balance Account Value for Certain Superannuation Income Streams) Regulations 2024, which introduced special valuation rules for permanent incapacity pensions where no TBAR had been lodged before commencement of the amending regulations (ss 294‑135.01(6)‑(9), 294‑80.02B; Parts 1000‑6).
• Treasury Laws Amendment (Military Superannuation Benefits) Regulations 2023, prescribing additional capped defined benefit income streams and valuation rules for military benefits from 1 July 2023 (Part 1000‑4).
• Income Tax Assessment (1997 Act) Amendment (Term Subordinated Note) Regulations 2025, inserting s 974‑135.05 for term subordinated notes with non‑viability conditions, with transitional application from 12 December 2012 (cl 1000‑9.01).

Several exempt institution prescriptions carry express end dates (MITRE Corporation ended 30 June 2022; Kiribati Trust ended 30 June 2023), reflecting time‑limited exemption policies.

The source material does not record any court challenges or controversies relating to these Regulations.

• ESS valuation tables are rigid and contain a tie‑breaker trap. The tables in ss 83A‑315.08 and 83A‑315.09 use fixed assumptions (4% risk‑free rate, 4% dividend yield, 12% volatility) that may diverge from market conditions. Where an exercise period or calculation percentage falls exactly on a boundary between table ranges, it is taken to fall in the lower range, reducing the statutory value (ss 83A‑315.08(2), 83A‑315.09(3)).
• Valuation charge applications are fragile. Failure to pay a requested advance within 14 days (or the Commissioner’s extended time) means the application must be treated as having no effect. There is no provision for rectification or late payment.
• Notional taxed contribution equalisation conditions are unforgiving. A single discretionary benefit increase, a change in the superannuation salary calculation method not required by law or the SGAA, or a salary increase exceeding 50% in one year or 75% over three years can permanently defeat equal‑to‑cap treatment for a member unless the narrow arm’s length exception is met and the trustee notifies the Commissioner in writing as soon as practicable (ss 291‑170.05, 291‑170.07).
• Non‑accruing member classification requires vigilance. An on‑hold member’s benefit may only increase by CPI, salary growth, fund earnings, deferred benefit adjustments, or an actuary‑certified rate not exceeding the greatest of those. Any other increase means nil notional taxed contributions should not apply (s 291‑170.04(6)). A pensioned member must receive only a level pension or an account‑based pension specified in fund rules, with increases consistent with those rules at commencement.
• Pre‑1 July 1988 funding credits - Method 2 is strictly limited. Method 2 can only be used in the first or second income year after a Method 1 year, and only if the actuary decides it is appropriate. A mistaken election forces a reversion to Method 1.
• Pension reserve must be used solely for pension liabilities. Any other use can disqualify the reserve for the whole income year, with flow‑on effects for the non‑concessional contributions treatment of reserve allocations (s 292‑90.02(8)).
• Transfer balance cap - timing and permanent incapacity traps. The special value for certain permanent incapacity pensions applies only if a TBAR was not lodged before the 2024 amending regulations’ commencement. Once lodged, the pre‑amendment valuation remains (s 294‑135.01(6)(d)). On successor fund transfers, the credit rule in s 294‑25.03 applies to involuntary roll‑overs; a voluntary commutation and repurchase attracts different debits and credits under ss 294‑80.02A and 294‑25.02. Misclassification can produce incorrect transfer balance account entries.
• Constitutionally protected funds list is closed. Only funds established by the State Acts listed in s 995‑1.03 as in force at the commencement of that section qualify. A fund created by a different Act or an amended Act does not.
• Foreign currency elections are sticky or irrevocable. An election under s 960‑80.03 to use the year‑end rate for functional currency translation is irrevocable. An attributable taxpayer of a CFC using the financial accounts method must use the CFC’s own rates consistently; no mixing with other methods.
• Farm management deposits - harsh penalties. Using a deposit as security or deducting fees from principal immediately jeopardises FMD status. Early repayment within 12 months loses tax benefits unless within the strictly confined exceptions. Offsetting non‑primary production debt interest attracts a penalty of up to 200% of the offset (Sch 1C cl 3(8)).
• Schedule 1A funds - member counting. A fund that had 5 or more defined benefit members on 1 July 2007 remains permanently caught by the Schedule 1A method even if membership later drops below five (s 291‑170.02(3)). A fund with fewer than 5 on that date may still be caught if it meets detailed grandfathering conditions, including that the employer‑sponsor deals at arm’s length with each defined benefit member.

For valuations of gifts and conservation covenants. Use the approved form, attach a copy of the covenant (if applicable), and pay the deposit and any advance payment requested within the specified time. Retain evidence of payment. Do not expect a valuation certificate until the full charge is received.

For ESS unlisted rights. Confirm the right is unlisted and exercisable within 15 years. Determine the market value of the underlying share and the lowest exercise price. Compute the calculation percentage. If <50%, value is nil. If 50% to <110%, identify the exercise period in whole months and the calculation percentage band, take the lower range at any boundary, and multiply the exercise price by the applicable percentage from s 83A‑315.08. If ≥110%, apply the formula in s 83A‑315.09. Document the choice of valuation method and the inputs.

For superannuation notional taxed contributions. First, determine whether the fund is within s 291‑170.02 (5+ DB members, grandfathered, transferee, or new large DB fund). If so, use Schedule 1A. If not, apply s 291‑170.03: sum assessable contributions under SIS Reg 7.11 and reserve allocations, grossing‑up by 1.176 for in‑lieu allocations, and exclude pension‑reserve allocations that meet s 291‑170.03(3) purposes. Check s 291‑170.04 for nil notional taxed contribution eligibility and ensure the member’s non‑accruing status is fully documented. For equalisation claims, review all rule changes, salary growth and discretions against ss 291‑170.05 or 291‑170.07, and where salary growth exceeds limits obtain the employer‑sponsor’s written confirmation and notify the Commissioner promptly.

For pre‑1 July 1988 funding credits. Engage an actuary. Use Method 1 unless the conditions for Method 2 are clearly met and the actuary positively decides it is appropriate. Exclude all prescribed liability classes (undeducted contributions, untaxed‑source pensions, corresponding identified assets, death/disability costs under ss 295‑465/470) from both liability and asset calculations. Both the actuary and the provider must retain supporting documentation for at least 5 years, and the actuary must provide sufficient information for another actuary to verify the certification if requested.

For transfer balance cap reporting. Classify each income stream against s 294‑130.01. For special value, unless the stream is a carved‑out successor fund transfer or a permanent incapacity pension to which the lesser‑of rule applies, use annual entitlement × 16. For the incapacity exception, verify whether a TBAR was lodged before the commencement of the 2024 amending regulations; if not, apply the lesser of the values under ss 294‑135(2) and (3) of the Act, treating fixed‑term benefits as payable for the full term. On commutation and direct rollover, ensure the new stream is a life expectancy or market‑linked product meeting the specified SIS or RSA standards and record the credit after the debit.

For private health insurers. When the PHIIB requests a statement, prepare the approved form and provide it within 14 days of receiving the request.

For farm management deposits. Use application forms containing the exact wording set out in Schedule 1C, Parts 2 and 3. Do not deduct fees from the principal and do not accept a deposit used as security. Advise depositors to quote a TFN or ABN, and inform them of the restricted early repayment exceptions and the 200% penalty for non‑production debt offset.

For foreign currency translation. Identify the correct modified item in the s 960‑50(6) table (as amended by s 960‑50.01). If using the Schedule 2 alternative, replicate exchange rates from an audited financial report, or make a written daily or average rate election using non‑associate sources, locked in for the income year. For functional currency, decide between an average rate or the irrevocable year‑end rate. CFC attributable taxpayers must use the CFC’s own translation rates if its accounts were prepared under s 820‑960.

For subordinated note issuers. Conduct a detailed check against s 974‑135.03, 974‑135.04 or 974‑135.05 at the time of issue, ensuring the note is not Tier 1 capital, term limits are observed, deferral amounts accumulate (or are subject to a qualifying non‑viability trigger), and the issuer does not have an unconditional right to decline payment of the nominal value. Document the satisfaction of all criteria for the debt/equity safe harbour.