Treatment of superannuation schemes administered by the National Provident Fund

(Clauses 2(9) and 37)

Summary of proposed amendment

A technical change is being made to section EY 11(5) of the Income Tax Act 2007 to clarify that the taxation rules for life insurance do not apply to superannuation schemes administered by the Board of Trustees of the National Provident Fund. The change ensures that the schemes administered by the Board and constituted under the various National Provident Fund Acts are not subject to the life insurance rules in the Income Tax Act.

Application date

The change will apply from 1 April 2010.

Key features

Section EY 11(5) is being clarified to ensure that superannuation schemes administered by the Board and constituted under various National Provident Fund Acts are not subject to the taxation rules for life insurance.

Background

Superannuation schemes administered by the Board are closed to new members and the benefits payable are subject to a government guarantee. The life insurance rules have application in the first instance to these schemes because they generally pay benefits that are contingent on the continuance of human life. The policy intent is that these schemes should be taxed as superannuation schemes.

Most of the superannuation schemes administered by the Board are specifically removed from the scope of the life insurance taxation rules through the operation of sections EY 11(2) to (9). Section EY 11(5) has specific application to the schemes administered by the Board. Some National Provident Fund schemes are, however, excluded from the scope of section EY 11(5) on a legislative technicality based on whether the scheme received employer contributions. As a result, the life insurance rules have application to the affected schemes unless section EY 10(2) otherwise applies.

The proposed amendment clarifies the operation of section EY 11(5) so that it does not distinguish between the different superannuation schemes that are administered by the Board.