NO.070

The Government will defer the starting date for changes to the taxation treatment of

funeral bonds, scholarship plans and income bonds offered by Friendly Societies, in an

effort to help Friendly Societies adjust to new arrangements under the New Business Tax

System.

The investment income earned by Friendly Societies on funeral bonds, scholarship plans

and income bonds sold after 30 November 1999 will be subject to tax at the company rate,

but only from 30 June 2001. Until then, the investment income from products sold after 30

November 1999 will be exempt from tax.

This deferral will allow time for Friendly Societies to establish benefit funds to

cater for the new arrangements and to develop appropriate disclosure documents for new

products.

From 1 July 2001, Friendly Societies will pay tax on investment income earned on

funeral bonds and scholarship plans sold after 30 November 1999. Holders of bonds or plans

will receive imputation credits for tax paid by Friendly Societies, which will ensure that

tax is paid at the marginal rate of the taxpayer.

Friendly Societies will also pay tax from 1 July 2001 on the investment income earned

on income bonds sold after 30 November 1999. However, they will receive a tax deduction

for tax paid on amounts credited to bond holders, since bond holders will include those

amounts in their assessable income. This will ensure that the investment income is taxed

at the marginal tax rate of the bond holder.

Friendly Societies will remain exempt from tax on investment income earned on funeral

bonds, scholarship plans and income bonds sold before 1 December 1999.

CANBERRA

21 October 1999

Contact:

Tony Regan

Australian Taxation Office

(02) 6263 4404