There are two types of superannuation surcharge that may apply to people on higher incomes:
- the superannuation contributions surcharge, which is a tax on certain contributions made to a superannuation fund (usually employer and personal deductible contributions), and
- the termination payments surcharge, which is a tax on certain components of an employer eligible termination payment that is taken in cash.
As announced in the 2005-06 Federal Budget, the superannuation surcharge has been abolished. The surcharge legislation was changed so that a superannuation surcharge is not applied to any superannuation contributions made, or termination payments received, on or after 1 July 2005.
This means that current obligations and responsibilities still exist and new ones may continue to arise but only for superannuation contributions made, or termination payments received, between 20 August 1996 and 30 June 2005. Both original and amended surcharge assessments may still be issued for the financial years 1997-2005 and the resulting liabilities must still be paid.
Future obligations also continue to exist for unfunded defined benefit funds and members of constitutionally protected funds. This is because they are not required to pay their surcharge liability until the member has left the fund, or begins to receive benefits.
Surchargeable contributions are certain superannuation contributions that will have a surcharge applied to them if your adjusted taxable income is above the lower limit for the relevant financial year. See the table below.
If you are a member of an accumulation fund, surchargeable contributions include:
- contributions made by your employer for your benefit (including additional contributions being paid because of a salary sacrifice arrangement)
- personal contributions for which you have claimed a tax deduction
- the post 20 August 1996 portion of an employer eligible termination payment rolled over on or after 1 July 1997, and
- any amount allocated to your account on or after 1 July 1997 that has been reported by your fund as an allocated surplus amount.
If you are a member of a defined benefit fund your surchargeable contributions are determined by your fund's actuary. The actuary calculates the value of the benefits and expenses relating to your membership for a financial year.
Personal contributions, for which no income tax deduction has been claimed, are not surchargeable contributions. These are also referred to as undeducted contributions.
For the financial years 1997-2005, the surcharge will apply to your surchargeable contributions if your adjusted taxable income is higher than the lower income amount. See the table below. Generally, your adjusted taxable income is your taxable income plus reportable fringe benefits amounts plus surchargeable contributions.
We get some of our information about you from your income tax return. These details include your taxable income, reportable fringe benefits amounts and the details of personal contributions for which you have claimed an income tax deduction. We get our information about your surchargeable contributions from an annual statement lodged by your superannuation fund. This statement reports the contributions they have received for you in the financial year.
When we have all of this information about you, and your adjusted taxable income is higher than the lower income amount for the relevant year, then we calculate the surcharge that needs to be applied to your surchargeable contributions.
TABLE: Lower and higher income amounts.
Income year
|
Lower income amount
|
Higher income amount
|
A
|
2005-06
|
Surcharge has been abolished
|
|
2004-05
|
$99,710
|
$121,075
|
1,709.20000
|
2003-04
|
$94,691
|
$114,981
|
1,399.31034
|
2002-03
|
$90,527
|
$109,924
|
1,295
|
2001-02
|
$85,242
|
$103,507
|
1,219
|
2000-01
|
$81,493
|
$98,955
|
1,165
|
1999-2000
|
$78,208
|
$94,966
|
1,118
|
1998-99
|
$75,856
|
$92,111
|
1,084
|
1997-98
|
$73,220
|
$88,910
|
1,046
|
1996-97
|
$70,000
|
$85,000
|
1,000
|
Your adjusted taxable income is compared to the lower and higher income amounts to determine the rate of surcharge that will apply to your surchargeable contributions.
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If your adjusted taxable income is equal to or below the lower income amount for the financial year, you do not have to pay surcharge.
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How is adjusted taxable income calculated?
There are two methods used to calculate your adjusted taxable income.
The second case method is only used if you received an eligible termination payment from your employer in the financial year and the total of the reduced amounts of all employer eligible termination payments received is less than the higher income amount for the year.
The reduced amount of an eligible termination payment is the amount (if any) remaining after you have deducted several amounts from the payment:
- any post June 1994 invalidity component
- any capital gains tax (CGT) exempt component, and
- any part of the payment that was made from an employee share acquisition scheme.
The first case method is used in all other circumstances.
FLOW: Follow these steps to help you choose the correct method to calculate your adjusted taxable income.
Did you receive an eligible termination payment from your employer?
- No - Use the first case method
See the worked example using the first case method.
- Yes - Was the total of the reduced amounts of the eligible termination payments (defined above) equal to or greater than the higher income amount?
- Yes - Use the first case method
See the worked example using the first case method.
- No - Use the second case method
See the worked example using the second case method.
First case method
Adjusted taxable income
|
=
|
Your taxable income.
|
|
|
-
|
Superannuation fund and rollover fund eligible termination payments.
|
|
|
-
|
Lump sum payments for unused long service leave (for post 15 August 1978 service) and unused annual leave received when you ceased employment because of bona fide redundancy, invalidity or under an approved early retirement scheme.
|
|
|
+
|
Family trust distributions exempt from income tax because the trust paid the tax.
|
|
|
+
|
Distributions exempt from income tax because ultimate beneficiary non disclosure tax was paid.
|
|
|
+
|
Your total surchargeable contributions.
|
|
|
+
|
Reportable fringe benefit amount shown on your payment summary (for income years ended 30 June 2000 onwards).
|
EXAMPLE: Using the first case method.
Jamal works as an environmental engineer.
- His taxable income for the 2001-02 financial year was $72,000.
- His employer paid superannuation contributions of $6,500 into his self managed superannuation fund.
- Jamal's employer also provides him with a company car.
- The reportable fringe benefit amount of the company car provided to Jamal is $8,000.
Jamal's adjusted taxable income is the total of:
Taxable income
|
$72,000.00
|
Less: Superannuation fund eligible termination payments
|
$ 0.00
|
Less: Applicable unused annual and long service leave payments
|
$ 0.00
|
Plus: Family trust distribution amounts
|
$ 0.00
|
Plus: Ultimate beneficiary non disclosure tax
|
$ 0.00
|
Plus: Surchargeable contributions
|
$ 6,500.00
|
Plus: Reportable fringe benefit amount
|
$ 8,000.00
|
Adjusted taxable income
|
$86,500.00
|
As Jamal's adjusted taxable income is greater than the lower income amount of $85,242 for the 2001-02 financial year, he will have a superannuation surcharge liability.
Second case method
Adjusted taxable income
|
=
|
Your taxable income.
|
|
|
+
|
Family trust distributions exempt from income tax because the trust paid the tax.
|
|
|
+
|
Distributions exempt from income tax because ultimate beneficiary non disclosure tax was paid.
|
|
|
+
|
Your total surchargeable contributions (excluding any post 20 August 1996 portion of an employer eligible termination payment which has been rolled over).
|
|
|
+
|
Reportable fringe benefit amount shown on your payment summary (for income years ended 30 June 2000 onwards).
|
|
|
+
|
The amount we arrive at by doing the eligible termination payment calculation (the formula to calculate this is below).
|
|
|
-
|
The assessable amount of all eligible termination payments.
|
|
|
-
|
Lump sum payments for unused long service leave (for post 15 August 1978 service) and unused annual leave received when you ceased employment because of bona fide redundancy, invalidity or under an approved early retirement scheme.
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FORMULA: Use this formula to work out your eligible termination payment amount
Taxable portion of each employer ETP x number of service days after 20 August 1996*
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Total number of eligible service days
|
* If the number of service days after 20 August 1996 is greater than 365 days, 365 days is used instead.
By calculating this figure, it ensures that a maximum of one year's worth of accrual of your employer eligible termination payment/s is included when we work out your adjusted taxable income.
EXAMPLE: Using the second case method.
Mary began work on 1 May 1991.
She stopped work on 24 August 2003 and was paid an employer eligible termination payment of $58,000 which she rolled over.
For the 2003-04 financial year she has:
- a taxable income of $86,000
- surchargeable contributions of $41,000 (of which $33,010 represents the post 20 August 1996 portion of the rolled over eligible termination payment and $7,990 employer contributions), and
- total service days of 4,498 (consisting of 2,560 post 20 August 1996 days).
As the gross or 'reduced amount' of the employer eligible termination payment ($58,000) received by Mary in the 2003-04 financial year is less than the higher income amount of $114,981, only a portion of the eligible termination payment is included in Mary's adjusted taxable income calculation below.
Mary's adjusted taxable income is the total of:
Taxable income
|
$86,000.00
|
Plus: Income tax exempt, family trust distribution tax paid
|
$ 0.00
|
Plus: Income tax exempt, ultimate beneficiary non disclosure tax paid
|
$ 0.00
|
Plus: Surchargeable contributions excluding post 20 August 1996 ETP rollover amount ($41,000 - $33,010)
|
$ 7,990.00
|
Plus: Reportable fringe benefits amount
|
$ 0.00
|
Plus: Eligible termination payment calculation 1
|
$ 4,706.00
|
Less: Assessable amount of all eligible termination payments
|
$ 0.00
|
Less: Lump sum payments for unused long service leave
|
$ 0.00
|
Adjusted taxable income
|
$98,696.00
|
As Mary's adjusted taxable income is greater than the lower income amount of $94,691 for the 2003-04 financial year, she will have a superannuation surcharge liability.
1
|
Eligible termination payment calculation
|
|
|
= $58,000 x 365 รท 4,498
|
|
|
= $4,706
|
Surcharge rates
Before the surcharge was abolished for surchargeable contributions made and termination payments received, from 1 July 2005, the maximum surcharge rate was gradually reduced:
- 15% for the financial years 1997-2003
- 14.5% in 2003-04, and
- 12.5% in 2004-05.
The maximum surcharge rate will apply to your surchargeable contributions if your adjusted taxable income exceeds the higher income amount.
There will be no surcharge if your adjusted taxable income is equal to or below the lower income amount.
If your adjusted taxable income is between the lower income amount and higher income amount, the surcharge rate will be calculated using the following formula:
Surcharge rate =
|
Adjusted taxable income - lower income amount
A
|
The amount 'A' is different each financial year and is listed in the previous table.
For example, Mary's adjusted taxable income is $98,696.00 for the 2003-04 financial year. The surcharge rate is calculated as:
Rate =
|
$98,696 - $94,691
1,399.31034
|
The surcharge rate that will apply to Mary's surchargeable contributions is 2.86212%. Following the example, Mary's surchargeable contributions are $41,000. Therefore Mary's surcharge liability will be calculated as follows:
Liability =
|
$41,000 x 2.86212%
|
=
|
$1173.45
|
Your superannuation fund usually pays the surcharge on your behalf, however in some circumstances you may be required to pay the surcharge liability yourself. When your superannuation fund does pay your surcharge for you, the fund may deduct a corresponding amount from your account or your final benefit.
The general rule is that the superannuation fund that holds your surchargeable contributions will pay the surcharge liability that has been assessed for those contributions.
You may have transferred your surchargeable contributions from one superannuation fund to another. In that case, it is the fund which is holding your contributions when we assess them for surcharge that is required to pay. This is the case no matter which fund reported the surchargeable contributions to us.
If the surchargeable contributions have been paid to you before we issue an assessment to your superannuation fund, then you are liable to pay the surcharge. This is because you currently hold the contributions. For example, this would be the case if you have retired and your benefit has been paid to you as either a lump sum or pension.
When we issue an assessment, it must be paid within one month. We may add a general interest charge to late payments.
These funds are, in general terms, unable to pay your surcharge assessments when they are made each year as the notional contributions being assessed are not paid in by your employer until you leave the fund and are paid a superannuation benefit.
Your unfunded defined benefit fund will keep a surcharge debt account for you to record the amount of surcharge assessed for the 1997-2005 financial years.
Interest will also be added based on the outstanding balance of your surcharge debt account on 30 June each year using the 10-year Treasury bond rate. You can see these rates in the key rates section on www.ato.gov.au. The surcharge legislation requires your fund to impose this interest to ensure that the value of your accumulated surcharge debt is maintained over time.
You can choose to make a voluntary payment directly to your fund at any time to reduce the balance of your surcharge debt account and reduce the interest payable at the end of the financial year.
In this way your surcharge liability is deferred until a superannuation benefit is paid by your fund. This occurs when:
- you receive a lump sum payment, or begin receiving a pension
- you transfer your contributions
- a payment is made to your spouse on marriage breakdown, or
- a benefit payment is made upon your death.
Your fund must pay the balance of your surcharge debt account on your behalf within one month of one of the above events occurring. The surcharge liability amount may be deducted from your final benefit payment by your fund.
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There are many personal financial factors which are relevant to the decision to make voluntary payments. We recommend that you seek professional advice before making any voluntary payments.
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We will keep a surcharge debt account for you to record the surcharge assessed on the surchargeable contributions reported by your fund for the 1997-2005 financial years.
Interest will also be added to the debt account based on the outstanding balance of your surcharge debt account on 30 June each year using the 10-year Treasury bond rate. You can see these rates in the key rates section on www.ato.gov.au This interest is to ensure that the value of your accumulated surcharge debt is maintained over time.
You can choose to make a voluntary payment directly to us at any time to reduce the balance of your surcharge debt account and reduce the interest payable at the end of the financial year.
In this way your liability to surcharge is deferred until a superannuation benefit becomes payable to you by your fund. This occurs when:
- you receive a lump sum payment, or begin receiving a pension
- you transfer your contributions
- a payment is made to your spouse on marriage breakdown
- a benefit payment is made upon your death, or
- the superannuation fund ceases to be a constitutionally protected superannuation fund.
Your superannuation fund advises us when your benefit becomes payable (including when you leave the fund or begin receiving a pension). Your fund does this by lodging a Superannuation member exit statement for constitutionally protected funds (NAT 3203). After we receive this form, we will calculate your final liability and issue you with a notice of final liability. You will need to pay this amount within three months. We may add a general interest charge to late payments.
Your final liability is the lesser of:
- the balance of your surcharge debt account held by the Tax Office, or
- the employer financed component amount (a percentage of the employer financed part of the benefit payable to you (or rolled over) that accrued after 20 August 1996 and before 1 July 2005).
If you begin receiving a pension, you may be able to pay your surcharge liability from your benefits. Your fund will be able to tell you if you can do this. If you transfer your benefits to another superannuation fund you can ask the new fund to pay the surcharge on your behalf.
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There are many personal financial factors which are relevant to the decision to make voluntary payments. We recommend that you seek professional advice before making any voluntary payments.
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Some state judges are exempt from superannuation surcharge on their constitutionally protected fund memberships.
If you are a member of a constitutionally protected fund because you were a judge of a state court before 7 December 1997, you will be exempt from this surcharge on your constitutionally protected fund membership for the financial years in which you remain in this same office or employment.
Surcharge is not payable on contributions paid or termination payments received in the financial year in which you die.
If you die, and the surcharge assessed for the financial years before the financial year of your death was not paid before the superannuation death benefit was paid, the beneficiary or your deceased estate needs to pay the surcharge.
We use your tax file number (TFN) to match the details on your tax return with the surchargeable contributions reported annually by your superannuation fund. So it is important that your superannuation fund has your correct TFN when it reports your contributions.
If you have not given your TFN to your fund we will take all reasonable steps to match your income tax return with the details of your surchargeable contributions. If we cannot match your TFN we will advise you in writing.
We will ask you for your TFN. If you do not provide it to us, we will not know your adjusted taxable income, and we may assess surcharge at the maximum rate on your surchargeable contributions. Whether we do this or not will depend on when you joined your fund or opened your account.
We will assess surcharge at the maximum rate if:
- you, or your employer or another person on your behalf, began to pay contributions to a particular superannuation fund before 7 May 1997
- your correct TFN has not been provided to us, and
- your surchargeable contributions are higher than the relevant threshold for the financial year (see the table below).
TABLE: The surchargeable contributions threshold for each financial year
Financial year
|
Surchargeable contributions threshold
|
2005/06
|
Surcharge abolished
|
2004/05
|
$4,273
|
2003/04
|
$4,058
|
2002/03
|
$3,880
|
2001/02
|
$3,248
|
2000/01
|
$3,105
|
1999/00
|
$2,607
|
1998/99
|
$2,529
|
1997/98
|
$2,092
|
For example, Patrick's employer makes contributions of $4,750 in the 2004-05 financial year on Patrick's behalf to his superannuation fund. Patrick has been a member of the fund since 1994. Patrick has not quoted his TFN, and even though we attempted to match his TFN to determine his adjusted taxable income, we were unable to do so.
As Patrick's surchargeable contributions of $4,750 exceed the surchargeable contributions threshold for the 2004-05 financial year and the maximum surcharge rate is 12.5%, an assessment for an amount of $593.75 will issue to his superannuation fund.
If you, or your employer or another person on your behalf, began to pay contributions to a particular superannuation fund on or after 7 May 1997, and we are unable to match your TFN with the reported surchargeable contributions and work out your adjusted taxable income, the maximum rate for that financial year will be applied to your surchargeable contributions. This is regardless of the amount of surchargeable contributions.
For example, Julie started work on 3 May 2005 and began receiving employer contributions to her superannuation fund from that date. Her employer contributions for the 2004-05 financial year are $260. We have been unable to match Julie's TFN with the fund's reported contributions, despite numerous attempts; therefore the maximum surcharge rate of 12.5% will apply to the $260 of surchargeable contributions. Julie's fund will receive a surcharge assessment for an amount of $32.50.
Amending surcharge assessments
The process to amend an assessment can be initiated by you, your fund or by us. An amendment may be required when:
- there is a change to your adjusted taxable income. This may occur if your income tax assessment for that financial year has been amended
- your superannuation fund may change the amount of surchargeable contributions that have been reported to us, or
- your TFN is provided after an assessment was issued, because we could not match your TFN with reported information.
We will send the amended assessment to the holder of your contributions. This may be either:
- the fund that received the original assessment
- the new fund that you have rolled the contributions into, or
- yourself if you have retired or otherwise been paid the contributions as part of a benefit.
If an assessment has been amended, one of two things may happen. If the holder of the contributions has paid too much surcharge, we may need to pay interest when we refund the overpaid surcharge. If the holder of the contributions has not paid enough surcharge, they may need to pay us a general interest charge as well as the additional surcharge.
If you are the holder of the contributions and receive an assessment, any interest paid to you must be declared in your tax return for the financial year in which the interest is paid. Any general interest charge you are required to pay is deductible in your tax return for the financial year in which it is incurred. For more information refer to TaxPack or e-tax, or ask your tax agent.
Surcharge assessments can generally only be amended within four years of the date they issue or from when the surcharge becomes due and payable. However, there are various exceptions to this rule that allow assessments to be amended even after the general time limit has expired. We will advise you in writing if you, or your fund, have requested an amendment outside the time limit.
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For more information, read our fact sheet Four year time limit to amend surcharge assessments (NAT 15951). It is available on www.ato.gov.au by searching for '15951' or phone 13 10 20 to have a copy posted to you.
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How to lodge an objection
If you think a surcharge assessment is incorrect you, or your fund, may object to the assessment within 60 days of receiving the notice.
For your objection to be valid it must:
- be in writing. You can send us a letter or use the standard objection form
- be lodged within 60 days of receiving an assessment unless you have requested an extension of time
- state fully and in detail the reason you think the decision is incorrect
- contain a declaration that information in the objection and supporting documents is true and correct, and
- be signed and dated.
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If you believe an assessment is incorrect because your fund has reported your surchargeable contributions incorrectly, you need to ask your fund to correct this.
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The termination payments surcharge is levied on certain components of an employer eligible termination payment and applies if the sum of your taxable income and certain other amounts are over a certain limit in the relevant financial year. Like contributions surcharge, it has been abolished for termination payments paid on or after 1 July 2005.
An employer eligible termination payment is a lump sum paid to an employee by an employer upon termination of employment. A 'golden handshake' is an example of an employer eligible termination payment. Payments of unused annual leave and unused long service leave are not eligible termination payments.
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For more information about what types of payments are employer eligible termination payments, read our publication Eligible termination payment - an employee's guide to lump sum payments from your employer (NAT 2700). It is available on www.ato.gov.au by searching for '2700' or phone 13 10 20 to have a copy posted to you.
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The surchargeable amount of an employer eligible termination payment is the amount that relates to your post 20 August 1996 service period and is retained by you. That means it is taken in cash and not rolled over to a superannuation fund, retirement savings account or other superannuation provider.
The termination payments surcharge does not apply to:
- a post June 1994 invalidity component of the termination payment
- a CGT exempt component of the termination payment, or
- an eligible termination payment from an employee share acquisition scheme.
Employer eligible termination payments taken in cash are not surchargeable contributions. However, if your adjusted taxable income exceeds the lower income amount for the relevant financial year, the termination payments surcharge will apply to the post 20 August 1996 portion of the employer eligible termination payment that is taken in cash.
For more information about calculating your adjusted taxable income, see the section How is adjusted taxable income calculated.
The surcharge rate that applies to the termination payment is determined by the amount of your adjusted taxable income. For more information see the Surcharge rates. The amount of the termination payment that is subject to the surcharge depends upon whether the termination payment was made before or after the legal time in the Australian Capital Territory of 7.30pm on 22 May 2001.
FORMULA: Termination payments made at or before 7.30pm on 22 May 2001
Surchargeable amount of eligible termination payment
|
=
|
Post 20 August 1996 period x Termination payment
Total period
|
FORMULA: Termination payments made after 7.30pm on 22 May 2001
Surchargeable amount of eligible termination payment
|
=
|
Post 20 Aug 1996 period x (Termination payment-Excessive component)
Total period
|
Legislative changes exclude the excessive component from being subject to the termination payments surcharge for payments made after 7.30pm by legal time in the Australian Capital Territory, on 22 May 2001.
The excessive component is the portion of your employer eligible termination payment that exceeds your reasonable benefit limit (RBL).
The same amendment provisions and objection rights as those outlined for superannuation contributions surcharge apply to termination payments surcharge assessments. For more information, see the sections Amending surcharge assessments and How to lodge an objection.
A superannuation fund cannot lodge an objection to a termination payment surcharge assessment.
There is a table of definitions in The superannuation contributions surcharge and the termination payments surcharge (NAT 15263).
There is a flow chart showing how the surcharge works in The superannuation contributions surcharge and the termination payments surcharge (NAT 15263).
For further information on the superannuation contributions surcharge and the termination payments surcharge:
- for copies of our publications, phone our publications ordering service on 1300 720 092
- to speak to a tax officer, phone our information line on 13 10 20 between 8.00am and 6.00pm, Monday to Friday, or
- write to:
If you do not speak English well and want to talk to a tax officer, phone the Translating and Interpreting Service on 13 14 50 for help with your call.
People with hearing or speech impairment with access to appropriate teletypewriter (TTY) or modem equipment, phone 13 36 77. If you do not have access to TTY or modem equipment, phone the Speech to Speech Relay Service on 1300 555 727.
Last Modified: Wednesday, 30 August 2006