Explanatory Memorandum(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)
Chapter 4 - Liability to surcharge
4.1 The amendments:
- clarify the identity of the holder of the surchargeable contributions of a member for a particular financial year who is to pay the surcharge liability;
- provide an avenue for members of constitutionally protected schemes who transfer benefits to another fund to direct the transferee provider to pay the surcharge liability from the benefits transferred; and
- ensure that members of all superannuation funds who commute part of a pension to pay a surcharge liability are treated equitably.
4.2 The definition in section 43 of the SCT(A & C) Act identifies the holder of surchargeable contributions of a member. However, where:
- there are no actual contributions (for example, contributions holiday);
- contributions have been expended in full (for example, to pay for death and/or disability insurance);
- contributions have been expended in part (for example, invested or used to pay expenses); or
- a member dies;
the law is not clear who holds the contributions when an assessment of a surcharge liability is made.
4.3 Where a member dies before the making of a surcharge assessment and the member's benefit has been withdrawn from the superannuation fund, the surcharge assessment is taken not to have been made. However, the same rules do not apply where the member dies before the making of a surcharge assessment and the member's benefits remain in the superannuation fund.
4.4 Any surcharge liability relating to a member's surchargeable contributions in a constitutionally protected fund is a liability of the member personally. The Commissioner maintains a debt account for these members who are required to pay the lesser of the amount in the debt account or 15% of the employer financed benefit when they leave the constitutionally protected fund. However, if they roll over their benefits to another fund, they may not have funds readily available to pay the amount in the debt account (in all other funds, the surcharge liability is paid by the provider before any amounts are transferred).
4.5 A member of a superannuation fund may commute part of a pension to pay a surcharge liability. This amount is currently an ETP under the ITAA1936. However, an amount commuted by a member of a constitutionally protected fund solely to pay a surcharge liability is not an ETP (paragraph (r) of the definition of ETP in subsection 27A(1) of the ITAA1936).
4.6 New section 8A of the SCT(A & C) Act makes it clear that the provider remains the holder of a member's surchargeable contributions unless the member transfers to another provider, receives a lump sum, commences to receive a pension or annuity or dies. If the member transfers part of the contributed amounts to another provider, that other provider is a holder of that part of the contributed amounts transferred.
4.7 If any contributed amounts in respect of a member for a financial year are paid to a person other than a superannuation provider (that is, if either a lump sum or a pension or annuity is paid or begins to be paid), then the person to whom the amounts are paid or begin to be paid is the holder (that is, the member or the transferee provider or the beneficiary of the member's estate, as the case may be, becomes the holder). [Item 4 of Schedule 1]
4.8 New subsection 8A(4) of the SCT(A & C) Act provides that a person receiving the benefits is the holder of a deceased member's surchargeable contributions. [Item 4 of Schedule 1]
4.9 Additional amendments are made to sections 19 and 20 of the SCT(A & C) Act to clarify who is the holder of a member's surchargeable contributions. [Items 18, 19, 22 and 23 of Schedule 1]
4.10 A consequential amendment is made to the definition of holder of surchargeable contributions of a member in section 43 of the SCT(A & C) Act. [Item 33 of Schedule 1]
4.11 New subsection 10(2) of the SCT(A & C) Act makes it clear the superannuation provider that is the holder of the surchargeable contributions when an assessment on those contributions is made is liable to pay the surcharge assessed. [Item 5 of Schedule 1]
4.12 New paragraph 10(4)(ca) of the SCT(A & C) Act provides that person receiving the benefits will be required to pay a surcharge liability assessed in respect of financial years before the financial year in which the member died if the liability has not already been paid by a superannuation provider or the member. [Item 7 of Schedule 1]
4.13 New subsection 11(2) of the CP(A & C) Act ensures no surcharge is payable on the surchargeable contributions of a member of a constitutionally protected fund for the financial year in which the member dies or a later financial year. [Item 4 of Schedule 2]
4.14 New subsection 15(7) of the SCT(A & C) Act and new subsection 14(2) of the CP(A & C) Act provide that an assessment issued in relation to a member's contributions in respect of the financial year in which the member died or a later financial year is taken not to have been made. [Item 14 of Schedule 1 and Item 8 of Schedule 2]
4.15 New subsection 15(8A) of the CP(A & C) Act allows members of constitutionally protected funds, who do not receive any payment from the fund because they roll over benefits to another superannuation fund, to direct the new fund to pay the surcharge liability advised by the Commissioner from the benefits rolled over. [Item 9 of Schedule 2]
4.16 The Superannuation Industry (Supervision) Act 1993 is amended to enable the member to direct a trustee to pay an amount from the member's rolled over benefits. [Item 1 of Schedule 5]
4.17 Amendments to the Income Tax Assessment Act 1936 extend the concession granted to members of constitutionally protected funds under paragraph (r) of the definition of ETP in subsection 27A(1) to members of any superannuation fund who commute part of a pension solely to pay a surcharge liability.
4.18 Only amounts actually paid to the Commissioner by the fund to discharge the relevant surcharge debt will obtain the benefit of not having the commuted amount treated as an ETP. The law will not require funds to change rules/deeds to create/extend/limit the ability to commute. [Item1 Schedule 4]