Supplementary Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Chapter 1 - Calculating surchargeable contributions
Purpose of the amendments
1.1 The purpose of the amendments is to remove any doubt about how superannuation amounts subject to surcharge are to be calculated.
Background to the legislation
1.2 The Bill currently provides that an eligible actuary is to work out the actuarial value of the benefits that accrued to, and the value of the administration expenses and risk benefits provided in respect of, a member of a defined benefits superannuation scheme using the formula set out in the Bill or the method set out in the regulations.
1.3 It also provides that a method approved by the Commissioner of Taxation (the Commissioner) for working out the actuarial value of the benefits that accrued to, and the value of the administration expenses and risk benefits provided in respect of, a member of a defined benefits superannuation scheme is to take into account contributions for which the member is not entitled to an income tax deduction under the Income Tax Assessment Act 1936 or under the Income Tax Assessment Act 1997 .
1.4 The words take into account contributions for which the member is not entitled to an income tax deduction do not make it clear that the intent of the paragraphs is to exclude the personal contributions of the member. For example, the words take into account do not make it clear whether the contributions should be included or excluded. Contributions for which the member is not entitled to an income tax deduction could also be interpreted to refer to other contributions, like employer contributions.
Explanation of the amendments
1.5 The amendments remove the requirement for an eligible actuary to work out the actuarial value of the benefits that accrued to, and the value of the administration expenses and risk benefits provided in respect of, a member of a defined benefits superannuation scheme using the formula set out in this Bill or the method set out in the regulations.
1.6 An eligible actuary would not normally work out this amount. The actuary would merely supply the necessary actuarial figures to the trustee so that the trustee can work out the contributions to be reported.
1.7 For the 1996-1997, 1997-1998 and 1998-1999 financial years, a trustee of a defined benefit fund would work out this amount by multiplying the members annual salary by the notional surchargeable contributions factor which is worked out by an eligible actuary.
1.8 For the 1999-2000 financial years and later financial years, a trustee of a defined benefit fund would work out the actuarial value of the benefits that accrued to, and the value of the administration expenses and risk benefits provided in respect of, a member using either the method set out in the regulations or a method approved by the Commissioner having regard to any actuarial calculations that may be required to be performed by an eligible actuary.
1.9 Any method approved by the Commissioner for working out the actuarial value of the benefits that accrued to, and the value of the administration expenses and risk benefits provided in respect of, a member of a defined benefits superannuation scheme is to exclude member contributions for which the member is not entitled to an income tax deduction.