ATO Interpretative Decision
ATO ID 2001/462
Superannuation
Superannuation - Request for Approval of Another Method for Surcharge CalculationsFOI status: may be released
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This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Does the Commissioner approve another method for the calculation of surchargeable contributions, where an allocation of surplus is granted to members of a defined benefits superannuation scheme.
Decision
No. The Commissioner does not approve another method for the calculation of surchargeable contributions, where an increase in benefits is granted to members of a defined benefits superannuation scheme, irrespective of whether or not the increase in benefits is paid for from surplus.
Facts
The superannuation scheme is a defined benefits superannuation scheme.
The amounts allocated from surplus were not allocated in line with SCR 1999/1 or with Guidance Note 464.
The scheme's request for another method is made in respect of additional benefits granted to some members of the scheme following the winding up of a previous scheme and the distribution of surplus from the previous scheme to members of this scheme following the transfer of members from the previous scheme to this scheme.
The scheme has already reported surchargeable contributions on a basis consistent with Superannuation Contributions Ruling SCR 97/1. However, following receipt of a complaint from a member after the member contacted the Australian Taxation Office (ATO), the trustee of the scheme has submitted a request for the Commissioner to approve another method under subsection 8(4) of the Superannuation Contributions Tax (Assessment and Collection) Act 1997 (SCTA).
Reasons for Decision
Section 5 of the SCTA provides that the object of the Act is to assess and collect surcharge on the surchargeable contributions of high income individuals.
A high income individual is a person whose adjusted taxable income for a financial year (defined in section 43 of the SCTA) exceeds the threshold set out in section 9 of the SCTA.
Subsection 8(3) of the SCTA provides that the surchargeable contributions for a member of a defined benefits superannuation scheme for a financial year are the amounts that constitute the actuarial value of the benefits that accrued to, and the value of the administration and risk benefits provided in respect of, the member for the financial year.
Subsection 8(4) of the SCTA provides that surchargeable contributions for the years ended 30 June 1997, 1998 and 1999 are to be calculated using the formula
Annual salary * notional surchargeable contributions factors
where notional surchargeable contributions factors are worked out in accordance with the method set out in SCR 97/1, unless another method has been approved by the Commissioner.
SCR 1999/1 complements Guidance Note 464 issued by the Institute of Actuaries of Australia and provides guidance for actuaries to determine the amount allocated from surplus that is to be reported to the Commissioner as surchargeable contributions.
The Government intended that surcharge apply to the surchargeable contributions of high income individuals from 20 August 1996.
The fact the additional benefits granted to members after 20 August 1996 were paid for out of surplus that arose prior to 20 August 1996 does not take away from the fact that there has been a benefit improvement granted after 20 August 1996. That benefit improvement is surchargeable.
In an accumulation arrangement, the members bear the risk of investment decisions and either profit from good investment decisions or suffer any losses as a result of poor investment decisions. In a defined benefit arrangement, the members receive their defined benefit notwithstanding the outcome of investment decisions - a defined benefit member may only profit from good investment decisions if the scheme rules are changed or the trustees exercise a discretion to improve the defined benefit by way of a distribution of the investment returns.
The standard actuarial valuation basis for calculating surchargeable contributions set out in SCR 97/1 represents a reasonable and realistic actuarial method for determining surchargeable contributions in most cases, including where increases to benefits are granted, irrespective of whether or not they are paid for from surplus.
The fact that granting an increase to benefits results in surchargeable contributions does not justify changing from the standard actuarial basis for determining those contributions.
Advice purportedly given to a member of the scheme over the telephone in relation to this issue is not binding advice - the verbal response to the member's inquiry would have been given based on the facts presented by the member; it is questionable whether those facts reflected the full position as set out in the written submission.
Date of decision: 14 September 2001Year of income: Year ended 30 June 1999
Legislative References:
Superannuation Contributions Tax (Assessment and Collection) Act 1997
section 5
subsection 8(3)
subsection 8(4)
section 9
section 43
Related Public Rulings (including Determinations)
SCR 1999/1
SCR 97/1
This decision overturned ATO ID 2001/457
Keywords
Precedent
Superannuation contributions tax
Superannuation provider - defined benefits
Superannuation contributions surcharge
Surchargeable contributions
Actuarial value of benefits
Notional surchargeable contributions factor
ISSN: 1445-2782
| Date: | Version: | |
| You are here | 14 September 2001 | Original statement |
| 30 April 2010 | Archived |