Issue
Does the Commissioner approve another method for the calculation of surchargeable contributions, for members of a funded defined benefits scheme receiving untaxed benefits.
Decision
Yes. The Commissioner approves another method for calculating surchargeable contributions for each of the years ended 30 June 2001, 2002 and 2003 for members receiving untaxed defined benefits.
The method approved is for surchargeable contributions for these members to be calculated as if they are being paid by an unfunded defined benefits scheme (that is, that they be permitted to ignore those aspects of the formula set out in Schedule 2 to the Superannuation Contributions Tax (Assessment and Collection) Regulations 1997 that relate to funded benefits).
Facts
The scheme is a funded defined benefits superannuation scheme that was formerly unfunded.
Defined benefits members receive untaxed benefits.
Reasons for Decision
Subsection 8(3) of the Superannuation Contributions Tax (Assessment and Collection) Act (SCTA) provides that: "the surchargeable contributions for a financial year of a member of a defined benefits superannuation scheme 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(5) of the SCTA provides the method to be used when calculating the actuarial value 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 for the 1999 - 2000 financial year or a later financial year as: "(a) the method set out in the regulations, ... ; or (b) if the Commissioner approves in writing another method as being appropriate in relation to the member for the financial year, ... , the method so approved."
The standard method for working out the amount of surchargeable contributions set out in the formula in Schedule 2 to the Superannuation Contributions Tax (Assessment and Collection) Regulations 1997 (SCTR) requires funded benefits to be divided by 0.85.
The scheme has only recently become funded and the benefit design, which has been maintained, is extremely complex. This makes it difficult to make changes that either do not impose additional costs on the employer or disadvantage some members of the scheme.
The Commissioner is of the view that the benefit issues need to be addressed by the scheme trustees and is prepared to agree to another method for calculating the surchargeable contributions of those members receiving untaxed benefits for an interim period to allow the trustees sufficient time to address those issues.
The other calculation method is only approved for calculating surchargeable contributions of defined benefit members who receive untaxed benefits for each of the years ended 30 June 2001, 2002 and 2003. The Commissioner requires the method specified under the SCTR to be used for all other members and for all members for the year ended 30 June 2004 and future financial years.