Issue
Are the actuarial values of benefits for a member of a defined benefits superannuation fund as determined by an eligible actuary, surchargeable contributions?
Decision
Yes. Section 8(3) of the Superannuation Contributions Tax (Assessment and Collection) Act 1997 (SCTA) requires the amount of surchargeable contributions reported by a defined benefits fund to be determined by an eligible actuary.
Facts
The superannuation provider, which is a superannuation (unfunded defined benefits) provider, reported to the Commissioner surchargeable contributions for the member for the financial year.
The Commissioner issued a surcharge assessment to the superannuation provider in respect of the member for the year.
All of the surchargeable contributions reported for the member were included in the surcharge assessment.
Reasons for Decision
A defined benefits superannuation scheme is defined in section 43 of the SCTA as a public sector scheme or a regulated superannuation fund 'that has at least 1 defined benefit member'.
Subsection 13(2) of the SCTA requires the superannuation provider (provider) to report to the Commissioner details of the member's total contributed amounts for each financial year including the member's surchargeable contributions.
In the case of a superannuation (defined benefits) provider, surchargeable contributions for a member are the amounts that constitute the actuarial value of the benefits that accrued to, and the value of the administration expenses and risk benefits provided in respect of, the member for the financial year (subsection 8(3) of the SCTA).
The surcharge in respect of a member is based on the member's adjusted taxable income, which is defined in section 43 of the SCTA. Under this section, a member's adjusted taxable income includes their surchargeable contributions for the year.
If the adjusted taxable income of the member is greater than the surcharge threshold for the financial year, the surcharge applies to the surchargeable contributions.
In an unfunded defined benefits superannuation scheme, surchargeable contributions are calculated by the fund's actuary. The actuary's calculation is based on a number of factors, including the value of the fund's assets, both the actual and projected earning rates of the funds, the actual and projected salary rates of members and the total amount of benefits projected to be payable.
Subsection 8(4) of the SCTA explains how a defined benefits superannuation provider must calculate the surchargeable contributions earlier than the 1999-2000 financial year. The subsection states that: 'the surchargeable contributions for a financial year of a member of a defined benefits superannuation scheme are taken to be the amount worked out using the formula: Annual salary * Notional surchargeable contributions factor where: annual salary means: (a) if paragraph (b) does not apply - the amount that is the member's annual salary for the financial year; or (b) if another amount is taken to be the member's annual salary for the purpose of the scheme as it applies to the member for the financial year - that other amount.' notional surchargeable contributions factor means the factor applying to the member for the financial year worked out by an eligible actuary in accordance with the method set out in Superannuation Contributions Ruling SCR97/1 or another method approved by the Commissioner under paragraph (b) of the definition.
The use of the factor (which is worked out by an eligible actuary) is prescribed by the legislation.
Subsection 16(1) of the SCTA 'makes provision for the deferment of the liability of a superannuation (unfunded defined benefits) provider to pay surcharge on the surchargeable contributions of a member of the relevant unfunded defined benefits superannuation scheme, and for interest to accrue on the deferred amount.'
Subsection 16(2) of the SCTA states 'The provider must keep a surcharge debt account for each member.' Interest is calculated as at the last day of the financial year and debited to the member debt account under subsection 16(4) of the SCTA.
The interest is calculated at the 10 year Treasury bond rate under sub-section 16(5) of the SCTA to maintain the value of the accumulated surcharge debt over time, and to ensure that members of unfunded defined benefits funds are not advantaged by deferring the payment of the surcharge debt. If a member makes voluntary payments to their provider, the provider is required to credit the member's debt account and send the payment to the Commissioner.