Issue
1
The Superannuation Contributions Surcharge (the surcharge) was introduced in the 1996 Federal Budget. The legislation is contained principally in the Superannuation Contributions Tax (Assessment and Collection) Act 1997 and the related Regulations. It currently applies to surchargeable contributions attributable to a superannuation provider (normally a superannuation plan) for members whose adjusted taxable income exceeds $99,710 for the 2004-05 income year. The threshold is subject to indexation.
2
The surcharge is calculated by the Australian Taxation Office and advised to the superannuation provider via an assessment. Assessments are made in respect of each year ending 30 June, based on members’ surchargeable contributions and adjusted taxable income for that year, regardless of the superannuation provider’s end of the reporting period.
3
The legislation provides that the superannuation provider holding the surchargeable contributions is liable for the surcharge. The liability may rest with the member or another superannuation provider where benefits have been withdrawn or a pension has begun to be paid before the assessment is made.
4
For years ending on or after 30 June 1998 an advance instalment process was introduced to collect the surcharge. The Australian Taxation Office advises the superannuation provider of the required advance instalment when making the initial assessment. Unfunded schemes may elect not to pay the surcharge until the benefit payment is made, in which case the surcharge amount payable accumulates, accruing interest, until payment is made.
5
Many superannuation providers pass the cost of the surcharge on to members by debiting the cost of the surcharge to each relevant member’s account or benefit. However, in some cases the surcharge may be funded from the surplus of a superannuation plan, or an employer may make additional contributions to meet the surcharge.
6
This Interpretation deals with financial reporting by superannuation plans. Superannuation plans are defined in Australian Accounting Standard AAS 25 Financial Reporting by Superannuation Plans as arrangements whereby it is agreed between trustees and employers, employees or self-employed persons that benefits be provided upon the retirement of plan members or upon their resignation, death, disablement or other specified event. This Interpretation may also be applicable in analogous circumstances to other entities liable for payment of the superannuation surcharge. As noted in paragraph 3, the legislation places the obligation for payment of the surcharge on superannuation providers. Superannuation providers are defined in the legislation to include trustees of superannuation and approved deposit funds, a provider of retirement savings accounts, a life insurance company or a registered organisation.
7
The issues are:
(a) is the surcharge a liability and an expense of the superannuation plan; and, if so,
(b) when should the liability and expense be recognised?