Discussion (INT1019_09-04_COMPmay19_01-20)

The object of the Superannuation Contributions Tax (Assessment and Collection) Act 1997 and the related Regulations (the legislation) is to provide for the assessment and collection of the superannuation contributions surcharge payable on surchargeable contributions for individuals whose adjusted taxable income exceeds a certain specified threshold.  The legislation provides that the holder of surchargeable contributions for a financial year (usually a superannuation provider) is liable to pay the surcharge.  The surcharge is calculated at differential rates, up to a maximum of 12.5%, for adjusted taxable income levels above $99,710 in respect of the income year 2004-05.  Threshold amounts for the differential surcharge rates are subject to indexation.  Surchargeable contributions are determined as follows:

(a)            for a defined contribution plan, by reference to the tax status of contributions actually paid to superannuation plans.  They include taxable contributions, for example, employer contributions, salary sacrifice contributions and contributions by self-employed persons, and may also include a surplus allocated during the year; and

(b)            for a defined benefit plan, by applying an actuarially determined ‘notional surchargeable contributions factor’ to the member’s annual salary.

AASB 137 defines a liability as a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow of resources embodying economic benefits.  The Framework for the Preparation and Presentation of Financial Statements defines expenses as decreases in economic benefits during the reporting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants.  Superannuation plans which hold surchargeable contributions are required to make an outflow of resources embodying economic benefits to the Australian Taxation Office.  This Interpretation reflects the view that the obligation to make the outflow is a liability of the plan and gives rise to a corresponding expense.

The legislation specifies the basis on which surchargeable contributions for the financial year are to be calculated.  Under the legislation, a superannuation plan is liable to pay the superannuation contributions surcharge when it is the holder of surchargeable contributions, or actuarially determined notional surchargeable contributions, in respect of a member.  The legislation provides that if a member transfers to another superannuation provider, or is paid a benefit before an assessment is issued, the liability for the surcharge follows the member.  Where a superannuation plan has recognised a liability for the surcharge, and the obligation in respect of the surcharge has transferred to another plan or to the member, the plan derecognises the liability.

AASB 137 requires a liability to be recognised when an entity has a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and the amount can be reliably estimated.  This Interpretation requires that a liability for the surcharge be recognised by a plan when these recognition criteria are satisfied.  The Interpretation does not require a liability to be recognised where an estimate is not reliable.

Whether a reliable estimate of the amount of the superannuation contributions surcharge can be made before the relevant surcharge assessment is received from the Australian Taxation Office will depend on the characteristics of the superannuation plan.  For example, differences in the following factors will affect the stage at which a reliable estimate can be made, and therefore a liability recognised in the financial statements of different superannuation plans:

(a)            the number and turnover of members;

(b)            the size of the plan and the member profile; and

(c)            the information available to the trustees on past assessments and the adjusted taxable income of members.

In view of the number of potential factors affecting the estimation process, each superannuation plan makes its own assessment as to when a liability can be reliably measured.

This Interpretation deals with the recognition of a liability and an expense of a superannuation plan. It does not deal with the allocation of the surcharge to relevant member’s accounts. That is an administrative matter to be determined by the trustees of a plan.