Bills Digest 124 1996-97 Superannuation Contributions Surcharge (Assessment and Collection) Bill 1997

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This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.


Passage History

Superannuation Contributions Surcharge (Assessment and Collection) Bill 1997

Date Introduced: 13 February 1997
House: House of Representatives
Portfolio: Treasury
Commencement: The Bill will commence on Royal Assent. However, the surcharge will apply to contributions made after the time of the Budget announcement of the introduction of the measure (ie. 7.30 pm on 20 August 1996).


To provide for the assessment and collections of a 'surcharge' that will be payable by superannuation providers where member's assessable income and superannuation contributions exceeds $70 000.The surcharge will be at the rate of 1% for each $1 000 of assessable income and superannuation contributions that exceed $70 000 to a maximum of 15%, at $85 000.


The income of a superannuation fund, including member's contributions, is subject to concessional tax treatment if the fund satisfies certain conditions.The principal condition is that the fund satisfies the Superannuation Industry (Supervision) Act 1993 and it's regulations, which relate to matters such as vesting, the provision of information to members and financial management requirements.The concessional tax treatment means that income is generally taxed at the rate of 15% rather than at the normal company tax rate.

It was announced in the 1996–97 Budget that the concessional tax treatment would be altered and that a 'surcharge' would apply to contributions that are subject to a tax deduction (this will include employer contributions and those made by the members where there is no employer contribution and a deduction has been claimed) where the member's assessable income and superannuation contributions exceeds $70 000.The surcharge will be imposed at the rate of 1% for each $1 000 of assessable income and superannuation contributions to a maximum of 15% when assessable income and superannuation contributions reaches $85 000.The surcharge will apply to both accumulated benefits funds, ie.the 'normal' type of superannuation fund where the member's ultimate benefit will depend on the investment performance of the fund, and defined benefits funds, which are funds where the members benefits are defined, usually on such matters as the number of years of contributions and final salary.The most common examples of defined benefits funds are those relating to most public servants and Members of Parliament (other matters in relation to defined benefits funds will be discussed below).

The concessional tax treatment of superannuation contributions has encouraged the use of 'salary packaging', which principally applies in the private sector,to maximise the value of the after tax returns to the employee and also allows the employer to offer a total remuneration package that would be less than if the employee were subject to the full PAYE taxation rates.While the use of such packaging may be desirable from both the employer and employees points of view, the usual result is that the revenue to government is less than would be the case if the full income package was taxed at normal PAYE rates, as they do to most lower paid employees.The concessional treatment available for superannuation contributions is a significant cost to government revenue, which has recently been reported to be approximately $6.2 billion.(1)

In it's superannuation policy statement issued prior to the 1996 General Election, titled Super For All - Security and Flexibility in Retirement, the coalition stated that if elected it would 'retain the current taxation treatment of superannuation'.(2)

The proposed surcharge is to be collected by the superannuation funds rather than from the member's employer.The second reading speech to this Bill gives the following reasons for the fund, rather than employer, being responsible for the collection of the surcharge:

Alternative measures of collecting the surcharge have been put to the Government. The Government has given careful consideration to these suggestions.

The alternatives suggested all involve an unacceptable increase in compliance costs for employers, small business and all Australians.

The proposal has come under criticism for a number of reasons, most relating to the administration of the scheme.Before discussing comments relating the administration of the scheme, it has also been criticised for more general policy reasons.The first of these relates to the imposition of the surcharge on a yearly basis for accumulated funds.The treatment of unfunded defined benefits funds will be different (see below).

The argument has been put that it is more equitable to tax the contributions of higher income earners when the income from the superannuation fund is realised, rather than in the year of contribution.A director of Access Economics is reported as stating:

The best way to tackle the problem is to tax accumulated superannuation contributions when they are paid out at appropriate progressive marginal tax rates.(3)

The argument also contains the view that a person's income may not be steady throughout their working life and that such people may be liable to the surcharge in some years when they have a higher income but that their superannuation contributions may be minimal in other years.Such people may not have a higher than normal superannuation accumulation but will be liable to the surcharge during years of high income which will reduce their final benefits.The comparison has been made with income averaging provisions that apply to certain taxpayers, including primary producers, that have fluctuating income from year to year.The chairman of the Institute of Charted Accountants small and medium enterprise (SME) committee has been reported as stating:

.... we are concerned that in sectors where income fluctuates year to year, with significant peaks and troughs, there is no provision for income averaging.

Many SMEs and sole traders do not have a consistent income stream, such as farmers, sports people, artists and musicians.(4)

A major area of contention relating to the surcharge has been the way it will be administered. Basically, the procedure will be that a superannuation fund will supply the tax file number (TFN) of it's members to the Australian Tax Office (ATO) which will then calculate the person's assessable income and the superannuation contributions made in respect of the person and if these exceed $70 000 the ATO will notify the fund to remit the surcharge amount to the ATO (this will not apply to unfunded defined benefits schemes which will be discussed below).There have been a number of reactions to the proposed scheme.

First, funds and the industry body, the Association of Superannuation Funds of Australia (ASFA), have argued that the measure will increase administrative costs for all members and not only for those liable to the surcharge.This will occur as information has to be supplied to the ATO in respect of all members of the fund and the cost of this will increase the administrative costs of the fund.The impact of administrative costs of superannuation funds has been an issue for a number of years and prompted the passage of the Small Superannuation Accounts Act 1985and member protection rules that aim to ensure that superannuation accounts with small balances are not reduced due to administrative costs.The proposed Retirement Savings Accounts are also generally aimed to provide access to superannuation withadministrative costs not being able to reduce the capital value of the account.

While there has been consultation with the superannuation industry regarding the administration of the surcharge, ASFA has expressed concerns regarding the measure and the results of the consultation.The Chief Executive Officer of ASFA has been reported as stating:

There doesn't seem to be any modification [of the initial proposals] along the lines that industry had hoped, so it's pretty much the unworkable process that we warned against(5).

The Chief Executive of the Australian Chamber of Commerce and Industry (ACCI), a major employer group, is reported as stating:

They have come up with a highly complex structure that won't avoid cost burdens and responsibilities on small business.(6)

The second major criticism of the administration of the surcharge relates to the provision of TFNs.While it will not be compulsory for members of a fund to provide their TFN to the fund, which will then pass the TFN onto the ATO, the result of failing to provide a TFN will be that the members contributions will be subject to the full surcharge regardless of their actual income.The Chief Executive of ACCI is reported as stating:

There's a significant possibility that many people who don't fall into the income stream that was targeted by the Budget will be caught by not understanding their obligations in relation to TFNs.'(7)

The increasing requirement to provide TFNs and the imposition of the surcharge to those who would not otherwise be liable to pay it raises concerns about whether its quotation is fully optional and whether another identifications system, such as the proposed Australia Card, would be a more efficient system.

A further concern with the surcharge is the effective tax rate that will apply when the surcharge is applied.As the surcharge will be applied to all of the superannuation contributions of a person liable to pay it, rather than to amounts that exceed a certain threshold, the increase in the effective tax rate on superannuation contributions once the $70 000 threshold is reached results in a greater rate of tax than the initial 1% per $1 000 that income and superannuation contributions exceeds $70 000.A number of effective rates have been suggested in the media, including:

  • for certain incomes within the phasing-in range of the surcharge (ie. $70 000 to $85 000) while the total amount of superannuation contributions may increase their net value will fall(8);
  • when a person's income first exceeds the $70 000 threshold their effective tax rate may be as high as 90%(9); and
  • that with 6% employer superannuation contributions, the net value for those on $70 000 and $85 000 will be the same(10).

Another concern of the impact of the surcharge is the effect it may have on the investment decisions of those subject to the surcharge.While superannuation is currently a favourable investment and savings arrangement for higher income earners due to the concessional tax treatment, the relative advantage of superannuation contributions will alter due to the surcharge.While superannuations may still be favourable in comparison to paying the highest marginal tax rate, which will apply to those subject to the levy, there are other methods of reducing assessable income so that it, combined with superannuation contributions,will be below the threshold at which the surcharge applies.The most obvious example of such a method is the negative gearing of either property or shares.Another option, given the potentially high effective marginal rates referred to above, will be for employers to provide greater fringe benefits as part of the salary package rather than superannuation contributions above the statutory minimum.While Fringe Benefits Tax (FBT) would apply to such salary sacrifices, if the rates suggested above apply, this will still be beneficial to the employee and could be negotiated with the employer.

Unfunded and defined benefit funds pose a number of problems for the collection of the levy as there is no actual employer contribution equal to a proportion of the defined benefit in the year to which the surcharge applies.If the surcharge was deducted in full from the employee's contributions, this would result in a significant reduction in the earning of such contributions, which in turn would reduce the available final benefit component based on the deducted employees contribution and earnings.There are also difficulties in determining the actual value of the employer's contribution as there is usually no actual, funded, employer contribution to the fund.This in turn makes the calculation of the combined value of assessable income and superannuation contributions, which determines if the person is liable to the surcharge, very difficult. It was announced in the 1996-97 Budget that an Acturiarial Advisory Committee would be established to advise on the application of the surcharge to defined benefits schemes.(11)

The Treasurer's Press Release dated 5 February 1997 announced that such funds would be subject to an actuarial determination, to be made under standards prepared by the Australian Government Actuary, the ATO and Institute of Actuaries of Australia, which will determine the value of the employer's contribution.This will be used to determine the amount of surcharge payable.If the fund is a defined benefits fund, as most defined benefit funds (which usually relate to politicians and public servants) are, the surcharge will not be payable annually.Instead, the value of the contributions will be calculated annually according to the actuarial tables and the sum of this amount, plus interest, is to be deducted from the members final payment.

The cost to funds of collecting the surcharge was estimated in November 1996 at approximately $30 million in the first year as systems were established to comply with the requirements of the legislation.(12) However, this estimate has increased considerably since that time.It has been reported that an industry source has recently estimated the cost to be approximately $100 million in the first year of operation and that on-going costs will be between $20 million and $30 million per year.(13)

An interesting point is that judges of Federal courts, such as the High Court and the Family Court, may not be liable to the surcharge regardless of level of their salary.This is because paragraph 72(ii) of the Constitution provides that judges of the High Court and other courts created by the Commonwealth Parliament cannot have their remuneration reduced during their period of office.It has been reported that a Coalition party meeting has approved amendments to the surcharge legislation that will exempt federal judges from the surcharge.(14) However, it may be argued that imposing the surcharge will not reduce the remuneration paid to federal judges as it does not effect their gross pay and other entitlements.In this regard, the same affect on the 'take-home' pay of judges would be achieved from an increase in the rate of taxation or in the Medicare levy.Federal judges have not been exempted from previous increases in tax or the Medicare levy and it is not proposed to exempt Federal judges from the additional Medicare levy that will be payable for certain people who earn an amount above the applicable threshold and do not have private health insurance.Legislation introduced on 6 March 1997 [the Superannuation Contributions Surcharge (Application to the Commonwealth) Bill 1997 and the Superannuation Contributions Surcharge (Application to the Commonwealth-Reduction of Benefits) Bill 1997] are aimed at ensuring that 'new appointees are subject to the surcharge'.(15) An unusual aspect of the latter Bill is that it is not to apply if 'its application would or might result in a contravention of the Constitution' [subclause 4(2)].The use of the word 'might' has the potential to lead to difficulties in the application of that Bill and there could be interesting arguments put to a court not on the question of whether the Bill, if enacted, actually breaches the Constitution but whether it might do so.

The explanatory memorandum to the Bill estimates that the surcharge will raise $434 million in 1997–98, $500 million in 1998–99 and $526 million in 1999–2000.

Main Provisions

The surcharge will apply to the financial year commencing on 1 July 1996 and later financial years, although there are transitional provisions for the 1996–97 financial year so that the surcharge will effectively apply to contributions made after 7.30 pm.on 20 August 1996 (the time of the Budget announcement).The surcharge will not be payable by residents, companies and trustees that reside in a Territory for the purposes of Division 1A of Part III of the Income Tax Assessment Act 1936 (ITAA) (such Territories are the external Territories and, depending on certain provisions of the ITAA, are Norfork Island, the Cocas (Keling) Islands and Christmas Island.(clause 7).

The surcharge threshold will be $70 000 for 1996–97 and this amount will be indexed on the movement of the Australian Statistician's estimate of full-time adult average weekly ordinary time earnings, rather than the Consumer Price Index.The indexation factor will be calculated on the such movements from March to March each year (clause 9).

Who is liable to pay the surcharge is dealt with in clause 10.If a superannuation provider (i.e. a superannuation fund, approved deposit fund, Retirement Savings Account provider, a life assurance company or a registered organisation) holds contributions on behalf of a member and an assessment of liability to pay the surcharge is made, the fund will be liable to pay the surcharge.However, if the fund has begun to pay a pension or annuity to a member before it receives the notice of assessment it will not be liable to pay the surcharge in relation to that member.If contributions are made to an entity other than a superannuation provider or a pension is being paid a pension or annuity and the contributions would have been subject to the surcharge if they had been paid to a superannuation provider, and a the pension or annuity was being paid, the person will be liable to pay the surcharge.This will principally address the situation where the surcharge would have been payable for a year except for the fact that a pension or annuity is being paid to the person.

Clauses 11 and 12 deal with advance payments of the surcharge.Clause 11 provides that if an amount of surcharge is payable in respect of a member in a financial year, an amount equal to 50% of the surcharge is payable in respect of the following year.The advance payment will not be required to be paid where the member withdraws from the fund, or commences to receive an annuity or pension from the fund, before 15 June in the year in which the surcharge is payable.The advance will also not be payable for contributions to unfunded defined benefits fund (clause 12).

Superannuation providers are to forward a statement of contributions they hold in relation to a member to the Commissioner of Taxation (ie. the ATO) before 15 December 1997 in relation to the 1996–97 financial year and 31 October following the end of future financial years.The statement is to contain:

  • the member's name and either residential or place of business or employment address;
  • the member's date of birth;
  • the member's TFN if the member has provided it to the superannuation provider;
  • if the fund is an accumulated benefits fund, taxable contributions made in respect of the member, contributions in respect of which a deduction was allowed to the member or roll-over amounts that fall under the definition of an eligible termination payment under the ITAA;
  • if the fund is a defined benefit fund,the members salary multiplied by the amount determined by the actuaries (thus, basically, the amount will be that determined by the actuaries); and
  • such other matters as required by regulation.

Similar information, other than the matters prescribed by regulation, are also to be provided to the Commissioner when there is a payment of contributions to a member or to another superannuation provider.The member is also to be given a copy of the statement, and it will be an offence, with a maximum penalty of 300 penalty units (a penalty unit is defined in the Crimes Act 1914to be $100), to breach these notification requirements (clause 13).

Information required to be provided under clause 13 is to be provided in the form notified by the Commissioner in the Gazette, although the Commissioner will be given power to exempt information contained in a data processing device from the requirement to comply with the form of the notice (this will allow the Commissioner to accept electronic data rather than data in accordance with the Gazetted form) (clause 14).

For superannuation providers other than unfunded defined benefit funds, the Commissioner is to assess any amount of surcharge that is payable in respect of a financial year and the assessment is to include the total amount of surcharge payable.The Commissioner is also to make an assessment of whether an advance installment is payable and, if so, the amount of the advance installment.The surcharge will generally be payable within 1 month of the assessment being made (rather than 1 month after the assessment is received) and advance installments are payable by 15 June in the financial year to which the assessment relates.Notice of an assessment is to be given to both the superannuation provider and the member concerned (clause 15).

For unfunded defined benefit funds, records are to be kept about any liability of a member to pay the surcharge and funds are to notionally debit the account of the member by this amount.Any such surcharge payable will be subject to interest, calculated at the rate applicable to 10 year Treasury Note. The amount calculated is to be deducted as a lump sum, annuity or pension becomes payable.It will be an offence, with a maximum penalty of 300 penalty units, for a superannuation provider not to comply with these requirements(clause 16).

If an advance installment is made, this will reduce the member's obligation to pay the surcharge for the relevant year and if no surcharge is payable, or the amount of surcharge payable is less than the advance installment, the difference between the advance installment and the actual amount of surcharge is to be paid to the superannuation provider (clause 17).

If a member's TFN has not been provided to the Commissioner at the time an assessment is made (which will result in the full surcharge being payable) and is subsequently provided to the Commissioner, the members assessment is to be reviewed to determine if an amount less than the original surcharge is payable and if so the assessment is to be modified to reflect the actual amount of surcharge, if any, payable (clause 18).Similarly, if an assessment ofincome is amended, the assessment of the amount of surcharge is to be amended to reflect the new assessment of income (clauses 19 and 20).If an assessment is amended or a new assessment is issued and this results in a higher surcharge liability, the person will also be liable to interest on the difference between the originally assessed surcharge and the newly assessed surcharge.The rate of interest, which will also be payable where a refund is payable, will be based on the the rate applicable for refunds under the ITAA (clauses 21 and 22).

Clause 23 will allow the Commissioner to use a person's TFN that has been supplied under a law relating to superannuation or taxation, for the administration of the Bill.If the Commissioner has a TFN in respect of a member of a fund, the Commissioner may request that the relevant superannuation provider to ask whether the member is willing to provide their TFN to the superannuation provider (this is basically an administrative mechanism that will allow a superannuation provider to forward a TFN known by the ATO when the member consents).

The remainder of the Bill deals with administrative, rather than policy, matters.More important matters relate to:

  • the recovery of unpaid surcharge, or advance installments, and the imposition of a penalty charge on bodies that fail to comply with the remittance requirements (clause 25);
  • the recovery of unpaid surcharge, which will be considered to be a debt to the Commonwealth an so recoverable in a civil action (clause 26);
  • the review of decisions made by the Commissioner, which, in accordance with normal legislative provisions, provide for an internal review of the decision and review by the Administrative Appeals Tribunal (clause 29)(the review of such decisions may also be subject to review by the Federal and High Courts); and
  • the administration of the scheme will be vested in the Commissioner of Taxation and an annual report on the operation of the proposed Act is to be delivered (clauses 30 and 31).


  1. The Age, 30 January 1997.
  2. Super For All - Security and Flexibility in Retirement, 19 February 1996, p. 16.
  3. The Australian, 28 August 1996.
  4. The Australian Financial Review, 27 August 1996.
  5. The Australian Financial Review, 14 February 1997.
  6. The Australian Financial Review, 14 February 1997.
  7. The Australian Financial Review, 14 February 1997.
  8. The Australian, 28 August 1996.
  9. The Australian, 28 August 1996.
  10. Senior Executive Money Matters, 2 September 1996.
  11. 1996–97 Budget Paper No. 1, p. 4–17.
  12. The Australian Financial Review, 6 March 1997.
  13. The Australian Financial Review, 6 March 1997.
  14. The Canberra Times, 5 march 1997.
  15. Second reading speech to the Superannuation Contributions Surcharge (Application to th
  16. Commonwealth-Reduction of Benefits) Bill 1997.

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Chris Field
3 April 1997
Bills Digest Service
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This Digest does not have any official legal status. Other sources should be consulted to determine whether the Bill has been enacted and, if so, whether the subsequent Act reflects further amendments.

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ISSN 1323-9031
Commonwealth of Australia 1996

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Published by the Department of the Parliamentary Library, 1997.

This page was prepared by the Parliamentary Library, Commonwealth of Australia
Last updated: 10 April 1997

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