ATO ID 2014/27: Superannuation contributions tax - contributions and surcharge liability
Date of decision: 15 August 2014
Year of income: Year ending 30 June 2014
Business line: Superannuation

Issue
Are payments made by a member to their unfunded defined benefits provider in respect of surcharge payable under the Superannuation Contributions Tax (Assessment and Collection) Act 1997 (SCTA) to be regarded as contributions made to obtain superannuation benefits?

Decision
No. The member payments are made to the provider under subsection 16(7) of the SCTA for the purpose of reducing the amount by which the member's surcharge debt account is in debit and are not contributions made by the member to the provider for the purpose of obtaining superannuation benefits.

Facts
The fund is an unfunded defined benefits provider. The members can make payments to the fund in respect of the superannuation contributions surcharge payable. This is permitted by the fund's governing rules which allow the members to make such payments in respect of the surcharge payable in respect of the contributor (the member).

Reasons for decision
Summary: Section 16 of the SCTA makes provision for the deferment of the liability of an unfunded defined benefits provider to pay surcharge assessed as payable on a member's surchargeable contributions for a financial year. The unfunded defined benefits provider is required to keep a surcharge debt account for each member and debit the account for surcharge assessed to be payable on the member's surchargeable contributions. If the member's account is in debit at the end of a financial year, the provider is required to debit the account for interest. Subsection 16(7) of the SCTA operates to allow a member to make payments to the provider for the purpose of reducing the amount by which their surcharge debt account is in debit. A specific subsection of the fund's governing rules allows a contributor '...to pay amounts to the fund in respect of the superannuation contributions surcharge payable in respect of the contributor.' A member payment received by the fund provider pursuant to subsection 16(7) of the SCTA, and permitted by the specific subsection of the fund's governing rules, is an amount paid to the fund for surcharge payable in respect of the contributor. The provider is required to forward the payment to the Commissioner of Taxation. Accordingly, the payment does not take on the characteristics of a contribution to obtain superannuation benefits but is clearly a payment made to reduce the balance of the member's surcharge debt account. In addition, the fund's governing rules require the fund to refund to the member, any such payments that are received which are in excess of the member's surcharge debt account. This means the excess payments do not result in additional pension benefits and do not remain in the fund. Accordingly, the amounts are not contributions to obtain superannuation benefits but are member payments specifically made to the fund pursuant to subsection 16(7) of the SCTA to reduce surcharge payable in respect of the member's surchargeable contributions.

Legislative references: Superannuation Contributions Tax (Assessment and Collection) Act 1997 section 16 subsection 16(7)
Subject references: superannuation contributions superannuation contributions surcharge