NOTIONAL TAXED CONTRIBUTION RATES CERTIFICATE FOR THE PURPOSES OF THE INCOME TAX ASSESSMENT REGULATIONS 1997

Transcription

1 Mercer Consulting (Australia) Pty Ltd ABN AFS Licence # Collins Square 727 Collins Street Melbourne Vic 3008 GPO Box 9946 Melbourne Vic Fax paul.r.gilbert@mercer.com NOTIONAL TAXED CONTRIBUTION RATES CERTIFICATE FOR THE PURPOSES OF THE INCOME TAX ASSESSMENT REGULATIONS 1997 (the Plan) CERTIFICATION OF ACTUARY I, Paul Gilbert, of Mercer, being a Fellow of the Institute of Actuaries of Australia, do hereby certify that: the Benefit Categories; the New Entrant Age; and the New Entrant Rates set out below and in the Attachment; have been determined in accordance with the Income Tax Assessment Regulations 1997 ( the Regulations ). This is effective from 1 July 2013, and replaces the previous certificate dated 6 December This caters for changes to minimum benefits made, or expected to be made, to satisfy the increases in the Superannuation Guarantee (SG) rate commencing 1 July The may require replacement if defined benefits are amended, a new benefit certificate is issued on a different basis than assumed in preparing this, any new defined benefit categories are introduced or there is change in relevant legislation. Description of Benefit Category SG rate New Entrant Rate (Standard DB) Notional Contribution Rate* (Standard DB) 14% accrual 9.25% -12% 7% 8.4% 18.5% accrual 9.25% -12% 10% 12% 19.5% accrual 9.25% -12% 11% 13.2% 20.25% accrual 9.25% -12% 11% 13.2% 21% accrual 9.25% -12% 11% 13.2% 21.5% accrual 9.25% -12% 12% 14.4% 22% accrual 9.25% -12% 12% 14.4% 22.5% accrual 9.25% -12% 12% 14.4% *Equals 1.2 times the New Entrant Rate

2 Page 2 where SG Rate means the charge percentage specified in subsection 19(2) of the Superannuation Guarantee (Administration) Act 1992 for the financial year (or other period). (Note: This approach to specifying the NERs and NCRs has been adopted with the aim of catering for any change in the legislated SG rate increase schedule after the issuing of this certificate.) In addition members are able to make additional contributions from pre- and post- tax salary to purchase an additional defined benefit multiple. The formula to determine the New Entrant Rate(s) for additional voluntary contributions used to purchase an additional multiple in a particular year is: Pre-Tax Contributions: Contribution rate % * 0.85*0.877 (result rounded to lower integer) Post-tax contributions: Contribution rate % * (result rounded to lower integer) The Notional Contribution Rate for the additional voluntary contribution portion is then 1.2 times the above result. The total New Entrant Rate is the sum of the New Entrant Rate for the standard defined benefit portion plus the New Entrant Rate for the additional voluntary contribution portion. For example if a 21.5% accrual rate member makes additional voluntary contributions of 10% of salary from pre-tax salary which are used to purchase an additional multiple, the total New Entrant Rate is: 12% + 7% (10% * 0.85* rounded to lower %) = 19% The Notional Taxable Contribution Rate is 22.8% (1.2 x 19%) It is also noted that actuarial advice must be obtained in each instance where circumstances are such that an additional amount based on W, X, Y or Z may need to be included in the amount of notional taxed contributions for the financial year in accordance with Part 4, 5, 6 or 7 of Schedule 1 of the Regulations (refer Appendix 2). Fellow of the Institute of Actuaries of Australia

3 Page 3 ATTACHMENT General Limits apply to the concessional contributions (e.g. employer and salary sacrifice member contributions) and non-concessional contributions (e.g. after tax member contributions) which can be made to superannuation funds. Additional tax applies if either or both of these limits are exceeded. To enable the Australian Taxation Office to determine whether an individual s superannuation contributions in a year exceed these limits, all superannuation funds are required to report contributions by or for the benefit of each of the fund s members annually or at the time of exit from the fund. For defined benefit members of funds such as this Plan, the employer defined benefit contributions to be reported are notional contributions ( Notional Taxed Contributions ), not the employer s actual contributions. Notional Taxed Contributions only apply to members who have accrued a defined benefit during the year. The method and actuarial assumptions for calculating Notional Taxed Contributions are prescribed in the Income Tax Assessment Regulations 1997 ( the Regulations ). Under the Regulations, Notional Taxed Contributions are calculated using New Entrant Rates (long term contribution rates for a notional new entrant), which are to be calculated and certified by an actuary. This applies even though no new defined benefit members are admitted to the Plan. A separate New Entrant Rate is required for each Benefit Category as determined by an Actuary in accordance with the Regulations. Unless there are changes to the Plan s rules, it is intended that the rates will be calculated once only and then used to determine notional taxed contributions in all future years. Benefit Categories The Regulations require a New Entrant Rate to be calculated for each Benefit Category. A Benefit Category is a defined benefit category of membership of a defined benefit fund as certified by an actuary.

4 Page 4 An actuary must not certify a category of membership to be a Benefit Category unless the actuary is satisfied that: (a) each hypothetical new entrant to the benefit category with the same entry age would accrue retirement benefits on substantially the same basis; or (b) if any two hypothetical new entrants to the benefit category accrued retirement benefits on a different basis, the new entrant rates for each member in terms of the Regulations would be equal. The Benefit Categories for the Plan are as follows: Description of Benefit Category 14% accrual 18.5% accrual 19.5% accrual 20.25% accrual 21% accrual 21.5% accrual 22% accrual 22.5% accrual New Entrant Age The Regulations require the New Entrant Rate for each Benefit Category to be that applicable to a hypothetical new entrant to the Benefit Category whose age is equal to the average age at entry to the Plan of defined benefit members current as at 1 July 2007, rounded down as prescribed in the Regulations ( New Entrant Age ). As set out in the initial certificate for the Plan dated 6 December 2007, the New Entrant Age applying for the Plan (after rounding down as specified in the Regulations) is 25. For this purpose, we have excluded pensioners and members with deferred benefits, as required under the Regulations. Assumptions Assumptions to be used in the calculation of New Entrant Rates are specified in the Regulations. These are summarised in Appendix 1.

5 Page 5 Benefit Design The new entrant rates have been based on the benefit design applicable under the governing rules of the Plan as amended to 1 July 2013 and the minimum requisite benefits specified in the Benefit dated 12 November The expiry date of this Benefit is 30 June For the purpose of this I have assumed that the minimum requisite benefits applying after 30 June 2018 will be determined in the same manner as specified in the Benefit dated 12 November 2013, but allowing for legislated increases in the SG Rate applicable after 30 June The Trustee should seek actuarial advice on whether any change to this certificate is required when the current Benefit is replaced. The new entrant rates have been based on the benefit design as summarised in Appendix 3. New Entrant Rates Under the Regulations, the New Entrant Rate for a Benefit Category is the rate that represents the long term cost, expressed as a percentage of salary, of providing the benefit payable on a voluntary exit to a hypothetical new entrant to the Benefit Category. The Regulations require the New Entrant Rate to be rounded down to the next whole percentage point. The New Entrant Rates for each Benefit Category and SG Rate currently legislated are set out in the table at the front of this. These New Entrant Rates have been calculated in accordance with Approach 1 set out in the Information Note: Notional Taxed Contributions and Superannuation Guarantee Increases issued in March 2013 by the Superannuation Practice Committee of the Actuaries Institute. Using this approach, a new entrant rate for each Benefit Category has been calculated for each level of the SG Rate, assuming in each case that the MRB accrual rate corresponding to the relevant SG Rate continues to apply throughout the whole membership of the hypothetical new entrant. No Other Applications The New Entrant Rates have been calculated using the methods and assumptions prescribed in the Regulations for the purpose of calculating Notional Taxed Contributions only and are not intended to be used for any other purpose. Calculation of Notional Taxed Contributions The method to be followed in calculating Notional Taxed Contributions based on the certified New Entrant Rates is set out in the Regulations and is summarised in Appendix 2.

6 Page 6 Appendix 1 Actuarial assumptions to be adopted Economic assumptions are: Rate of discount/investment return Rate of salary growth 8% pa 4.5% pa Rates of voluntary exit from the Plan assumed are as follows Age Band Exit rate < Rates of involuntary exit (including by redundancy, death or invalidity) are zero.

7 Page 7 Appendix 2 Calculation of Notional Taxed Contributions Reportable Concessional Contributions The reportable concessional contributions for a member during a financial year are the sum of any Notional Taxed Contributions to the Plan for the member, any concessional contributions made to the Plan to provide accumulation-style benefits for the member and certain allocations from Plan surplus to provide accumulation-style benefits for the member. Normal Method for calculating Notional Taxed Contributions The following method for calculating a member s defined benefit Notional Taxed Contributions is used where the member is continuing to accrue defined benefits and where none of the following exceptional conditions apply to the member during the financial year: an exercise of a discretion to pay a benefit greater than the benefit assumed in the New Entrant Rates, a change in Benefit Category which results in an immediate increase in the member s accrued retirement benefit, a change to the governing rules affecting the member s defined benefits, or a non-arm s length increase in the member s salary. The formula to be used is : 1.2 x [New Entrant Rate x S x D/365 M] = NCR x S x D/ x M where, S is the member s superannuation salary on the first day of the financial year on which the member had a defined benefit interest in the Plan. This will normally be 1 July except for new defined benefit members for whom the date of joining the defined benefit category should be used; D is the number of days during the financial year that the member was an accruing member of the Benefit Category (note that in a leap year, D may be greater than 365); M is the member s post-tax contributions towards the defined benefit entitlement while a member of the Benefit Category during the financial year; and NCR is the New Entrant Rate times 1.2 (Notional Contribution Rate). Note D would exclude any period of non-accruing membership eg while on leave without pay. Where the member has changed Benefit Categories during the financial year (which includes changing the percentage of salary for additional voluntary contributions applied on a defined benefit

8 Page 8 basis), the above formula is applied to the period in each Benefit Category and the results added together. The salary used for each separate calculation should be the same amount in each case ie the superannuation salary as at the 1 July or, if a new member, the date the member first became a defined benefit member. Where a member works on a part-time basis during any part of the year, S is the full-time equivalent superannuation salary and the number of days used in D is calculated on a pro-rata basis. Non-accruing Members Notional Taxed Contributions are nil for non-accruing members. Non-accruing members are defined in the Regulations, but essentially are members for whom no defined benefit accrual applies. These would include: retained benefit members; and members for whom the defined benefit is now altering only with investment earnings, salary increases or other form of indexation (e.g. frozen members). Notional Taxed Contributions in All Other Cases In all other cases, Notional Taxed Contributions in respect of the member s defined benefits are to be calculated using the following formula. Note that actuarial advice must be obtained in each instance and will have regard to the precise wording of the relevant regulations (rather than the simplified descriptions of W, X, Y and Z set out below). Where: T x [W + X + Y + Z] T is the Notional Taxed Contributions for the member calculated using the methods described in the preceding paragraphs; W is the excess of any discretionary benefit paid to a member on account of voluntary exit or redundancy that is not bona fide over the benefit assumed in calculating the New Entrant Rate, calculated in accordance with advice from an actuary. W will not apply if the benefit is being paid due to bona fide redundancy, total and permanent disablement or death; X is any increase in the value of the member s accrued retirement benefit at the time of a Benefit Category change (or exercise of discretion) during the financial year, calculated by an actuary. X only applies if the member s accrued retirement benefit is increased during the financial year at the time of a Benefit Category change (or exercise of discretion); Y is any increase in the value of the member s accrued retirement benefit due to a change in the Plan s governing rules other than to satisfy a legislative requirement, calculated in accordance with advice from an actuary; and

9 Page 9 Z is any increase in the value of the member s accrued retirement benefit due to a non-arm s length increase in the member s salary made with the primary purpose of increasing the member s superannuation benefit, calculated in accordance with advice from an actuary. Capping of Notional Contributions In certain circumstances, the legislation may limit the amount of notional taxed contributions to be taken into account for determining any excess concessional contributions tax. This limitation only applies to the notional taxed contributions in respect of the member s defined benefit interest and not to any contributions made to an accumulation interest. Where a member satisfies certain conditions, the defined benefit notional taxed contributions reported for each year are to be restricted to the concessional contributions cap applicable to the member in that year. The conditions to be met in order to qualify for this limitation are set out below. (Note that different conditions applied for the period prior to 1 July 2009.) The member must satisfy either: (i) OR (ii) all of the 12 May 2009 Conditions set out at (A) below; all of the 5 September 2006 Conditions set out at (B) below. (A) 12 May 2009 Conditions (applicable from 1 July 2009) (1) the member was a defined benefit member of the Plan or an Eligible Predecessor Plan* on 12 May 2009; (2) the new entrant rate for the member has not increased since 12 May 2009, unless that increase is due only to: a) a change to satisfy Superannuation Guarantee requirements; or b) a Compulsory Category Change**; or c) both a) and b); (3) the method of calculating superannuation salary has not changed since 12 May 2009 in a manner which results in an increase in superannuation salary (unless this has been to satisfy Superannuation Guarantee requirements); (4) if the member s superannuation salary has increased since 12 May 2009 by more than 50% in one year or by more than 75% over 3 years***, the employer has advised the Trustee that the increase in salary was determined on an arm s length basis; and (5) since 12 May 2009 neither the Trustee (of the Plan or any Eligible Predecessor Plan*) nor the employer-sponsor has exercised a discretion to pay a benefit from the fund (in respect of the member) that is greater than the benefit assumed for the calculation of the new entrant rate.

10 Page 10 (B) 5 September 2006 Conditions (applicable from 1 July 2009) (1) the member was a defined benefit member of the Plan or an Eligible Predecessor Plan* on 5 September 2006; (2) the fund rules applicable to the member were not changed between 5 September 2006 and the date of issue of the first certificate relevant to the member, in a way which improved the member s benefit; (3) excluding any Compulsory Category Change, the member did not move to a new benefit category which provides an improved level of benefit in the period between 5 September 2006 and the date of issue of the first certificate relevant to the member; (4) the new entrant rate for the member has not increased since it was first worked out, unless that increase is due only to: (a) a change to satisfy Superannuation Guarantee requirements; or (b) a Compulsory Category Change**; or (c) both (a) and (b); (5) the method of calculating superannuation salary has not changed since 5 September 2006 in a manner which results in an increase in superannuation salary (unless this has been to satisfy Superannuation Guarantee requirements); (6) if the member s superannuation salary has increased since 5 September 2006 by more than 50% in one year or by more than 75% over 3 years***, the employer has advised the Trustee that the increase in salary was determined on an arm s length basis; and (7) since 5 September 2006 neither the Trustee (of the Plan or any Eligible Predecessor Plan*) nor the employer-sponsor has exercised a discretion to pay a benefit from the fund (in respect of the member) that is greater than the benefit assumed for the calculation of the new entrant rate. * Eligible Predecessor Plan means a fund: from which the entire value of the member s defined benefit interest in the fund was transferred to the Plan; and in which the member s rights to accrue future benefits were equivalent to those in the Plan. Note that where the member has transferred to a new successor fund on more than one occasion since 5 September 2006 (or 12 May 2009 for A(i)), the relevant fund at 5 September 2006 (or 12 May 2009 for A(i)) will be an Eligible Predecessor Plan if the above two rules are met in relation to each transfer. ** Compulsory Category Change means a category change that: was caused by the necessary application of the rules of the superannuation fund (or an Eligible Predecessor Plan) that were, or of legislation that was, in force on 5 September 2006; and the member had no control over the application of the rules or legislation. *** Note that the Trustee must advise the Australian Taxation Office of any such cases as soon as practicable after the increase occurs.

11 Page 11 Current eligibility for capping Generally members who have remained in their current benefit category since May 2009 would remain eligible for capping. Accumulation Benefits Where a defined benefit member is also entitled to accumulation benefits during the year, the member s concessional contributions should be calculated as the sum of: the member s notional taxed contributions for defined benefits as determined above; PLUS any concessional contributions in relation to his or her accumulation interest (which may include allocations from reserves in certain circumstances) including the 0.5% supplementary contribution or voluntary contributions which do not go towards purchasing an additional defined benefit multiple. Replacement This certificate may need to be replaced if the Plan s rules (including the minimum requisite benefits specified in the Benefit ) are amended to change benefits. The trustee will need to ask the actuary to consider whether a new certificate is required as a result of any benefit changes.

12 Page 12 Appendix 3 Summary of Benefits A summary of the relevant benefit provisions in respect of defined benefit members is set out below. Members' Contributions Average Salary Members contributions vary from 0% to 6%. Average of annual salaries over the 3 years prior to exit Retiring Age 65 Retirement Benefit A lump sum of the benefit accrual rate times Average Salary for each year of membership since 1 July 2002, plus the member s Pre-1998 Retirement Multiple and Post-1998 Retirement Multiple times Average Salary. Contribution Rate Benefit Accrual Rate 0% 14% 3% 18.5% 3.5% 19.5% 4% 20.25% 4.5% 21% 5% 21.5% 5.5% 22% 6% 22.5% Resignation Benefit Supplementary Contribution The accrued retirement benefit discounted by 1% for each year prior to age 55, with a maximum reduction of 26.67%. An additional employer contribution of 0.5% of salary less tax is accumulated with investment returns and paid as an additional benefit. Members are able to elect to purchase an extra multiple in respect of their supplementary contributions (instead of having them accrue investment returns). The value of the benefit based on this extra multiple is determined by the Trustee based on the actuarial advice. All benefits are subject to a minimum Superannuation Guarantee benefit described in the Plan s Benefit.