THE PROPOSED SUPERANNUATION SURCHARGE A SUBMISSION BY THE TAXATION INSTITUTE OF AUSTRALIA

Size: px

Start display at page:

Download "THE PROPOSED SUPERANNUATION SURCHARGE A SUBMISSION BY THE TAXATION INSTITUTE OF AUSTRALIA"

Eustace Bennett Lyons
5 years ago
Views:

1 THE PROPOSED SUPERANNUATION SURCHARGE A SUBMISSION BY THE TAXATION INSTITUTE OF AUSTRALIA

2 EXECUTIVE SUMMARY The Taxation Institute of Australia (the TIA) supports the Government s policy that superannuation should equitable in its operation. However, the TIA is concerned that the proposed superannuation surcharge will frustrate, rather than contribute to, greater equity in the superannuation arena. In particular, the surcharge will impact detrimentally on members of superannuation funds simply because of a flow on effect caused by the excessive compliance burdens which the surcharge imposes on superannuation fund managers and administrators. It is recommended that: The surcharge is in reality a tax and should be administered and collected as a tax. More effective and cost efficient collection mechanisms should be implemented (e.g., through the existing PAYE system). Clarification is required on how a surcharge liability will be met when there are insufficient funds to meet this liability, particularly where it is not possible to identify a shortfall in a member s superannuation account before the receipt of a surcharge assessment notice. Clarification is required on the operation of the surcharge in circumstances where not all superannuation contributions being made will vest immediately with particular fund members. Capital gains should be removed from the definition of adjusted taxable income for the purposes of calculating a surcharge liability. A minimum surcharge payment should be stipulated. Provision should be made to allow the variation of advance instalments of the surcharge. Contribution reporting dates for excluded superannuation funds should be aligned with company tax return lodgment dates. Page 1 of 6

3 COMMENTARY 1. General Comments 1.1 General inequities The TIA recognises the policy position and direction of the Federal Government in seeking to make superannuation more equitable. However, it is considered that the proposed superannuation surcharge does not achieve this equity from two points of view: (1) it unnecessarily impacts on the current operation of existing income tax laws affecting superannuation contributions; and, (2) it creates an unreasonable burden on superannuation fund managers and administrators which will impact on members of a fund. 1.2 A surcharge or a tax The Government currently rejects the proposition that the surcharge is a tax. However, it is submitted that the substance of arrangement is that it clearly is a tax. A number of indicators support this, particularly as the draft legislation contains tax related provisions (e.g., the administrative process, access to premises and documents and secrecy) which are identical to the current income tax laws. In addition, the Commissioner of Taxation is to be the administrator of the proposed legislation. 1.3 Revenue Collection The revenue outcomes anticipated from the surcharge could have been equally achieved via other means. It is submitted in this regard that the most effective means of achieving these outcomes is to collect the superannuation surcharge via the PAYE tax collection system. 1.4 Complexity and cost of compliance The proposed legislation and Explanatory Memoranda will add over 200 more pages to the legislative obligations of the superannuation industry. This unnecessarily escalates compliance obligations and compliance costs for both fund members and fund administrators. 2. Specific Comments Page 2 of 6

4 2.1 Death/TPD Funds Insufficient funds to meet surcharge liability In some cases, fund members will only make sufficient superannuation contributions to cover the costs of death and for TPD insurance. Consequently, insufficient money will be left in a member s account to satisfy any surcharge liability. It is not clear from the current draft legislation how the surcharge will be paid in these circumstances, as funds will be unable to identify potential losses prior to the receipt of the surcharge assessment notice. The draft legislation needs to be amended to eliminate any uncertainty in these circumstances by identifying how the surcharge liability is expected to be met Refunds of surcharge payments The treatment of the refund of a surcharge payment received by the fund where the member has left the fund is not clear. The administrative burden on fund managers and administrators will be increased unnecessarily if this amount is treated as an Eligible Termination Payment, particularly where the amount involved is small. 2.2 Vesting of Benefits Not Taken Into Consideration The proposed legislation fails to take into account that not all superannuation contributions being made will immediately vest with the particular fund members. This means that the surcharge will be payable on some superannuation contributions that may ultimately never vest or vest with taxpayers that have an adjusted taxable income less than the threshold level. Consequently, it is possible that some employers will look to increase the superannuation contributions payable to short term employees not subject to the surcharge threshold. This is likely to be done on the basis that some members will probably leave prior to some/full vesting, leaving the benefits to be paid to members who remain in the fund longer. This will be an issue where the contributions involved exceed the minimum superannuation contributions of the Superannuation Guarantee Administrative Act. It is submitted that this potential problem could be overcome by applying the surcharge liability only to benefits that have fully vested with the member. 2.3 Abnormal Income and Capital Gains Page 3 of 6

5 It is noted that capital gains are included in the taxable income of the members for the purposes of calculating the adjusted taxable income. Consequently, where a taxpayer derives a capital gains in a particular year of income he or she may become subject to a surcharge liability and the provisional surcharge liability. In a large number of cases, it is likely that these taxpayers will not derive a capital gain in the subsequent year, and, as a consequence will be below the surcharge threshold. In this situation the Australian Taxation Office will need to refund the advanced instalment. These circumstances will be quite common and will place a considerable administrative burden on taxpayers, the ATO, and fund managers and administrators. Consequently, it is submitted that capital gains should be removed from the definition of adjusted taxable income for the purposes of the surcharge legislation. 2.4 No Minimum Surcharge Amount The legislation as it is currently drafted does not provide a minimum surcharge payment amount. It is recommended that amounts that a minimum payment (e.g., $5.00) be specified. 2.5 Integration of income tax and superannuation laws In designing the proposed legislation, the Government has failed to integrate properly the surcharge mechanism into the existing income tax and superannuation laws. For example: where taxpayers operate their own superannuation fund, tax losses and/or surplus imputation credits will not be available to reduce the surcharge liability attaching to surchargable contributions ; and the commencement threshold for the surcharge is $70,001, where the high income threshold for superannuation Guarantee purposes is $90, Advance instalments of surcharge The current proposal is that an advance instalment of the surcharge is payable by 15th of June in the year following the surcharge year on which the instalment is based. This advance instalment will be 50% of the previous year s surcharge. However, there is currently no mechanism which allows for a variation of these advance instalments. It is submitted, therefore, that the provisions should be introduced which allow for a variation of an advance instalment (e.g., on a self assessment basis, similar to that currently applicable for varying provisional tax). 2.7 Reporting dates Page 4 of 6

6 For the purposes of calculating the surcharge, it is currently proposed that all superannuation funds are to send details of their members contributions to the ATO by 31 October each year (15 December for the 1997 year only). This reporting proposal will impact detrimentally on the estimated 110,000 smaller superannuation funds currently administered by tax agents and accountants. The proposed 31 October/15 December reporting dates for contribution reports will clash adversely with existing agents lodgment programs. It is submitted that a different reporting date be introduced for excluded funds (e.g., smaller family type funds, often referred to as mum and dad superannuation funds), such as currently exists under the SIS legislation. It is recommended that reporting dates for such funds should be in line with company lodgment dates. Page 5 of 6

7 CONCLUSIONS The draft legislation for the proposed superannuation surcharge will not ultimately achieve the Government s desired superannuation policy outcomes. It will also undoubtedly create major administrative problems for participants in the superannuation industry. Whilst it is recognised that the Government is responsible for establishing policy in this area, the TIA is concerned that that the Government has not fully recognised and acted on community and industry concerns regarding these proposals, some of which have been outlined in this submission. Page 6 of 6

SMSF Legislative Changes Applicable from 1 July 2013

SMSF Legislative Changes Applicable from 1 July 2013 Essential SMSF Update (Current at 3 September 2013) www. accesssuperaudit.com.au TEL: 1300 371 186 GPO Box 2467 901, 50 Clarence St admin@accesssuperaudit.com.au