Surcharge
Superannuation Surcharge
Superannuation surcharge is calculated by the ATO and is imposed on a Member’s surchargeable contributions where the Member’s adjusted taxable income (taxable income plus notional employer contributions) exceeded certain levels before 1 July 2005. Surcharge amounts notified by the ATO are recorded in a surcharge debt account. Although surcharge does not apply from 1 July 2005, amounts recorded in surcharge debt accounts must still be paid.
Payment of the surcharge debt
The amount in a surcharge debt account can be paid in part or full progressively during the period of membership, or left to accrue with interest at the ten year Treasury bond rate. Any amount in a surcharge debt account remaining when a benefit becomes payable, whether in cash, or by transfer or rollover to another fund, will be deducted from the DFRDB Scheme benefit payable.
There are some important matters to consider before deciding to pay the amount in a surcharge debt account before your DFRDB benefit becomes payable, especially if you have less than 20 years’ effective service.Top
Interest on the surcharge debt
Interest, calculated at the 10-year Treasury bond rate is required to be imposed on any amount in a surcharge debt account remaining at 30 June in any year. If you wish to avoid the imposition of interest on the amount in the surcharge debt account, you would need to ensure that payment of the amount is received by ComSuper before the close of business on 30 June.
If you wish to make a payment, in part or in full, it should be sent directly to ComSuper with a Surcharge Remittance Advice Form (SUR-DM1). Alternatively, you can attach a note with your payment that clearly states your full name, address, service number, scheme membership (DFRDB Scheme), and instruct the payment to be credited to your surcharge account.
Payment from productivity benefit
Any surcharge debt remaining at the time a benefit becomes payable will normally be recovered from the productivity lump sum benefit. However, you can request that it be recovered from the DFRDB Scheme benefit instead.
If the productivity benefit is insufficient to discharge the surcharge liability, the excess amount will be recovered by reducing retirement pay/pension.Top
Payment of surcharge debt from pension
Payment of the amount in the surcharge debt account from a DFRDB Scheme pension is achieved by converting the surcharge debt to an annual pension reduction amount and reducing the pension by that amount. This is a permanent pension reduction (that is, the pension is not increased if it continues beyond the period of the surcharge reduction factor - 17.2 years in Example G in the 'Surcharge' section).
The annual pension reduction amount is determined by dividing the amount in the surcharge debt account by a DFRDB Scheme pension surcharge reduction factor as shown in Table 6.
| Age in completed years at start date of pension | Pension reduction factor |
|---|---|
| 65 | 14.7 |
| 64 | 15.1 |
| 63 | 15.5 |
| 62 | 15.9 |
| 61 | 16.2 |
| 60 | 16.6 |
| 59 | 16.9 |
| 58 | 17.2 |
| 57 | 17.5 |
| 56 | 17.8 |
| 55 | 18.1 |
| 54 | 18.4 |
| 53 | 18.7 |
| 52 | 19.0 |
| 51 | 19.2 |
| 50 | 19.5 |
| 49 | 19.7 |
| 48 | 19.9 |
| 47 | 20.2 |
| 46 | 20.4 |
| 45 | 20.6 |
| 44 | 20.8 |
| 43 | 21.0 |
| 42 | 21.2 |
| 41 | 21.4 |
| 40 | 21.6 |
| 39 | 21.7 |
| 38 | 21.9 |
| 37 | 22.0 |
| 36 | 22.2 |
The pension surcharge reduction factors increase progressively for ages under 36.
The full set of DFRDB pension reduction factors for ages 15 to 70 is available here. Top
Example G: Payment of Surcharge Debt from DFRDB Indexed Pension
| Surcharge debt amount | $10,000 |
| Age in completed years at date of commencement of pension | 58 |
| Pension per year before reduction | $40,000 |
| Calculation of pension reduction amount $10,000 / 17.2 = $581.40 |
-$581.40 |
| Indexed pension payable after reduction | $39,418.60 |
Future pension adjustment
The reduced pension is subject to adjustment in the normal manner on the first pension payday in January and July each year to account for any upward movement in the CPI.
Commutation
Where a Member elects to commute retirement pay/pension, the commutation factor is applied to the normal rate of retirement pay/pension (that is, before a reduction on account of a surcharge debt). If an election is made to commute and there is a debit balance in the surcharge debt account, the following provisions apply:
- If the Member also makes an election to have the surcharge deduction amount applied to the DFRDB Scheme benefit rather than the productivity benefit, the lump sum payable following commutation is reduced by the surcharge debt.
- If no such election is made, the surcharge debt is recovered from the productivity lump sum benefit. However, if the productivity benefit is insufficient to pay the debt in full, the excess amount is recovered from the post-commutation rate of retirement pay/pension.
Payment from a before tax amount
As the benefit is reduced by the amount in the surcharge debt account before it becomes payable, the amount applied to pay the debt does not form part of taxable income and is not subject to the tax that would otherwise apply to the pension or lump sum. In other words, the payment is made from a before tax amount.Top
Benefit preserved in the DFRDB Scheme
As there are no contributions being made to a benefit that is preserved in the DFRDB Scheme (and because surcharge no longer applies from 1 July 2005), it is unlikely there will be any further surchargeable assessments on surchargeable contributions up to 30 June 2005 (unless the ATO issues late assessments or amended assessments). However, any amount in your surcharge debt account remaining at 30 June each year the benefit is preserved will be charged interest at the 10-year Treasury bond rate.
Surcharge debt assessment received after payment of benefit
Any surcharge assessment received after your ceasing membership and payment of the benefit is either sent on to the new provider by the ATO for payment where the full benefit is rolled over/transferred to another fund; or, the ATO will send the assessment to you where all superannuation entitlements are paid out because you are liable to pay the assessment.Top
Disagreement with assessment
A Member who disagrees with the assessment, in so far as it is based on adjusted taxable income, may lodge a formal objection with the ATO.
If the disagreement relates to the calculation of the amount of surchargeable contributions reported for you, a request for reconsideration may be made to the DFRDB Authority.
Application to your own circumstances
Members need to consider their own financial situation when deciding whether to pay any surcharge debt progressively as it arises, or leave the debt until the benefit becomes payable, and then, whether it may be preferable to have the debt deducted from the DFRDB benefit due or paid from other sources.
As with most financial considerations, every case is different and it is necessary to analyse the alternatives in the light of your own particular circumstances, and, if appropriate, seek professional advice.Top
DFRDB Authority may vary surcharge debt amount
If a Member has an amount in his or her surcharge debt account at the time benefits become payable, the DFRDB Authority must determine the surcharge deduction amount from the Member’s benefit that is fair and reasonable.
This means that the Authority may vary the amount required to be funded by the Member when benefits become payable. The legislation specifies that the Authority must take certain matters into account in making such a determination. In particular, the legislation specifies that the surcharge debt amount cannot be more than 15% of the employer-financed component of the benefit accrued since 20 August 1996 up to 30 June 2005.
The Authority has issued guidelines to the effect that the surcharge deduction amount will ordinarily be the same as the amount in the surcharge debt account unless:
- in special circumstances relating to the retiree, deduction of that amount would cause the retiree to suffer an unfair or unreasonable financial detriment or
- the amount of the surcharge debt was based on an incorrect calculation of surchargeable contributions.
An amount a Member is required to fund can only be varied if the Member has a surcharge debt at the time benefits become payable. If the Member has paid any surcharge liability before benefits become payable, the Authority cannot determine an alternative amount to pay (because there would be no liability at the time the benefit became payable).Top
Inquiries
The Tax Office is the primary point of contact for enquiries on the superannuation surcharge and related matters. The ATO superannuation helpline is 13 10 20 for the cost of a local call.
If you have an inquiry about ComSuper’s administration of the surcharge, you can call ComSuper on 1300 001 677. Alternatively, you can email your enquiries to DFRDB at members@dfrdb.gov.au.