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Payroll tax: exempt superannuation contributions pre-1 July 1996 services
(Payroll Tax Act 2007)
Ruling number
PTA 040
Date issued
5 September 2016
Issued by
Stephen R Brady Chief Commissioner of State Revenue
Effective from
1 July 2007
Effective to
-
Status
Current
Preamble
On 30 June 2015 White J handed down his decision in Qantas Airways Limited v Chief Commissioner of State Revenue [2015] NSWSC 826. This Revenue Ruling covers the legislative background to the decision and clarifies how the Chief Commissioner will apply the exemption for defined superannuation benefits in respect of services rendered or performed by an employee before 1 July 1996 in light of that decision. The decision of Gzell J in CSR Ltd v Chief Commissioner of State Revenue [2006] NSWSC 1380 has also been applied.
Background
The Pay-roll Tax Act 1971 (the 1971 Act) was amended with effect from 1 July 1996 to extend the definition of “superannuation benefit” to include the payment of money that was paid or payable by an employer as, or as a contribution to, a pension, lump sum or other benefit paid or payable as a result of the retirement or other cessation of the employment of an employee in respect of services rendered by the employee after 30 June 1996. This provision effectively included such benefits as wages for the purposes of the calculation of payroll tax. (see s.3AA(6A)). However this provision related only to payments made in respect of an unfunded or partly unfunded superannuation, provident or retirement fund or schemes, being a fund or scheme under which the employer was not required to or did not pay or set aside money during the period of the employee’s employment. Subsequently, a new s. 3(5) was inserted in the 1971 Act which provided, in substance, that a superannuation scheme was unfunded to the extent that money paid or payable by an employer in respect of an employee covered by the scheme was not paid or payable during the employee’s period of service with the employer.
In December 1996, s.3AA(6A) of the 1971 Act was amended to include as wages a superannuation benefit other than one paid or payable in respect of services rendered by an employee before 30 June 1996. The definition of “superannuation benefit” was extended to include any form of superannuation, provident or retirement fund or scheme, including a wholly or partly unfunded fund or scheme. Transitional provisions were also introduced to require records to be kept by employers to evidence claims for superannuation contributions on the basis that they related to services rendered prior to 1 July 1996 (see clause 4 of Schedule 6 Savings, transitional and other provisions).
The 1971 Act was repealed and replaced by the Payroll Tax Act 2007 (“the 2007 Act”) with effect from 1 July 2007.
The 2007 Act also imposes payroll tax on superannuation contributions paid or payable by an employer in respect of an employee (see s.17). The 2007 Act also exempts from payroll tax a superannuation contribution paid or payable in respect of services performed by an employee before 1 July 1996 (see clause 6 of Schedule 3 Savings, transitional and other provisions of the 2007 Act).
Clause 6(2) of Schedule 3 imposes a requirement on an employer who seeks to claim that a superannuation contribution is exempt because it relates to pre-1 July 1996 services to maintain evidence that will satisfy the Chief Commissioner that the exemption applies. Clause 6(3) requires the records to show the manner of calculation of the contribution and the actuarial basis for it. Clause 6(4) provides that a certificate provided by a fellow or accredited member of the Actuaries Institute of Australia to the effect that the actuarial basis for claiming an exemption applies is justified, is evidence of that fact. In the absence of proof to the contrary, such a certificate is proof of that fact. Clause 6(5) provides that if records as required by clause 6 are not kept, the Chief Commissioner is entitled to assume that the exemption will not apply to a payment of money by an employer as a superannuation contribution on or after 1 July 1996.
Ruling
Terminology
For the purposes of this Ruling the following terms have the meanings ascribed: Actuary is a fellow or accredited member of the Actuaries Institute of Australia.
Normal cost contribution at the start of a payroll tax year is the contribution determined by an actuary that is expected to be sufficient to fund the benefits estimated to accrue to members over the following year less the contributions payable by members over the year. One method that will be accepted by the Chief Commissioner is the Projected Unit Credit method. Broadly speaking, using this method the actuary calculates the amounts of all benefits expected to be paid in all future years to existing members in respect of their scheme membership over the next one year, allowing for all contingencies which can be expected to give rise to benefit payments at any time in the future and allowing also for future salary increases and contributions made by members. These amounts are discounted to give the present value of the benefits accruing in respect of the next year’s membership.
Adjusted normal cost contribution is the normal cost that has been adjusted to take into account any available surplus or deficit required to fund the scheme or plan. The actuary may advise the period of time over which it is appropriate to either utilise any surplus or to fund any deficit. A surplus can be applied to reduce the employer contribution that would otherwise be required. If there is a deficit, additional employer contributions will be required. If there is no recommendation by an actuary, the Chief Commissioner will accept three or more years as an appropriate period over which to utilise any surplus or to fund any deficit without the need for justification of the period chosen. It is appreciated that “adjusted normal cost” is not a precise concept, and that some actuaries may not use that expression.
A fund or scheme has a deficiency if the value of the assets of the fund are insufficient to fund the value of the aggregate of members’ accrued benefits at that time.
A fund or scheme has a surplus if the value of the assets of the fund exceed the value of the aggregate of members’ accrued benefits at that time.
Exempt employer contributions are generally limited to defined benefits schemes
Exempt employer superannuation contributions relating to services performed before 1 July 1996 will only apply to defined benefits schemes under which members’ benefits include a defined benefit component that relates to service prior to 1 July 1996. Exempt contributions to accumulation funds relating to pre 1 July 1996 services would generally only have been made by employers shortly after 30 June 1996.
Funds with a deficiency
In the case of a fund that has a deficiency at the start of the payroll tax year:
that part of the employer’s contribution that is equal to the normal cost contribution is wholly taxable; and
any part of the employer contribution that is in excess of the normal cost contribution may be apportioned between exempt and liable contributions as set out in paragraph 10.
The exempt contribution equals that part of the employer’s contribution that is in excess of the normal cost contribution multiplied by the exempt proportion as calculated in paragraph 14 below.
Funds with a surplus
In the case of a fund that has a surplus at the start of the payroll tax year:
that part of the employer’s contribution that is equal to the adjusted normal cost contribution is wholly taxable; and
any part of the employer contribution that is in excess of the adjusted normal cost contribution may be apportioned between exempt and liable contributions as set out in paragraph 12.
The exempt contribution equals that part of the employer’s contribution that is in excess of the adjusted normal cost contribution multiplied by the exempt proportion as calculated in paragraph 14 below.
The Chief Commissioner will consider all of the evidence provided by an employer. However, where the employer provides a statement signed by an actuary certifying that a specified amount paid by the employer over the relevant payroll tax period is the adjusted normal cost contribution, the Chief Commissioner will generally accept this statement as satisfactory evidence, in the absence of evidence to the contrary, that any amount paid in excess of this amount may be apportioned in accordance with paragraph 14 below. However, the Chief Commissioner reserves the right to seek advice as to the reasonableness of an actuary’s statement from an independent actuary.
Method of apportionment
Where an employer’s contribution may be apportioned between liable and exempt contributions, the method of apportionment should be certified by an actuary. The following approach should be adopted:
Determine the total of all accrued defined benefit liabilities at the start of the relevant payroll tax year. The assumptions adopted are to be the same as those adopted at the most recent actuarial investigation completed in accordance with Actuaries Institute Professional Standard 400 (PS400) prior to the commencement of the relevant payroll tax period, unless the actuary considers that it is necessary to change any assumptions to reflect the assumptions that would be adopted if an actuarial investigation was carried out in accordance with PS400 at an effective date of the first day of the relevant payroll tax period.
Determine how much of those liabilities are attributable to services performed before 1 July 1996 by New South Wales employees (that is, employees whose wages are taxable wages under the 2007 Act).
Determine the exempt proportion of liabilities attributable to pre-July 1996 service by dividing the amount determined in paragraph (b) by the amount determined in paragraph (a).
Please note that rulings do not have the force of law. Each decision of the Chief Commissioner will be made having regard to the circumstances of each case.
Setting aside any money or anything that is worth money as, or as part of, a superannuation fund, superannuation guarantee charge or any other form of superannuation, provident or retirement fund or scheme is taken to be paying a superannuation contribution.
Making a superannuation contribution of anything that is worth money is taken to be paying a superannuation contribution of the amount equal to its value, and its value is to be worked out in accordance with section 43 as if that section referred to the contribution instead of to wages.
A superannuation, provident or retirement fund or scheme is unfunded to the extent that money paid or payable by an employer in respect of an employee covered by the fund or scheme is not paid or payable during the employee’s period of service with the employer.
In this section:
Employee includes any person to whom, by virtue of a paragraph of the definition of Wages in section 13(1), an amount paid or payable in the circumstances referred to in that paragraph constitutes wages.
Part 2 Provisions consequent on enactment of this Act
Superannuation contributions relating to pre-1 July 1996 service
Despite anything in section 11 or 17, wages do not include a superannuation contribution paid or payable in respect of services performed by an employee before1 July 1996.
A superannuation contribution that is alleged by an employer to be paid in respect of services performed by an employee before 1 July 1996 must be evidenced to the satisfaction of the Chief Commissioner in the employer’s records for payroll tax purposes.
In particular, the employer’s records must show the manner of calculation of the contribution and any actuarial basis for it.
For the purposes of subclause (3) and of any assessment of payroll tax to which that subclause is material, the certificate of a fellow or accredited member of the Institute of Actuaries of Australia to the effect that the actuarial basis on which an amount is calculated is justified is evidence and, in the absence of evidence to the contrary, proof of that fact.
If records are not kept as required by this clause, the Chief Commissioner is entitled to assume that a payment of money by an employer as a superannuation contribution on or after 1 July 1996 is an amount payable in respect of services performed by an employee on or after that day.
Superannuation payments not readily related to particular employees
For the purposes of an assessment of payroll tax, the Chief Commissioner may determine:
whether, and the extent to which, any monetary or non-monetary contribution paid or payable by an employer to a superannuation, provident or retirement fund or scheme that is not identified by the employer as paid or payable in respect of a particular employee (and whether or not purporting to be so paid or payable on any actuarial basis) is to be regarded as a superannuation contribution paid or payable in respect of a particular employee, and
the portion of any monetary or non-monetary contribution paid by an employer as a superannuation contribution to a wholly or partly unfunded fund or scheme, being money paid in respect of an employee (or that is to be regarded under paragraph (a) to have been so paid) who performed services to the employer on or after, as well as before, 1 July 1997, that is to be regarded as having been paid in respect of services performed before that date.
Provisions dealing with superannuation contributions
3AA Wages
(6A) Wages includes a superannuation benefit, other than one paid or payable in respect of services rendered by an employee before 1 July 1996.
Schedule 6 Savings, transitional and other provisions
Part 3
Provisions consequent on the enactment of the State Revenue Legislation (Miscellaneous Amendments) Act 1996
Definitions In this Part, defined benefit superannuation scheme has the same meaning as in the Superannuation Guarantee (Administration) Act 1992 of the Commonwealth.
Manner of determining liability of certain superannuation benefits to taxation
Money paid by an employer, after 30 June 1996, in respect of a defined benefit superannuation scheme or an unfunded scheme, that is alleged by the employer to be paid in order to make up a deficiency in the scheme, as at 30 June 1996, relating to a benefit payable in respect of services rendered by an employee or employees on or before that date, must be evidenced to the satisfaction of the Chief Commissioner in the employer’s records for pay-roll tax purposes.
In particular, the employer’s records must show the manner of calculation of the deficiency and any actuarial basis for it.
For the purposes of subclause (2) and of any assessment under section 18 to which that subclause is material, the certificate of a fellow or accredited member of the Institute of Actuaries of Australia to the effect that the actuarial basis on which an amount is calculated as a deficiency is justified is prima facie evidence of that fact.
Without limiting the generality of any of the provisions of section 18, the Chief Commissioner, on an assessment under that section, is entitled to assume that an appropriation of money after 30 June 1996 as a superannuation benefit is an amount paid or payable in respect of the services of an employee or employees after that date, if records are not kept as this clause requires.