Superannuation Surcharge Guide. Issued: December 2013

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1 Superannuation Surcharge Guide Issued: December 2013

2 Contents Introduction... 3 Surcharge process... 4 What are my options?... 5 Need more information?... 7 Contact Centres 70 Eagle Street Brisbane 63 George Street Brisbane Ph ( if overseas) Fax ( if overseas) Monday to Friday 8.30am to 5.00pm AEST GPO Box 200 Brisbane Qld 4001 qsuper.qld.gov.au This information is provided by the fund administrator, QSuper Limited (ABN AFSL ) which is ultimately owned by the QSuper Board (ABN ) as trustee for the QSuper Fund (ABN ). This information has been prepared for general purposes only without taking into account your objectives, financial situation, or needs and should not be relied on as legal or taxation advice, nor does it take the place of such advice. Any statements of law or proposals are based on our interpretation of the law or proposals as at the time of printing. As a result, you should consider the appropriateness of the information for your circumstances and read the product disclosure statement (PDS) before deciding whether to acquire, or continue to hold, a product. You can obtain a PDS at qsuper.qld.gov.au or by calling us on All products are issued by the QSuper Board as trustee for the QSuper Fund. Where the term QSuper is used in this document, it represents the QSuper Board, the QSuper Fund and QSuper Limited, unless expressly indicated otherwise. 2 Superannuation Surcharge Guide December 2013

3 Introduction The superannuation surcharge was a tax imposed on superannuation contributions, once your income reached certain thresholds. This tax was introduced on 20 August 1996 and was removed from contributions made and employer eligible termination payments paid on or after 1 July This means the final assessments from the Australian Taxation Office (ATO) will be for the 2004/2005 financial year. As a QSuper member you have certain options if you have a surcharge debt. In most cases you can decide to pay the debt at any time, or leave the debt to accumulate and pay it when you eventually make a withdrawal from your QSuper account. This guide discusses the options you may have and gives some simple examples to demonstrate how the different choices may affect you. You should be aware the surcharge legislation is complex and this guide cannot replace personal financial advice. It can however help you understand the choices available to you. Who does the superannuation surcharge apply to? The surcharge applies to members whose adjusted taxable income exceeded the surcharge threshold in the years listed in the table below. If the surcharge applied to you, it was levied on your surchargeable contributions (explained on page 4) to superannuation at a rate of 1% for every $1,709 of adjusted taxable income over $99,710. The table below provides a history of the surcharge thresholds. These thresholds were indexed each year by increases in average weekly ordinary time earnings (AWOTE) 1. What is adjusted taxable income? Your adjusted taxable income generally derives from the following sources: salary, pensions, capital gains, rents, dividends and interest employer contributions to your superannuation salary sacrifice contributions to your superannuation any contributions to superannuation for which a tax deduction has been claimed. Adjusted taxable income does not include lump sum payments for annual or long service leave paid out on voluntary early retirement. Any assessment from the ATO already registered against your QSuper account will still apply. Year 1996/ / / / / / / / /2005 Starts at $70,000 $73,220 $75,856 $78,208 $81,493 $85,242 $90,527 $94,691 $99,710 Rises at 1% every $1,000 $1,046 $1,084 $1,118 $1,165 $1,219 $1,295 $1,399 $1,709 Max surcharge rate 15% 15% 15% 15% 15% 15% 15% 14.5% 12.5% Capped above $85,000 $88,910 $92,911 $94,966 $98,955 $103,507 $109,924 $114,981 $121,075 1 AWOTE is a measure of wage levels across Australia, as calculated by the Australian Bureau of Statistics. Superannuation Surcharge Guide December

4 Surcharge process What was the surcharge process for assessments up to and including the 2004/2005 financial year? 1. QSuper reported surchargeable contributions received for each member to the ATO. 2. The ATO used this information, together with your income tax return, to calculate your adjusted taxable income (ATI). 3. The ATO used the surcharge thresholds shown in the table on page 3 to determine whether a surcharge liability existed. 4. If you were affected, the ATO provided you with a notice about the assessment and at the same time provided the assessment to QSuper. Other amounts Taxable voluntary early retirement benefits you may have received from your employer could also be surchargeable. If you have other superannuation as well as QSuper, contributions to the other fund could also have been surchargeable in the same way as contributions made to QSuper. How is the surcharge applied to my benefit? If we receive a surcharge assessment from the ATO concerning you, we are required to establish a surcharge debt account. Interest on this account will apply at the Commonwealth Government s 10-year Treasury bond rate as at 30 June each year. You can pay off the debt at any time, or leave it and have it deducted from your benefit when it becomes payable. What are surchargeable contributions? Surchargeable contributions are any contributions you have claimed a tax deduction for, as well as any salary sacrifice contributions you have made as either standard or voluntary contributions. With a QSuper Accumulation account, surchargeable contributions are relatively easy to work out as it is just the total of the contributions mentioned above which have been credited to your account in the relevant financial year. For Defined Benefit accounts, employer contributions are not paid into your account. Instead, they are paid into a pool of money that is used to pay the benefits of all defined benefit members as required. Therefore, the State Government Actuary calculated a notional surchargeable contribution factor (NSCF) for each member. This factor is multiplied by your superannuable salary to give a notional surchargeable contribution. This amount represents the employer contribution towards your defined benefit for each year. Your NSCF is based on your age, sex, and contribution rate. If you have a surcharge debt, your surchargeable contributions are reported in your QSuper benefit statement for the relevant year. 4 Superannuation Surcharge Guide December 2013

5 What are my options? Option 1 Pay off the debt Many surcharge debts are relatively small and some members prefer to pay off the debt. However if you are intending to do this, you may want to consider the timing of your payment as interest is only added to your debt at 30 June each year. To make payment on your surcharge debt please complete the Surcharge Debt Payment form at the back of this guide. Please call us if you need any further information. Each year, your benefit statement will show your surcharge debt and any transactions on your account (e.g. interest, payments and new assessments). Option 2 Let the debt grow and pay it later when you receive your benefit If you do nothing your surcharge debt will be held against your superannuation benefit and, in most cases, deducted when you first make a withdrawal or rollover from your account. At 30 June each year, interest will be added to this debt at the Commonwealth Government 10-year Treasury bond rate (3.76% as at 30 June 2013). QSuper is required to add interest as if that debt existed for the whole year. This means you will be charged interest for the whole year, even if the debt had applied for less than a year. A surcharge debt will be deducted before most QSuper pensions start. This includes QSuper State or Police accounts, the QSuper Income account, or total and permanent disability pensions. Option 3 Let the surcharge debt grow and make voluntary contributions from your after-tax income Instead of paying off your debt, you can deposit a non-concessional (after tax) voluntary contribution equivalent to the amount of your debt into QSuper in an investment option of your choice that offers higher returns than the rate of interest charged on the debt. Non-concessional contributions are capped at $150,000 in a financial year. When your benefit becomes payable (at which time the surcharge debt and interest would also need to be paid), the voluntary contribution and investment returns can be indirectly offset against the debt. Depending on your investment option, the return on your voluntary contribution may be higher than the interest charged on your debt over the long term. This is because the interest is charged at the 10-year Treasury bond rate, which is a fixed interest investment that produces steady returns over the long term. Option 4 Make a QSuper spouse contribution from after-tax income to indirectly offset the debt If you have a spouse who has a low superannuation balance, you might choose to make a spouse contribution to indirectly offset the debt, and take advantage of the 18% spouse offset for the first $3,000 paid each year. The maximum offset applies only if your spouse earns less than $10,800 in the financial year and cuts out for incomes above $13,800. Option 5 Your spouse makes an after-tax contribution to their account to indirectly offset your debt If your spouse makes a personal after-tax contribution to their own account to indirectly offset your surcharge debt, they may also be eligible for a super co-contribution from the Commonwealth Government. For more information on spouse contributions, other after-tax contributions, super co-contributions, and contribution limits, see our Personal Contributions Guide, or the product diclosure statement for the Accumulation account. Important note for options 3, 4 and 5 after-tax contributions It is important to remember if you make contributions from after-tax income, you have already paid tax on this money at your marginal tax rate. If you are on the highest marginal tax rate, you may have paid 46.5% (including Medicare levy of 1.5%) tax on this money. These contributions will remain tax-free when you withdraw them, but you need to consider whether this strategy is best for you and take into account the contribution limits. See QSuper s Personal Contributions Guide for more details. Superannuation Surcharge Guide December

6 What are my options? What if I withdraw my QSuper benefit? If QSuper receives an assessment from the ATO after you have fully withdrawn your QSuper benefit, the assessment will be sent back to the ATO for them to forward to you. You will then be personally liable for the payment. If you rolled over your benefit to another complying superannuation fund, the other superannuation fund will be sent the surcharge assessment. When does the surcharge debt have to be paid? Generally, your surcharge debt must be paid when you make your first withdrawal from QSuper. The account is reduced by your debt before any tax is assessed. It is important to note the debt is paid before your benefit is taxed. There will be no tax on super taken from age 60. Example Superannuation at retirement $100,000 Less surcharge debt with interest $10,000 Superannuation benefit to be taxed $90,000 (if applicable) If your spouse makes a personal after-tax contribution to their own account to indirectly offset your surcharge debt, they may also be eligible for a super co-contribution from the Commonwealth Government. 6 Superannuation Surcharge Guide December 2013

7 Need more information? Making the choice Each option has advantages and disadvantages, depending on your personal circumstances. You should consider seeking personal financial advice from a qualified financial adviser to best handle your surcharge debt. Seeking professional superannuation and financial planning advice? You can access competitively priced financial advice from QInvest 1 on a range of topics covering superannuation, retirement planning, wealth creation, salary packaging, and personal life insurance. QInvest is wholly owned by the QSuper Board of Trustees. You can contact QInvest by phoning , or visit their website at qinvest.com.au. Need more information? We re committed to making it easier for you to understand your options, so you can feel confident you are making the right choices for your super. If you have any questions about this guide, or your super in general, call us or visit our website for useful information, tools and calculators. Or write to us at: QSuper GPO Box 200 BRISBANE QLD 4001 qsuper.qld.gov.au QInvest Limited (ABN , AFSL and Australian Credit Licence number ) (QInvest) is ultimately owned by the QSuper Board (ABN ) as trustee for the QSuper Fund (ABN ), and is a separate legal entity which is responsible for the financial services and credit services it provides. Superannuation Surcharge Guide December

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9 Surcharge Debt Payment Please refer to the additional information about the form on the back page. Please complete in dark blue or black ink. Please write in capital letters. What do I use this form for? Complete this form if you want to make a payment on your surcharge debt. Part A Personal details Mr/Mrs/Ms/Miss/Dr Surname Given names Address Unit number/street number/street name/po Box Suburb/Town/Locality State Postcode Date of birth (dd/mm/yyyy) Previous surname1 Phone number (home) Phone number (work) Phone number (mobile) address 1 If your name has changed since you last had contact with QSuper, please contact us for information on the additional documents you will need to provide. Part B Account details Account number Payment amount $,. You can find your account number on your benefit statement. Part C Authorisation Signature Date Continued over page 9/2

10 Surcharge Debt Payment continued Additional information about this form You can make payments by cheque, money order or EFTPOS. Cheques or money orders should be made payable to QSuper. For more information about the superannuation surcharge, you can download a copy of the QSuper Superannuation Surcharge Guide from our website, or call us and we will send you a copy. Contact Centres 70 Eagle Street Brisbane and 63 George Street Brisbane Telephone ( if overseas) Monday Friday 8.30am to 5.00pm AEST Postal address GPO Box 200 Brisbane Qld 4001 Fax (07) Website qsuper.qld.gov.au ABN: SFN: /13 FO30 This form is issued by the Board of Trustees of the State Public Sector Superannuation Scheme (ABN ) (QSuper Board). All products are issued by the QSuper Board as trustee for the QSuper Fund (ABN ). The privacy of your personal information is important to us. QSuper Limited (ABN , AFSL ) is collecting this information on behalf of the QSuper Board to administer your superannuation account. This is authorised under the Superannuation (State Public Sector) Act This information may be disclosed to your employer, authorised service providers (e.g. external insurers), other superannuation funds and government departments or agencies. QSuper may also disclose this information to third parties if it is necessary in providing our products and services to you, or you have consented to the disclosure, or disclosure is required by law. If you would like further information about our privacy policy, you can download QSuper s Your Privacy factsheet from our website. Alternatively, call us and we ll send you a copy. 2/2 QSuper Board of Trustees 2013

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12 Contact Centres 70 Eagle Street Brisbane 63 George Street Brisbane Ph ( if overseas) Fax ( if overseas) Monday to Friday 8.30am to 5.00pm AEST GPO Box 200 Brisbane Qld 4001 qsuper.qld.gov.au IB /2013