The compliance costs of the superannuation surcharge tax

Abstract

The Superannuation Surcharge Tax (SST) is a hidden tax, with significant effects on (so-called) higher income taxpayers. The SST was introduced in August 1996, and, according to the Australian Taxation Office, 'is intended to limit the concessionality of employer and deductible personal superannuation contributions for high income earners'. For the 2000/01 year it is levied at a rate of up to 15% on the surchargeable contributions of fund members whose adjusted taxable income exceeds the surcharge threshold of $81,493. This paper investigates the compliance costs on the industry. Other aspects such as SST start-up costs and industry attitudes are also assessed for the year 2000/01. Findings are based on an in-depth, quantitative and qualitative survey of 40 fund managers and administrators who appreciated the value of this research and sacrificed their time to provide us with data. Respondent funds account for 6.5% of superannuation fund members in Australia (the ?fund member population?) and 3.8% of superannuation assets in Australia (the ?fund asset population?).SST (recurrent) compliance costs are falling over time, from an estimated $691 pa per SST member in 1997/98 to $140 pa per SST member in 2000/01 (mean estimate). The authors are reluctant to make aggregate compliance cost estimates essentially because of the very small number of funds providing compliance cost data. However, given this caveat and the usual qualifications found in most compliance cost studies, estimated gross recurrent compliance costs of the SST are very tentatively and conservatively estimated at $76 million for 2000/01, representing around 11% of SST tax revenue of $699 million (ATO data). It must be emphasised that this estimate is derived from the median estimate of $84 per SST member from relatively larger superannuation funds that theoretically should have lower compliance costs per SST member than smaller funds. Further, and tending to lower SST compliance costs expressed as a percentage of tax revenue, SST revenue has been forecast to rise to around $820 million in 2001/02 and 2002/03.The superannuation industry, professional, tax and accounting bodies, and specialists in the field are all overwhelmingly critical of the SST for a variety of reasons, particularly eits inefficiency, high compliance costs and inequity (because SST compliance costs are spread over all fund members). Around 80% of survey responses indicated industry support for the abolition of the SST to be given a high priority status.The fundamental conclusion of this research is that SST should be abolished at the earliest opportunity. The major reasons are its: inefficiency; high compliance costs; inequity in practice between superannuation fund members; and particularly its lack of transparency within the overall income tax system.