Number 56 - 13 November 2000

Superannuation Fund Withdrawal Tax

The Taxation (FBT, SSCWT and Remedial Matters) Bill received its third reading on 25 September 2000. The intention of this legislation is to ensure that taxpayers do not misuse superannuation schemes to avoid the payment of tax at the new rate of 39% and it applies from 14 September 2000.

The legislation means:

• SSCWT, the witholding tax on employer contributions to schemes remains at 33% unless the employee elects to move to 39%, and

• In certain circumstances, some or all of the withdrawal benefits paid from this scheme will be liable to a tax of 5%, which is referred to as the Superannuation Fund Withdrawal Tax (SFWT).

The exemptions from liability to SFWT are so wide as to make the payment of the tax virtually voluntary. The legislation has no effect on any contributions or returns in this or any other superannuation scheme as at 31 March 2000 and there is no SFWT liability in respect of any benefits arising from these contributions. As well there is no SFWT liability in respect of contributions made on the same basis as applied before 01 April 2000, or in respect of increases in contributions of up to 50%. It should be noted that the Trust Deed of this scheme does not currently permit increases in contributions that would trigger any SFWT liability.

In the case of new members joining this scheme after 01 April 2000 SFWT applies to all withdrawals unless the member is covered by one of the following exemptions, which also apply to those who were members before 01 April 2000 where:

• The member has earned less than $ 60 000 in each of the last four years. This exemption also applies pro rata. If the member earned over $ 60 000 in one of the four years there would be a SFWT liability on 25% of the benefit arising from employer contributions,

• The member is suffering significant financial hardship as set out in the Act,

• The monies are being paid for a matrimonial property settlement,

• The member is partially retiring, reducing the number of hours worked to 30 or fewer and contributions to the scheme have ceased,

• The member is leaving service and has been a member of the scheme for at least two complete years,

• The benefit is used to purchase an annuity for life or a minimum ten year term,

• The monies are withdrawn to meet the costs of the scheme's administration or premiums for death, disability and health benefits,

• The withdrawal benefit is a benefit payable on death, disability or injury,

• The member retains benefits in the scheme for at least two years after leaving service,

• The benefit is transferred to a new scheme, or

• The benefit arises from a member's personal contributions.

The legislation means the scheme's Investment Statement and 'Cessation Advice and Discharge' form, which is the form every member must complete prior to being paid a benefit from the scheme, will have to be altered in the near future and the scheme's Prospectus will have to be re-registered by 14 September 2001. Members will be advised in future editions of Supernews when these occur.

Any members with any questions related to this matter should contact the scheme at one of the addresses set out below.

BARRY DENT

SCHEME SECRETARY

Please note that the IRD information has not been copied to this page as it has been posted to all members at their last advised postal address.