Defined benefit funds and employer superannuation contribution tax (ESCT)
2012 legislative change allows employers making superannuation cash contributions to a benefit fund to deduct contribution tax at a rate of 0.33 cents.
Section RD 67 of the Income Tax Act 2007
A change has been made to the Income Tax Act 2007 to allow employers making employer's superannuation cash contributions to a defined benefit fund to deduct employer's superannuation contribution tax (ESCT) at a rate of 0.33 cents.
The Taxation (Annual Rates and Budget Measures) Act 2011 removed the ESCT flat rate of 0.33 as a default rate from 1 April 2012. Instead ESCT must be deducted at an ESCT rate based on an employee's annual salary or wages and employer contributions.
However for superannuation schemes which operate on a principle of unallocated funding, like defined benefit schemes, employer's superannuation cash contributions may not be attributed for the benefit of any particular employee. This can make it impractical for employers to determine the appropriate ESCT rate, as they cannot link contributions with particular employees' annual salary or wages and employer contributions.
Section RD 67 of the Income Tax Act has been amended to provide employers with the option of an ESCT rate of 0.33 cents, but only for employer's superannuation cash contributions paid to a defined benefit fund.
The amendment applies from 1 April 2012, being the date the current default ESCT rate is removed.