Edited version of private advice

Authorisation number: 1052251874978

Date of advice: 23 May 2024

Ruling

Subject: Foreign superannuation

Question

Are director's fees paid by an Australian resident employer to a non-resident Non-Executive Director (NED) in respect of duties physically performed outside of Australia fall within section 27(b) of the Superannuation Guarantee (Administration) Act 1992 (SGAA) and be excluded from salary and wages for the purposes of SGAA?

Answer

Yes.

This advice applies for the following periods:

Year ending 30 June 20YY

Year ending 30 June 20YY

Year ending 30 June 20YY

Year ending 30 June 20YY

Year ending 30 June 20YY

The scheme commences on:

1 July 20YY

Relevant facts and circumstances

The Employer is an Australian resident entity that currently engages a foreign-based Non-Executive director (NED) who was appointed to the board of directors of the company in 20XX.

The NED is a resident of a foreign country.

The NED is considered a non-resident of Australia for taxation purposes.

The duties carried out by the NED include activities which are performed both in Australia and outside of Australia.

Director fees are paid to the NED by the Employer on a fortnightly basis.

Duties physically performed by the NED in Australia include:

•         Attendance at board meetings (approximately 5-6 times per calendar year).

Work activities physically performed by the NED outside of Australia include:

•         Reviewing board papers

•         Attending board teleconferences

•         Board strategy tours

•         Offsite visits to subsidiaries located outside of Australia.

The fortnightly payments for the director fees relate to all activities performed by the NED, regardless of where they are physically performed.

The Employer purposes to determine the number of days the NED physically attended board meetings within Australia for Superannuation Guarantee purposes.

Relevant legislative provisions

Superannuation Guarantee (Administration) Act 1992 section 15C

Superannuation Guarantee (Administration) Act 1992 section 27(1)

Social Security (International Agreements) Act 1999 section 5

Reasons for decision

The SGAA requires that an employer must provide the required minimum level of superannuation support each quarter for its eligible employees.

The term 'employee' is defined in section 12 of the SGAA. Under subsection 12(2), employee includes A person who is entitled to payment for the performance of duties as a member of the executive body (whether described as the board of directors or otherwise) of a body corporate is, in relation to those duties, an employee of the body corporate.

When an employer fails to make a minimum level of superannuation support for their employees by the due date, they are required to lodge a Superannuation Guarantee Charge Statement (SGC) and pay the SGC. The shortfall component of the SGC is calculated according to the formula detailed in section 19 of the SGAA, it is the required superannuation support percentage times employee's quarterly salary or wages.

General Exclusions

Section 27(1) of the SGAA provides that certain salary and wages are not to be taken into account for the purpose of making a calculation under section 19 of the SGAA.

The expression 'work done outside Australia' is used in paragraph's 27(1)(b) and 27 (1)(c) of the SGAA.

Paragraph 27(1)(b) of the SGAA relevantly refers to:

Salary and wages paid to an employee who is not a resident of Australia for work done outside Australia (except to the extent that the salary or wages relate to employment covered by a certificate under section 15c)

Work done outside Australia

In ATO ID 2012/75: superannuation guarantee; work done outside Australia, the Commissioner reviewed what constitutes 'Australia' as expressed in paragraph 27(1)(b) of the SGAA.

ATO ID 2012/75 concluded that:

In the phrase 'work done outside Australia' as used in subsection 27(1)(b) of the SGAA, 'Australia' is used in a geographical sense and extends to the outer limits of Australia's 'coastal sea'.

Further 'Australia' in that phase also includes the Territory of Cocos (Keeling) Islands, the Territory of Christmas Island, the 'coastal sea' of each of those Territories, and the Joint Petroleum Development Area.

Work done outside those areas, is 'work outside Australia' for the purposes of section 27(1)(b) of the SGAA.

You have advised that the work done outside Australia by the NED is carried out in XXXX and Employer subsidiaries outside of Australia.

Employment covered by a certificate under section 15C of the SGAA

A scheduled international social security agreement (as defined in section 5 of the Social Security (International Agreements) Act 1999) addresses the problem of double coverage of employees. This can occur where an employee is sent to work temporarily in another country and their employer is required to make superannuation contributions for them under the legislation of both countries. To overcome that problem, Australia has entered into scheduled international social security agreements with other countries, which have the effect that only the home country ' s superannuation scheme will apply.

Section 15C of the SGAA sets out the procedures for the application and issue of a certificate of coverage where a scheduled international social security agreement applies. Where an Australian employee is sent to work in a foreign country, an exemption from that country' s compulsory superannuation arrangements is only available if the employee remains covered by Australia's SGAA while working overseas. To qualify for the exemption, the employer must apply to the ATO for a "Certificate of Coverage".

Australia currently has 31 bilateral agreements.

The employment with the NED is not covered by a Certificate of Coverage under section 15C of the SGAA.

In your case

The NED is considered an employee of the Employer, a minimum superannuation is required for the NED unless one of exclusion applies under section 27 of SGAA.

You have advised that the NED is a non-resident for taxation purposes and resides permanently in another country, with which they are a resident.

You have stated that the work done outside Australia by the NED is outside of the coastal seas of Australia and that the NED is a non-resident for taxation purposes.

You have advised that the NED is required to attend board meetings within Australia 5-6 times a year. The meetings will last approximatively 6-7 days each time. All other duties are performed in the NED's resident country or other Employer subsidiaries outside of Australia.

You stated for the work carried out within Australia, the portion of directors fees that relate to these days will be considered salary and wages for Superannuation Guarantee purposes.

Work performed by the NED outside Australia meets the definition of 'work done outside Australia' under paragraph 27(1)(b) of the SGAA. The salary or wages paid to the NED do not relate to employment covered by a certificate under section 15C of the SGAA (concerning international social security Agreements). Therefore, exclusion under paragraph 27(1)(b) of SGAA applies.

Accordingly, salary or wages paid to the NED are not to be taken into account for the purpose of making a calculation under section 19 of the SGAA.