ATO Interpretative Decision
ATO ID 2017/1 (Withdrawn)
SuperannuationSuperannuation Guarantee: payment of advance under the Fair Entitlements Guarantee Act 2012
ATO ID 2017/1 is withdrawn, and is replaced by SGD 2017/1 Superannuation guarantee: is an advance paid under section 28 of the Fair Entitlements Guarantee Act 2012 to a former employee 'salary or wages' paid by the employer to the employee for the purposes of working out a superannuation guarantee charge liability under the Superannuation Guarantee (Administration) Act 1992?This document has changed over time. View its history.
Status of this decision: Decision withdrawn 19 April 2017.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Is the advance paid under section 28 of the Fair Entitlements Guarantee Act 2012 (FEG Act) to a former employee of the employer - being a company in liquidation - 'salary or wages paid by an employer to an employee' for the purposes of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?
Yes. The advance paid under the FEG Act to a former employee of an employer represents 'salary or wages paid by an employer to an employee' for the purposes of the SGAA.
Consequently, if as a result of the payment of the advance, an individual superannuation guarantee shortfall arises and superannuation guarantee charge becomes payable, the employer is liable to pay such charge. No other party involved in the payment process has any personal liability to pay a superannuation guarantee charge in respect of the advance.
In the particular case in question, the advance was paid indirectly to the former employee by the Department of Employment via an officially contracted third party. The answer to this issue would be the same though had the advance been paid indirectly to the former employee by the Department of Employment via a liquidator or bankruptcy trustee of the employer, or been paid directly to the former employee by the Department of Employment.
The employer company became insolvent and a liquidator was appointed.
One of the effects of the liquidation was the termination of the employment of an employee of the employer.
At the date of liquidation, the employer owed the employee amounts for unpaid wages, unpaid annual leave and unpaid long service leave.
The employee made a claim with the Department of Employment for their entitlements for unpaid wages, unpaid annual leave and unpaid long service leave under the FEG Act.
The primary objective of the FEG Act is to provide a scheme for the provision of financial assistance (called an 'advance') to former employees where the end of their employment is linked to the insolvency or bankruptcy of their employer.
The employee's claim for assistance was accepted by the Department of Employment, and the decision was made to pay an advance to the employee via an officially contracted third party (being an accounting firm).
The Department of Employment paid the advance to the third party. After withholding PAYG tax, the third party forwarded the balance of the advance to the employee.
No superannuation contributions were made by or on behalf of the employer for the benefit of the former employee in respect of the quarter in which the advance was paid.
Reasons for Decision
'On behalf of'
Subsection 6(3) of the SGAA states that, for the purposes of the SGAA:
a reference to salary or wages paid by an employer to an employee includes a reference to a payment made on behalf of the employer.
According to the House of Representatives' Supplementary Explanatory Memorandum (EM) to the Superannuation Guarantee (Administration) Bill 1992, the purpose of adding subsection 6(3) to the Bill was to ensure that salary or wages paid by another person on behalf of the employer were taken into account for the purposes of the superannuation guarantee legislation. The Supplementary EM states that if subsection 6(3) was not present, the SGAA would only account for salary or wages paid 'by' the employer and may not consider salary or wages paid by another person 'on behalf of' the employer.
The phrase 'on behalf of' in subsection 6(3) is not defined in the SGAA. Therefore, it should be given its ordinary and natural meaning taking into account its context in the SGAA. The Macquarie Dictionary (Sixth Edition, 2013) defines 'on behalf of' as 'as a representative of' and 'in the interest of; in aid of'.
The phrase 'on behalf of' was judicially considered in R v. Portus; Ex parte Federated Clerks Union of Australia (1949) 79 CLR 428 where a question arose before the High Court as to whether, within the union's rules, a corporation which employed certain persons did so 'on behalf of' the Government of the Commonwealth. The High Court held that the employees in question were so employed. Thus Latham CJ remarked (at CLR 435):
...The expression 'on behalf of the Crown' is not an expression which has a strict legal meaning. An agent who acts on behalf of a principal can, within the limits of his authority, bind the principal by employing a person on his behalf so that that person becomes the employee of the principal. But the words "on behalf of the Crown" in the rules of the organisation evidently mean something less than 'as agent for the Crown' in the legal sense.
To similar effect was the opinion of Dixon J (at CLR 438):
...plainly the rule of the Federation when it uses the words 'on behalf of' is not contemplating the legal relation of principal and agent. The language as well as the context and subject matter shows that. For the rule speaks of the employees of the person or corporation who employs persons on behalf of the Commonwealth. The person or corporation is the employer, the principal in the contract of service. The employer is not the Crown or Government. The expression "on behalf of" is used in a wider sense. It means for the purposes of, as an instrument of, or for the benefit and in the interest of, the Commonwealth.
The decision was approved and applied by the High Court in R v. Toohey; Ex parte Attorney-General for the Northern Territory (1980) 145 CLR 374. The question there was the meaning of paragraph 50(1)(a) of the Aboriginal Land Rights (Northern Territory) Act 1976 (Cth) which provided that the Aboriginal Land Commissioner was to hear applications made 'by or on behalf of Aboriginals claiming to have a traditional land claim to an area of land...in which all estates and interests not held by the Crown are held by, or on behalf of, Aboriginals'. By majority, the High Court held that the land in question in the case was held 'on behalf of' Aboriginals within the meaning of the Act. In the majority opinion of Stephen, Mason, Murphy and Aickin JJ, after reference to R v. Portus; Ex parte Federated Clerks Union of Australia, their Honours stated (at CLR 386):
The phrase 'on behalf of'... bears no single and constant significance. Instead it may be used in conjunction with a wide range or relationships, all however in some way concerned with the standing of one person as auxiliary to or representative of another person or thing... It may be used when speaking of an agency relationship, but also of some quite ephemeral relationships, such as that which exists between a party to litigation and the witness he calls, a witness "on behalf of" the defence. ... Context will always determine to which of the many possible relationships the phrase "on behalf of" is in a particular case being applied; "the context and subject matter" (per Dixon J in the Federated Clerks' Case (1949) 79 CLR, at 438) will be determinative.
Thus, when interpreted in the context of the SGAA, the phrase 'on behalf of' in subsection 6(3) of the SGAA has a wide meaning. It may be used in conjunction with a wide range of relationships (including, but not limited to, the legal relationship of principal and agent), all however are in some way concerned with the standing of the person paying the salary or wages for the benefit and in the interest of, or as representative of, the employer.
As alluded to earlier, the FEG Act is intended to provide a basic payment scheme for certain unpaid employee entitlements when the employee's employer has been subject to an insolvency event such as liquidation and there are insufficient funds or assets available to the employer to pay those entitlements, or no other source of funds is available to pay those entitlements. By paying those entitlements via an advance, it is considered that the Department of Employment is making the payment for the benefit of or in the interest of the company in liquidation.
The fact that it is not the company which authorises the Department of Employment to pay the advance, (that is, there is no agency relationship between the company and the Department of Employment) and the fact that it is paid via a third party such as an accounting firm, does not affect this conclusion. Therefore, the payment in this scenario falls within the scope of subsection 6(3) of the SGAA as being a payment made 'on behalf of' the employer.
'Salary or wages'
Before the characteristics of 'salary or wages' are considered, it is worth noting the effect of section 15B of the SGAA. Section 15B is contained within Part 3 of the SGAA, being the Part of the Act under which the amount of the employer's superannuation guarantee shortfall for the relevant quarter is calculated (and on which the superannuation guarantee charge is imposed). Section 15B explains:
This Part applies to salary or wages paid to, and contributions for the benefit of, a former employee as if the former employee were an employee of the person who was the former employee's employer.
As such, the fact that the case at hand involves a former employee rather than a current employee is not a distinguishable consideration in itself.
In terms of what constitutes 'salary or wages', a payment that falls within the ordinary meaning of salary or wages will constitute 'salary or wages' for the purposes of the SGAA under section 11.
If paid by an employer, the types of employee entitlements in respect of which the advance was paid would have been 'salary or wages' for the purposes of the SGAA, as discussed in Superannuation Guarantee Ruling SGR 2009/2. The Ruling however does not examine whether such payments retain their nature as salary or wages when paid in the form of an advance under the FEG Act.
In considering this aspect, it is noted that in Deputy Commissioner of Taxation v. Applied Design Development Pty Ltd (In Liq)  FCA 205 (Applied Design), the Federal Court held that a priority payment, made under paragraph 556(1)(e) of the Corporations Act 2001 to a former employee who had proved a debt for wages, retained its character as salary or wages within the ordinary meaning of that term and was therefore salary or wages for the purposes of section 12-35 of Schedule 1 to the Taxation Administration Act 1953. The Court looked to the fact that the underlying cause for the payment (of a dividend) was the services rendered by the former employee to the company prior to its liquidation. It was held that the nature of the payment remained unaltered by the liquidation process.
Similarly, the definition of 'salary or wages' in the SGAA relies in part on its common law meaning, and therefore the payment of a dividend would also constitute salary or wages for the purposes of the SGAA.
In the same way, an advance which is paid to a former employee of a company in liquidation also constitutes salary or wages within the ordinary meaning of those terms. Like the payment of the dividend, the payment of the advance was made in consideration of the services rendered by the former employee to the company prior to the company entering into liquidation.
The fact that the salary or wages debt owed by the company to the former employee is not extinguished at the time the advance is paid to the former employee by the third party provider, does not affect the conclusion that the advance constitutes 'salary or wages' within the ordinary meaning of that term. As stated by Mansfield J in Applied Design (paragraph 25):
A debt comprised of owed wages is ordinarily enforceable pursuant to a personal contractual right in an employee against an employer. However, the right to recover as a debt salary or wages owing is not an essential element of the ordinary meaning of the word "salary" or the word "wage". Whether the debt is enforceable pursuant to a personal contractual right, or whether the eventual payment of the debt is made pursuant to a statutory right to participate in the winding up of the company, the nature of the payment as a payment in respect of services rendered by an individual to an employer may nevertheless be unaltered.
The advance (that is, the whole amount of the advance - not just the net amount received by the former employee after PAYG tax was withheld) therefore constitutes 'salary or wages' for the purposes of the SGAA.
In the circumstances of this case, as no superannuation contributions were made by or on behalf of the employer for the benefit of the former employee in respect of the quarter in which the advance was paid - and as the advance constitutes salary or wages for the purposes of the SGAA and was paid to the former employee on behalf of the employer - there arises a superannuation guarantee charge for which the employer is liable to pay.
Section 16 of the SGAA states that the superannuation guarantee charge is payable by the employer. This obligation does not change under the liquidation process. There is no provision in the SGAA imposing any personal liability upon a liquidator or other external administrator for payment of the superannuation guarantee charge out of its own funds.
Note: a liability to the superannuation guarantee charge in this case would not have arisen had the required amount of superannuation contributions been made by or on behalf of the employer for the benefit of the former employee to an appropriate destination by the relevant due date.
In calculating the required amount of superannuation contributions which would have prevented a superannuation guarantee charge from arising, regard is had to the former employee's 'ordinary time earnings' rather than their 'salary or wages'.
To that extent, only the amount of the advance representing unpaid wages would have been relevant for such a calculation, as unpaid annual leave payments and unpaid long service leave payments - when paid on termination of employment - are specifically excluded from the definition of 'ordinary time earnings' by sub-subparagraph (a)(i)(B) of that definition within subsection 6(1) of the SGAA.
See Outline section of the Explanatory Memorandum to the Fair Entitlements Guarantee Bill 2012
See ATO Interpretative Decision ATO ID 2008/26
Year of income: Year ended 30 June 2013 onwardsAboriginal Land Rights (Northern Territory) Act 1976 (Cth)
paragraph 50(1)(a) Corporations Act 2001
paragraph 556(1)(e) Fair Entitlement Guarantee Act 2012
section 28 Taxation Administration Act 1953
section 12-35 of Schedule 1
Deputy Commissioner of Taxation v. Applied Design Development Pty Ltd (In Liq)
 FCA 205
(2002) 2002 ATC 4193
(2002) 49 ATR 196
(1949) 79 CLR 428 R v. Toohey; Ex parte Attorney-General for the Northern Territory
(1980) 145 CLR 374
Related Public Rulings (including Determinations)
Superannuation Guarantee Ruling SGR 2009/2
ATO ID 2008/26
ATO ID 2015/13 (withdrawn)
ATO ID 2015/14 (withdrawn)
ATO ID 2015/15 (withdrawn)
Supplementary Explanatory Memorandum to the Superannuation Guarantee (Administration) Bill 1992
Explanatory Memorandum to the to the Fair Entitlements Guarantee Bill 2012
Macquarie Dictionary, 6th edition 2013