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Edited version of private advice
Authorisation Number: 1051932206400
Date of advice: 17 December 2021
Subject: Reportable employer superannuation contributions
Do employees have the 'capacity to influence' the size or amount of the additional employer contributions under the enterprise agreements, for the purpose of those contributions meeting the definition of reportable employer superannuation contributions under section 16-182 of Schedule 1 to the Taxation Administration Act 1953 (TAA)?
This ruling applies for the following period:
1 July 20XX to 30 June 20XX
Relevant facts and circumstances
The Employer's employees are covered under the terms of collectively negotiated Enterprise Agreements (EA).
The Employer is required to contribute superannuation contributions for employees at the legislated rate of 9.5% under the EA.
The Employer makes additional super contributions for employees in accordance with:
• an employee's EA
• the company superannuation policy.
Under this company policy, additional superannuation guarantee payments will be made for an employee where they choose to voluntarily contribute at least 5% of their salary into their superannuation.
The relevant EA's also require additional superannuation contributions to be paid by the Employer where voluntary superannuation contributions are made by the employee.
An employee's voluntary contribution is made from their pre-tax salary and the employee must request to set-up this salary sacrifice arrangement.
Relevant legislative provisions
Taxation Administration Act 1953, Schedule 1, section 16-182
Income Tax Assessment Act 1997 section 995-1
Other relevant documents
Explanatory Memorandum to the Tax Laws Amendment (2011 Measures No. 4) Bill 2011
Reasons for Decision
Reportable employer superannuation contributions (RESC) are assessed as income in determining eligibility for a range of means-tested government assistance programs in the tax and transfer system.
RESC is defined under subsection 16-182(1) of Schedule 1 to the TAA and includes an amount contributed by an employer for an individual to a superannuation fund to the extent that the individual has, or might reasonably be expected to have, the 'capacity to influence':
• the size of the amount, or
• the way the amount is or will be contributed so that his or her assessable income is reduced.
The contributions will typically be those made under effective 'salary sacrifice' arrangements. However, the definition also includes other contributions made for an individual's benefit that the individual has the capacity to influence.
However, an amount is not RESC to the extent that it is included in the individual's assessable income for the income year (subsection 16-182(2) of Schedule 1 to the TAA).
An individual is not considered to have the capacity to influence the size of the amount where an employer is required to make the contributions under an 'industrial instrument' or the rules of a superannuation fund, and the individual did not have the capacity to influence the content of that instrument or those rules (subsection 16-182(5) of Schedule 1 to the TAA).
The term 'industrial instrument' means an Australian law or an award, order, determination or industrial agreement in force under an Australian law (section 995-1 of the Income Tax Assessment Act 1997).
The Explanatory Memorandum (EM) to the Tax Laws Amendment (2011 Measures No. 4) Bill 2011 clarifies that RESC are employer contributions to superannuation in addition to what is provided for under an industrial instrument or the rules of a superannuation fund and the employee had or has the capacity to influence the content of that requirement (clauses 4.17, 4.18).
In this case, employees are employed under collectively negotiated EAs that meet the definition of an 'industrial instrument'. The Employer makes superannuation guarantee contributions at the legislated rate of 9.5% under the EAs. In accordance with the EAs, the Employer is required to make additional employer contributions where an eligible employee makes voluntary superannuation contributions of 5% of their annual salary.
It may be argued that the election available to eligible employees to make voluntary contributions, with a view to receiving additional employer contributions, is considered a capacity to influence the size of their employer contribution.
The intent of the legislation (as per the EM) is that RESC will include employer superannuation contributions that are 'in addition to' what is provided for under an industrial instrument or fund rules.
Example 4.4 of the EM provides following example of what is not RESC:
Thomas is an employee of MHT Pty Ltd (MHT). Thomas' employment conditions are governed by an enterprise agreement that was negotiated between MHT and workplace and union representatives. Thomas was not involved in the negotiations and had no involvement in the preparation of the enterprise agreement, aside from voting on it. The terms of the enterprise agreement provide that MHT will make an additional 0.75 per cent, 1.75 per cent or 2.75 per cent employer contribution if Thomas elects to contribute 3 per cent, 4 per cent or 5 per cent of his salary as a personal after-tax
contribution. Thomas elects to contribute a 5 per cent personal after-tax contribution. MHT makes an additional 2.75 per cent contribution as required.
None of the amount MHT contributes is considered a reportable employer superannuation contribution as the additional 2.75 per cent contribution is required to be made under an Australian law, being the enterprise agreement entered between MHT and its employees. None of Thomas' personal after-tax superannuation contributions are reportable employer superannuation contributions as they are made from his assessable income.
The example above is similar to the Employer's case. The Employer has a requirement under the EA to provide additional contributions where an employee makes a superannuation contribution. Individual employees are not in a position to influence the drafting of contribution rules in the EA. These rules are determined via processes involving employer and employee bargaining representatives.
As an employee has no capacity to influence the content of the requirement for the additional contribution to be made or the size of the contribution, it is considered that the additional contribution from the Employer does not satisfy the requirements of section 16-182 of Schedule 1 to the TAA and will not meet the definition of RESC.
It should be noted that the employee's voluntary minimum contribution, that enables the additional Employer contribution to be made, is classed as RESC. This is due to the contribution being made under an effective salary sacrifice arrangement that reduces the employee's assessable income.