ATO Interpretative Decision

ATO ID 2002/738 (Withdrawn)

Superannuation

• This ATO ID is withdrawn and has been replaced by ATO ID 2015/18 on the basis that it updates an obsolete legislative reference and it provides further detailed information explaining the operation of the law.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

If an employee is not included in a class of employees specified in the benefit certificate, can the employer use the defined benefit superannuation scheme to satisfy the employer's obligations for that employee under the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Decision

No. An employee must be included in a class of employees specified in the benefit certificate, for contributions made by an employer on behalf of that employee to the defined benefit superannuation scheme to satisfy the employer's obligations for that employee under the SGAA.

Facts

A defined benefit superannuation scheme has benefit certificate in effect.

The defined benefit superannuation scheme provides members with a benefit consisting of two components.

The benefit certificate specifies the minimum requisite benefit provided for members and states that one of the components of the benefit is provided for all members in a class of membership.

The employer does not pay contributions to the defined benefit superannuation scheme in respect of an employee for the component of the benefit that is stated in the benefit certificate to be provided in respect of all members in a class of membership.

The defined benefit superannuation scheme does not provide the component of the benefit in respect of an employee, where the employer has not paid the relevant contributions.

The employer does pay contributions to the defined benefit superannuation scheme in respect of an employee for the component of the benefit that is stated in the benefit certificate to be provided for only some members in a class of membership.

Reasons for Decision

Under subsection 22(2) of the SGAA the superannuation contributions paid by the employer to a defined benefit superannuation scheme will only reduce the superannuation guarantee charge payable for that employee provided:

'(a)

a benefit certificate in relation to one or more complying superannuation schemes has effect for the whole or part of a contribution period; and

(b)

a scheme in relation to which the certificate has effect is operating for the benefit of a person as an employee of an employer; and

(c)

the certificate specifies a figure as the notional employer contribution rate in relation to a class of employees (being a class that includes the employee referred to in paragraph (b)) as members of the scheme or schemes (as the case may be);'

If these conditions are satisfied, then subsection 22(2) of the SGAA goes on to specify how the charge percentage that the employer would otherwise incur in respect of a particular employee is reduced.

Subsection 10(1) of the SGAA defines a benefit certificate as follows:

'A benefit certificate is a certificate by an actuary relating to one or more specified defined benefit superannuation schemes and specifying the rate, expressed as a percentage, that is, in the opinion of the actuary, the notional employer contribution rate, in relation to a specified class of employees (being members of the scheme or schemes, as the case may be), of an employer who is a contributor under the scheme or schemes (as the case may be) for the benefit of an employee in that class.'

Actuary and defined benefit superannuation scheme are defined in section 6 of the SGAA.

Notional employer contribution rate is defined in subsection 10(2) of the SGAA:

'The notional employer contribution rate, in relation to a class of employees specified in a benefit certificate relating to one or more defined benefit superannuation schemes, is the contribution rate required to meet the expected long-term cost, to an employer who contributes to the scheme or schemes for the benefit of employees in the class, of the minimum benefits accruing in respect of all employees in the class from the date of effect of the benefit certificate onwards.'

Regulation 5 of the Superannuation Guarantee (Administration) Regulations 1993 specifies how the notional employer contribution rate for a class of employees in a defined benefit superannuation scheme who are being provided with an accumulation benefit in respect of their minimum requisite benefit should be calculated, as follows:

'If, in relation to a class of employees who are members of a defined benefit superannuation scheme:

(a)

the minimum requisite benefit in respect of each employee in that class is calculated as an accumulation of employer contributions; and

(b)

the employer contribution rate used in that calculation is the same for each employee in the class; and

(c)

the annual salary, for the purposes of the governing rules of the scheme, of each employee in the class is a notional earnings base within the meaning of section 13 or 14 of the Act;

the notional employer contribution rate in relation to the class is that employer contribution rate.'

Minimum benefits for a member of a defined benefit fund are defined under subregulation 5.04(3) of the Superannuation Industry (Supervision) Regulations 1994 as:

'If the fund is a defined benefit fund, the member's minimum benefits are as follows:

(a)

if the member belongs to a class of employees in relation to which a relevant benefit certificate applies, the amount of the member's minimum requisite benefit;'

Minimum requisite benefits are defined in regulation 2 of the Superannuation Guarantee (Administration) Regulations 1993 as:

'"minimum requisite benefit" has the same meaning as in the Occupational Superannuation Standards Regulations'

With regulation 3 of the Occupational Superannuation Standards Regulations prescribing that:

'"minimum requisite benefit" , in relation to a member of a superannuation fund, means the minimum benefit required to be vested in the member by the superannuation fund conditions;'

Further guidance on the determination of minimum requisite benefits, notional employer contribution rates and the preparation of benefit certificates, is provided for actuaries under mandatory Guidance Note 456 issued by the Institute of Actuaries of Australia.

Subregulation 3(2) of the Superannuation Guarantee (Administration) Regulations 1993 requires that:

'A benefit certificate must:

(b)

specify, or identify by reference to the governing rules of each scheme to which the certificate relates, the minimum requisite benefit; and

(c)

specify:

(i)

the notional employer contribution rate in relation to each scheme, or combination of schemes, to which the certificate relates; and

(ii)

the class of members of the scheme or schemes to which the notional employer contribution rate relates; and'

The general effect of the SGAA, the Superannuation Guarantee Charge Act 1992 and the Superannuation Guarantee (Administration) Regulations 1993, is that an employer is required to pay a superannuation guarantee charge in respect of an employee, if the employer has not made appropriate superannuation contributions to a superannuation scheme.

For an employer to be able to use the benefits provided in a defined benefit superannuation scheme to satisfy the employer's superannuation guarantee obligations in respect of a particular employee, the following conditions must be satisfied:

1.

The defined benefit superannuation scheme must have in place a valid benefit certificate prepared by an actuary; and

2.

The benefit certificate must cover the class of employee containing the particular employee and 'identify by reference to the governing rules of each scheme to which the certificate relates, the minimum requisite benefit' provided for that class of employee.

A benefit certificate does not have to cover all classes of employee in a defined benefit superannuation scheme.

That is, if a class of employees is not covered by a valid benefit certificate, the employer can not use benefits provided from that defined benefit superannuation scheme to meet the employer's superannuation guarantee obligations under subsection 22(2) of the SGAA.

The minimum requisite benefit for a class of employees must be described in the benefit certificate, if necessary by reference to the governing rules of the scheme, for the certificate to validly be in effect for that class of employees, to satisfy subregulation 3(2) of the Superannuation Guarantee (Administration) Regulations 1993.

If the employer does not pay contributions to the defined benefit superannuation scheme in respect of an employee for the component of the benefit that is stated in the benefit certificate to be provided in respect of 'all members' in a class of membership, so that the employee is not provided with the component of the benefit that is stated in the benefit certificate to be provided in respect of 'all members' in a class of membership, then the employee is not contained in the class of members specified in that benefit certificate.

In this case the defined benefit superannuation scheme does not have a benefit certificate in effect for a class of employees containing that employee and the benefit certificate does not satisfy subregulation 3(2) of the Superannuation Guarantee (Administration) Regulations 1993 for that employee.

The employer can not use benefits provided by the defined benefit superannuation scheme to reduce the superannuation guarantee charge percentage payable for that employee to any extent, even if the employer has paid other contributions to the defined benefit superannuation scheme for the employee.

Year of income:  Year ended 30 June 1993 Year ended 30 June 1994 Year ended 30 June 1995 Year ended 30 June 1996 Year ended 30 June 1997 Year ended 30 June 1998

Legislative References:
Superannuation Guarantee (Administration) Act 1992
   subsection 10(1)
   subsection 10(2)
   subsection 22(2)

Keywords
Superannuation guarantee scheme
Superannuation guarantee charge
Superannuation guarantee objections
Defined benefit superannuation funds

Business Line:  Superannuation

Date of publication:  31 July 2002

ISSN: 1445-2782