Edited version of administratively binding advice

Authorisation Number: 1011571808177

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Ruling

Subject: Reportable Employer Superannuation Contribution (RESC).

1. Are salary sacrificed superannuation contributions to a defined benefit fund Reportable Employer Super Contributions (RESC)?

Yes.

2. Where an employee elects for their employer to make extra contributions from their after-tax pay will these extra amounts be reportable as RESC on the employee's PAYG payment summary?

No.

This advice applies for the following period

30 June 2010

The scheme commences on:

1 July 2009

Relevant facts

You entered into a salary sacrifice arrangement with your employer and you are a member of the Defined Benefit Fund. You are able to make pre tax or post tax contributions to the Defined Benefit Fund.

You have confirmed that you make pre tax contributions to ensure you meet the required percentage as per the Trust Deed. Your pay slips confirm that your contributions are pre-tax contributions.

You stated:

· I have followed the standard procedure, as outlined in the trust deed and employee contract.

· I did not independently negotiate or volunteer this - as all of the documentation on your website seems to imply the intention behind this relates to an informed choice to participate.

· I wanted to stop this extra deduction when I heard about it but was strongly discouraged by my employers and superannuation fund as the consequences of adjusting this involve losing super benefits. I was referred to seek 'independent financial advice', but cannot afford authoritative independent financial advice. I was relying on the advice in the documentation and from the experts and figured that I would not be messed around by following the process in a standard agreement. (This deduction is marked as compulsory, standard, required everywhere in the related documentation).

· There was no warning about this and if it was an expected consequence to affect taxes then it should have been deducted from salary in anticipation - no-one (outside of Payroll/expert fields) that I have asked about knew what this fee was, so if it has been well promoted I don't think the general public have absorbed this information. Therefore, I can't see how I could have been expected to anticipate and prepare for this fee.

· On the advice I gave you in the form, people from the ATO and people from my superannuation fund gave me verbal advice that they thought this figure wasn't reportable. It was only based on my employer's insistence that it was reportable (based on advice they received) that I have sought official written advice

Relevant legislative provisions

Taxation Administration Act 1953, Section 16-182

Taxation Administration Act 1953, Subsection 16-182(1)

Taxation Administration Act 1953, Subsection 16-182(2)

Reasons for decision

Subsections 16-182(1) and (2) of Schedule 1 of the Taxation Administration Act 1953 (TAA)

Subsection 16-182(1) of Schedule 1 of the TAA explains what is a reportable employer superannuation contribution (RESC) and reads as follows:-

16-182(1) A reportable employer superannuation contribution, for an individual for an income year, is an amount contributed:

(a) by an employer of the individual, or an *associate of the employer, for the individual's benefit in respect of the income year; and

(b) to a *superannuation fund or an *RSA;

to the extent that either or both of the following paragraphs apply:

(c) the individual has or has had, or might reasonably be expected to have or have had, the capacity to influence the size of the amount;

(d) the individual has or has had, or might reasonably be expected to have or have had, the capacity to influence the way the amount is contributed so that his or her assessable income is reduced.

Subsection 16-182(2) of Schedule 1 of the TAA provides an exclusion to the RESC when it states that:-

16-182(2) However, an amount is not a reportable employer superannuation contribution to the extent that it is included in the individual's assessable income for the income year.

Paragraphs (c) and (d) in subsection 16-182(1) of Schedule 1 of the TAA discusses how an individual has, had or might reasonably be expected to have or had the capacity to influence either the size of the amount of superannuation contributions or to reduce his or her assessable income because of the superannuation contributions made. The key words in the above sentence are "capacity to influence" which, as detailed in our Reportable employer super contributions guide available on www.ato.gov.au, can be shown by:-

· your relationship with the employee

· the involvement of the employee in the negotiations concerning the terms of any industrial agreement governing the superannuation contributions

· the size of the amount contributed for your employee relative to the compulsory contributions you are required to make

· the superannuation contribution arrangements you have in place for other employees

· any non-arm's length dealings.

The principle underpinning RESC is that if an employer contribution is or has been influenced by an employee it will be RESC and reportable. For this reason the ATO has taken the view that a contribution that is compulsory, for example because it is mandated by the superannuation fund's trust deed or governing rules would not be RESC.

Salary sacrificed contribution

Under an effective salary sacrifice arrangement, employees agree that their employer makes extra superannuation contributions for them in return for a reduced amount of salary. These extra contributions are RESC. In relation to this, the ATO guide provides the following rule of thumb:

If you make an employer contribution to a super fund for an employee and the amount would have otherwise been income, it is a reportable employer super contribution. If you can show that it was a compulsory contribution or it was not influenced by your employee, part or all of the contribution will not be a reportable employer super contribution.

It is clear from the above that the portion of the superannuation contribution which is salary sacrificed by you will be a RESC. Employees have the option to salary sacrifice the standard member and/or voluntary contributions. Accordingly, the standard member contributions that are salary sacrificed will be reportable. This is regardless of whether the employee is employed under award or on a contract basis.

After tax contribution

In accordance with the ATO guide, if under their award employees make superannuation contributions from their after-tax (net) income, these contributions are not RESC. Accordingly, standard member and/or voluntary contributions will not be reportable on an employee's PAYG payment summary where they made from an employee's after-tax income.

As an employee, you have entered into an arrangement where your employer makes extra superannuation contributions for you in return for a reduced amount of salary, then these amounts will be RESC as required in section 16-182 of Schedule 1 of the TAA and will therefore be reportable on your PAYG payment summary.

You stated that you have received conflicting advice from the ATO over the phone, however, the advice that you have received from our phone staff depends on the facts you gave at that time. Given that your belief is that you have participated in the standard post-tax super contribution and that you have not elected to make personal voluntary contributions then the oral advice you would have been provided is that it is not considered to be RESC. However, your salary sacrifice arrangement is a crucial fact that may have been missed at the time that you requested the oral advice. This may help to explain why our advice is now different to the oral advice you received previously.

In relation to the community not being aware of this new legislation please note the following:

· the changes were announced in the 2008-09 Budget

· the ATO undertook a mail out to all identified employers and there have been updates on the ATO website

· there has also been various newspaper articles published that covered this topic.

Calculations

Examples of the effect of salary sacrificed superannuation contributions are shown below.

In the 2008-09 income year

In the 2009-10 income year

Consequently, from 1 July 2009 ATI would be the same amount regardless of whether the superannuation contribution was made under salary sacrifice arrangement or from your after tax income.

The ATI is used by the ATO as the basis for calculating your:

· Medicare levy surcharge

· HELP, and

· Eligibility for certain tax offsets.

However, the income tax you pay will continue to be calculated on your taxable income and not your ATI.

HELP

Listed below are examples of how the RESC affects the HELP calculations using the Higher Education Loan Program (HELP) repayment calculator (available on www.ato.gov.au)

The examples are based on $50,000 income calculated with and without salary sacrificing, and a HELP debt of $20,000 but no reportable fringe benefits, net investment losses or exempt foreign employment income.

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