Edited version of administratively binding advice

Authorisation Number: 1012310472016

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Advice

Subject: Superannuation guarantee liability

Question 1

Is the Employer required to use 'ordinary time earnings' (OTE) as defined in subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA) as a basis for calculation of the contributions necessary to satisfy their superannuation obligations under the SGAA in respect of an eligible employee for the quarters of the 2012-13 financial year?

Advice

Yes, the Employer is required to use 'ordinary time earnings' (OTE) as defined in subsection 6(1) of the SGAA as a basis for calculation of the contributions necessary to satisfy their superannuation obligations under the SGAA in respect of an eligible employee for the quarters of the 2012-13 financial year.

Question 2

Where the employee has reached their concessional contributions cap for the 2012-13 financial year as defined in Division 292 of the Income Tax Assessment Act 1997 (ITAA 1997 does the Employer continue to have an SG liability in accordance with section 16 of the SGAA.

Advice

Yes, where the employee has reached their concessional contributions cap for the 2012-13 financial year as defined in Division 292 ITAA 1997 the Employer continues to have an SG liability in accordance with section 16 of the SGAA.

This advice applies for the following period:

1 July 2012 to 30 June 2013

The arrangement commences on:

1 July 2012

Relevant facts and circumstances

Your advice is based on the facts stated in the description of the scheme that is set out below. If your circumstances are significantly different from these facts, this advice has no effect and you cannot rely on it. The fact sheet has more information about relying on ATO advice.

Your advice is based on the following facts:

The Employer has provided details for one particular employee as follows:

· The employee has an aggregated salary in excess of $Y per annum.

· The Employer remits monthly employer superannuation contributions of X% for this employee.

· The employee has also salary sacrificed an amount over three months.

· The employee will have reached their concessional contributions cap in early 2013.

Relevant legislative provisions

Superannuation Guarantee (Administration) Act 1992 subsection 6(1)

Superannuation Guarantee (Administration) Act 1992 section 15

Superannuation Guarantee (Administration) Act 1992 section 16

Superannuation Guarantee (Administration) Act 1992 section 19

Superannuation Guarantee (Administration) Act 1992 section 23

Income Tax Assessment Act 1997 Division 292

Reasons for decision

Question 1

Summary

The employer is required to use OTE as a basis for calculation of the contributions necessary to satisfy their superannuation obligations under the SGAA in respect of an eligible employee for the quarters of the 2012-13 financial year.

Detailed reasoning

From 1 July 2003, all employers must pay a minimum of 9% of their eligible employee's earnings base in superannuation contributions to a complying superannuation fund or retirement savings account (RSA) on a quarterly basis. From 1 July 2008, all employers must use OTE as the earnings base to calculate the minimum super guarantee contributions required for your employees.

From 1 July 2008, employers may still be required to use notional earnings bases specified in legislation or industrial agreements as the basis of their superannuation support in cases where these are above an employee's OTE, but SGAA obligations will only be assessed against OTE.

OTE is usually the amount an employee earns for their ordinary hours of work. It includes commissions, shift-loadings and some allowances, but doesn't include overtime payments. Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages' provides further guidance on what constitutes OTE.

The phrase 'ordinary time earnings' is defined in subsection 6(1) of the SGAA follows:

ordinary time earnings, in relation to an employee, means:

(a) the total of:

(i) earnings in respect of ordinary hours of work other than earnings consisting of a lump sum payment of any of the following kinds made to the employee on the termination of his or her employment:

(A) a payment in lieu of unused sick leave;

(B) an unused annual leave payment, or unused long service leave payment, within the meaning of the Income Tax Assessment Act 1997; and …

(ii) earnings consisting of over-award payments, shift-loading or commission; or

(b) if the total ascertained in accordance with paragraph (a) would be greater than the maximum contribution base for the quarter - the maximum contribution base.

In broad terms (and subject to some exceptions), OTE of an employee means earnings in respect of ordinary hours of work. Payments for work performed outside the ordinary hours of work, such as overtime payments, are not OTE.

The phrase 'ordinary hours of work' is not defined in the SGAA. For the income year ended 30 June 2010 and later income years the Commissioner's view on the meaning of 'ordinary hours of work' is expressed in SGR 2009/2.

Paragraph 13 of SGR 2009/2 states:

An employee's 'ordinary hours of work' are the hours specified as his or her ordinary hours of work under the relevant award or agreement, or under the combination of such documents, that governs the employee's conditions of employment.

Maximum contribution base

The SG liability for an employer in respect of an employee for a quarter cannot exceed the maximum contribution base (MCB) for the quarter as detailed above in paragraph (b) of the definition of 'ordinary time earnings' in subsection 6(1) of the SGAA. For any quarter in the 2012-13 financial year, the maximum contribution base is $45,750. An employee may earn more than the quarterly MCB however the employer's quarterly SG liability will only be calculated with respect to the quarterly MCB.

Under section 15 of the SGAA, the amount is subject to yearly indexation, which takes into account movements in full-time adult average weekly ordinary time earnings (AWOTE).

The required minimum quarterly SG contribution for the 2012-13 financial year is 9% of an employee's OTE up to this quarterly MCB.

Salary sacrifice agreement (SSA) and employer contributions

The SGAA does not prescribe how the minimum level of employer contributions for employees is to be funded. As such, salary sacrifice arrangements may be an acceptable means for employers to meet their obligations under the SGAA.

The Commissioner's view as expressed in paragraphs 115-118 of Taxation Ruling TR 2001/10 - Income tax: fringe benefits tax and superannuation guarantee: salary sacrifice arrangements is that superannuation contributions made by an employer to a complying superannuation fund under an effective SSA count towards the employer's obligation to provide a minimum level of superannuation support for the employee under the SGAA.

Application of the law

You have advised that there is an employer /employee relationship and as such the provisions of the SGAA apply in respect of employer liability to provide a minimum level of superannuation support.

You have advised that for each of the quarters of the 2012-13 financial year you will remit a monthly superannuation payment of X% for your employee. This amount extrapolates to an amount greater than $Z per quarter.

In addition to the contribution per quarter you have advised that over the three months up until late 2012 your employee has salary sacrificed an amount into a superannuation fund account. These contributions form part of employer contributions for the purposes of the SGAA if they are made under an effective SSA.

You have not disclosed the respective breakup of the salary sacrifice amounts specified in the previous paragraph in relation to the amounts actually contributed in the 2011-12 and 2012-13 financial years. This does not prevent us from providing appropriate advice on the fundamental aspects of your enquiry.

The MCB is $45,750 per quarter for the 2012-13 financial year. As such the maximum superannuation contributions required for the quarters of the 2012-13 financial year are 9% of $45,750, that is $4,117.50/quarter.

The quarterly employer contributions comprising of the X% of aggregated salary and the salary sacrifice apportionment exceed the minimum level of $4,117.50 required under the SGAA legislation therefore your SGC liability is reduced to nil for those quarters in accordance with section 23 of the SGAA.

Question 2

Summary

The Company's requirement to use OTE as defined in subsection 6(1) of the SGAA does not change as a result of an employee reaching the concessional contributions cap for the 2012-13 financial year as defined in Division 292 of the ITAA 1997.

Detailed reasoning

Elections - superannuation guarantee charge (SGC) liability

Before 1 July 2007, under subsection 19(4) of the SGAA, an employee could make an irrevocable election that their employer not be liable to the SGC. The election was based on the employee's superannuation interest already exceeding the pension reasonable benefit limit (RBL). For the 2006-07 financial year the pension RBL was $1,356,291.

Effective from 1 July 2007 RBLs were abolished and subsections 19(4) to 19(7) of the SGAA were repealed.

As such, unless an employer had received an election from an employee before 1 July 2007 there was no longer any mechanism in the SGAA to exempt an employer from an SG liability.

Notwithstanding the inability to make these elections from 1 July 2007, there are other legislative provisions which have an influence on the amount of employer contributions made.

Maximum contributions base (MCB)

As referred to above, paragraph 6(1)(b) and section 15 of the SGAA, the MCB continues to limit the amount of an employer's superannuation guarantee liability however the employer is not prevented from making employer (concessional) contributions beyond the MCB.

Excess contributions tax (ECT)-concessional contributions

In contrast to employer superannuation guarantee liabilities under the SGAA, Division 292 of the ITAA 1997 imposes liabilities on individual taxpayers who exceed their annual concessional contributions cap. This division is in relation to an individual's liability and operates separately and distinctly to the SGAA which is concerned with employer liabilities.

Section 292-15 of the ITAA 1997 states that an individual is liable to pay ECT if they have excess concessional contributions for a financial year.

The object of Division 292 of the ITAA 1997 is to ensure that the amount of concessionally taxed superannuation benefits that a person receives results from contributions that have been made gradually over a person's lifetime.

Where a taxpayer has employer contributions made which exceed the concessional cap, they will be subject to ECT.

The concessional cap for the 2012-13 financial year is $25,000.

Application of the law

You have provided no evidence of an election being made under former subsection19(4) of the SGAA prior to 1 July 2007. Therefore, the exception to the employer having a quarterly SG shortfall under section 19(4) of the SGAA is unable to be met.

You have stated that your employee will potentially exceed the concessional contributions cap for the 2012-13 financial year in the quarter ended 30 March 2013. Consequently your employee may be liable for ECT.

The employees' potential liability for ECT will not reduce the amount of the Employer's superannuation guarantee liability.

As stated above there is no interdependence between the SGAA and Division 292 of the ITAA 1997.

The SGAA operates to ensure that employers meet their obligations to provide superannuation support for employees; the provisions in Division 292 of the ITAA 1997 regarding excess contribution tax contributions relate to individual taxpayer liability.

Notwithstanding the fact that your employee may reach the concessional contributions cap for the 2012-13 financial year, you will continue to be liable for SG support on the basis of OTE for your employee for the quarters ended 30 March 2013 and 30 June 2013.

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