Edited version of administratively binding advice

Authorisation Number: 1012419621731

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Advice

Subject: Motor vehicle allowance

Question

Will the proposed motor vehicle allowance to be paid to the employees of form part of the ordinary time earnings (OTE) of the employees under the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Advice

No. Refer to 'why we have made this decision'

This advice applies for the following period:

1 July 2012 - 30 June 2014

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.

The employer employs workers who are currently provided with company motor vehicles to perform their duties that require them to travel to various work sites and clients.

Many employees have requested a motor vehicle allowance in lieu of the company motor vehicle to enable them to purchase a motor vehicle of their choice which they will use for work purposes.

The employer is considering ceasing to provide company motor vehicles.

Employees who are required to travel for work purposes will be provided with a motor vehicle allowance.

The proposed motor vehicle allowance will cover all fuel and oils, repairs and maintenance costs, depreciation or lease costs, registration, insurance and any other costs associated with the running of the vehicle.

The allowance will be a fixed annual amount designed to compensate for all work related costs and no further compensating payments will be made to the employee.

The value of the allowance will be based on the costs that the company is presently incurring in providing the vehicles for work purposes for the existing employees and based on like employees for new employees moving forward. Consideration will also be given to the number of business kilometres travelled.

The expectation of the employer is that the allowance will be fully utilised in the performance of the employees work duties and that the employees receiving the allowance intend to claim a full deduction against the allowance in their income tax return.

The employees are employed under individual employment contracts.

Relevant legislative provisions

Superannuation Guarantee Administration Act 1992 Subsection 6(1).

Reasons for decision

Summary

As the proposed motor vehicle allowance will be paid to the employees with the expectation that it will be fully expended by the employees in the course of providing their services, the allowance is not salary or wages and therefore does not form part of the employees' OTE for superannuation guarantee purposes.

Detailed reasoning

The SGAA places a requirement on all employers to provide a minimum level of superannuation support for their eligible employees by the quarterly due date, or pay the superannuation guarantee charge percentage (currently 9% and increasing to 9.25% for the period 1 July 2013 to 30 June 2014).

From 1 July 2008, employers must use OTE as defined in subsection 6(1) of the SGAA as the earnings base to calculate the minimum superannuation guarantee contributions for their employees. This ensures that all employees are treated the same for superannuation purposes.

Ordinary time earnings

OTE, in relation to an employee, is defined in subsection 6(1) of the SGAA and is the lesser of:

(a) the total of the employee's earnings in respect of ordinary hours of work and earnings consisting of over award payments, shift loading or commission, but does not include lump sum payments made on termination of employment in lieu of unused sick leave, unused annual leave and unused long service leave; or

(b) the maximum contribution base for the quarter - the maximum contribution base, which is the maximum limit on the amount of superannuation support that an employer is expected to provide for the benefit of an employee. The maximum contribution base for the 2011/12 year of income is $43,820 per quarter. This amount is indexed annually according to the indexation factor.

The Commissioner's views on OTE generally, including an employee's ordinary hours of work, are included in Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages'.

Paragraph 27 of SGR 2009/2 provides that certain payments which are described as allowances or loadings which are paid to employees to recognise or compensate for certain conditions of employment form part of the employees OTE.

Paragraph 27 of SGR 2009/2 states:

Many employees receive various additional payments that are described as allowances and loadings and that are paid to employees to recognise or compensate for certain conditions relating to their employment. Examples:

· a site allowance…..;

· a casual loading….;

· a dirt allowance….; and

· a freezer allowance…..

These kinds of payments are OTE except to the extent that they:

· are not 'salary or wages', for example if they are payments of a predetermined amount to offset or reimburse particular expenses (see paragraph 72 of this Ruling); or

· relate solely to hours of work other than ordinary hours of work (see paragraph2 41 to 43 of this Ruling.

Paragraph 65 of SGR 2009/2 relates to certain payments that are 'salary or wages' and provides that all allowances, except expense allowances and allowances that are fringe benefits under the Fringe Benefits Tax Assessment Act 1986 (FBTAA) are included in salary or wages.

Paragraph 65 states:

For the purposes of the SGAA, all allowances, except expense allowances and allowances that are fringe benefits under the FBTAA, received by an employee, are included in 'salary or wages'…..

Paragraph 72 of SGR 2009/2 identifies certain payments that are not 'salary or wages'.

Paragraph 72 of SGR 2009/2 states:

Expense allowances, that is, those allowances paid to an employee with a reasonable expectation that the employee will fully expend the money in the course of providing services, are not 'salary or wages'

Appendix 2 to SGR 2009/4 is provided as information to help tax payers to understand how the Commissioner's view has been reached.

Paragraphs 259 to 266 which are included in Appendix 2 relates to expenses allowances and state:

259. Section 11 does not expressly include in its definition of 'salary or wages' the term 'allowance'. The Commissioner however interprets the expression as used in the SGAA context as extending to the same kinds of allowances that have been regarded as salary or wages under definitions of 'salary or wages' that expressly include allowances.

260. In Mutual Acceptance, the High Court considered whether a fixed weekly payment to employees who used their own motor vehicle in the course of their duties was an 'allowance' and therefore 'wages' as defined in the then Commonwealth Pay-Roll Tax Assessment Act 1941-42. The payment represented partial compensation for the motor vehicle expenses likely to be incurred by those employees.

261. In discussing what may be considered as the ordinary meaning of an 'allowance' Latham CJ in Mutual Acceptance stated that an allowance paid as compensation for unusual conditions of services:

…represents higher wages paid on account of special conditions, and may fairly be described as part of wages in the ordinary sense (emphasis added)

262. Mutual Acceptance was relied upon in Road & Traffic Authority of NSW v. Federal Commissioner of Taxation where the employees received fare allowances under the relevant award for travel to and from work. They were paid regardless of whether or not the employee incurred the expenditure. The question for decision was whether the allowances were expense payment benefits subject to fringe benefits tax or were within the definition of 'salary or wages' in former subsection 221A(1) of the ITAA 1936.

263. Hill J considered the allowance as additional compensation to the employees for their services. There was no need that the remuneration relate to specific services rendered, as long as the payments in question were given as remuneration for services generally. The fare allowances had no relationship to the actual cost of travel incurred by the employees. Accordingly, they were not reimbursements. The fare allowances were held to be 'salary or wages'

264. An allowance can also be paid to compensate for particular working conditions, for example height, dust or danger. These types of allowances are not expended in the course of the employee's work, but rather, are paid as compensation for the conditions applying to the job.

265. Allowances of this kind are to be distinguished from expense allowances dealt with under paragraphs 72 and 266 of this ruling.

Expense allowances

266. An expense allowance is an allowance which is paid with the reasonable expectation that the money will be fully expended by the employee in the course of providing their services. The expense allowance is not given for the services of the employee, but rather in recognition of the expenditure that the employee will incur in the course of providing their services. As this type of allowance does not fall within the ordinary meaning of 'salary or wages', it does not form part of an employee's OTE.

Therefore, in order for vehicle allowances to be deemed an expense allowance, it is necessary to establish whether there is a reasonable expectation that the employee will fully expend the money in the course of providing services. If an allowance is paid unconditionally, that is regardless of whether the employee actually incurs the cost, it suggests that the allowance is not an expense allowance.

Application to your circumstances

In your application you have advised that you are considering ceasing to provide company motor vehicles and may commence paying a motor vehicle allowance to affected employees.

The motor vehicle allowance would cover all fuel and oils, repairs and maintenance costs, depreciation or lease costs, registration, insurance and any other costs associated with the running of the vehicle. The allowance will be a fixed annual amount designed to compensate for all work related costs and no further compensating payments will be made to the employee's.

It is your expectation that the allowance will be fully utilised in the performance of their work duties.

Under paragraph 27 of SGR 2009/2 allowances paid to employees to recognise or compensate for certain conditions relating to their employment are OTE except to the extent that they are not 'salary or wages'.

Paragraph 72 of SGR 2009/2 provides that expense allowances paid to an employee with a reasonable expectation that the employee will fully expend the money in the course of providing services are not salary or wages.

Similarly, paragraph 65 of SGR 2009/2 provides that all allowances, except expense allowances and allowances that are fringe benefits under the FBTAA are included in salary or wages.

As the proposed motor vehicle allowance will be paid with a reasonable expectation that the employees will expend the money in the course of providing their services, the allowance is considered to be an expense allowance. Therefore, the motor vehicle allowance does not form part of the employees' salary or wages and accordingly, does not form part of the employees OTE for the purpose of superannuation guarantee.

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