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Edited version of administratively binding advice

Authorisation Number: 1012421685856

Advice

Subject: Superannuation Guarantee

Question

Do the payments made by the employer to employees who are non-residents of Australia form part of ordinary times earnings (OTE) under subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA) where the work is carried out more than 12 nautical miles from the territorial sea baseline of Australia?

Advice

Payments made by the employer to employees who are non-residents of Australia for work done more than 12 nautical miles from the territorial sea baseline of Australia do not form part of OTE under subsection 6(1) of the SGAA. Accordingly, the employer has no obligation under the SGAA to make superannuation guarantee payments on behalf of these employees

Please refer to 'Explanation'.

The arrangement commences on:

After 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.

The employer is a company incorporated in another country and a resident of that country for tax purposes.

All workers employed by the employer are not Australian residents for tax purposes.

The workers carry out work more than 12 nautical miles form the territorial sea baseline of Australia

Relevant legislative provisions

Acts Interpretation Act 1901 section 15B,

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

Superannuation Guarantee (Administration) Act 1992 section 15C,

Superannuation Guarantee (Administration) Act 1992 subsection 27(1)

Explanation

Summary

Payments made by the employer to employees who are non-residents of Australia for work done more than 12 nautical miles from the territorial sea baseline of Australia do not form part of OTE under subsection 6(1) of the SGAA.

Detailed reasoning

The SGAA states that an employer must provide the prescribed minimum level of superannuation support for its eligible employees by the quarterly due date.

If an employer does not provide the minimum level of contributions in respect of their eligible employees by the prescribed dates, the employer will be liable to pay the superannuation guarantee charge (SGC) under the SGAA and the Superannuation Guarantee Charge Act 1992. The minimum level of support is calculated by multiplying the charge percentage (currently 9%) by each employee's earnings base.

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

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.

SGC paid to eligible employees is calculated according to the formula detailed in section 19 of the SGAA unless the employee meets any of the salary and wages general exclusions as specified in section 27 of the SGAA.

General exclusions

Subsection 27(1) of the SGAA provides that certain salary or wages are not to be taken into account for the purpose of making a calculation under section 19 of the SGAA.

The expression 'work done outside Australia' is used in paragraphs 27(1)(b) and 27(1)(c) of the SGAA. Paragraph 27(1)(b) of the SGAA relevantly refers to:

Employment covered by a certificate under section 15C of the SGAA

Australia has agreements with a number of countries addressing the issue of 'double superannuation coverage' for employees where employers are required to make superannuation (or equivalent) contributions under the laws of both countries for the same work. The agreements on double superannuation coverage form part of broader international agreements on social security between Australia and a number of other countries.

Australia currently has a bilateral agreement with the a number of countries, therefore, any employees who are residents of those countries who are sent to work temporarily in Australia will be exempt from Australia's super guarantee legislation, provided they continue to make the required social security (or equivalent) contributions in place in their country of origin.

Work done outside Australia

In ATO ID 2012/75 - Superannuation guarantee: work done outside Australia, the Commissioner reviewed what constitutes 'Australia' as expressed in paragraph 27(1)(b) of the SGAA.

ATO ID 2012/75 concluded that:

Meaning of 'coastal sea'

Paragraph 15B(4)(a) of the Acts Interpretation Act 1901 (AIA) provides that, in section 15B of the AIA, 'coastal sea' in relation to Australia, means:

and includes the airspace over, and the sea-bed and subsoil beneath, any such sea.

ATOID 2012/75 details that consistent with the right set out in Article 3, and pursuant to a power to do so set out in section 7 of the Seas and Submerged Lands Act 1973, the Governor-General made a proclamation declaring the outer limit of the territorial sea to be 12 nautical miles seaward of that territorial sea baseline (see Proclamation in Gazette No. S 297, Tuesday 13 November 1990).

Application of the law

Subsection 27(1) of the SGAA provides that certain salary or wages are not to be taken into account for the purpose of making a calculation under section 19 of the SGAA.

The expression 'work done outside Australia' is used in paragraphs 27(1)(b) and 27(1)(c) of the SGAA. Paragraph 27(1)(b) of the SGAA relevantly refers to:

You have advised that employees employed by the employer are not Australian residents for tax purposes therefore paragraph 27(1)(c) of the SGAA does not apply.

You have advised that the employees are not residents of any countries with which Australia has a 'bi-lateral agreement'. Therefore there is no entitlement to a certificate under section 15C of the SGAA.

You have advised that the work done by the employees is outside of the coastal seas of Australia and that the workers are all non-residents for taxation purposes. Therefore the work done is outside of the territory of Australia for the purposes of paragraph 27(1)(b) of the SGAA.

Conclusion

Work performed by workers who are not Australian residents for tax purposes meets the definition of 'work done outside Australia' under paragraph 27(1)(b) of the SGAA. The salary or wages paid to these employees do not relate to employment covered by a certificate under section 15C of the SGAA (concerning International Social Security Agreements).

Accordingly the salary and wages paid to these employees are not to be taken into account for the purpose of making a calculation under section 19 of the SGAA.

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