Edited version of private advice

Authorisation Number: 1012648726803

Advice

Subject: Administratively binding advice - superannuation guarantee

Question 1

Will a motor vehicle allowance (MVA) paid by the Employer to employees who rely on the use of their vehicle during the course of their employment ( referred to as Category 1 employees) be considered part of ordinary time earnings (OTE) as defined in subsection 6(1) of the Superannuation Guarantee (Administration) Act 1993 (SGAA)?

Advice: No, please see 'Reasons for decision'.

Question 2

Will a MVA paid by the Employer to employees who do not rely on the use of their vehicle during the course of their employment (referred to as Category 2 employees) be considered part of OTE as defined in subsection 6(1) of the SGAA?

Advice: Yes, please see 'Reasons for decision'.

This advice applies for the following period

After 1 July 2014

Relevant facts

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.

• MVA is paid to permanent full time employees (Category 1) with certain responsibilities. These persons regularly use their vehicles during the normal course of employment.

• MVA is also paid, at the discretion of the Employer, to persons in certain senior positions (Category 2). These persons do not regularly use their vehicles in the course of their employment.

• The MVA is paid to cover the cost of purchasing a vehicle, and its ongoing running costs, maintenance, insurance and registration.

• Persons receiving the MVA are expected to replace their vehicle every 5 years or earlier.

• The MVA is paid monthly via normal payroll procedures.

• Employee's receiving the MVA are not expected to provide receipts or account for the expenditure of the MVA.

Relevant legislative provisions

Superannuation Guarantee (Administration) Act 1993 subsection 6(1)

Reasons for decision

Summary

The payment of the MVA to Category 1 employees is an expense allowance. It is paid to Category 1 employees with a reasonable expectation that the employee will fully expend the money in the course of providing their services. An expense allowance does not form part of the salary or wages of the employee and therefore cannot form part of ordinary time earnings for Category 1 employees of Employer.

The payment of the MVA to Category 2 employees is not associated with an expected expense, but rather as a negotiated benefit as part of a salary package. The Category 2 employees are not expected to use their vehicles during the course of their employment and therefore, in their case, there is no expectation that the MVA will be fully expended in the course of their employment.

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. The minimum level of support is calculated by multiplying the charge percentage (currently 9.25% and 9.5% from 1 July 2014) 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.

Definition of ordinary time earnings

Subsection 6(1) of the SGAA defines OTE in relation to an employee to mean:

(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.

Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages' (SGR 2009/2) explains that an employee's 'ordinary hours of work' are the hours specified as ordinary hours of work under the relevant award or agreement that governs the employee's conditions of employment and highlights that any hours worked in excess of, or outside the span those specified ordinary hours of work are not part of the employee's 'ordinary hours of work'. In particular, the ruling states that:

25. All amounts of earnings in respect of employment are in respect of the employee's ordinary hours of work unless they are remuneration for working overtime hours, or are otherwise referable only to overtime or to other hours that are not ordinary hours of work. There is no such thing as earnings that are merely in respect employment and are not OTE because they are not in respect of any particular hours of work.

26. An award or agreement may itself have a definition of 'ordinary time earnings' that purports to apply for superannuation purposes. However, the central question posed by the definition of OTE in the SGAA is what amounts are 'earnings in respect of ordinary hours of work'. This could in some cases be a different amount from any purported amount of 'OTE' in the award or agreement. As mentioned in paragraph 13 of this Ruling, the Commissioner accepts that 'ordinary hours of work' are as determined by the relevant award or agreement, but that does not imply that OTE itself is necessarily as determined by the award or agreement.

Accordingly, in line with the above, all amounts of earnings in respect of employment should be considered to be in respect of the employee's ordinary hours of work unless these are remuneration for overtime or other hours that are not ordinary hours of work.

Allowances

An allowance is a payment of a definite predetermined amount to cover an estimated expense. Generally it is paid regardless of whether the employee incurs the expected expense and the employee has the discretion whether or not to expend the allowance.

Paragraph 27 of SGR 2009/2 relates to certain specific kinds of payments that are OTE. Paragraph 27 states:

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

• a 'site allowance' paid fortnightly at a flat rate in acknowledgement of the displacement an employee undergoes when a job requires him or her to work in a remote location;

• a 'casual loading' of 20% of the basic ordinary time rate of pay paid to a casual worker in lieu of any fixed, regular minimum hours of work and of paid leave entitlements;

• a 'dirt allowance' paid as a flat rate in acknowledgement of the conditions in which the work is undertaken; and

• a 'freezer allowance' paid at the rate of an extra $2.50 per hour to employees, such as some supermarket employees, who perform most of their duties in cold storage facilities.

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; or

• relate solely to hours of work other than ordinary hours of work.

Paragraph 65 of SGR 2009/2 relates to certain payments that are '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'

Paragraphs 72 of SGR 2009/2 relates to expense allowances and reimbursements and 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'.

Paragraph 266 of SGR 2009/2 which is in the explanation states:

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 'salary or wages' for the purposes of section 11. It also does not form part of an employee's OTE.

Therefore, in order for MVA 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 case:

• Category 1 employees regularly use their vehicles during the normal course of employment and therefore the payment of the MVA to Category 1 employees is an expense allowance paid with a reasonable expectation that the employee will fully expend the money in the course of providing their services. An expense allowance does not form part of OTE for the purposes of the SGAA.

• Category 2 employees are not expected to use their vehicles during the course of their employment and therefore the payment of the MVA to Category 2 employees is an unconditional extra payment that is not an expense allowance because there is no expectation that the MVA will be fully expended in the course of their employment. An unconditional extra payment does form part of OTE the purposes of the SGAA.

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