Edited version of private advice

Authorisation Number: 1052036274058

Date of advice: 19 October 2022

Ruling

Subject: Listed allowances - ordinary time earnings

Question

Do the listed allowances paid to expatriate employees of the employer constitute OTE as defined in subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992? (SGAA)?

•         Relocation allowance

•         Furniture allowance

•         Loss on sale of car allowance

•         Utilities allowance

•         Repatriation allowance

Answer

No, the listed allowances do not constitute OTE as defined in subsection 6(1) of the SGAA and therefore superannuation guarantee is not required to be paid on these amounts.

This advice applies for the following periods:

1 July 20XX to 30 June 20XX

The arrangement commences on:

1 June 20XX

Relevant facts and circumstances

1.      The employer derives revenue from the provision of commercial explosives and related products to the mining, quarrying, oil and gas, and construction industries. In carrying out this business, the employer operates in more than 100 countries and as such, often sends employees on overseas assignments to its various locations around the world. This includes overseas employees undertaking temporary assignments to Australia, and Australian resident employees undertaking short term assignments in another country.

2.      To support employees in undertaking these assignments, the employer provides a number of allowances to compensate for the various costs expected to be incurred by the employee as a result of the requirement to relocate for work purposes.

3.      For administrative ease, the employer compensates employees for certain costs associated with relocation by way of allowance payments, rather than requiring the employee to submit numerous expense reimbursement claims for the various costs.

4.      Subject to the specific comments below, the allowance amounts are generally based on internal and/or third-party data which considers a number of factors when determining the quantum of the allowance, such as the employee's family size and the cost of living differences between their home and host locations.

5.      The tax agent of the employer advised that the listed allowances would not fall into a category of being fringe benefits as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 as the employer regards these as allowances that are subject to Pay as you go (PAYG) -Withholding.

6.      Descriptions of the allowances and basis for the payments are outlined below:

Relocation Allowance

•       This allowance is paid to assist the employee in covering various incidental expenses expected to be incurred as a result of their relocation (e.g. fees in relation to securing housing in the host location, including rental bond and agent fees, search fees for schools, government charges and government taxes, electrical appliances, excess baggage, bank account fees, disconnection of utilities, cancellation of gym memberships etc.), a relocation allowance may be provided to cover these costs.

•       This allowance is provided as it is much easier to administer than to have employees maintain receipts from various third parties during the relocation process, and to subsequently submit numerous expense reimbursement claims that may have been incurred in different countries/currencies.

•       The relocation allowance is paid as a lump sum amount and is usually paid upon arriving at the new location.

•       The allowance amount is based on one month's gross base salary in the host location. The employer has determined that this is a reasonable basis to estimate the total incidental costs, noting that rental bond alone would be expected to be in the thousands of dollars. The employer expects, for example, that an executive on a higher base salary would likely also have higher costs associated with their standard of living and lifestyle, such as in relation to housing and schooling.

•       Therefore, one month's base pay was determined to be a reasonable estimate to cover these costs, in addition to the other incidental expenses noted above, and by also considering the employee's existing standard of living and lifestyle.

•       As such, the employer reasonably expects that each employee should fully expend the allowance on the various incidental costs associated with relocating from one country to another.

Furniture Allowance

•       The employer will generally pay for the costs associated with shipping an employee's household goods, such as furniture, to the new location.

•       However, in cases where an employee does not ship their household goods (e.g. they may live in shared accommodation at the home location), the employer may instead pay a furniture allowance.

•       The intention of the allowance is to provide the employee with a cash amount to contribute towards purchasing furniture in the host location (including for any accompanying family members).

•       The allowance is a pre-determined amount that is paid as a lump sum, usually upon arriving at the new location.

•       The amount of the allowance is based on the amount it would otherwise have cost to ship the employee's household goods to the overseas location. The costing data is provided by a third-party provider who specialises in employee relocations and the indicative costs associated with shipping household goods across international borders, considering the employee's family size etc. (e.g. the larger the family, the larger the amount to cover the additional expected costs for other family members).

•       The cost of shipment was determined to be a reasonable estimate of the amount employee would also likely expend on purchasing household furniture for their applicable family size. For example, the allowance amount for an Australian resident on a temporary assignment to Indonesia, is AUD$X,XXX for a family of one. This amount could reasonably be expected to be fully expended by the employee to purchase household furniture (such as lounge, kitchen, bedroom etc) in the new location.

•       Based on the methodology applied to arrive at the allowance amount, the employer reasonably expects that the employee should fully expend the allowance to purchase household furniture upon commencement at the new work location.

Loss on Sale of Car Allowance

•       If an employee has lost money from having to sell their car as a result of undertaking their overseas assignment, the employer will provide a cash allowance of up to $X,XXX as compensation. For example, if the employee sells their vehicle for less than market value, they may be entitled to this allowance.

•       In order to be eligible for the allowance, the employee is required to provide relevant documentation i.e. copies of actual sales receipts and quotes (sourced from either a car dealership or a market value service provider in respect of the vehicle prior to the payment of the allowance) to support their claim for a loss on the sale of their motor vehicle.

•       The employer will cover the difference (up to a maximum of $5,000) between the current suggested private sale price and the actual selling price, or the current suggested private sale price and the current suggested wholesale price, whichever is the lesser of the two.

•       As such, the employer reasonably expects that the allowance amount should compensate/reimburse the employee for the financial loss incurred by them as result of having to relocate for work purposes.

Utilities Allowance

•       In most cases, the employer provided housing in the overseas location will include utilities, however where this is not the case, the employer will provide the employee with a flat monthly utilities allowance.

•       An allowance is provided as it is much easier to administer than to have employees submit various, regular expense reimbursement claims.

•       The quantum of the allowance is based on data sourced from a third-party provider, who specialises in cost of living data at various locations around the world.

•       The amount is calculated based on the costs expected to be incurred in the employee's host location, based on the relative cost of utilities at that location and the employee's family size.

•       As such, it is expected the employee should fully expend the allowance on the cost of utilities incurred during their temporary overseas assignment.

Repatriation Allowance

•       To assist the employee in covering incidental expenses incurred as a result of repatriating to their home location, the employer may provide a repatriation allowance equivalent to half a month's home gross base salary.

•       An allowance is provided as it is much easier to administer than to have employees maintain numerous receipts from varying parties during the repatriation process and to subsequently submit numerous expense reimbursement claims that may have been incurred in different currencies.

•       The repatriation allowance is paid as a lump sum amount and is usually paid in the last pay run before the employee's international assignment has ended.

•       Similar to the relocation allowance, the employer has determined that half of one month's gross base salary is a reasonable basis on which to determine the additional costs expected to be incurred by employees of varying levels of seniority. Noting for example, that unlike the initial relocation allowance, which was based on a full month's base pay, the repatriation allowance is less because the employee is not expected to incur costs such as rental bond, search/agent fees and will have stored some goods (such as electrical appliances), so should not incur similar costs upon their repatriation.

•       As such, the employer reasonably expects that each employee should fully expend the allowance on the incidental costs of repatriating to their home country.

Relevant legislative provisions

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

Superannuation Guarantee (Administration) Act 1992 section 11

Reasons for Decision

These reasons for decision accompany the Notice of advice for the company.

Issue - ordinary time earnings

Question

1.      Do the listed allowances paid to expatriate employees of the employer constitute ordinary time earnings ('OTE') as defined in subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992? (SGAA)?

•         Relocation allowance

•         Furniture allowance

•         Loss on sale of car allowance

•         Utilities allowance

•         Repatriation allowance

Summary

2.      The above allowances do not constitute OTE as defined in subsection 6(1) of the SGAA) and therefore superannuation guarantee is not required to be paid on these allowances.

Detailed reasoning

3.      Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages' explains the meaning of OTE.

4.      OTE in relation to an employee is defined in subsection 6(1) of the SGAA as:

(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.

5.      The SGAA doesn't define the expression 'earning in respect of ordinary hours of work' or any of the terms in that expression.

6.      Paragraphs 12 and 13 of the SGR 2009/2 provide 'meaning of earnings' and 'meaning of ordinary hours of work'. They state:

12. An employee's 'earnings', for the purpose of the definition of OTE, is the remuneration paid to the employee as a reward for the employee's services. The practical effect for superannuation guarantee purposes is that the expression 'earnings' means 'salary or wages'.

13. 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.

7.      Paragraph 27 of the SGR 2009/2 explains when allowances and loadings would form part of OTE and they would not. It states:

27. Many employees receive various additional payments that are described as allowances or loadings and 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 payment 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 paragraphs 41 to 43 of this Ruling).

8.      Based on the provided information, the listed allowances are not earnings for the purpose of OTE definition as they don't represent remuneration paid to the employees as a reward for the employee's services.

9.      Based on the provided information, the listed allowances (expenses associated with employee's move to another country, shipment or acquisition of a furniture; use of utilities; economic loss on sale of a private car while working in another country) represent payments/reimbursements of personal expenses incurred by the employee or their family members while undertaking short term assignments in another country.

10.   So, as these allowances do not represent OTE there is no requirement to pay superannuation guarantee on these allowances.

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