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Ruling

Subject: Salary sacrifice - overseas salary for work performed overseas

Question

Can you make contributions into an Australian superannuation fund by way of salary sacrifice of overseas salary paid for work performed overseas?

Advice/Answers

Yes, provided that your salary sacrifice arrangement (SSA) is an effective SSA and you meet the work test if required.

This ruling applies for the following period

Year ending 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts

You work overseas.

Your salary is transferred on a monthly basis into your account of choice in Australia.

Your overseas salary is subject to tax overseas.

You also meet all Australian tax requirements on the money you earn overseas.

The company you work for does not contribute to your superannuation fund.

You would like to salary sacrifice into your superannuation from the money you earn overseas.

You are a resident of Australia for income tax purposes during the period of overseas employment.

Relevant legislative provisions

Superannuation Industry (Supervision) Act 1993 Section 10

Superannuation Industry (Supervision) Act 1993 Subsection 16(1)

Superannuation Industry (Supervision) Regulations 1994 Subregulation 1.03(1)

Superannuation Industry (Supervision) Regulations 1994 Regulation 7.04

Superannuation Industry (Supervision) Regulations 1994 Subregulation 7.04(1)

Reasons for decision

Summary of decisions

Provided that your salary sacrifice arrangement (SSA) is an effective SSA and you meet the work test if required, the superannuation contributions made by your overseas employer can be accepted by your superannuation fund and will be considered as employer contributions.

Detailed reasoning

Acceptance of contributions

Whether a regulated superannuation fund is able to accept contributions is determined under the Superannuation Industry (Supervision) Act 1993 (SIS Act) and the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations).

The SIS Act and SIS Regulations are administered by the Commissioner only so far as they relate to self managed superannuation funds (SMSFs). Authority to make decisions under these legislative provisions, as they relate to non-SMSFs, rest with the Australian Prudential Regulation Authority (APRA).

Notwithstanding the above, regulation 7.04 of the SIS Regulations, sets out the circumstances under which a regulated superannuation fund can accept contributions for a member.

Condition for accepting contributions

Under the SIS Act, regulation 7.04 of the SIS Regulations sets out the circumstances under which a regulated superannuation fund can accept contributions for a member.

Subregulation 7.04(1) of the SIS Regulation states:

A regulated superannuation fund may accept contributions only in accordance with the following table and subregulations (2), (3), (4) and (6).

Employer contribution

In this case we will focus on employer contributions. The term employer contribution is defined for the purposes of regulation 7.04 of the SIS Regulations to have the meaning in subregulation 1.03(1). That is, an employer contribution in relation to a regulated superannuation fund means a contribution by, or on behalf of, an employer-sponsor of the fund.

An employer sponsor is defined in section 10 of the SIS Act as having the meaning given by subsection 16(1). Subsection 16(1) of the SIS Act states:

An employer-sponsor of a regulated superannuation fund is an employer who:

(a) contributes to the fund; or

(b) would, apart from a temporary cessation of contributions, contribute to the fund;

for the benefit of:

(c) a member of the fund who is an employee of:

(i) the employer; or

(ii) an associate of the employer; or

(d) the dependants of such a member in the event of the death of the member.

Salary Sacrifice

One such contribution which may be classified as an employer contribution is a superannuation contribution made under a salary sacrifice arrangement (SSA).

The Commissioner's view on the taxation and superannuation implications of salary sacrifice arrangements are discussed in Taxation Ruling TR 2001/10 Income tax: fringe benefits tax and superannuation guarantee: salary sacrifice arrangements (TR 2001/10).

TR 2001/10 defines a SSA to mean an arrangement under which an employee agrees to forgo part of his or her total remuneration that he or she would otherwise expect to receive as salary or wages, in return for the employer or someone associated with the employer providing benefits of a similar value. If the salary sacrifice is effective, the employee will only be liable for income tax on the reduced salary.

There are two types of SSAs:

1. Effective SSA an effective SSA involves the employee agreeing to receive part of his or her total amount of remuneration as benefits before the employee has earned the entitlement to receive that amount as salary or wages.

2. Ineffective SSA an ineffective SSA involves the employee directing that an entitlement to receive salary or wages that has been earned is to be paid in a form other than as salary or wages.

The Commissioner considers that superannuation contributions made by an employer under an effective arrangement are properly considered as employer contributions to the superannuation fund for the purposes of the Superannuation Guarantee (Administration) Act 1992 (SGAA). Further, superannuation contributions made by an employer under an ineffective arrangement are not.

The Commissioner does not give approval for SSAs and cannot comment on how employers and employees make their employment contracts or when they should be amended. However, if both the employer and employee wish to enter into salary sacrifice arrangement, for the agreement to be effective, it needs to be negotiated prior to performing the employment services.

Work test

As noted earlier, whilst employer contributions can be accepted for those under 65 under the SIS Regulations, for those members between the ages of 65 and 74 employer contributions may only be accepted where the member satisfies the work test.

The work test is met where a person is gainfully employed on a part-time basis during a financial year. A person is gainfully employed at least 40 hours in a period of not more than 30 consecutive days in that financial year. As this is an annual test, a person who works 40 hours in a fortnight can make superannuation contributions for the rest of the financial year.

Gainfully employed means employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment.

Conclusion

In this case, provided that your SSA is an effective SSA and you meet the work test if required, the superannuation contributions made by your overseas employer can be accepted by your superannuation fund and will be considered as employer contributions.