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Edited version of administratively binding advice
Authorisation Number: 1012050848889
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Subject: Superannuation Guarantee
This advice applies for the following period<s>:
1 July 2011 - 30 June 2012
The arrangement commences on:
Not applicable
Issue 2
Is SG payable on an offshore allowance?
Question 1
Does the offshore allowance paid by the employer to employees working offshore form part of OTE as defined in subsection 6(1) of the SGAA?
Advice
Yes, the offshore allowance does form part of OTE, to the extent that it relates to the ordinary hours of work. See 'Reasons for Decision'.
This advice applies for the following period:
1 July 2011 - 30 June 2012
The arrangement commences on:
Not applicable
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 pays its employees who are required to live away from their usual place of residence a "living away from home allowance" which is paid at a fixed rate per day, or part thereof.
The relevant Enterprise Bargaining Agreement (EBA) describes the allowance as an allowance to cover the disabilities associated with isolation, shared accommodation, and the lack of normal amenities available.
The employer also pays its employees who are required to work offshore an "offshore allowance" which is paid at variable rates (for ordinary time worked, Saturdays, hours after ordinary time, Sundays and Public Holidays).
The employer has received a private ruling relating to the treatment of the LAFH allowance under the Fringe Benefits Tax Assessment Act 1986 (FBTAA). The private ruling states that the allowance is a LAFH pursuant to the FBTAA.
The relevant EBA describes the ordinary hours of work as the first eight hours of work between 06:00 and 18:00 for day shift and the first eight hours of work between 18:00 and 06:00 for night shift.
Relevant legislative provisions
Superannuation Guarantee Administration Act 1992 Subsection 6(1)
Superannuation Guarantee Administration Act 1992 Subsection 11(3)
Superannuation Laws Amendment (2004 Measures No 2) Act 2004
Fringe Benefits Tax Assessment Act 1986 (FBTAA)
Reasons for decision
Issue 1 Question 1
Summary
The LAFH allowance paid by the employer to employees working away from their usual place of residence does not form part of OTE as defined in subsection 6(1) of the SGAA.
Detailed reasoning
Subsection 11(3) of the SGAA specifically excludes fringe benefits (within the meaning of the FBTAA) from the meaning of salary and wages. If an amount is not salary and wages, it cannot, by definition, be OTE (See Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages', paragraph 7).
The LAFH allowance paid by the employer to employees is a fringe benefit within the meaning of the FBTAA (as per private ruling, authorisation number 1011744579312).
As such, because of the specific exclusion in subsection 11(3) of the SGAA, the allowance is not OTE.
Issue 2 Question 1
Summary
The offshore allowance paid by the employer to employees working offshore does form part of OTE as defined in subsection 6(1) of the SGAA, in so far as it relates to the 'ordinary hours' of work. That is, the first eight hours of any shift Monday to Friday between 06:00 to 18:00 hours for day shift workers, and between 18:00 and 06:00 hours for night shift workers.
Detailed reasoning
The Superannuation Laws Amendment (2004 Measures No 2) Act 2004 simplified the earnings base of an employee for SGAA purposes. These amendments which apply from 1 July 2008 have the effect that all employers need to calculate their SGAA liability against an employee's OTE, as defined in the SGAA.
In effect this means employers can no longer use earnings bases specified in industrial awards, superannuation schemes, occupational superannuation arrangements or a law of the Commonwealth, State or Territory to satisfy their requirements in meeting their SGAA liability.
From 1 July 2008, employers may still be required to use notional earnings bases specified in legislation or industrial agreements as the basis of their superannuation support in cases where these are above an employee's OTE, but SGAA obligations will only be assessed against OTE.
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.
[Emphasis added]
The Commissioner's views on OTE generally, including an employee's ordinary hours of work, are included in SGR 2009/2.
SGR 2009/2 addresses allowances at paragraphs 27, 65, 72 and 263 of the ruling.
Paragraph 27 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….
- a casual loading….
- a dirt allowance….
- 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…"
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'…"
Paragraph 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 263 of SGR 2009/2 describes allowances that will be 'salary or wages':
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.
The offshore allowance paid by the employer to employees working offshore is an allowance paid to compensate for working conditions, such as the site of their work, rather than an allowance relating to expenses. Therefore, it forms part of OTE, so far as it is in respect of ordinary hours of work, as defined in subsection 6(1) of the SGAA.
The ordinary hours of work are the first eight hours of any shift Monday to Friday between 06:00 to 18:00 hours for day shift workers and between 18:00 and 06:00 hours for night shift workers.
The offshore allowance paid under the relevant paragraph in the EBA for ordinary time worked (first eight hours Monday to Friday) will be considered OTE.
The offshore allowance paid under the relevant paragraphs of the EBA that relate to hours that are not ordinary hours, i.e. the first eight hours on a Saturday, and the four hours after the first eight hours Monday to Saturday and all hours Sunday, respectively, will not be OTE as they do not relate to ordinary hours of work.
The offshore allowance paid under the relevant paragraph of the EBA for time worked on a Public Holiday will be considered OTE where the Public Holiday hours worked relate to ordinary hours of work (that is, the first eight hours of any shift Monday to Friday during worker's respective day or night shift times).
ATO view documents
Superannuation Guarantee Ruling SGR 2009/2