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Subject: Superannuation guarantee payment in regards to GST
Question 1
Where the principal engages a contractor (who is not otherwise an employee of the principal but who is deemed to be an employee under section 12(3) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)), is any superannuation guarantee charge (SGC) payable in respect of that employee by the principal calculated on the payments made to the contractor on a GST exclusive basis?
Advice
Yes. The SGC is calculated on the GST exclusive amount of the labour value of the contract. See detailed reasoning below.
Question 2
Where the principal engages a contractor (who is not otherwise an employee of the principal but who is deemed to be an employee under section 12(3) of the SGAA), are superannuation contributions in respect of the deemed employee, sufficient to reduce any superannuation guarantee (SG) shortfall to nil, required to be calculated by reference to the payments made to the contractor on a GST exclusive basis?
Advice
Yes, the SG liability is calculated on the GST exclusive amount of the labour value of the contract. See detailed reasoning below.
This advice applies for the following period:
1 July 2011 to 30 June 2013
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.
You are an entity which engages independent contractors on a regular basis to perform various works
You have contracts with the contractors setting out consideration for services which set out terms of service, insurance and other conditions.
The contractors are deemed employees by the operation of section 12(3) of SGAA because the engagement under the contracts is wholly or principally for the labour of the contractors.
The contractors are not otherwise your employees.
Relevant legislative provisions
Superannuation Guarantee Charge Act 1992 Section 5
Superannuation Guarantee Charge Act 1992 Section 6
Superannuation Guarantee (Administration) Act 1992 Section 6
Superannuation Guarantee (Administration) Act 1992 Subsection 11(1)
Superannuation Guarantee (Administration) Act 1992 Subsection 12(3)
Superannuation Guarantee (Administration) Act 1992 Section 17
Superannuation Guarantee (Administration) Act 1992 Section 19
Superannuation Guarantee (Administration) Act 1992 Subsection 23(6)
Reasons for decision
Question 1
Summary
SGC is calculated on the GST exempt value of the labour content of the contract.
Detailed reasoning
SGC is defined in section 6 of the SGAA as being the charge imposed by the Superannuation Guarantee Charge Act 1992 (SGCA).
Section 5 of the SGCA states that the charge is imposed on any SG shortfall of an employer for a quarter. Section 6 of the SGCA states that the amount of SGC payable on a SG shortfall of an employer for a quarter is an amount equal to the amount of the shortfall.
SG shortfall has the meaning given to it by section 17 of the SGAA which states that:
If an employer has one or more individual superannuation guarantee shortfalls for a quarter, the employer has a superannuation guarantee shortfall for the quarter worked out by adding together:
(a) the total of the employer's individual superannuation guarantee shortfalls for the quarter; and
(b) the employer's nominal interest component for the quarter; and
(c) the employer's administration component for the quarter.
If an employer has not paid sufficient contributions for eligible employees by the cut-off date for each quarter of the year, the employer is required to lodge a Superannuation Guarantee Statement and pay the SGC to the ATO.
The SGC is made up of three components:
the SG shortfall, comprising the total of the individual employee SG shortfall amounts for the period
interest on that amount (10% per annum)
an administration fee ($20 per employee per quarter).
Section 19 of the SGAA specifies the employer's individual SG shortfall for an employee, for a quarter, is the amount calculated using the following formula:
Total salary and wages paid by the employer to the employee for the quarter |
X |
Charge percentage for the employer for the quarter 100 |
Subsection 23(6) of the SGAA allows for superannuation contributions made:
by an employer for the benefit of an employee, and
to a complying superannuation fund or an RSA,
to be taken into account for an SG quarter if it is in fact made by the 28th day after the end of the quarter. These contributions reduce the employer's charge percentage, and therefore liability, to the SGC.
Question 2
Summary
SG liabilities on payments made to the contractors are calculated on the labour component of the contract exclusive of GST
Detailed Reasoning
Under the SGAA an employer must provide the required minimum level of superannuation support for its employees by the quarterly due date (unless the employees are exempt employees) or pay the superannuation guarantee charge. The minimum level of support is calculated by multiplying the charge percentage (currently 9%) by each employee's earnings base.
In regards to contractors section 12(3) of the SGAA states:
If a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract.
Subsection 11(1) of the SGAA states that:
In this Act, salary or wages includes:
(ba) Payments under a contract referred to in subsection 12(3) that are made in respect of the labour of the person working under the contract.
Furthermore, the Commissioner sets out his views in regards to such payments in the information package Superannuation guarantee for superannuation professionals (NAT 21250). Under the section for contractors the Commissioner stipulates that your contribution should be calculated only on the labour component of the contract.
Fact sheet |
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Tax Office advice Income tax and superannuation | ||
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