Edited version of administratively binding advice

Authorisation Number: 1012242330887

This edited version of your advice will be published in the public Register of private binding rulings after 28 days from the issue date of the advice. The attached ATO advice fact sheet has more information

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Advice

Subject: Request for advice regarding car allowances paid to company executives

Question

Does the 'car allowance' paid to company executives form part of their salary and wages for the purposes of section 11 of the Superannuation Guarantee Administration Act 1992 (SGAA)?

Advice

Yes, please see the Reasons for Decision

This advice applies for the following periods

1 July 2010 - 30 June 2013

The arrangement commences on:

1 July 2010

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 applied for administrative binding advice (ABA) concerning whether the 'car allowance' paid to executives the company should be included in their salary and wages for the purposes of the SGAA.

The ABA application included the following information:

· The allowance was paid to the executives of the company to compensate for the fact that they may be occasionally required to use their private car for company purposes.

· The recipients of the car allowance are not required to substantiate the expense.

· The recipients of the allowance do not have company vehicles.

In a telephone conversation you advised the:

· Request had arisen because the company was including the allowance in salary and wages and their superannuation fund had expressed surprise as they did not consider it to be salary and wages.

· Allowance was paid to the executives of the company to compensate for the fact that they may be occasionally required to use their private car for company purposes.

· Executives were not required to justify or substantiate the expenditure.

· Allowance is an annual amount but is paid monthly as part of their salary.

Relevant legislative provisions

Superannuation Guarantee (Administration) Act 1992 section 11

Reasons for decision

Summary

The allowance is considered to be part of the 'salary or wages' of the company executives for the purposes of the SGAA.

Detailed reasoning

Section 11 of the SGAA states that salary and wages includes:

· commission; and

· payment for the performance of duties as a member of the executive body (whether described as the board of directors or otherwise) of a body corporate;

· 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;

· remuneration of a member of the Parliament of the Commonwealth or a State or the Legislative Assembly of a Territory;

· payments to a person for work referred to in subsection 12(8);

· remuneration of a person referred to in subsection 12(9) or (10).

Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages' (SGR 2009/2) highlights that this definition is an inclusive definition, therefore, payments are included in the definition of 'salary or wages' if they satisfy the ordinary or common law meaning of that term or if they fall within the extended definition in subsection 11(1) of the SGAA, unless they are specifically excluded

The ruling discusses the decision of Mutual Acceptance Co Ltd v. Federal Commissioner of Taxation, (1944) 69 CLR 389; (1944) 7 ATD 506 in which the High Court considered whether a fixed weekly payment to employees who used their own motor vehicles in the course of their duties was an 'allowance' and therefore 'wages'.

The payment represented partial compensation for the motor vehicle expenses likely to be incurred by those employees. In his decision, Latham CJ discussed what may be considered as the ordinary meaning of an 'allowance' and stated that an allowance paid as compensation for unusual conditions of services

... represents higher wages paid on account of special conditions, and may fairly be described as part of wages in the ordinary sense (emphasis added).

Hence, SGR 2009/2 considers that 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.

Moreover the ruling highlights (at paragraph 27) that:

"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…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 (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).

Similarly paragraph 65 of SGR 2009/2 explains that:

"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'…"

For these purposes, expense allowances are allowances that are paid to an employee with a reasonable expectation that the employee will fully expend the money whilst providing their services.

Where an allowance is paid to compensate the employee for costs and unusual conditions of service as one allowance, rather than distinguishing the components of the allowance, it is considered that the allowance forms part wages in the ordinary sense.

Consequently, as the information you provided indicates that:

· the allowance was paid to the executives of the company to compensate for the expectation that they may be occasionally required to use their private vehicle for company purposes.

· the executives were not required to justify or substantiate the expenditure,

· the allowance is an annual amount but is paid monthly as part of their salary,

· the recipients of the allowance do not have company vehicles,

· the allowance is considered to be part of the 'salary or wages' of the company executives for the purposes of the SGAA