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Advice

Subject: Superannuation guarantee - bonus payments

Question 1

Is the notional earnings base (NEB) calculated under section 13 of the Superannuation Guarantee (Administration) Act 1992 (SGAA) the correct earnings base for the employees who were employed between the relevant period, where contributions commenced being made by the employer before 21 August 1991?

Answer

Yes. The NEB calculated under section 13 of the SGAA is the correct earnings base for the employees who were employed between the relevant period, where contributions commenced being made by the employer before 21 August 1991. Please see 'Reasons for decision'.

Question 2

Is the NEB calculated under section 14 of the SGAA the correct earnings base for the employees who were employed between the relevant period, where contributions commenced being made by the employer after 20 August 1991?

Answer

No. The NEB calculated under section 14 of the SGAA is not the correct earnings base for the employees who were employed between the relevant period, where contributions commenced being made by the employer after 20 August 1991. Please see 'Reasons for decision'.

Question 3

Are bonus payments made to the employees under the terms of the employer agreements relating to the relevant periods, part of the employee's NEB?

Advice

Not answerable by Australian Taxation Office. Please see 'Reasons for decision'.

This advice applies for the following periods:

For the numerous income years

The arrangement commences on:

1 July xxxx

Relevant facts and circumstances

Our advice is based on the following facts.

· Agreements contain clauses for the payment of a bonus to employees in certain circumstances..

· The bonuses have not been included when calculating the employees' ordinary time earnings for the purpose of superannuation guarantee.

Relevant legislative provisions

Superannuation Guarantee (Administration) Act 1992 section 13

Superannuation Guarantee (Administration) Act 1992 section 14

Reasons for decision

The SGAA places a requirement on all employers to provide a minimum level of superannuation support for their eligible employees by the quarterly due date, 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.

Prior to 1 July 2008, an employer may have used the notional earnings base as defined in repealed sections 13 and 14 of the SGAA as the earnings base to calculate the minimum superannuation contributions for their employees.

From 1 July 2008, an employer must use ordinary time earnings (OTE) as defined in subsection 6(1) of the SGAA as the earnings base to calculate the minimum superannuation contributions for their employees. This ensures that all employees are treated the same for superannuation purposes.

Notional earnings base

The concept of NEB is defined in the SGAA. In broad terms it means the earnings of the employee by reference to which the requisite employer contribution is to be calculated. An employee's NEB may be contained in an industrial award or agreement, a funds trust deed, an agreement with an employer or a law of the Commonwealth, of a State or of a Territory. If none of these are applicable then the default earnings base of OTE as defined in subsection 6(1) of the SGAA will apply.

Section 14 of the SGAA

Section 14 of the SGAA relates to NEBs where superannuation contributions are not made for the benefit of certain employees immediately before 21 August 1991.

Subsection 14(1) of the SGAA applies where contributions were not made for the benefit of an employee before 21 August 1991. Subsection 14(1) of the SGAA deals with the meaning of the expression 'notional earnings base' in relation to an employee, who is a member of a superannuation fund, to which an employer is contributing to the fund in the following situations:

· Where the employer is contributing to a fund in accordance with an industrial award or an occupational superannuation arrangement

· Where the employer is contributing to the fund in accordance with a law of the Commonwealth, a State or Territory

· Where the employer is otherwise contributing to the fund under the appropriate superannuation scheme.

Subsection 14(1A) of the SGAA relates to the application of the NEB where its meaning is dealt with in section 13, 13A or 13B.

Subsection 14(1A) of the SGAA states:

This section does not apply if the meaning of the expression "notional earnings base" in relation to the employee is dealt with in section 13, 13A or 13B

In relation to employees whose superannuation contributions commenced being made after 20 August 1991, their NEB is defined in subsection 14(2) of the SGAA. Subsection 14(2) of the SGAA states:

Subject to sections (2A), (2B), (3) and (4), the expression "notional earnings base" means the earnings of the employee that, under the award, arrangement, law or scheme as in force on:

(a) the first day of a quarter; or

(b) the first day of employment: or

(c) the day on which the employer begins to contribute to the fund…;

whichever is the later, constitute the employee's earnings by reference to which the requisite employer contribution is to be calculated.

Subsection 14(2A) of the SGAA relates to employees for whom contributions were made before 21 August 1991 if the employer is contributing in accordance with an industrial award, or a law of a State.

Subsection 14(2A) of the SGAA states: If:

(a) the employer is contributing for the benefit of the employee to the fund in accordance with an industrial award, or a law of a kind referred to in paragraph (1)(ab), that was operative immediately before 21 August 1991; and

(b) section 13 would operate to determine a notional earnings base in relation to the employee if the employer had been so contributing immediately before 21 August 1991;

the notional earnings base in relation to the employees is the notional earnings base referred to in paragraph (b).

In relation to employees whose NEB is calculated under section 14 of the SGAA, subsection 14(3) is relevant to their situation.

Subsection 14(3) of the SGAA relates to adjustments where NEB is less than OTE.

Subsection 14(3) of the SGAA states:

If, in a case where the employer is contributing to the fund or the RSA in accordance with…. A law of a kind referred to in paragraph (1)(ab) (a law of a State) or the applicable superannuation scheme, the employee's notional earnings base calculated in accordance with subsection 2 would, in relation to a quarter, be less than the employee's ordinary time earnings for the quarter, the employee's notional earnings base is the employee's ordinary time earnings.

Therefore, if the employee's NEB was less than OTE , OTE would be the earnings base that would apply.

Section 13 of the SGAA

As the employer was contributing for the benefit of employees to the fund under a law of a state of Australia , it is relevant to your situation to consider section 13 of the SGAA.

Under subsection 13(1) of the SGAA, a pre-21 August 1991 earnings base can continue to be used where the following conditions are satisfied:

(a) the current employee is a member of a superannuation fund (the current fund) and

(b) the current employee's employer (the current employer) is contributing to the current fund, in accordance with an applicable authority (applicable authority is defined in subsection 13(5) of the SGAA and includes a law of a State) for the benefit of the current employee in relation to a contribution period; and

(c) subsection (1A) applies.

Subsection 13(1A) of the SGAA applies at the current time if the current employer, or an employer who is, at the current time, a predecessor employer of the current employer, was, immediately before 21 August 1991, contributing to:

(a) the current fund; or

(b) another fund that, at the current time, is a predecessor fund in relation to the current employer or the predecessor employer, as the case may be;

in accordance with the applicable authority, for the benefit of the current employee or another employee.

Under subsection 13(4A) of the SGAA, an employer (the test employer) is a predecessor employer of another employer (primary employer) in relation to another employer at a particular time (the test time) if subsection 4B or 4C applies at that time.

Subsection 13(4B) of the SGAA applies at the test time if, after 3.55pm, by legal time in the Australian Capital Territory, on 28 June 1994 and before the test time. Subsections 13(4B)(a) and (b) state:

(a) the test employer transferred to the primary employer, for market value consideration, the whole of the business or other undertaking, or an asset of the business or other undertaking, in which the employee was employed by the test employer immediately before the transfer; and

(b) immediately after the transfer, the employee was employed by the primary employer solely or principally in the transferred business or other undertaking, or in utilising the asset in the business or other undertaking of the primary employer.

Subsection 13(4C) of the SGAA applies to determine if the test employer is a predecessor employer of the primary employer. Subsection 13(4C) of the SGAA states:

This subsection applies at the test time if, because of subsection (4B), the test employer is at that time, in relation to the employee, a predecessor employer of another employer who, because of an application of subsection (4B) or this subsection, is at that time, in relation to the employee, a predecessor employer of the primary employer.

Definition of ordinary time earnings

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 the termination of employment in lieu of unused sick leave and unused annual leave.

(b)     the maximum contribution base for the quarter, which is the maximum limit on the amount of superannuation support that an employer is expected to provide for the benefit of the employee. The maximum contribution base for the income year ended 30 June 2010 is $40,170 per quarter.

The Commissioner's views on OTE for the relevant period, as defined in the SGAA, were contained in Superannuation Guarantee Rulings SGR 94/4 Superannuation guarantee: Ordinary time earnings and SGR 94/5 Superannuation guarantee: Salary or wages which were applicable prior to 30 June 2009..

Generally, OTE are what employees earn for their ordinary hours of work, including over award payments, shift loadings, commissions and allowances (excluding expense allowances).

Maximum contributions base

Subsection 13(3) of the SGAA provides that if an employee's quarterly NEB is an amount greater than the maximum contribution base (MCB) for a quarter then the NEB is the MCB.

Question 1

Summary

The NEB calculated under section 13 of the SGAA is the correct earnings base for the employees of the employer that were employed between the relevant period, where contributions commenced being made by the employer before 21 August 1991?

Detailed reasoning

To determine if the pre-21 August 1991 earnings base can continue to apply we need to apply the circumstances relating to the employer to the context of the law.

Subsection 13(1A) of the SGAA applies if the employer or a predecessor employer was immediately before 21 August 1991 was contributing to the current fund or another fund, that at the time, was a predecessor fund, in accordance with the applicable authority for the benefit of the employee(s).

For subsection 13(1A) of the SGAA to apply, we need to determine if the employer was a predecessor employer under section 13(4A) of the SGAA.

Under subsection 13(4A) of the SGAA the employer will be a predecessor employer of the current employer if subsections 13(4B) or 13(4C) of the SGAA apply.

Applying your circumstances to subsection 13(1) of the SGAA:

(a) your employees are members of super fund A

(b) you are contributing to super fund A in accordance with an applicable authority which is the Act and the Deed.

(c) As determined above, subsection 13(1A) of the SGAA applies.

Therefore, for those employees for whom the employer commenced making contributions before 21 August 1991, subsection 13(1) of the SGAA applies and the NEB as described in the Act and the Deed is the correct earnings base for these employees.

Conclusion

For those employees whom the employer commenced making contributions prior to
21 August 1999, the NEB as calculated under section 13 of the SGAA is the correct earnings base.

As the earnings base for these employees is established under a law of the State of Australia the earnings base determined by the trustees of the fund is the correct earnings base.

You should refer to the records of the superannuation fund to ascertain the NEB.

Question 2

Summary

The NEB calculated under section 14 of the SGAA is not the correct earnings base for the employees that were employed between the relevant period, where contributions commenced being made by the employer after 20 August 1991.

Detailed reasoning

Prior to 1 July 2008, employers may have been required to use the NEB as defined in section 14 of the SGAA as the earnings base to calculate the minimum superannuation contributions for their employees.

Section 14 of the SGAA relates to superannuation contributions that were not made for certain employees immediately before 21 August 1991.

Repealed subsection 14(1) of the SGAA outlined the operation of section 14 and states:

Subsection to subsection (1A), this section deals with the meaning of the expression notional earnings base….

(emphasis added)

Subsection 14(1A) of the SGAA states:

This section does not apply if the meaning of the expression notional earnings base in relation to the employee is dealt with in section 13, 13A or 13B.

(emphasis added)

(Note: This subsection was inserted with effect from 16 December 1995).

In this case as it has been determined that the employer met the requirements of subsection 13(1) of the SGAA, section 13 of the SGAA is the applicable earnings base for employees that were engaged with the former employer prior to 21 August 1991.

Given the notional earnings base in relation to an employee has been dealt with in section 13, section 14(1A) operates to deny the application of section 14 for purposes of NEB determination and the associated adjustments where the notional earnings base is less than OTE.

Notwithstanding the fact that superannuation contributions were made on or after 21 August 1991, section 13 of the SGAA is the section under which the NEB determination is to be made for employees engaged by the employer.

Because the application of section 14(1A) of the SGAA mandates that section 13 of the SGAA be applied in these circumstances, the application of any other subsections to section 14, inclusive of subsections 14(2) and 14(2A) of the SGAA, is effectively denied.

Conclusion

For those employees whom the employer commenced making contributions on and from 21 August 1999, the NEB as calculated under section 14 does not apply. Section 13 of the SGAA is the correct section under which the NEB is ascertained.

As the earnings base for these employees is established under a law of the State of Australia , the earnings base determined by the trustees of the superannuation fund is the correct earnings base.

You should refer to the records of the superannuation fund to ascertain the notional earnings base.

Question 3

Summary

The inclusion of bonus payments made to the employees under the terms of the employer agreement relating to the relevant periods, as part of the NEB for employees is not a matter for which the ATO is able to provide advice.

Detailed Reasoning

As detailed above for questions 1 and 2, a NEB determined under section 13 of the SGAA rather than OTE is the basis for calculation of the minimum superannuation contributions for the employees.

In this case the NEB is contained in a deed.

The employees operate under an agreement certified by an Industrial Relations Commission. The agreement provides for the payment of a bonus to employees.

The question arises as to whether 'salary' as defined under the deed is inclusive of bonus payments payable under the agreement.

The question is unable to be answered by the ATO as we do not provide interpretation in respect of trust deeds. This is a matter to be decided by the trustees.

Conclusion

The ATO is unable to provide advice as to whether bonus payments from part of NEB for the employees.