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Advice

Subject: Superannuation guarantee obligations

Question

Will the salary or wage payments made by an employer who is not a resident of Australia to non-resident employees, for work done outside of Australia, form part of ordinary time earnings (OTE) as defined under subsection 6(1) of the SGAA?

Advice

No, please refer to 'Reasons for decision' below.

This advice applies for the following period:

1 July 2012 to 30 June 2014.

The arrangement commences on:

I July 2012

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 is a non-resident of Australia

The employer employs employees who are not residents of Australia to carry out work outside of Australia.

Relevant legislative provisions

Superannuation Guarantee (Administration) Act 1992 subsection 6(1)

Superannuation Guarantee (Administration) Act 1992 section 12

Superannuation Guarantee (Administration) Act 1992 section 15C

Superannuation Guarantee (Administration) Act 1992 section 19

Superannuation Guarantee (Administration) Act 1992 section 27

Reasons for decision

Summary

Salary or wages paid by the employer to its workers meet the exclusion in subparagraph 27(1)(b) of the SGAA. As such the salary or wages do not form part of the worker's salary and wages for the purpose of making a calculation of employee superannuation guarantee shortfalls under section 19 of the SGAA. Accordingly, the employee has no OTE for the purposes of the SGAA.

Detailed reasoning

From 1 July 2003, all employers must pay a minimum of 9% of their eligible employee's earnings base in superannuation contributions to a complying superannuation fund or retirement savings account (RSA) on a quarterly basis. From 1 July 2008, all employers must use OTE as the earnings base to calculate the minimum super guarantee contributions required for your employees.

OTE is usually the amount an employee earns for their ordinary hours of work. It includes commissions, shift-loadings and some allowances, but doesn't include overtime payments. Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages' (SGR 2009/2) provides further guidance on what constitutes OTE.

Paragraph 7 of SGR 2009/2 highlights the relationship between OTE and salary or wages as follows:

7. An amount can only be part of an employee's OTE if it is 'salary or wages' of the employee. But an employee's salary or wages may include amounts that are not OTE.

Employer's individual superannuation guarantee shortfalls are calculated in accordance with the formula in section 19 of the SGAA. An element of the formula is 'total salary or wages paid' and increases in this element will effectively increase the amount of the shortfall. As such salary or wages, which meet an exclusion in that they are paid for work done outside Australia, will reduce an employer's shortfall.

Salary or wages

The phrase 'salary or wages' is defined inclusively and exclusively in section 11 of the SGAA.

Further clarification is provided at paragraph 49 of SGR 2009/2 as follows:

49. The SGAA defines 'salary or wages' inclusively in section 11. Unless specifically excluded, payments are included in the definition of 'salary or wages' if they satisfy the ordinary or common law meaning of that term……

Section 27 of the SGAA defines the salary or wages exclusions as follows:

SECTION 27 SALARY OR WAGES: GENERAL EXCLUSIONS

27(1)

The following salary or wages are not to be taken into account for the purpose of making a calculation under section 19:

(a) …

(b) salary or wages paid to an employee who is not a resident of Australia for work done outside Australia (except to the extent that the salary or wages relate to employment covered by a certificate under section 15C);

(c) salary or wages paid by an employer who is not a resident of Australia to an employee who is a resident of Australia for work done outside Australia;

(ca) salary or wages paid by an employer to an employee who is not a resident of Australia for work done in the Joint Petroleum Development Area (within the meaning of the Petroleum (Timor Sea Treaty) Act 2003);

(d) salary or wages paid to an employee who is a prescribed employee for the purposes of this paragraph;

(e) salary or wages prescribed for the purposes of this paragraph.

Ordinary time earnings

The phrase 'ordinary time earnings' is defined in subsection 6(1) of the SGAA follows:

ordinary time earnings, in relation to an employee, means:

(a) the total of:

(i) earnings in respect of ordinary hours of work other than earnings consisting of a lump sum payment of any of the following kinds made to the employee on the termination of his or her employment:

(A) a payment in lieu of unused sick leave;

(B) an unused annual leave payment, or unused long service leave payment, within the meaning of the Income Tax Assessment Act 1997; and …

(ii) earnings consisting of over-award payments, shift-loading or commission; or

(b) if the total ascertained in accordance with paragraph (a) would be greater than the maximum contribution base for the quarter - the maximum contribution base.

In broad terms (and subject to some exceptions), OTE of an employee means earnings in respect of ordinary hours of work.

Employer - employee

Under section 12 of the SGAA 'employer' and employee' have their ordinary meaning which is expanded and clarified in subsections 12(2) to 12(11).

ATO view - superannuation guarantee: work done outside Australia

ATO Interpretative Decision ATO ID 2012/75 - Superannuation Guarantee: work done outside Australia (ATO ID 2012/75) was published on 17 September 2012.

The issue considered in ATO ID 2012/75 was as follows:

Is work done at sea at a location which satisfies all of the following:

 it is outside the outer limits of the 'coastal sea' of Australia;

 it is outside the outer limits of the 'coastal seas' of the Territory of Christmas Island and the Territory of Cocos (Keeling) Islands;

 it is outside the Joint Petroleum Development Area (within the meaning of the Petroleum (Timor Sea Treaty) Act 2003 ) [JPDA];

'work done outside Australia' for the purpose of subsection 27(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

The decision relative to ATO ID 2012/75 was:

Yes. Work done at sea at such a location is 'work done outside Australia' for the purpose of subsection 27(1) of the SGAA.

Application of the law

Advice was received that an employer/employee relationship exists between the employer and its workers, and as such we have not considered the status of the employer and employee in respect of section 12 of the SGAA.

Some salary or wage amounts may be excluded from being taken into account for the purpose of making a calculation of employee superannuation guarantee shortfalls under section 19 of the SGAA.

You have requested advice as to whether the salary or wages exclusion in paragraph 27(1)(b) of the SGAA applies in circumstances where you pay employees for work done outside of Australia.

You have advised further that the salary or wages paid to employees do not fall under the exclusions in paragraphs 27(1)(c) ,(ca), (d), and (e) of the SGAA.

What constitutes 'Australia' is central to any consideration of whether the salary or wages exclusion in paragraph 27(1)(b) of the SGAA is able to be met.

The issue of what constitutes 'Australia' in the context of subsection 27(1) of the SGAA and the meaning of 'coastal sea' were both addressed in ATO ID 2012/75. The significance of the Acts Interpretation Act 1901 (AIA) in a determination of the meaning of 'Australia' and the view that no contrary intention exits in the SGAA to that provided in the AIA are apparent.

We do not intend to restate the reasons for the decision reached in ATO ID 2012/75 but we highlight the conclusion reached as follows:

In the phrase 'work done outside Australia' as used in subsection 27(1) of the SGAA, 'Australia' is used in a geographical sense and extends to the outer limits of Australia's 'coastal sea'. Further, 'Australia' in that phrase also includes the Territory of Cocos (Keeling) Islands, the Territory of Christmas Island, the 'coastal sea' of each of those Territories, and the JPDA.

Work done outside those areas is 'work done outside of Australia' for the purposes of subsection 27(1) of the SGAA.

As a result, the salary or wages paid to the employee in this case is for 'work done outside of Australia' and so are not taken into account for the purpose of making a calculation under section 19 of the SGAA, due to the operation of paragraph 27(1)(b) of the SGAA.

The facts surrounding the work for which the employer will be making payments are not materially different to those detailed in ATO ID 2012/75. As such the salary or wages paid by the employer to their employees is for 'work done outside of Australia' and so are not taken into account for the purpose of making a calculation under section 19 of the SGAA, due to the operation of paragraph 27(1)(b) of the SGAA.

As detailed above in the 'overview' section, an amount can only be part of an employee's OTE if it is 'salary or wages' of the employee.

Conclusion

We have established that the salary or wage payments made by the employer to their employees are not salary or wages for the purpose of making a calculation under section 19 of the SGAA.

Therefore, the payments will not form part of the employee's OTE which is the earnings base used by employers to calculate the minimum superannuation guarantee contributions required for their employees under the SGAA.