Edited version of administratively binding advice

Authorisation Number: 1012439066261

Advice

Question 1

Is the 'Appointed member' of a Body corporate of a Government or semi-government body an employee of the Body corporate for the purposes of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Advice

Yes, please see Reasons for decision below.

Question 2

Is the Body corporate liable to pay superannuation guarantee in relation to the Appointed member from the date of appointment?

Advice

Yes, please see Reasons for decision below.

This advice applies for the following period:

After 1 July 2012

The arrangement commences on:

1 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 member has been appointed to a semi government Body corporate in accordance with an Act and the associated regulations.

· The letter of appointment includes the following:

o In accordance with the Act, the role of a member is to exercise the powers and discharge the duties of the body corporate.

o The Act details the remuneration to be paid to the member. While the member will be remunerated by the Body corporate, the determination of the value of that remuneration is made by the Minister. Other ancillary costs related to official business such as computing, telecommunications and travel will be met by the Body corporate. If the appointment extends beyond twelve months, the remuneration inclusive of all fees is to be reviewed by the Minister.

o The member will hold office until an Inquiry Panel, to be subsequently appointed pursuant to the Act, reports and recommends to the Governor that the original members of the Body corporate be either reinstated or dismissed.

Relevant legislative provisions

Superannuation Guarantee (Administration) Act 1992 Section 12.

Reasons for decision

Question 1 & 2

Summary

Based on the facts and evidence provided it is considered the Appointed member is an employee under subsection 12(2) of the SGAA.

Therefore the Body corporate does have an obligation under the SGAA to make superannuation contributions to a complying superannuation fund of choice for the benefit of the Appointed member.

Detailed reasoning

The SGAA states that an employer must provide the prescribed minimum level of superannuation support for its employees (unless the employees are exempt employees) or they must pay the superannuation guarantee charge.

Engagement of members

The Body corporate has been established under an Act and is a body corporate pursuant to the Act.

The elected member representatives normally comprise the governing body of the body corporate and have the responsibility of directing and controlling the affairs of the entity in accordance with the Act. Essentially, the elected members do not occupy an executive position of the body corporate, they are elected to an office requiring them to make decisions about the running of the entity in accordance with the Act.

Additional to the governing body, the Act requires the Body corporate to appoint a Chief Executive Officer (CEO). The CEO directs the entity on a day to day basis and is responsible for employing staff who perform administration. It is also the CEO who must unsure that decisions and objectives of the governing body are achieved. Essentially, the CEO together with the other executive team members occupy the executive positions of the body corporate and are responsible for ensuring the entity transacts in accordance with the appropriate laws, including laws ancillary and additional to the Act. That is, the CEO and common law staff of the entity fulfils the administrative functions of the entity.

Common law employee

For the purposes of the SGAA, the terms employee and employer have their ordinary meanings. However the SGAA does not list the indicators that may be considered in determining whether an individual engaged is an employee at common law.

The Taxation Administration Act 1953 (TAA 1953) does not provide guidance on the terms appointment, office or position. These terms must therefore be interpreted according to their ordinary meaning and legislative context.

Taxation Ruling 2002/21 - Income tax: Pay As You Go (PAYG) Withholding from salary, wages, commissions, bonuses or allowances paid to office holders (TR 2002/21) sets out the Commissioner's view on the circumstances in which a person holds an appointment, office or position under the Constitution or an Australian law whether a person is otherwise in the service of the Commonwealth, a State or a Territory.

TR 2002/21 makes reference to the House of Lords case Edwards (Inspector of Taxes) v Clinch [1982] AC 845. 

When handing down judgment in this case, Lord Bridge of Harwich said: 

First, the appointed person has no employer in any ordinary sense; he exercises his functions quite independently. Secondly, he is not acting in any personal capacity, but in a capacity which derives its existence wholly from, and is clothed with powers and duties by, his statutory appointment. 

It is fair and reasonable to conclude, without additional reference to the relevant judicial decisions, that an individual appointed to an office or position of Appointed member of the entity has no identifiable employer. None of the usual indicators of an employer/employee relationship apply to the Appointed member.

Whilst it can be determined that the Appointed member is not a common law employee, further consideration needs to be given to the statutory expansion of the concept of employee given under subsections 12(2) to subsection 12(11) of the SGAA to determine if the Appointed member can be defined as an employee. Of particular relevance to the 'Appointed member' are subsections 12(2), 12(3) and 12(9) of the SGAA.

Superannuation Guarantee Ruling SGR 2005/1 Superannuation guarantee: who is an employee? (SGR 2005/1) explains when an individual is considered to be an 'employee' under section 12 of the SGAA.

Paragraph 8 of SGR 2005/1 states that if a person is an employee at common law, that person is an employee under the SGAA. In this case it has previously been established that the Appointed member is not a common law employee.

Paragraph 10 of SGR 2005/1 explains that the classification of a person as an employee for the purposes of the SGAA is not solely dependent upon the existence of a common law employment relationship. The definition also extends to, among other things, a person who is entitled to a payment for the performance of duties as a member of the executive body of a body corporate (subsection 12(2) of the SGAA).

Members of executive bodies of body corporates

Subsection 12(2) of the SGAA sets out: 

A person who is entitled to 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 is, in relation to those duties an employee of the body corporate.

The Body corporate has been established under the Act and is a body corporate pursuant to the Act.

Paragraph 62 of SGR 2005/1 states that under subsection 12(2) of the SGAA, a person who is entitled to 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 is, in relation to those duties, an employee of the body corporate.

The Body corporate is an incorporated entity to which subsection 12(2) of the SGAA is intended. The Appointed member is remunerated for the performance of duties which are to run the affairs of the entity in the absence of the suspended members of the Body corporate.

Paragraph 63 of SGR 2005/1 states that in the majority of circumstances, such a person will be called a 'director'; the SGAA will apply even if the person is not referred to as a director but falls within the terms of subsection 12(2).

Therefore, based on the facts and evidence provided it is considered that the Appointed member does fall within the parameters of subsection 12(2) of the SGAA, he is remunerated for the performance of his duties to run the affairs of the Body corporate, of which, pursuant to the Act is a body corporate.

Therefore the Appointed member is considered to be an employee under subsection 12(2) of the SGAA.

Contract for the labour of a person

The relationship between an employer and employee is a contractual one. Subsection 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.

The term labour is not defined in the SGAA. However, it is generally accepted that labour includes mental and artistic effort as well as physical work (Deputy Commissioner of Taxation v Bolwell (1967) 1 ATR 862). 

Labour must be distinguished from other components of the contract (such as the supply of goods or materials, the hire of plant and machinery and related costs incurred by the contractor in the course of performing work under the contract). The Commissioner of Taxation considers that principally assumes its commonly understood meaning, that is, chiefly or mainly (Superannuation Guarantee Ruling SGR 2005/1).

If the labour component of a contract is clearly identifiable, the labour component will be the employee's salary or wages.

The Act states that when a declaration is made under this Act the Governor may, by order, appoint a person to be a member of the Body corporate until the offices of the members of the Body corporate are filled again and the new Body corporate holds its first meeting.

In this case the Body corporate was suspended by the Governor and a member was appointed under the Act. Therefore the existing Body corporate as such ceases to exist by way of suspension thus there can be no contractual relations with the said Body corporate.

The Act details the remuneration to be paid to an Appointed member. Whilst the Appointed member will be remunerated by the Body corporate, the determination of the value of that remuneration is made by the Minister. If the appointment extends beyond twelve months, the remuneration inclusive of all fees is to be reviewed by the Minister.

Therefore in the absence of contractual relations between the Appointed member and the Body corporate it has been determined that the Appointed member does not meet the criteria necessary to satisfy subsection 12(3) of the SGAA and is not considered to be an employee under subsection 12(3) for the purposes of the SGAA.

Persons in the service of the Commonwealth, the States or the Territories

Whilst it is of no consequence to consider whether the Appointed member would be considered an employee under subsection 12(9) of the SGAA, for completeness in addressing the application we provide the following:  

A person who:

(a) Holds, or performs the duties of, an appointment, office or position under the Constitution or under a law of the Commonwealth, of a State or of a Territory; or

(b) Is otherwise in the service of the Commonwealth, of a State or of a Territory (including service as a member of the Defence Force or as a member of a police force);

is an employee of the Commonwealth, the State or the Territory, as the case requires.

However, this rule does not apply to a person in the capacity of the holder of an office as a member of local government council.

The wording in subsection 12(9) of the SGAA is similar to the wording in Schedule 1, s12-45(1)(b), (c) and (d) of the TAA 1953. As TR 2002/21 provides comprehensive guidance on the interpretation of the wording in those paragraphs, a similar interpretation may be applied for the purposes of interpreting subsection 12(9) of the SGAA. 

Paragraph 14 of TR 2002/21 states that: 

An individual is considered to be appointed or engaged under an Act where you can identify either:

· the particular office, position or appointment; or

· the constitution of the relevant body (such as panel, board committee or tribunal) to which the individual has been appointed,

in the relevant legislation or statutory instrument. 

It is readily identifiable in both the instrument of appointment and the Act the position to which the individual has been appointed, that is, the position of Appointed member of the Body corporate.

In applying paragraph 12(9)(a) of the SGAA the nature of an individuals engagement is determinative of whether that person will be treated as in the service of the Commonwealth, a State or a Territory. 

Paragraph 51 of TR 2002/21 states that: 

An individual may be regarded as holding an appointment, office or position once he or she has been formally appointed to it and has become entitled to exercise its functions it is not necessary to show the individual has actually discharged those functions. 

Additionally, paragraph 53 of TR 2002/21 states: 

Duty has been interpreted as being not confined to a legal obligation, but as the equivalent of function which encompasses all that is incidental to the carrying out of those duties or functions. 

It follows the Appointed member performs the duties of an appointment under the Act.

However, the Body corporate is not controlled by the State, it is intended that the Body corporate have autonomy of administration and only in extreme situations would the Minister interfere with the management and administration of matters in a Body corporate. The Ministers input is administrative, or arbitrative and limited to specific occurrences such as maladministration, fraud or incompetence. At no time will an individual engaged in any capacity by the Body corporate become an employee of the State.  

The Minister, as the regulator of the Act, has appointed a member further to dissolving the governing body in order to ensure the effective administration of the entity. Further to this appointment, the member can decline to be appointed or alternatively, accept to be appointed and in doing so, agree to carry out the statutory functions of the body corporate in accordance with the Act. In effect, in appointing the member, the State has created a relationship between the member and the Body corporate, not the Appointed member and the state.

Conclusion

Further to considering your submission the Commissioner has determined that the Appointed member would not be an employee of the Body corporate for the purposes of subsection 12(3) or 12(9) of the SGAA, however, the Appointed member is considered to be an employee of the Body corporate under subsection 12(2) of the SGAA.

Therefore the Body corporate does have an obligation under the SGAA to make superannuation contributions to the fund of choice for the benefit of the Appointed member.