Edited version of administratively binding advice

Authorisation Number: 1012444244591

Advice

Subject: Superannuation Guarantee

Question 1

Will the payment of a salary package amount paid as a tax exempt benefit constitute ordinary time earnings (OTE) as defined in subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Answer: No, please see Reasons for decision below.

Question 2

Does the entity have an obligation under the SGAA to pay superannuation contributions for the benefit of the individual in respect of the salary package amount paid as a tax exempt benefit?

Answer: No, please see Reasons for decision below.

Question 3

Will the payment of an additional amount paid for administrative duties on a pro rata basis constitute OTE as defined in subsection 6(1) of the SGAA?

Answer: Yes, Please see Reasons for decision below.

Question 4

Does the entity have an obligation under the SGAA to pay SG contributions on behalf of the individual in respect of the additional payment for administration duties paid pro rata?

Answer: Yes, however only if the amount paid from the pro rated amount is in excess of $450 per month. Please see Reasons for decision below.

This advice applies for the following period:

1 July 2011 onwards

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 advise that the individual is:

· Paid 'wages' under the fringe benefit tax exemption rule and this wages is tax exempt.

· The individual is under 70 years of age and is paid more than $450 per month.

· You advise that as per a Taxation Ruling, benefits provided to certain employees of a particular industry are exempted under the Fringe Benefits Tax Assessment Act 1986 (FTBAA) and that it is your understanding that the individual meets the criteria outlined in section 57 of the FTBAA.

You have provided a copy of a 'work contract' between the entity and the individual; the relevant extracts from the contract are as follows:

· Proposed salary commencing 1 March 2012, is paid pro rata per annum and is paid as a tax exempt benefit

· An additional amount will be paid pro rata as a cash benefit for administration duties.

· The additional amount is declared on a PAYG statement as gross income and this is the wage component. The remaining amount comprising of the salary package is treated as an exempt fringe benefit.

Relevant legislative provisions

Superannuation Guarantee (Administration) Act 1992 Section 6,

Superannuation Guarantee (Administration) Act 1992 Section 27

Fringe Benefit Tax Assessment Act 1986 Section 57.

Reasons for decision

Questions 1&2

Detailed reasoning

Summary

The salary package amount is not considered to be salary or wages for SGAA purposes and therefore not OTE as defined in subsection 6(1) of the SGAA - a payment cannot be OTE if it is not considered to be salary or wages.

Therefore the entity does not have an obligation under the SGAA to make superannuation contributions for the benefit of the individual in respect of the tax exempt amount.

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 (SGC).

From 1 July 2008, all employers must use OTE as the earnings base to calculate the minimum SG contributions required for your employees.

From 1 July 2008, employers may still be required to use notional earnings bases specified in legislation or industrial agreements as the basis of their superannuation support in cases where these are above an employee's OTE, but SGAA obligations will only be assessed against OTE.

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

Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages' (SGR 2009/2) provides the Commissioners view on what constitutes OTE.

This ruling confirms that an amount can only be part of an employee's OTE if it is 'salary or wages' of the employee (at paragraph 7). Of particular relevance to your circumstances is paragraph 58 which identifies that fringe benefits and other non-cash benefits are payments excluded from the definition of 'salary or wages':

Paragraph 58 of SGR 2009/2 outlines the treatment of fringe benefits and other non-cash benefits as follows:

58. Fringe benefits as defined in the Fringe Benefits Tax Assessment Act 1986 (FBTAA) are excluded under subsection 11(3) of the SGAA.5 Additionally, the Commissioner takes the view that other 'benefits', within the meaning of the FBTAA, given by employers to employees that are neither fringe benefits nor salary or wages within the meaning of that Act are not salary or wages for SGAA purposes. For example:

· contributions made by an employer to a complying superannuation fund for the benefit of an employee (including those required to be made by the superannuation guarantee legislation itself); and

· the acquisition of a share, or of a right to acquire a share, under an employee share scheme (within the meaning of Division 13A of Part III of the Income Tax Assessment Act 1936 (ITAA 1936)),

· are not salary or wages for SGAA purposes.

Application to your circumstances

As outlined in paragraph 7 of SGR 2009/2, an amount can only be part of an employee's OTE if it is "salary or wages" of the employee. Where a payment to an employee falls outside of the definition of salary or wages for SG purposes, the payment will not contribute towards the employees OTE in calculating the employers SG obligation.

The entity is exempt from fringe benefits tax under section 57 of the Fringe Benefits Tax Assessment Act 1986.

In this case the salary package amount of is not considered to be salary or wages for SGAA purposes and therefore not OTE either, as a payment cannot be OTE if it is not considered to be salary or wages. Therefore the entity does not have an obligation under the SGAA to make SG contributions on behalf of the individual.

Questions 3 & 4

Summary

If the individual is paid less than $450 per month from the additional payment amount they will meet the general exemption for salary and wages for SG purposes as set out in subsection 27(2) of the SGAA.

In this circumstance the entity does not have an obligation under the SGAA to make SG contributions on behalf of the individual.

However if the monthly payment pro rated from the additional amount of exceeds $450 per month then the exemption contained within subsection 27(2) of the SGAA will not apply, and the entity will have an obligation under the SGAA to make SG contributions on behalf of the individual to a complying fund of choice.

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 SGC. The minimum level of support is calculated by multiplying the charge percentage (currently 9%) by each employee's earnings base.

From 1 July 2008, an employer must use 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.

Employers will still be able to use notional earnings bases, such as those specified in legislation or industrial agreement, as the basis for calculating their superannuation support. However, an employer's liability under the SGAA will only be determined with reference to an employee's OTE.

Salary and wage exemptions under the SGAA

Employers do not have to make superannuation contributions under the SGAA for some categories of employees. These categories include employees who are:

· paid less than $450 in a month

· aged 70 or over

· under 18 years of age and working 30 hours a week or less

Section 27 of the SGAA sets out general exemptions for salary or wages for SGC purposes. Subsection 27(2) of the SGAA states;

If an employer pays an employee less than $450 by way of salary or wages in a month, the salary or wages so paid are not to be taken into account for the purpose of making a calculation, in relation to
the employer and the employee, under section 19.

Application to your circumstances

The individual is paid a salary package amount that as advised above is paid as a tax exempt benefit under the FBTAA. Additionally the individual is paid a further additional amount pro rata for further duties. This amount is declared on a Pay As You Go Payment Summary statement as gross income and you advise that this is the wage component attached to the duties.

The entity advises that the individual is less than 70 years of age, therefore not meeting the general exclusion as set out in section 27(1)(a) of the SGAA.

If the individual is paid less than $450 per month from the additional payment amount then the individual will meet the general exemption for salary and wages for SG purposes as set out in subsection 27(2) of the SGAA. In this circumstance the entity does not have an obligation under the SGAA to make SG contributions on behalf of the individual.

However if the monthly payment of wages pro rated from the additional amount exceeds $450 per month then the exemption contained within subsection 27(2) of the SGAA will not apply, and the entity will have an obligation under the SGAA to make SG contributions on behalf of the individual to a complying fund of choice.