Edited version of administratively binding advice

Authorisation Number: 1012511149838

Advice

Subject: SG and cash-in lieu received in exchange for fringe benefits

Facts and circumstances

This 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.

Senior employees who are appointed for greater than three months are eligible to participate in an executive vehicle scheme. Eligible employees may, with the approval of the Director, elect not to participate in the scheme and take the cash in lieu option instead. Alternatively, with approval, an eligible employee may elect to accept a partial cash-in lieu option.

The only criterion to qualify for participation in the scheme is to be appointed at the appropriate senior level. Eligibility is not linked to hours worked or any particular performance benchmarks.

Reasons for Decision

In considering the Superannuation Guarantee implications of the cash-in lieu option there are two fundamental questions. The first is whether the cash-in lieu remuneration is received in relation to ordinary hours of work. The second is whether the cash-in lieu payment falls within the definition of salary and wages.

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 9.25%) by each employee's earnings base.

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.

Ordinary Time Earnings

Subsection 6(1) of the SGAA defines OTE in relation to an employee to mean:

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

(C) (Repealed by No 15 of 2007)

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

(b) 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) explains that an employee's 'ordinary hours of work' are the hours specified as ordinary hours of work under the relevant award or agreement that governs the employee's conditions of employment and highlights that any hours worked in excess of, or outside the span of those specified ordinary hours of work are not part of the employee's 'ordinary hours of work'. In particular, SGR 2009/2 states that:

25. All amounts of earnings in respect of employment are in respect of the employee's ordinary hours of work unless they are remuneration for working overtime hours, or are otherwise referable only to overtime or to other hours that are not ordinary hours of work…

Participation in the executive vehicle scheme is available to all eligible employees without regard to any particular hours of work. The remuneration is therefore properly considered as being in respect of ordinary hours of work and thus constitutes ordinary time earnings.

Salary and Wages

Not all remuneration in respect of ordinary time earnings is included in the SG calculation. An employee's remuneration may consist of salary, wages or fringe benefits provided by the employer.

Subsection 11(3) of the SGAA states that fringe benefits within the meaning of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) are not salary or wages for the purposes of the SGAA. Subsection 136(1) of the FBTAA includes a lengthy and detailed definition of what constitutes a fringe benefit. In general a fringe benefit can be any benefit received by an employee in connection with their employment. However, paragraph 136(1)(f) of the FBTAA excludes, "a payment of salary or wages or a payment that would be salary or wages if salary or wages included exempt income for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936).

Salary or wages are income according to ordinary concepts under subsection 6-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997). Income provided in the form of fringe benefits, as defined in subsection 136(1) of the FBTAA are exempt under subsection 23L(1) of the ITAA 1936.

The consequence of the various legislative provisions is that fringe benefits for the purposes of the FBTAA and salary and wages for the purposes of the SGAA are mutually exclusive. They do not overlap. Once an amount is received as cash-in lieu it will form part of salary and wages. It does not matter that the amount had its origin in a fringe benefit that was cashed in.

Conclusion

The cash-in lieu payment should be included in the calculation of the superannuation guarantee liability because it is part of the eligible employee's salary and wages and has the necessary connection to the relevant earnings base (OTE). A cash-in lieu payment that is received instead of a fringe benefit does not retain any of the fringe benefit character of the original entitlement that it replaces.

In calculating the amount of SG payable all of the other rules such as the maximum contribution base found in section 15 of the SGAA are still applicable.

Relevant legislative provisions

Superannuation Guarantee (Administration) Act 1992, section 6

Superannuation Guarantee (Administration) Act 1992, section 11

Superannuation Guarantee (Administration) Act 1992, section 15

Fringe Benefits Tax Assessment Act 1986, section 136

Income Tax Assessment Act 1997, section 6-5

Income Tax Assessment Act 1936, section 23L