Edited version of administratively binding advice

Authorisation Number: 1012581626795

Advice

Subject: Superannuation guarantee - ordinary time earnings

Question 1

Are allowances as defined by a tribunal to be included in ordinary time earnings (OTE) as defined under subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA) ,for the purpose of satisfying the minimum level of superannuation support required for employees under the SGAA?

Advice

No, please refer to 'Reasons for decision'.

Question 2

Are allowances as defined by a tribunal in certain determinations issued by the tribunal to be included in OTE as defined under subsection 6(1) of the SGAA, for the purpose of satisfying the minimum level of superannuation support required for employees under the SGAA?

Advice

No, please refer to 'Reasons for decision'.

The arrangement commences on:

After 1 January 2014

Relevant facts and circumstances

Your advice is based on the facts stated in the description of the scheme inclusive of tribunal determinations. 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 Australian Taxation Office (ATO) advice.

Relevant legislative provisions

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

Reasons for decision

Relevant law and ruling

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

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.

In broad terms (and subject to some exceptions), OTE of an employee means earnings in respect of ordinary hours of work. Payments for work performed outside the ordinary hours of work, such as overtime payments, are not OTE.

OTE includes commissions, shift-loadings and some allowances, but does not 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.

The expression 'earnings in respect of ordinary hours of work' or any of the terms in that expression are not defined in the SGAA. The Commissioner's view on the meaning of these phrases and the relationship between OTE and salary or wages is expressed in the following paragraphs of SGR 2009/2 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.

…

Meaning of 'earnings'

12. An employee's 'earnings', for the purpose of the definition of OTE, is the remuneration paid to the employee as a reward for the employee's services. The practical effect for superannuation guarantee purposes is that the expression 'earnings' means 'salary or wages'.

Allowances and loadings

27. Many employees receive various additional payments that are described as allowances or loadings and that are paid to employees to recognise or compensate for certain conditions relating to their employment. Examples:

· a 'site allowance'…

· a 'casual loading' …

· a 'dirt allowance' …and

· a 'freezer allowance' …

These kinds of payment are OTE except to the extent that they:

· are not 'salary or wages', for example if they are payments of a predetermined amount to offset or reimburse particular expenses (see paragraph 72 of this Ruling); or…

Fringe benefits and other non-cash benefits

58. Fringe benefits as defined in the Fringe Benefits Tax Assessment Act 1986 (FBTAA) are excluded under subsection 11(3) of the SGAA. 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.

Allowances

65. For the purposes of the SGAA, all allowances, except expense allowances and allowances that are fringe benefits under the FBTAA, received by an employee, are included in 'salary or wages'. Expense allowances are dealt with under paragraph 72 of this Ruling.

Expense allowances and reimbursements

72. Expense allowances, that is, those allowances paid to an employee with a reasonable expectation that the employee will fully expend the money in the course of providing services, are not 'salary or wages'.

73. A reimbursement that compensates an employee for an expense they have incurred on behalf of the employer is also not 'salary or wages'.

264. An allowance can also be paid to compensate for particular working conditions, for example height, dust or danger. These types of allowances are not expended in the course of the employee's work, but rather, are paid as compensation for the conditions applying to the job.

265. Allowances of this kind are to be distinguished from expense allowances dealt with under paragraphs 72 and 266 of this Ruling.

Expense allowances

266. An expense allowance is an allowance which is paid with the reasonable expectation that the money will be fully expended by the employee in the course of providing their services. The expense allowance is not given for the services of the employee, but rather in recognition of the expenditure that the employee will incur in the course of providing their services. As this type of allowance does not fall within the ordinary meaning of 'salary or wages', it does not form part of 'salary or wages' for the purposes of section 11. It also does not form part of an employee's OTE.

Reimbursements

268. A payment is a reimbursement if the employee is compensated exactly for all or an agreed part of an expense already incurred, although not necessarily disbursed. With reimbursements in general, the employer considers the expense to be its own and the employee incurs the expenditure on behalf of the employer. A requirement that the employee vouch for expenses lends weight to a presumption that a payment is a reimbursement rather than an allowance. As a reimbursement is not provided as a reward for services of the employee it is not 'salary or wages' or 'OTE'.

269. Note: where the reimbursement relates to the use of the employee's car, the Commissioner will treat a payment calculated at a set rate per kilometre as a reimbursement if the expense amount is calculated on a reasonable basis. For example, calculations made with reference to the statutory formula in the income tax laws would be considered reasonable.

270. An employer may make a payment in advance to an employee to enable the employee to expend an amount of money. Where the employee is required to account for any unspent monies to the employer, the payment is neither an allowance nor a reimbursement. In this situation the employee expends the money as an agent for the employer. The payment is not included in OTE or 'salary or wages'.

Question 1

The allowance is paid to employees in advance and is to be accounted for biannually and is made for expenditure incurred in providing their services.

The allowance is paid 'with the reasonable expectation that the money will be fully expended by the employee in the course of providing their services', as referred to in paragraph 266 of SGR 2009/2.

The allowance is an advance payment rather than compensation for an expense already incurred and as such is not a reimbursement as referred to under paragraph 268 of SGR 2009/2.

The allowance is an expense allowance, as referred to in paragraph 72 of SGR 2009/2, which does not fall within the ordinary meaning of salary or wages and as such does not form part of OTE.

Question 2

The allowance may be claimed to meet a variety of expenses, inclusive of accommodation.

The allowance is characteristic of a reimbursement as detailed under paragraph 268 of SGR 2009/2 in that the employee must meet the expense initially and subsequently make a claim up to an agreed limit. However, there is no requirement to vouch for the expenditure, nor any evidence that the allocation and the actual expense will match exactly

As such the allowance is an expense reimbursement, as referred to in paragraph 72 of SGR 2009/2, which does not fall within the ordinary meaning of salary or wages and as such does not form part of OTE.