Edited version of your written advice

Authorisation Number: 1012660704196

Advice

Subject: Superannuation guarantee and ordinary time earnings

Question 1

Are the benefits provided by the employer to their employees under a valid salary sacrifice arrangement considered to be ordinary times earnings (OTE) for the purposes of subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Advice

No. Please refer to 'Reasons for decision'.

Question 2

Is the allowance made to employees considered to be OTE for the purposes of the SGAA?

Advice

Yes. Please refer to 'Reasons for decision'.

This advice applies for the following period

Financial year ending 30 June 2014

Financial year ending 30 June 2015

Financial year ending 30 June 2016

Financial year ending 30 June 2017

The arrangement commences on:

1 July 2013

Relevant facts and circumstances

1. You offer your employees salary sacrifice packages which include fringe benefits, some of which are otherwise deductible to your employees, and superannuation contributions.

2. You pay your employees an allowance in relations to certain conditions of their employment.

Relevant legislative provisions and ATO view

Superannuation Guarantee Administration Act 1992 Subsection 6(1)

Superannuation Guarantee Administration Act 1992 Subsection 11(3)

Superannuation Laws Amendment (2004 Measures No 2) Act 2004

Fringe Benefits Tax Assessment Act 1986

Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages'

Reasons for decision

Question 1

Detailed reasoning

3. 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.

4. 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.

5. OTE is usually the amount an employee earns for their ordinary hours of work. It 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.

6. Paragraph 58 of SGR 2009/2 explains that benefits that are not salary or wages for the purposes of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) are not salary or wages for the purposes of the SGAA. It states:

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. For example:

7. Paragraph 257 of SGR 2009/2 also explains that the Commissioner considers that other benefits (such as superannuation guarantee contributions and rights under an employee share acquisition schemes) that are neither salary and wages or fringe benefits under the FBTAA are therefore not fringe benefits, but are also not considered to be salary and wages for the purposes of the SGAA.

Application to your circumstances:

8. You informed us that all components except for salary and superannuation contributions components of benefits paid to employees are fringe benefits and the employer is required to pay fringe benefits tax on these payments.

9. As they are fringe benefits they are specifically excluded under subsection 11(3) of the SGAA from being included in the OTE of the employee for the purposes of calculating superannuation guarantee obligations.

10. Moreover, the additional superannuation contributions component is considered to be a fringe benefit therefore are not considered to be OTE.

Question 2

Detailed reasoning

11. Paragraph 13 of SGR 2009/2 addresses the meaning of 'ordinary hours' of work and states:

13. An employee's 'ordinary hours of work' are the hours specified as his or her ordinary hours of work under the relevant award or agreement, or under the combination of such documents, that governs the employee's conditions of employment.

12. Paragraph 25 of SGR 2009/2 provide that earnings in respect of ordinary hours of work means all earnings, other than overtime and that there is no such thing as earnings that are merely in respect of employment generally.

13. Paragraph 27 of SGR 2009/2 addresses certain specific kind of additional payments that are ordinary time earnings for superannuation guarantee purposes and states:

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' paid fortnightly at a flat rate in acknowledgement of the displacement an employee undergoes when a job requires him or her to work in a remote location;

• a 'casual loading' of 20% of the basic ordinary time rate of pay paid to a casual worker in lieu of any fixed, regular minimum hours of work and of paid leave entitlements;

• a 'dirt allowance' paid as a flat rate in acknowledgement of the conditions in which the work is undertaken; and

• a 'freezer allowance' paid at the rate of an extra $2.50 per hour to employees, such as some supermarket employees, who perform most of their duties in cold storage facilities.

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

• relate solely to hours of work other than ordinary hours of work (see paragraphs 41 to 43 of this Ruling).

14. Paragraph 65 of SGR 2009/2 relates to certain payments that are 'salary or wages' and states:

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'…

15. Moreover, paragraphs 44 and 45 explains that certain on-call allowances paid to doctors are considered OTE where they are paid whilst the employee is doing ordinary hours of work, as it is considered that the additional allowance is directly related to the individual's ordinary hours of work.

16. Finally, expense allowances are further addressed in the explanation section of the ruling at paragraph 266 of SGR 2009/2:

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.

Application to your circumstances:

17. In your circumstances you pay a predetermined allowance to your employees. Though expenses might be incurred by the employee, the allowance is paid regardless of whether the employees incur expenses and they have discretion whether or not to expend the allowance.

18. For this reason it is considered that the allowance is like a loading paid to doctors who make themselves available, during their ordinary hours, to perform surgery as the allowance is paid to employees whilst they are working ordinary hours for the special circumstances.

19. Therefore the allowance directly relates to the ordinary hours of work of the individual and is consequently OTE. The full amount would be included in any superannuation guarantee calculation.

20. Furthermore, even though expenses may affect the allowance, these expenses do not diminish the nature of the allowance as OTE and cannot reduce it.