Edited version of your written advice

Authorisation Number: 1012929691329

Date of advice: 15 December 2015

Advice

Subject: Superannuation guarantee

Question

Does the travel allowance paid by the Employer to applicable employees (the Employees) constitute OTE of the Employees as defined in subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Advice

Yes. Refer to 'Reasons for decision'

This advice applies for the following period:

Income year ending 30 June 2016

Relevant facts and circumstances

The advice is based on the facts stated in the description of the scheme that is set out below.

1. The Employees are engaged under an Enterprise Agreement (the Agreement).

2. The Agreement provides that:

• Where Employees commence work on a site or project, as opposed to the Employer's Depot, and are not provided with transport to the site by the Employer, the Employees shall receive a travel allowance under the Agreement.

3. Employees are only paid the travel allowance when in attendance at a project site as opposed to the Employer's Depot. The travel allowance is not paid to Employees when on annual leave, sick leave, rostered days off or public holidays.

Relevant legislative provisions

Superannuation Guarantee (Administration) Act 1993 subsection 6(1).

Reasons for decision

Summary

4. The travel allowance paid to the Employees of the Employer in accordance with the Agreement does form part of the Employee's OTE for the purposes of subsection 6(1) of the SGAA.

Detailed reasoning

Ordinary time earnings

5. OTE, in relation to an employee, is defined in subsection 6(1) of the SGAA and is the lesser of:

(a) the total of the employee's earnings in respect of ordinary hours of work and earnings consisting of over award payments, shift loading or commission (but does not include lump sum payments made on termination of employment in lieu of unused sick leave, unused annual leave and unused long service leave); or

(b) the maximum contribution base for the quarter.

6. The Commissioner explains the meaning of OTE as defined in subsection 6(1) of the SGAA in Superannuation Guarantee Ruling SGR 2009/2 Superannuation Guarantee: Meaning of the terms 'ordinary time earnings' and 'salary or wages' (SGR 2009/2). Relevantly, at paragraph 27 of SGR 2009/2, the Commissioner states:

Many employees receive various additional payments that are described as allowances 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 payments 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; or

• relate solely to hours of work other than ordinary hours of work.

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

7. Paragraphs 72 of SGR 2009/2 relates to expense allowances and reimbursements. Paragraph 72 and states:

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'.

8. Appendix 2 to SGR 2009/2 - Explanation is provided as information to help taxpayers to understand how the Commissioners view has been reached. Paragraphs 259 to 263 of SGR 2009/2 are in the explanation and relate to allowances and reimbursements. These paragraphs state:

259. Section 11 does not expressly include in its definition of 'salary or wages' the term 'allowance'. The Commissioner however interprets the expression as used in the SGAA context as extending to the same kinds of allowances that have been regarded as salary or wages under definitions of 'salary or wages' that expressly include allowances.

260. In Mutual Acceptance, the High Court considered whether a fixed weekly payment to employees who used their own motor vehicles in the course of their duties was an 'allowance' and therefore 'wages' as defined the then Commonwealth Pay-Roll Tax Assessment Act 1941-42. The payment represented partial compensation for the motor vehicle expenses to be incurred by those employees.

261. In discussing what may be considered as the ordinary meaning of an 'allowance' Latham CJ in Mutual Acceptance stated that an allowance paid as compensation for unusual conditions of services:

… represents higher wages paid on account of special conditions, and may be fairly described as part of wages in the ordinary sense (emphasis added)

262. Mutual Acceptance was relied upon in Road & Traffic Authority of NSW v. Federal Commissioner of Taxation where the employees received fare allowances under the relevant award for travel to and from work. They were paid regardless of whether or not the employee incurred the expenditure. The question for decision was whether the allowances were expense payment benefits subject to fringe benefits tax or were within the definition of 'salary or wages' in former subsection 221A(1) of the ITAA 1936.

263. Hill J considered the allowance as additional compensation to the employees for their services. There was no need that the remuneration relate to specific services rendered, as long as the payments in question were given as remuneration for services generally. The fare allowances had no relationship to the actual cost of travel incurred by the employees. Accordingly, they were not reimbursements. The fare allowances were held to be 'salary or wages'.

9. Paragraph 266 of SGR 2009/2 which is in the explanation states:

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.

10. Therefore, in order for 'travel allowance' to be deemed an expense allowance it is necessary to establish whether there is a reasonable expectation that the employee will fully expend the money in the course of providing services. If an allowance is paid unconditionally, that is regardless of whether the employee actually incurs the cost, it suggests that the allowance is not an expense allowance.

Application of the above stated principles to the travel allowance

10. In accordance with the Agreement, the Employees are paid the travel allowance when they commence work on a site or project, as opposed to the Company Depot, and are not provided with transport to the site or project by the Company.

11. The travel allowance is paid on days where the Employees commence work away from the Company Depot.

12. A subclause of the Agreement specifies that the travel allowance is a fixed amount depending on the Employees' salary grade. The amount of the travel allowance does not vary depending on the distance travelled, as would be expected for an expense allowance, nor is it a reimbursement.

13. The travel allowance is paid regardless of whether the Employee actually incurs the expense in travelling to the site or project and does not take into consideration the cost of the transport used i.e. own motor vehicle, car-pooling with other Employees, bus, bicycle etc.

14. It cannot be said that the allowance is paid with the reasonable expectation that the money would be fully expended by the Employees in the course of providing their services. The Employees may expend a lesser amount or a far greater amount depending on the distance travelled and the method of conveyance used.

15. Rather, the travel allowance is an allowance that is additional compensation for a condition of their work.

16. Therefore, the travel allowance does fall within the ordinary meaning of 'salary or wages' and therefore does form part of OTE of the Employees for the purposes of subsection 6(1) of the SGAA.