Edited version of your written advice

Authorisation Number: 1051309927921

Date of advice: 6 December 2017

Ruling

Subject: Reportable employer superannuation contributions

Question

Does the election clause available to employees under the Deed of Covenant, result in employer contributions meeting the definition of reportable employer superannuation contributions as per section 16-182 of the Taxation Administration Act 1953 (TAA)?

Answer

No.

This ruling applies for the following period:

1 July 2014 to 30 June 2018

The scheme commenced on:

1 July 2014

Relevant facts and circumstances

1. The employer is a provider of education, with all employees covered under the terms of a collectively negotiated enterprise agreement (Agreement).

2. As per the Agreement, the employer has entered into a Deed of Covenant with an industry fund to make employer contributions in accordance with the rules of the fund as outlined in the Consolidated Trust Deed.

3. Within the Consolidated Trust Deed and Deed of Covenant, different categories of membership exist. Only specified employees are entitled to become members of Scheme 1. These members receive employer contributions that exceed the minimum superannuation guarantee (SG) rate. Scheme 2 members are only entitled to the minimum SG rate.

4. The Trust Deed determines the employer’s contribution rates for all the relevant Schemes.

5. A clause within the Deed of Covenant provides an employee, with the permission of the employer, to opt out of Scheme 1 to join Scheme 2, or to join another superannuation fund

6. For the employer to compete effectively with other employers, to obtain and retain employees, it has negotiated into the Deed of Covenant an ability to offer employees alternate superannuation arrangements, including reduced employer superannuation contributions in return for a corresponding increase in taxable wages.

7. The employer will ultimately decide whether the employee can exercise this option. Employees do not have any formal right of reply to employer’s decision.

8. Employees that successfully elect to become members of Scheme 2 will receive minimum SG payments. The difference between Scheme 1 employer contributions and the minimum SG rate, may be taken as salary income or as a salary sacrifice superannuation contribution. The same arrangement also applies if an employee chooses not to join as a member of the industry fund in preference of a different superannuation fund. All salary sacrifice contributions are reported as reportable employer superannuation contributions by the employer.

Reasons for decision

Detailed reasoning

9. Reportable Employer Superannuation Contributions (RESC) have been assessed as income in determining eligibility for a range of means-tested government assistance programs in the tax and transfer system, since 1 July 2009.

10. A RESC is defined under section 16-182 of the Taxation Administration Act 1953 (TAA) and includes an amount contributed by an employer for an individual to a superannuation fund to the extent that the individual has, or might reasonably be expected to have, the capacity to influence:

● the size of the amount, or

● the way the amount is or will be contributed so that his or her assessable income is reduced.

11. An individual is not considered to have the capacity to influence the size of the amount where an employer is required to make the contributions under an ‘industrial instrument’ or the rules of a superannuation fund, and they did not have the capacity to influence the content of that instrument or those rules (subsection 16-182(5) of the TAA).

12. The term ‘industrial instrument’ means an Australian law or an award, order, determination or industrial agreement in force under an Australian law (section 995-1 of the Income Tax Assessment Act 1997).

13. The Explanatory Memorandum to the Tax Laws Amendment (2011 Measures No. 4) Bill 2011 clarifies that RESC are employer contributions to superannuation in addition to what is provided for under an ‘industrial instrument’ or the rules of a superannuation fund and the employee had or has the capacity to influence the content of that requirement (clauses 4.3, 4.12).

14. The employer’s staff are employed under an Agreement that meets the definition of an ‘industrial instrument’. The employer is required to make employee contributions in accordance with the Agreement and the rules contained in the Trust Deed and Deed of Covenant with the industry fund.

15. A clause within the Deed of Covenant allows an employee to make a request to the employer to opt out of Scheme 1 to join Scheme 2 or another superannuation fund. The predominant purpose of the request, if accepted by the employer, is to include the reduced employer superannuation contribution amount in the employee’s salary income.

16. It may be argued that the election available to eligible employees of Scheme 1 is considered a capacity to influence the size of their employer contribution. Common examples of a capacity to influence are:

● where an employee is related to the employer, in that he or she is an associate of the employer or an attributable stakeholder of the employer company or trust, and

● in the case of a common law employment contract, where an employee negotiates for additional superannuation contributions from the employer.

17. However, individual employees are not in a position to influence the drafting of contribution rules in the Deed of Covenant or Trust Deed of the industry fund. These rules are determined via processes involving collective enterprise bargaining agreements, legislation and the industry fund’s Board of Trustees. The Deed of Covenant clause merely provides an option for an employee to become a member of another Scheme or an alternative fund, albeit that the size of their employer contribution is reduced.

18. Furthermore, the intent of the legislation is that RESC will include employer superannuation contributions that are in addition to what is provided for under the rules of a superannuation fund. Therefore a reduced employer contribution amount, via a successful employee request, will not satisfy this intent. A reduced employer contribution amount that is equal to the minimum SG rate will also comply with an ‘industrial instrument’.

19. As an employee does not have the capacity to influence the content of the superannuation fund rules relating to the size of their employer contribution, the contributions will not meet the definition of RESC under section 16-182 of the TAA.

Relevant legislative provisions

Taxation Administration Act 1953 section 16-182

Income Tax Assessment Act 1997 section 995-1

We followed these ATO view documents

Explanatory Memorandum to the Tax Laws Amendment (2011 Measures No. 4) Bill 2011