Edited version of your written advice

Authorisation Number: 1051316759402

Date of advice: 26 March 2018

Ruling

Subject: Superannuation guarantee liability

Question

Were the directors (the Directors) employees of the entity as defined under section 12 of the Superannuation Guarantee (Administration) Act 1992 (SGAA), for the period 1 July 20XX to 30 June 20XX?

Answer

No. Refer to ‘why we have made this decision’.

This advice applies for the following period:

Several financial years up to the financial year ended 30 June 20XX

Relevant facts and circumstances

In order to protect the privacy of this taxpayer and the commercial in-confidence components of this transaction, no relevant fact is provided.

Relevant legislative provisions

Superannuation Guarantee (Administration) Act 1992 section 12

Reasons for decision

Summary

On the basis of the facts and evidence provided, the Directors were not employees for the purposes of the SGAA under section 12 of the SGAA. Therefore the entity did not have an obligation to pay SG contributions on behalf of the Directors.

Detailed reasoning

Superannuation guarantee

The SGAA states that an employer must provide the required minimum level of superannuation support for its eligible employees or pay the Superannuation Guarantee Charge (SGC).

From 1 July 2008, employers must use ordinary time earnings (OTE) as the earning base to calculate the minimum SG contributions required for employees.

Are directors employees?

Subsection 12(1) of the SGAA provides that the terms ‘employer’ and ‘employee’ have their ordinary meaning. Under subsection 12(1), a worker will be an employee for SG purposes if he or she is a common law employee.

However for the purposes of the SGAA, subsections 12(2) to 12(11) expand the meaning of those terms and make particular provision to avoid doubt as to the status of certain persons.

In particular, subsection 12(2) of the SGAA expands the ordinary meaning of the term employee to include directors who receive payment for performance of duties from a body corporate.

When considering the intentions of the parties in forming the contract and the express terms in an agreement , it appears that each party could reasonably conclude from the actions of the other that there was no intention to form an employee/employer relationship.

Superannuation Guarantee Ruling SGR 2005/1 Superannuation guarantee: who is an employee? explains when an individual is considered to be an employee’ under section 12 of the SGAA. In particular paragraphs 62 and 63 state:

62. Under subsection 12(2) of the SGAA, a person who is entitled to payment for the performance of duties as a member of the executive body (whether described as the board of directors or otherwise) of a body corporate is, in relation to those duties, an employee of the body corporate.

63. In the majority of circumstances, such a person will be called a ‘director’. The SGAA will apply even if the person is not referred to as a director but falls within the terms of subsection 12(2).

Paragraph 62, footnote 46, of SGR 2005/1 defines body corporate thus:

‘Body corporate’ is a general term to describe an artificial entity having a separate legal existence.

The entity meets the body corporate definition under paragraph 62 of SGR 2005/1, as it is an artificial entity having a separate legal existence.

Entitlement to payment for duties

The question arises as to whether the Directors are entitled to payment for the performance of duties as members of the entity.

The Directors were not entitled to payments for the performance of duties as members of the entity.

The collective policy documents indicate a requirement for Directors to comply with the expenditure operation.

Salary and wages and ordinary time earnings (OTE)

Paragraphs 47, 72 and 73 of Superannuation Guarantee Ruling SGR 2009/2 – Superannuation guarantee: meaning of the terms ‘ordinary time earnings’ and ‘salary and wages’ (SGR 2009/2) state:

47. Salary or wages, is defined in subsection 11(1) and includes:

(b) payment for the performance of duties as a member of the executive body (whether described as the board of directors or otherwise) of a body corporate

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'

Paragraphs 72 and 73 of SGR 2009/2 relate to salary or wage exclusions, for both reimbursement and expense allowances, in situations where it is established that an employer/employee relationship exists. No such relationship was identified in this case and as such the consideration of what forms part of salary or wages for SG purposes, and also ordinary time earnings (OTE), is irrelevant.

However under subsection 11(1) of the SGAA and paragraph 47 of SGR 2009/2, the Directors would be considered to have received salary or wages for SG purposes had they been paid for their duties. As detailed above they were either reimbursed for their expenses or paid an expense allowance rather than being paid for their duties.

Conclusion

On the basis of the facts and evidence, the Directors were not entitled to payment for performance of duties as members of the entity and are not considered to be employees of the entity under the expanded definition of ‘employee’ in subsection 12(2) of the SGAA 1992.