Edited version of your written advice

Authorisation Number: 1051491919659

Date of advice: 8 March 2019

Ruling

Subject: Ordinary times earnings

Question

Are proceeds from the commercialisation of Intellectual Property, payable by the entity to a creator, considered ordinary time earnings as per subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Advice

No, the payments are not ordinary times earnings.

This ruling applies for the following period

1 July 2018 – 30 June 2019

Relevant facts and circumstances

1. The entity is a University.

2. The University’s Intellectual Property Policy (IP Policy) prescribes how it commercialises intellectual property.

3. The IP Policy applies to all staff, students and affiliates.

4. The University has the sole right to protect and commercialise any intellectual property (IP) over which it asserts legal and beneficial ownership.

5. A percentage of net revenue from IP commercialisation is distributed to the creator.

6. The University is under no obligation to protect or commercialise any IP.

Reasons for decision

Detailed reasoning

7. The definition of ‘ordinary time earnings’ (OTE) is relevant to employers for the purpose of calculating the minimum level of superannuation support required for individual employees under the SGAA.

8. 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'.

9. Subsection 11(1) of the SGAA defines ‘salary and wages’ as including:

(a) commission; and

(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; and

(ba) payments under a contract referred to in subsection 12(3) that are made in respect of the labour of the person working under the contract; and

(c) remuneration of a member of the Parliament of the Commonwealth or a State or the Legislative Assembly of a Territory; and

(d) payments to a person for work referred to in subsection 12(8); and

(e) remuneration of a person referred to in subsection 12(9) or (10).

10. The term 'salary or wages' is not limited to fixed payments made periodically for work performed, such as a worker’s fortnightly pay cheque. It extends to certain lump sum payments, bonuses and allowances that are part of the worker’s remuneration.

11. Subsection 6(1) of the SGAA defines OTE in relation to an employee as earnings in respect of the total ordinary hours of work, other than some excluded lump sum payments in regard to termination of employment.

12. OTE is described in Superannuation Guarantee Ruling (SGR) 2009/2: meaning of the terms ‘ordinary time earnings’ and ‘salary or wages’, as the payment for the ‘ordinary hours of work’.

13. The term ‘ordinary hours of work’ is defined as:

● the hours specified as the employee’s ordinary hours under an award or agreement; or

● if the ordinary hours are not specified, the hours regularly worked by the employee; or

● if the ordinary hours are not specified and the regular hours are impossible or impractical to determine, the actual hours worked.

14. In summary, under SGR 2009/2, all earnings for the ordinary hours of work are included as OTE. Payments for hours performed outside of the ordinary hours of work are not classed as OTE.

15. The University’s IP Policy applies to all intellectual property. It has the sole right to commercialise any IP over which it asserts legal and beneficial ownership. The University rewards a creator with a percentage of the net revenue from IP commercialisation.

16. Commercialisation of IP is the process by which the benefits available from an innovation are made accessible to a market in exchange for fair consideration.

17. The commercialisation revenue payments are made to persons who may or may not be employees of the University, including staff, students and affiliates. In accordance with the IP Policy, each has an equal opportunity to share in net commercialisation revenue. It is the status of an individual as a successful creator, not as an employee, which is the basis for the University to make a revenue payment.

18. In accordance with the arrangement, the payments are linked to the commercial success of intellectual property that becomes a commercial product - as opposed to any existing employment relationship between the University and a creator. The payments are not a reward for actual work provided by the creator, instead they are the product of the commercial success which is gained from developing the IP. The University is under no obligation to commercialise any IP, therefore if the decision is made not to commercialise the IP (or it is unsuccessful) then there will be no proceeds to distribute.

19. Due to their nature, the payments resulting from the IP commercialisation are considered to be a share of the net profits – as contrasted to payments made under an employee profit sharing bonus scheme, which is generally centred on the achievement of specified profitability targets. Subsequently, the required nexus between the commercialisation revenue payments and employment is not present, as the payments are not based on specified duties or performance targets and are not paid to a creator as a reward for employment services. On this basis, the payments will also not be ‘salary and wages’ of a creator who works under a contract that is wholly or principally for the labour of the person.

20. In conclusion, the commercialisation revenue payments are not considered to meet the definition of ‘salary or wages’ for an employee and will not be ordinary times earnings in accordance with subsection 6(1) of the SGAA.

Relevant legislative provisions

Superannuation Guarantee Administration Act 1992 subsection 6(1)

We followed these ATO view documents

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