Edited version of private advice

Authorisation Number: 1051532561440

Date of advice: 11 September 2019

Ruling

Subject: Superannuation guarantee liability

Question 1

Are Sportspersons engaged by the Club on the basis that the Sportspersons' activities constitute a hobby, common law employees of the Club under section 12(1) of the Superannuation Guarantee Administration Act 1992 (SGAA) for the period 1 July 2018 to 30 June 2022?

Answer 1

No. Refer to 'why we have made this decision'.

Question 2

Are the Sportspersons your employees under subsection 12(3) of the SGAA?

Answer 2

No. Refer to 'why we have made this decision'.

Question 3

Are the Sportspersons your employees under subsection 12(8) of the SGAA?

Answer 3

Yes. Refer to 'why we have made this decision'.

This advice applies for the following periods:

Year ended 30 June 2019

Year ending 30 June 2020

Year ending 30 June 2021

Year ending 30 June 2022

The arrangement commences on:

1 July 2018

Relevant facts and circumstances

Your advice is based on the facts stated in the description of the scheme that is set out below. If your circumstances are significantly different from these facts, this advice has no effect and you cannot rely on it. The fact sheet has more information about relying on ATO advice.

We considered these to be the relevant facts

The Club has engaged all Sportspersons in accordance with the terms set out in the Playing Contract.

The Sportspersons are paid different match rates on the basis of a win or a loss/draw.

We formed our view on the facts by relying on this information

·         The terms of a playing contract.

·         Evidence provided in a private ruling application.

Relevant legislative provisions

Superannuation Guarantee Administration Act 1992 subsection 12(1)

Superannuation Guarantee Administration Act 1992 subsection 12(3)

Superannuation Guarantee Administration Act 1992 subsection 12(8)

Advice

Subject: Superannuation guarantee liability

Reasons for decision

Summary

The Commissioner concludes that the Sportspersons do meet the definition of employee under subsection 12(8) of the SGAA.

Detailed reasoning

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

While the term 'employee' which is defined in section 12 of the SGAA, includes common law employees, it also extends to include workers who are engaged under a contract wholly or principally for their labour. This employment relationship is often referred to as a 'contract of service'. This relationship is distinguished in Superannuation Guarantee Ruling SGR 2005/1 Superannuation guarantee: who is an employee? from a 'contract for service' which is typically a contractor and principal type of relationship and does not attract an SGC liability.

Therefore, it is necessary to consider not only whether there is a common law relationship of employer/employee between the parties, but also, if the common law test is not met or is inconclusive, whether the extended definition of 'employee' in subsection 12(3) of the SGAA applies. If a worker is not an employee under subsections 12(1) or 12(3) of the SGAA, their status is described as an independent contractor and there is no SG obligation.

Additionally, in this case a consideration of subsection 12(8) of the SGAA is required as the relationship involves sportspersons.

The task of defining the characteristics of the contract of service - the employment relationship - has been the subject of much judicial consideration. As a result, some general tests have been developed by the courts to assist in the determination of the nature of the relationship. However, defining the contractual relationship between the employer and employee can be difficult and will depend on the facts of each case.

Accordingly it is necessary to determine the true nature of the whole relationship between the principal and the workers, as to whether there was a common law employer and employee relationship, or whether the workers meet the extended definition of employee under subsections 12(3) or 12(8) of the SGAA.

Question 1

Are the Sportspersons, engaged by the Club on the basis that the Sportspersons' activities constitute a hobby, your common law employees under subsection 12(1) of the SGAA for the period 1 July 2018 to 30 June 2022?

Common law employee

In deciding whether an individual is a common law employee for superannuation guarantee purposes, there are a number of common law factors to consider. The factors considered are: terms and circumstances of the formation of the contract; control; integration; results; delegation; risk; and provision of tools and equipment and payment of business expenses.

However, prior this consideration it is necessary to determine if an employment relationship exists. Superannuation Guarantee Ruling SGR 2009/2 - Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages' (SGR 2009/2) states:

Ordinary meaning of salary or wages

241. At common law, 'salary or wages' constitutes remuneration paid to employees for their services as employees. That is, it presupposes an employment relationship. The common law meaning of 'salary or wages' turns also on common law concepts of employment.

In your case

Evidence was provided that the Sportspersons are engaged by the Club on the basis that they are undertaking a hobby. Accordingly, an employment relationship does not exist between the Club and each of the Sportspersons. It follows that the Sportsperson's payments are not considered to be salary or wages.

As stated in paragraph 7 of SGR 2009/2, an amount can only be part of an employee's ordinary time earnings (OTE) if it is 'salary or wages'. Effectively, the Sportspersons have no OTE, which is the basis on which superannuation guarantee liability is determined.

Our conclusion regarding the common law definition of employee

The relationship between the Club and the Sportspersons it is not a common law employment relationship and the Sportsperson's payments are not considered to be salary or wages or OTE. On this basis a consideration of the common law elements to determine if the Sportspersons are common law employees of the Club under section 12(1) of the SGAA is not required.

Question 2

Are the Sportspersons your employees under subsection 12(3) of the SGAA?

Extended definition of employee for SGAA purposes

The extended definition of employee within subsection 12(3) of the SGAA states:

If a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract.

SGR 2005/1 explains when an individual is considered to be an 'employee' under section 12 of SGAA.

Paragraph 78 of SGR 2005/1 states that where the terms of the contract, in light of the subsequent conduct of the parties, indicate that:

·   the individual is remunerated (either wholly or principally) for their personal labour and skills;

·   the individual must perform the contractual work personally (there is no right to delegate); and

·   the individual is not paid to achieve a result,

the contract is considered to be wholly and principally for the labour of the individual engaged, and he or she will be an employee under subsection 12(3) of the SGAA.

The application of subsection 12(3) of the SGAA in the context of a sportsperson contracted to participate in a sporting competition is detailed in paragraphs 100-108 of Superannuation Guarantee Ruling SGR 2009/1 Superannuation guarantee: payments to sportspersons (SGR 2009/1).

Paragraphs 105, 106 and 108 of SGR 2009/1 state:

105. Lush concluded that a 'contract' which is wholly or substantially for the labour' of a person did not seem to cover artists or a person whose results are defined by his or her personal talent...

106. Such a conclusion could also be applied in the context of a sportsperson that is contracted to participate in a sporting competition. That is, the result achieved by the sportsperson arises from the sportsperson's own physical and mental ability and because such skill cannot be the subject of someone else's direction, then the contract under which the skill is exercised cannot fall within the expression 'wholly or principally for labour'.

108. Therefore, taking into account the legislative history and context outlined above, subsection 12(3) would not apply to treat sportspersons who are paid for their participation in sporting or other similar activities as employees.

The payments for consideration in this case are match payments for participating in matches. Notwithstanding the direction provided by the coaches, the Sportspersons bring their own physical and mental abilities and skills to the games in which they participate. These individual abilities and skills aggregate and determine the results achieved by the Club. In these circumstances the abilities and skills exercised are not considered to fall within the expression 'wholly or principally for labour'.

Our conclusion regarding the extended definition of employee

Accordingly, the facts and evidence indicate that the Sportspersons do not meet the extended definition of employee as set out under subsection 12(3) of the SGAA.

Question 3

Are the Sportspersons your employees under subsection 12(8) of the SGAA?

In accordance with the requirement expressed in paragraph 7 of SGR 2009/1, having examined the questions of common law employees and the extended definition under subsection 12(1) and 12(3) of the SGAA respectively, and finding that the Sportspersons are not employees, subsection 12(8) must be considered.

As stated in paragraph 48 of SGR 2009/1 the terms 'sportsperson' and 'sport' are not defined in the SGAA, and for the purposes of the ruling the terms are given their ordinary meaning. Accordingly, the Sportspersons and the sport of rugby are covered under SGR 2009/1.

Paragraphs 9, 10 and 74 of SGR 2009/1 state:

Specific provision that apply in respect of sportspersons

Tests in subsection 12(8) to be applied on a payment by payment basis

9. Subsection 12(8) applies on a payment by payment basis. The character of the payments received by a sportsperson are determinative of whether that person will be treated as an employee of the payer under subsection 12(8) for the purposes of the SGAA. In determining the character of the relevant payment, reference must be made to the substance of the arrangement, and not merely by reference to what the parties have agreed to label the payment. Each case must be examined on all the facts and circumstances.

Payments for participation or performance - paragraph 12(8)(a)

10. In order to fall within the scope of paragraph 12(8)(a), the payment made to the sportsperson must be referable to the person's performance or participation in the performance of a sport or any similar activity, regardless of the result achieved from that participation. This causal link is apparent in the requirement that the sportsperson is 'paid to perform'. Further, under the terms of paragraph 12(8)(a), the sportsperson is required to actively participate in the sport or similar activity and that performance or participation must involve the sportsperson's physical or personal skills.

74. A payment made to an individual must be directly referrable to that individual's performance or participation in the relevant activity. The requirement to establish this causal link is implicit in the use of the word 'to', as in 'paid to perform'. 'Performance' in this context refers to the execution of the physical or personal skills of the sportsperson and does not focus on the level of success achieved. Amounts that fall within the scope of paragraph 12(8)(a) are payments which are for the sportsperson's active involvement in the relevant activity regardless of the result arising from that participation. Such a payment may be made under a contract whereby the sportsperson undertakes to the payer that he or she will participate in the relevant activity.

(emphasis added)

Paragraphs 93-96 of SGR 2009/1 discusses bonuses paid to sportspersons on receiving certain results. Of particular relevance is paragraph 96 which states:

96. In the absence of a common law employment relationship, the general principle outlined in paragraphs 74 to 76 of this Ruling should be applied. That is, in order for the sportsperson to be an employee under subsection 12(8), the payment must be for that person's performance in the sport regardless of the result achieved. The facts of the case may require that a lump sum payment be apportioned between payments for a result and payments for the sportsperson's participation regardless of that result. However, the mere fact that a sportsperson is entitled to a larger sum provided they win a particular sporting event, when compared to losing that event, does not of itself mean that the excess over the lesser losing sum is akin to a bonus. It is often the case that the larger sum is directly referrable to the specific result achieved.

(emphasis added)

We have already determined that a common law employment relationship does not exist and as such paragraphs 74 to 76 of SGR 2009/1 are to be applied.

In applying the principles in paragraphs 74 to 76 it is noted that paragraph 74 states that paragraph 12(8)(a) of the SGAA applies to payments where the payment directly refers to the sportsperson's performance or participation in the relevant activity, because of the term 'to' as in 'paid to perform'. 'Performance' in this context refers to the execution of the physical or personal skills of the sportsperson and does not focus on the level of success achieved. Para 75 states that payments that are dependent on the result achieved from the sportspersons participation are not payments made by a person 'to perform' but rather are made 'because of' that performance.

The question arises as to whether payment to the Sportspersons could be categorised as an amount paid to perform, that is to play the game, or a 'prize' or 'bonus' paid for achieving a win.

It is considered that all payments made to the Sportspersons, regardless of whether there is a win, loss or draw, are payments for the Sportsperson to perform in the sport. The higher rate paid for a win represents an incentive to the player to achieve a win and is not a prize.

This accords with example 1 in ruling SGR 2009/1, in particular paragraphs 25-28 of that ruling. In that example a football player receives $1,000 if a match is lost or drawn and $4,000 for each match won. Paragraph 28 of SGR 2009/1 states:

'...paragraph 12(8)(a) would apply to the match payments he received as they are paid for his participation in the sporting activity...' [emphasis added]

Paragraph 28 of SGR 2009/1 does not distinguish between payments made for a loss or draw and higher payments made for a win. It categorises both payments as being subject to subsection 12(8)(a). Therefore both payments are salary or wages (and OTE) for SG purposes as per the extended definition of 'salary or wages' in paragraph 11(1)(d) of the SGAA.

The paying agreement details the gross payment arrangements for the Sportspersons- notwithstanding that the Players receive different amounts for a win or loss/draw, the payments are guaranteed match payments paid for the performance of the Sportsperson. The Sportspersons receive their match payments regardless of the result.

Our conclusion regarding subsection 12(8) of the SGAA

The Sportspersons are paid for their participation in matches and as such are considered to be employees under subsection 12(8) of the SGAA.

Conclusion - overall

After considering all available facts and evidence relating to the working relationship between the Club and the Sportspersons, the Commissioner considers that the Sportspersons are not common law employees under subsection 12(1) of the SGAA, and the Sportspersons do not meet the extended definition as set out in subsection 12(3) of the SGAA.

However, the Commissioner concludes that the Sportspersons do meet the definition of employee under subsection 12(8) of the SGAA.

Therefore, the Club has an obligation to provide superannuation support to the Sportspersons in accordance with the SGAA for the period under review.