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Edited version of private advice
Authorisation Number: 1051646213844
Date of advice: 13 March 2020
Ruling
Subject: Ordinary time earnings
Question 1
Are the benefits provided by the organisation Incorporated under a valid salary sacrifice arrangement considered to be ordinary times earnings (OTE) for the purposes of subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?
Answer
No
This ruling applies for the following period(s)
Financial year ending 30 June 2012
Financial year ending 30 June 2013
Financial year ending 30 June 2014
Financial year ending 30 June 2015
Financial year ending 30 June 2016
Financial year ending 30 June 2017
Financial year ending 30 June 2018
Financial year ending 30 June 2019
Financial year ending 30 June 2020
The scheme commences on
1 January 2011
Relevant facts and circumstances
Employees of the organisation are able to access valid salary sacrifice packages by way of living expenses, entertainment expenses and novated leases.
The organisation uses an external payroll provider.
Relevant legislative provisions
Subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992
Reasons for decision
Summary
Salary packaged amounts are not considered to be salary or wages for SGAA purposes and therefore are not considered OTE in subsection 6(1) of the SGAA - a payment cannot be considered OTE if it is not considered to be salary or wages.
Detailed reasoning
The SGAA places a requirement on all employers to provide a minimum level of superannuation support for their eligible employees by the quarterly due date, or pay the superannuation guarantee charge. The minimum level of support is calculated by multiplying the charge percentage (currently 9.5%) by each employee's earnings base.
From 1 July 2008, an employer must use OTE as defined in subsection 6(1) of the SGAA as the earnings base to calculate the minimum superannuation contributions for their employees. This ensures that all employees are treated the same for superannuation purposes.
Definition of ordinary time earnings
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 loadings or commissions, but does not include lump sum payments made on the termination of employment in lieu of unused sick leave, unused annual leave and unused long service leave; or
(b) the maximum contributions base for the quarter - the maximum contributions base, which is the maximum limit on the amount of superannuation support that an employer is expected to provide for the benefit of an employee. This amount is indexed annually according to the indexation factor.
The Commissioner's views on OTE generally, including an employee's ordinary hours of work, are included in Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages' (SGR 2009/2).
The ruling confirms that an amount can only be part of an employee's OTE if it is 'salary or wages' of the employee (at paragraph 7). Of particular relevance to your circumstances is paragraph 58 which identifies that fringe benefits and other non-cash benefits are payments excluded from the definition of 'salary and wages'.
Paragraph 58 of SGR 2009/2 outlines the treatment of fringe benefits and other non-cash benefits as follows:
58. Fringe benefits as defined in the Fringe Benefits Tax Assessment Act 1986 (FBTAA) are excluded under subsection 11(3) of the SGAA.5 Additionally, the Commissioner takes the view that other 'benefits', within the meaning of the FBTAA, given by employers to employees that are neither fringe benefits nor salary or wages within the meaning of that Act are not salary or wages for SGAA purposes. For example:
˗ contributions made by an employer to a complying superannuation fund for the benefit of an employee (including those required to be made by the superannuation guarantee legislation itself); and
˗ the acquisition of a share, or of a right to acquire a share, under an employee share scheme (within the meaning of Division 13A of Part III of the Income Tax Assessment Act 1936 (ITAA 1936)),
are not salary or wages for SGAA purposes.
Salary sacrificed superannuation contributions under an effective salary sacrifice arrangement are considered to be employer contributions. These are not fringe benefits when paid for an employee to a complying super fund.
However, super contributions made for the benefit of an associate, such as your spouse, are a fringe benefit. Similarly, contributions paid to a non-complying super fund will be a fringe benefit.
From 1 January 2020, the amount of super guarantee (SG) that an employer will be required to pay will be 9.5% of the employee's (OTE) base. The employee's OTE base is the sum of the employee's OTE and any amounts sacrificed to superannuation.
This information is based on the changes made to section 23 of the SGAA 1992.
From 1 January 2020, salary sacrificed super contributions will not:
· reduce the ordinary time earnings that an employer is required to calculate an employee's super entitlement on;
· count towards the amount of super guarantee contributions that an employer is required to make for them to avoid the super guarantee charge.
Application to your circumstances
As outlined in paragraph 7 of SGR 2009/2, an amount can only be part of an employee's OTE if it is "salary or wages" of the employee. Where a payment to an employee falls outside of the definition of salary or wages for SG purposes, the payment will not contribute towards the employees OTE in calculating the employer's SG obligation.
In your case the salary package amounts for living expenses, entertainment expenses and novated leases are not considered to be salary or wages for SGAA purposes and therefore are not OTE either, as a payment cannot be OTE if it is not considered to be salary or wages. Therefore the organisation does not have an obligation under the SGAA to make superannuation guarantee contributions on behalf of their employees.
However as per the change in legislation, any salary sacrificed amounts used for superannuation contributions do contribute to OTE when calculating the employers SG obligations.