Edited version of private advice

Authorisation Number: 1052181061772

Date of advice: 24 October 2023

Ruling

Subject: Superannuation guarantee obligations

Question 1

Is superannuation guarantee (SG) payable on royalty payments for the performing artists (the Performers) contracted to perform promotional activity (for example performers in TV commercials)?

Answer

No.

Question 2

Are the Performers who are paid to do commercials considered employees under the extended definition in paragraph 12(8)(a)?

Answer

Yes.

Question 3

Are the rollovers payments to the Performers considered ordinary time earnings (OTE)?

Answer

No.

Question 4

Are the rollover payments to the Performers considered royalty payments?

Answer

Yes.

Question 5

Are the royalty payments considered OTE?

Answer

No.

This advice applies for the following period:

1 July 2023 to 30 June 2028

The arrangement commences on:

1 July 2023

Relevant facts and circumstances

1. The Taxpayer engages performing artists (the Performers) under the terms of the Award.

2. ATO received an application for ABA whether rollover payments to performing artists do not represent ordinary time earnings of the employee.

3. The Performers' hours of work are specified in the Award.

4. The Performers are paid a negotiated performance fee. The master/original contract covers the negotiated performance fee for attending and participating in the shoot, as well as future usage, and often these are pre negotiated at shoot stage.

5. The Performers may also receive other payments relating to the additional usage of the finished product. These payments are referred to as 'rollovers'.

6. Rollover payments may be negotiated at the same time as the negotiated performance fee or negotiated independently at a later date.

7. Rollover payments are paid to the Performer for the continued usage/contract extensions (generally for the right to use the Performer's image/voice in an advertising campaign, which the Performer has assigned by way of Contract).

8. Where a rollover or option is being exercised by, no additional work is being performed by the Performer - since their original participation in the shoot.

9. The sample contract defines rollover.

Relevant legislative provisions

Superannuation Guarantee (Administration) Act 1992 subsection 6(1)

Superannuation Guarantee (Administration) Act 1992 subsection 11(1)

Superannuation Guarantee (Administration) Act 1992 subsection 12(8)

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

Broadcasting, Recorded Entertainment and Cinemas Award 2020

Taxation Ruling IT 2660 - Income tax: definition of royalties

Reasons for decision

1. Whether superannuation guarantee (SG) is payable on royalty payments for the Performers contracted to perform promotional activity (for example performers in TV commercials)?

SG is not payable if the payments to the Performers are royalty payments made in relation to exercising the right for the repeated use of TV commercials (from the finished product) and the payments are not attributable to the work performed in the making of the commercial. Detailed reasoning is provided under questions 2, 3, 4 and 5.

2. Are the Performers who are paid to do commercials considered employees under the extended definition in paragraph 12(8)(a)?

According to the Contract, the Taxpayer engages the Performers for the production of Advertising Material. Advertising Material means the finished advertising material featuring the work of the Performer to appear in a visual (on camera) performance in commercial production. A negotiated fee is payable according to the Item 9 of the part 1 of the Contractto take part on camera in a commercial production. It is therefore vital to determine whether or not the Performers are employees of the Taxpayer to determine the super obligations of the Taxpayer (employer). While subsection 12(1) of the SGAA addresses the ordinary meaning of the employees where a common law relationship exists, subsections 12(2) to 12(11) extend the meaning of an employee beyond a common law employment relationship for superannuation purposes. Specifically, the Performers may be employees of the Taxpayer in accordance with the extended definition under subsection 12(8) of the SGAA which states:

12(8) [ Artists, musicians, sports persons etc]

The following are employees for the purposes of this Act:

(a)          a person who is paid to perform or present, or to participate in the performance or presentation of, any music, play, dance, entertainment, sport, display or promotional activity or any similar activity involving the exercise of intellectual, artistic, musical, physical or other personal skills is an employee of the person liable to make the payment;

(b)          a person who is paid to provide services in connection with an activity referred to in paragraph (a) is an employee of the person liable to make the payment;

(c)           a person who is paid to perform services in, or in connection with, the making of any film, tape or disc or of any television or radio broadcast is an employee of the person liable to make the payment.

Paragraph 12(8)(a) includes 'a person who is paid to perform or present, or to participate in the performance or presentation of, any music, play, dance, entertainment, sport, display or promotional activity, or ...'. The Performers are paid to perform (acting/participating) in relation to a visual (on camera) performance in commercials. SGAA does not define the word 'commercials' but the dictionary definition includes 'a television or radio advertisement'. The Performers will fall under the paragraph 12(8)(a) of SGAA as they appear or participate in advertisements (commercials) which is considered as a promotional activity. Therefore, they are considered employees for SG purposes.

3. Are the rollover payments to Performers considered OTE?

The question of whether the rollover payments are ordinary time earnings must be determined with reference to the definition provided in subsection 6(1) of the SGAA.

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 loading or commission, but does not include lump sum payments made on the termination of employment in lieu of unused sick leave and unused annual leave.

(b)          the maximum contribution base for the quarter, which is the maximum limit on the amount of superannuation support that an employer is expected to provide for the benefit of the employee.

As stated in paragraph 11 of SGR 2009/2, the SGAA does not define the expression 'earnings in respect of ordinary hours of work' or provide a definition of the terms 'earnings' or 'ordinary hours of work'.

Paragraph 12 of SGR 2009/2 specifies that an employee's 'earnings' for the purposes of the definition of OTE is the amount of remuneration paid to the employee as a reward for the employee's services. For superannuation purposes the term 'earnings' means 'salary or wages'.

Subsection 11(1) of the SGAA provides an inclusive definition of the term 'salary or wages'. Under paragraph 11(1)(d) payments to a person for work referred to in subsection 12(8) are specifically included in salary or wages.

It is therefore necessary understand nature of the rollover payments to the Performers.

Even though the Contract or the award doesn't define the negotiated performance fee, it implies that it represents remuneration for their labour and is a payment Performers would receive in relation to each television commercial in which they appear. It is attributable to the work performed in the making of the commercial therefore it is OTE.

In contrast, rollover payments are payments which are negotiated separately (the original contract or at a later date) and are over and above the negotiated performance fee. Rollover payments relate specifically to the extended use of the finished product (filmed commercial) and will only be received by the Performers where extended use occurs. These payments do not represent remuneration for work performed which is of the nature described in subsection 12(8) of the SGAA, and therefore do not satisfy the definition of salary or wages provided in subsection 11(1).

Given the rollover payments do not satisfy the definition of salary and wages, then in accordance with paragraph 12 of SGR 2009/2 the payments cannot be considered 'earnings' for superannuation guarantee purposes. Consequently, if the payments are not 'earnings' for superannuation guarantee purposes they will not form part of the ordinary time earnings of the employee.

Therefore, SG is not payable on rollover payments.

4. Are the rollover payments considered royalty payments?

By reviewing the relevant clauses in the Contract and the guidance provided in the IT 2660 - Income tax: definition of royalties (IT 2660), rollover payments Performers are royalty payments. IT 2660 discusses the ordinary meaning of royalty under common law principles and how subsection 6(1) of ITAA 1936 further extends this ordinary meaning. Particularly, paragraphs 10(b) and (d) of the IT 2660 outlines common law characteristics of royalty and are relevant to the rollover payments made to the Performers.

In addition, Subsection 6(1) of ITAA 1936 extends the meaning of royalty and paragraph 12 of the IT 2660 provides multiple definitions for royalties from (a) to (f). Particularly, paragraph 12(e) of the IT 2660 states:

the use of, or the right to use, motion picture films, films or video tapes for use in connection with television, or tapes for use in connection with radio broadcasting;

....

Paragraph 23 of the IT 2660 further clarifies that paragraph (e) of the definition ensures that any payments for the use of, or the right to use, motion picture films, films or video tapes for use in connection with television, and tapes for use in connection with radio broadcasting are royalties

The paragraph c - Rollover under the 'Conditions of use' in the Contract states that subject to the Performer's written consent the Advertising Material may be used beyond the original and any further contracted period.

Rollover payments are made in regard to the use of, or the right use the Advertising Material beyond the original and any further contracted period. Rollover payments are therefore, a royalty payment for continued usage/extended use of a talent's image or performance in association with an advertising campaign (No service was performed, no work or labour).

5. Are the royalty payments considered OTE?

Under question 3, it was established that rollover payments are not OTE. As the rollover payments are royalty payments, they are not OTE for SG purposes. Therefore, SG is not payable on the royalty payments.

Conclusion

The Performers who are paid to do the commercials are considered to be employees under the extended definition in paragraph 12(8)(a) and the payments for this activity are OTE for SG purposes, however as the rollover payments are considered as royalty payments, they are not OTE for SG purposes. For the reasons outlined above, SG is not payable on the royalty payments.