ATO Interpretative Decision

ATO ID 2010/112

Superannuation

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Issue

If an employer makes additional superannuation contributions to cover the cost of premiums for insurance cover for an employee because the employee chooses, by default or otherwise, a superannuation fund to which the employer makes superannuation contributions for the employee, will the additional contributions be Reportable Employer Superannuation Contributions (RESCs) as defined in subsection 16-182(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA)?

Decision

Yes, the additional contributions made by the employer due to the choice of superannuation fund made by the employee meet the definition of RESCs contained in subsection 16-182(1) of Schedule 1 to the TAA.

Facts

An employer has a preferred superannuation provider which is their employer nominated fund (default fund). This is the fund that the employer will make superannuation contributions to if the employee does not choose a different fund.

If the employee either chooses the employer nominated fund, or does not choose another superannuation fund, the employer will make additional superannuation contributions to cover the cost of insurance premiums deducted from the employee's superannuation account. The premiums are charged to the employee's superannuation account by the employer nominated fund to provide the employee with group life and total and permanent disability insurance cover. The employer will therefore contribute a greater amount than the minimum superannuation guarantee amount required under the Superannuation Guarantee (Administration) Act 1992 (SGAA).

The amount of the premium charged to the employee's superannuation account by the employer nominated fund for this insurance cover is negotiated between the employer and the superannuation provider. The employee may increase the level of insurance cover, but any additional costs are charged to the employee's superannuation account and are not reflected in an increased contribution by the employer. If the employee chooses to reduce the level of cover, the contributions made by the employer to the employer nominated fund for that employee will be reduced by the same amount as the reduced insurance premium charged to the employee's superannuation account.

The employee's salary is not reduced as a result of the employer making these additional contributions. In addition, if the employee chooses to cancel or reduce the insurance cover provided by the employer nominated fund, their salary is not increased. However the employer's superannuation contributions for that employee would be reduced. The employee's salary is also not increased if they choose an alternate superannuation fund to receive the employer's contributions.

If the employee chooses to have the employer make superannuation contributions to another fund, the employer will not increase the contributions to cover the amount of premiums charged to the employee's account to provide any insurance cover by the superannuation fund (if it is offered by that fund), and will only contribute the minimum amount required to ensure that the employer is not subject to a superannuation guarantee charge under the SGAA.

Reasons for Decision

Section 16-182 of Schedule 1 to the TAA provides a definition of a RESC.

16-182(1) A reportable employer superannuation contribution, for an individual for an income year, is an amount that has been, is, or will be contributed in respect of the income year:

(a)

by an employer of the individual, or an *associate of the employer, for the individual's benefit; and

(b)

to a *superannuation fund or an *RSA;

to the extent that either or both of the following paragraphs apply:

(c)

the individual has or has had, or might reasonably be expected to have or have had, the capacity to influence the size of the amount;

(d)

the individual has or has had, or might reasonably be expected to have or have had, the capacity to influence the way the amount was, is or will be contributed so that his or her assessable income is reduced.

16-182(2) However, an amount is not a reportable employer superannuation contribution to the extent that it is included in the individual's assessable income for the income year.

This means that, in the simplest case, if a superannuation contribution is made by an employer to a superannuation fund, and the employee has the capacity to influence either the way the contribution is made or the size of the contribution, it will be a RESC to the extent that the employee has had influence.

However, in accordance with subsection 16-182(2) of Schedule 1 to the TAA, a contribution will not be a RESC if it is paid from an employee's assessable income, notwithstanding that the employee may have the capacity to influence the amount of the contribution. For example personal contributions that the employee directs the employer to make to a superannuation fund on their behalf from their after-tax (net) pay.

In order to be a RESC it is necessary that the payment made to the fund is a contribution. Taxation Ruling TR 2010/1 Income Tax: Superannuation Contributions states that in the superannuation context, a contribution is anything of value that increases the capital of a superannuation fund provided by a person whose purpose is to benefit one or more particular members of the fund or all of the members in general.

Amounts that the employer is not required to make under law may also not be RESC, provided the employee does not and could not influence the amount. For instance, if the employer is required to contribute amounts in accordance with an industrial award or an agreement it has with all employees, they will not be RESC as the individual employee cannot influence the amount of the contribution, as contained in subsection 16-182(5) of Schedule 1 to the TAA.

In this case, the payment made to the employer nominated fund by the employer will be a contribution, including the additional payment made to cover the insurance premium, as the payment will increase the capital of the fund and is made by the employer for the benefit of the employee member of the fund.

In accordance with Part 3A of the SGAA, most employees can elect which superannuation fund they wish their employer to make superannuation contributions to for them. If the employee doesn't make a choice, the employer contributions will be made to the employer nominated fund (also known as the default fund).

Contributions made by the employer for the benefit of the employee will be made to the employer nominated fund if the employee either chooses that fund or does not exercise their right to choose another superannuation fund. Therefore the amount of the additional contribution made in order to cover the cost of the insurance premium will only be made by the employer if the employee chooses the employer nominated fund, or does not exercise their right to choose another superannuation fund.

It is each individual employee who makes the decision whether the contributions are made to the employer nominated fund, or an alternative fund chosen by the employee. That decision made by the employee influences the amount of contributions made by the employer on the employee's behalf. If the employee chooses a different superannuation fund, the contributions made by the employer will be a lower amount as the employer only pays additional superannuation contributions to cover the cost of insurance premiums in the employer nominated fund. Although the level of insurance coverage is negotiated between the employer nominated fund and employer, and will apply uniformly to all employees, each individual employee has the capacity to influence the size of the contribution through their choice of fund.

Therefore, by either choosing the employer nominated fund, or by not choosing another superannuation fund, the employee influences whether the additional contribution is made by the employer. Accordingly the additional contributions are RESCs, to the extent that the total contribution is greater than the amount the employer is required to make otherwise.

In addition, in the event the employee chooses the employer nominated fund, they also have the capacity to influence the size of the contribution by decreasing their level of insurance cover. Upon doing so, the employer is then able to reduce the amount of their additional superannuation contributions to cover the insurance premium by the corresponding amount. As a result, the employee has the capacity to influence the size of the amount of the contribution. This satisfies the other condition of a contribution being a RESC contained in subsection 16-182(1) of Schedule 1 to the TAA. These additional contributions are not excluded under subsection 16-182(2) of Schedule 1 to the TAA as they are not included in the employee's assessable income.

However, the amount of the contribution made in order to ensure that the employer will not have a superannuation guarantee charge liability under the SGAA will not be RESC as the employee has no influence over that amount of the contribution.

Employees should consider contributions may result in an individual exceeding their relevant contributions cap for the income year.

Note: Since the above decision was made, amendments have been made to Part 3A of the Superannuation Guarantee (Administration) Act 1992. Stapled fund rules were inserted into the choice of fund requirements and are effective from 1 November 2021. Further information on the stapled fund rules can be located at www.ato.gov.au.

Amendment History

Year of income:  Year ended 30 June 2010

Legislative References:
Taxation Administration Act 1953
   subsection 16-182(1) of Schedule 1
   subsection 16-182(2) of Schedule 1
   subsection 16-182(5) of Schedule 1

Related Public Rulings (including Determinations)
Taxation Ruling TR 2010/1

Keywords
Superannuation contributions
Employer superannuation contributions

Siebel/TDMS Reference Number:  1-21BPNAA; 1-5R3RCSZ; 1-RHGX8CO

Business Line:  Superannuation

Date of publication:  7 May 2010
Date reviewed:  1 November 2021

ISSN: 1445-2782