ATO ID 2006/153: Superannuation Guarantee: payments of salary or wages to former employees
Date of decision: 6 June 2006
Year of income: Year ended 30 June 2005
Business line: Superannuation

Issue
Will the employer have an individual superannuation guarantee shortfall under subsection 19(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA) in respect of a payment of salary or wages to a former employee if the employer does not make sufficient superannuation contributions in respect of the payment by the cut off date for the quarter?

Decision
Yes. The employer will have an individual superannuation guarantee shortfall under subsection 19(1) of the SGAA in respect of a payment of salary or wages to a former employee if the employer does not make sufficient superannuation contributions in respect of the payment by the cut off date for the quarter.

Facts
The taxpayer ceased employment with the entity (the former employer) on 30 June 2005. The entity paid the taxpayer a bonus payment in September 2005. The bonus is performance based and relates to the taxpayer's employment with the entity in the 2004-05 income year.

Reasons for decision
Summary: An employer's individual superannuation guarantee shortfall for an employee for a quarter is the amount worked out using the formula in subsection 19(1) of the SGAA. The shortfall is calculated by reference to the total salary or wages paid by the employer to the employee for the quarter. An employer will have an individual superannuation guarantee shortfall for an employee under subsection 19(1) if the employer has not made sufficient superannuation contributions under either or both sections 22 and 23 of the SGAA to reduce the employer's charge percentage to nil in respect of the employee for the quarter. For periods up until 1 January 2006, there were conflicting views as to whether the formula in subsection 19(1) of the SGAA applied to capture payments of salary or wages by an employer to a former employee. It was argued by some that subsection 19(1) had no operation in relation to former employees as the provision required the existence of a current employment relationship at the time of the payment. The Tax Office view is that, having regard to the context, scope and purpose of subsection 19(1), the better view of the law is that the provision did apply to payments of salary or wages by an employer to a former employee. Provided it is established that the payment arises from and has a clear link to an employer/employer relationship and has the character of salary or wages (as defined in the SGAA), subsection 19(1) will apply notwithstanding the fact that a current employment relationship does not exist at the time of the payment. In the circumstances of this case, the taxpayer ceased work as an employee with the entity on 30 June 2005. The taxpayer received a performance based bonus payment from the entity in September 2005 which related to the taxpayer's employment with the entity in the 2004-05 income year. A bonus that relates to employment constitutes salary or wages for the purposes of the SGAA (paragraph 12 of Superannuation Guarantee Ruling SGR 94/5, which was later replaced by Superannuation Guarantee Ruling SGR 2009/2). [1] Because the bonus arises from and is clearly linked to the former employee's employment, the entity was therefore required to make sufficient superannuation contributions in respect of the payment to avoid having an individual superannuation guarantee shortfall under subsection 19(1) of the SGAA. If the employer fails to make sufficient superannuation contributions in respect of the payment the employer will have an individual superannuation guarantee shortfall for the quarter in which the salary or wages was paid in. For payments of salary or wages by an employer to a former employee on or after 1 January 2006, section 15B of the SGAA operates to put beyond doubt that the employer will have an individual superannuation guarantee shortfall in respect of the former employee under subsection 19(1) of the SGAA if they do not make sufficient contributions in respect of the payment by the cut off date for the quarter.

Legislative references: Superannuation Guarantee (Administration) Act 1992 section 15B subsection 19(1) section 22 section 23
Related public rulings and determinations: Superannuation Guarantee Ruling SGR 94/5 | Superannuation Guarantee Ruling SGR 2009/2
Subject references: Superannuation contributions for employees Superannuation guarantee shortfalls