ATO ID 2014/31: Superannuation Guarantee: Payment of salary and wages after the death of an employee to the deceased estate
Date of decision: 16 October 2014
Year of income: Year ending 30 June 2015
Business line: Superannuation

Issue
Will the employer have an individual superannuation guarantee shortfall under section 19(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA) where an amount of salary and wages owing to an employee at the time of their death is paid by the employer to the deceased estate of the employee and the employer does not make sufficient superannuation contributions in respect of the payment by the relevant quarterly cut-off date?

Decision
Yes. In the above circumstances the employer will have an individual superannuation guarantee shortfall under section 19(1) of the SGAA.

Facts
An employee dies on 10 April 2008. Accrued salary or wages for the fortnightly pay period 1 April to 14 April 2008 is unpaid at time of death. Pay day is the 14 April 2008. The employer pays salary or wages accrued for the period 1 April to 10 April to the executor of the deceased estate of the employee on 18 April. The employer does not make superannuation contributions to a complying superannuation fund for this employee for the 1 April to 30 June quarter.

Reasons for decision
Summary: Subsection 19(1) of the SGAA sets out the formula for the calculation of an employer's individual SG shortfall for an employee for a quarter. The shortfall is calculated by reference to the total salary or wages paid by the employer to the employee for the quarter. Section 15B of the SGAA (applicable after 1 January 2006) extends the application of section 19 of the SGAA to treat former employees as employees. It operates to ensure that the employer will have an individual SG shortfall in respect of salary and wages paid to a former employee if they do not provide a sufficient level of superannuation support by the prescribed time. The SGAA does not define former employee. Therefore, the term takes its ordinary meaning. The Macquarie Dictionary Online defines former as 'past', or 'preceding in time', or 'having held a particular office in the past'. Employee takes its ordinary meaning under section 12 of the SGAA. It is therefore possible for a deceased employee to meet the common law meaning of former employee. Subdivision 290-B of the Income Tax Assessment Act 1997 (ITAA 1997) contains provisions relating to the deductibility of superannuation contributions made by employers. Section 290-60 provides for a deduction to the employer for contributions made to a complying superannuation fund for the purpose of providing superannuation benefits for their employee when the contribution is made. Section 290-85 modifies section 290-60 by extending its application to a contribution an employer makes which reduces their SG charge percentage under sections 22 or 23 of the SGAA in respect of another person because of section 15B of the SGAA. The Explanatory Memorandum to the Tax Laws Amendment (Simplified Superannuation) Bill 2006 which inserted Subdivision 290-B into the ITAA 1997 states the following: Contributions for former employees 1.36 The general deduction rules outlined above are modified in certain circumstances for contributions made for former employees. 1.37 Superannuation contributions for former employees would ordinarily not be deductible because a condition for deductibility is that the contribution is made at a time when the individual is an employee. However, contributions for former employees that reduce an employer's SG charge percentage (that is, to meet an SG obligation) will continue to be deductible provided the other conditions for deductibility are present. [Schedule 1, item 1, section 290 - 85] .......... 1.39 Deductions will also be available for superannuation contributions made after the death of an employee in the above circumstances (ie, to satisfy an SG obligation or under a salary sacrifice arrangement). Accordingly for the purposes of section 290-85 of the ITAA 1997, a former employee includes a deceased employee. As section 290-85 specifically refers to section 15B of the SGAA, by extension, a deceased employee must fall within the meaning of former employee in section 15B of the SGAA. On the current facts, the reference in section 15B of the SGAA to salary and wages paid to a former employee, in the case where the former employee is a deceased employee, must be a reference to the salary and wages paid to the deceased employee's legal personal representative or to the deceased estate (as they are unable to be paid to the deceased employee). Accordingly, section 15B of the SGAA extends the reference to salary and wages paid by the employer to the employee in the formula in subsection 19(1) of the SGAA to include salary and wages paid after the death of an employee to the deceased estate. 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 were paid. Such an interpretation is entirely consistent with the object of the SGAA. A construction of the provisions which results in an outcome whereby payments of accrued salary and wages paid after the death of an employee are not included when calculating whether the employer has an SG shortfall in relation to the deceased employee would be incongruous with the policy intent of the SGAA. It is also important to remember that subregulation 7.04(6) of the Superannuation Industry (Supervision) Regulations 1994 (SISR) allows a superannuation fund to accept a delayed contribution for an employee after the employee's death. Where a fund is unwilling or unable to accept contributions after the death of an employee, for example because they have already closed the member account, the employer may make a payment, equal to the amount of the contribution, directly to the deceased employee's personal legal representative. Such a payment is treated as a contribution to a complying superannuation fund for the benefit of the employee by virtue of subsection 23(9A) of the SGAA.

Legislative references: Superannuation Guarantee (Administration) Act 1992 section 15B section 19 subsection 19(1) section 22 section 23 subsection 23(9A)
Other references: Explanatory Memorandum to the Tax Laws Amendment (Simplified Superannuation) Bill 2006
Subject references: Contributions for former employees Contributions for employees - allowable deductions Superannuation contributions Superannuation contributions for employees Superannuation guarantee charge Superannuation guarantee shortfalls