Private ruling: Living allowance and ordinary time earnings
Published: February 2012

Ruling: A living allowance paid to employees working away from their usual place of residence does not form part of ordinary time earnings (OTE) as defined in subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA). | Facts | The employer pays each employee who is required to live away from their usual place of residence (regardless of employment status) a "living allowance" which is a flat rate payment per day to compensate them for the cost of food. | The Employer has a Living Allowance Policy which provides that an allowance is paid for additional expenses which may be incurred while living away from the employee's usual place of residence in order for the employee to perform their employment-related duties. The allowance paid by the employer is primarily to cover food costs. An employee who is required to live away from their usual place of residence to carry out employment related activities is entitled to the living allowance. The living allowance will be a fixed amount per day in additional to ordinary wages. This figure is based on the reasonable amount of money that would normally be spent on food per day. If less than the allowance is spent the remaining amount is not required to be returned to the employer. Furthermore, receipts are not required for the amount spent.


Relevant legislative provisions: Superannuation Guarantee Administration Act 1992 subsection 6(1).

Reasons for decision: Summary: The living allowance paid by the employer to employees working away from their usual place of residence does not form part of OTE as defined in subsection 6(1) of the SGAA. | Detailed Reasoning - Detailed reasoning: The Superannuation Laws Amendment (2004 Measures No 2) Act 2004 simplified the earnings base of an employee for SGAA purposes. These amendments which apply from 1 July 2008 have the effect that all employers need to calculate their SGAA liability against an employee's OTE, as defined in the SGAA. In effect this means employers can no longer use earnings bases specified in industrial awards, superannuation schemes, occupational superannuation arrangements or a law of the Commonwealth, State or Territory to satisfy their requirements in meeting their SGAA liability. From 1 July 2008, employers may still be required to use notional earnings bases specified in legislation or industrial agreements as the basis of their superannuation support in cases where these are above an employee's OTE, but SGAA obligations will only be assessed against OTE. 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 termination of employment in lieu of unused sick leave, unused annual leave and unused long service leave; or (b) the maximum contribution base for the quarter - the maximum contribution 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. The maximum contribution base for the 2011/12 year of income is $43,820 per quarter. 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 '. | Detailed Reasoning - Allowances: SGR 2009/2 addresses allowances at paragraphs 27, 65 and 72 of the ruling. Paragraph 27 relates to certain specific kinds of payments that are OTE. Paragraph 27 states: "Many employees receive various additional payments that are described as allowances that are paid to employees to recognise or compensate for certain conditions relating to their employment. Examples: § a site allowance…. § a casual loading…. § a dirt allowance…. § a freezer allowance…. These kinds of payments are OTE except to the extent that they: § are not 'salary or wages', for example if they are payments of a predetermined amount to offset or reimburse particular expenses…" Paragraph 65 of SGR 2009/2 relates to certain payments that are 'salary or wages'. Paragraph 65 states: "For the purposes of the SGAA, all allowances, except expense allowances and allowances that are fringe benefits under the FBTAA, received by an employee, are included in 'salary or wages'…" Paragraph 72 of SGR 2009/2 relates to expense allowances and reimbursements and states: Expense allowances, that is, those allowances paid to an employee with a reasonable expectation that the employee will fully expend the money in the course of providing services are not 'salary or wages'. The employer's Living Allowance policy provides that an allowance is paid for additional expenses which may be incurred while living away from the employee's usual place of residence in order for the employee to perform their employment-related duties. The allowance paid by the employer is primarily to cover food costs. An employee who is required to live away from their usual place of residence to carry out employment related activities is entitled to the living allowance. The living allowance will be a fixed amount per day in additional to ordinary wages. This figure is based on the reasonable amount of money that would normally be spent on food per day. If less than the allowance is spent the remaining amount is not required to be returned to the employer. Furthermore, receipts are not required for the amount spent. In this case the living allowance is paid to compensate the employees for the cost of food whilst they are living away from their usual place of residence in order to perform their employment-related duties. As the employer's states that the amount per day is based on the reasonable amount of money that the employee would normally spend on food per day, it is considered that there is a reasonable expectation that the employee will fully expend the money in providing the employment-related services. Therefore, the living allowance would be considered to be an expense allowance. As stated above paragraphs 27 and 65 of SGR 2009/2 exclude expense allowances from OTE and 'Salary and Wages' for the purposes of the subsection 6(1) of the SGAA. | Detailed Reasoning - Conclusion: The living allowance paid by the employer to employees working away from their usual place of residence is an expense allowance and therefore does not form part of OTE as defined in subsection 6(1) of the SGAA.

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