Private ruling: Superannuation guarantee and travel allowance
Published: December 2013

Ruling: Q1: Is the 'Travel time allowance', provided in the Award, included in ordinary time earnings (OTE) for superannuation guarantee purposes under subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA) for the employees? Advice Yes, please see 'Reasons for decision' below.

Relevant facts and circumstances: We received a request for advice in relation to superannuation guarantee obligations in respect of travel allowance paid to employees under the Award.

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

Reasons for decision: Summary: The 'Travel time allowance' paid to the employees under the Award does form part of the employees OTE when it is paid in respect of the employee's ordinary hours of work. | Detailed Reasoning - Detailed reasoning: The SGAA places a requirement on all employers to provide a minimum level of superannuation support for their eligible employees by the quarterly due date, or pay the superannuation guarantee charge. The minimum level of support is calculated by multiplying the charge percentage (currently 9.25%) by each employee's earnings base. From 1 July 2008, an employer must use OTE as defined in subsection 6(1) of the SGAA as the earnings base to calculate the minimum superannuation contributions for their employees. This ensures that all employees are treated the same for superannuation purposes. | Detailed Reasoning - Definition of ordinary time earnings: 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 loadings or commissions, but does not include lump sum payments made on the termination of employment in lieu of unused sick leave, unused annual leave and unused long service leave; or (b) the maximum contributions base for the quarter - the maximum contributions 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. 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 ' (SGR 2009/2). SGR 2009/2 explains that an employee's 'ordinary hours of work' are the hours specified as ordinary hours of work under the relevant award or agreement that governs the employee's conditions of employment and highlights that any hours worked in excess of, or outside the span those specified ordinary hours of work are not part of the employee's 'ordinary hours of work'. In particular, the ruling states that: 25. All amounts of earnings in respect of employment are in respect of the employee's ordinary hours of work unless they are remuneration for working overtime hours, or are otherwise referable only to overtime or to other hours that are not ordinary hours of work. There is no such thing as earnings that are merely in respect employment and are not OTE because they are not in respect of any particular hours of work. 26. An award or agreement may itself have a definition of 'ordinary time earnings' that purports to apply for superannuation purposes. However, the central question posed by the definition of OTE in the SGAA is what amounts are 'earnings in respect of ordinary hours of work'. This could in some cases be a different amount from any purported amount of 'OTE' in the award or agreement. As mentioned in paragraph 13 of this Ruling, the Commissioner accepts that 'ordinary hours of work' are as determined by the relevant award or agreement, but that does not imply that OTE itself is necessarily as determined by the award or agreement. Accordingly, in line with the above, all amounts of earnings in respect of employment should be considered to be in respect of the employee's ordinary hours of work unless these are remuneration for overtime or other hours that are not ordinary hours of work. | Detailed Reasoning - Allowances: An allowance is a payment of a definite predetermined amount to cover an estimated expense. Generally it is paid regardless of whether the employee incurs the expected expense and the employee has the discretion whether or not to expend the allowance. Paragraph 27 of SGR 2009/2 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' paid fortnightly at a flat rate in acknowledgement of the displacement an employee undergoes when a job requires him or her to work in a remote location; · a 'casual loading' of 20% of the basic ordinary time rate of pay paid to a casual worker in lieu of any fixed, regular minimum hours of work and of paid leave entitlements; · a 'dirt allowance' paid as a flat rate in acknowledgement of the conditions in which the work is undertaken; and · a 'freezer allowance' paid at the rate of an extra $2.50 per hour to employees, such as some supermarket employees, who perform most of their duties in cold storage facilities. 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; or · relate solely to hours of work other than ordinary hours of work. 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' Paragraphs 72 of SGR 2009/2 relates to expense allowances and reimbursements. Paragraph 72 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'. Appendix 2 to SGR 2009/2 - Explanation is provided as information to help taxpayers to understand how the Commissioner's view has been reached. Paragraphs 259 to 263 of SGR 2009/2 are in the explanation and relate to allowances and reimbursements. These paragraphs state: 259. Section 11 does not expressly include in its definition of 'salary or wages' the term 'allowance'. The Commissioner however interprets the expression as used in the SGAA context as extending to the same kinds of allowances that have been regarded as salary or wages under definitions of 'salary or wages' that expressly include allowances. 260. In Mutual Acceptance , the High Court considered whether a fixed weekly payment to employees who used their own motor vehicles in the course of their duties was an 'allowance' and therefore 'wages' as defined the then Commonwealth Pay-Roll Tas Assessment Act 1941-42. The payment represented partial compensation for the motor vehicle expenses to be incurred by those employees. 261. In discussing what may be considered as the ordinary meaning of an 'allowance' Latham CJ in Mutual Acceptance stated that an allowance paid as compensation for unusual conditions of services: … represents higher wages paid on account of special conditions, and may be fairly described as part of wages in the ordinary sense (emphasis added) 262. Mutual Acceptance was relied upon in Road & Traffic Authority of NSW v. Federal Commissioner of Taxation where the employees received fare allowances under the relevant award for travel to and from work. They were paid regardless of whether or not the employee incurred the expenditure. The question for decision was whether the allowances were expense payment benefits subject to fringe benefits tax or were within the definition of 'salary or wages' in former subsection 221A(1) of the ITAA 1936. 263. Hill J considered the allowance as additional compensation to the employees for their services. There was no need that the remuneration relate to specific services rendered, as long as the payments in question were given as remuneration for services generally. The fare allowances had no relationship to the actual cost of travel incurred by the employees. Accordingly, they were not reimbursements. The fare allowances were held to be 'salary or wages'. Paragraph 266 of SGR 2009/2 which is in the explanation states: An expense allowance is an allowance which is paid with the reasonable expectation that the money will be fully expended by the employee in the course of providing their services. The expense allowance is not given for the services of the employee, but rather in recognition of the expenditure that the employee will incur in the course of providing their services. As this type of allowance does not fall within the ordinary meaning of 'salary or wages', it does not form part of 'salary or wages' for the purposes of section 11. It also does not form part of an employee's OTE. Therefore, in order for 'Travel time allowance' to be deemed an expense allowance it is necessary to establish whether there is a reasonable expectation that the employee will fully expend the money in the course of providing services. If an allowance is paid unconditionally, that is regardless of whether the employee actually incurs the cost, it suggests that the allowance is not an expense allowance. For example, where an employee is paid the allowance regardless of whether they turn up to work, the allowance would not be an expense allowance. | Detailed Reasoning - Application to your circumstances: The Employer engages employees under the Award. The employer requested advice on whether the travel time allowance paid under the Award forms part of the employees' OTE for superannuation purposes. As stated above, it is necessary to establish if there is a reasonable expectation that the employees will fully expend the money in the course of providing services. As the Award provides that the employees must be paid the allowance for each working day on which they present themselves for work, and for rostered days off, it is not considered that the employees are expected to fully expend the money in the course of providing services. It is considered that the allowance is paid unconditionally to compensate for a particular working condition. Under paragraph 27 of SGR 2009/2 additional payments that are described as allowances paid to employees to recognise or compensate for certain conditions relating to their employment are OTE when the payment is in respect of hours of work that form part of the employee's ordinary hours of work. If the payment solely relates to hours of work other than ordinary hours of work, such as overtime hours, the payment does not form part of OTE. | Detailed Reasoning - Conclusion: The 'Travel time allowance' paid to the employees under the Award is paid to the employees for each working day on which they present for work, and for rostered days off. It is considered that this payment is paid unconditionally to compensate the employees for a particular working condition. Therefore the 'Travel time allowance' does form part of the employees OTE when it is paid in respect of the employee's ordinary hours of work.

This advice applies for the following period: For the period of operation of the Award.