Private ruling: Ordinary time earning
Date of advice: 18 September 2025
Published: 17 November 2025

Ruling: Q1: Is the payment made in respect of Performance Share Awards (PSA), for which terminated employee makes a cash settlement election under the Incentive Plans, considered the Ordinary Time Earnings (OTE) of the recipient employee, pursuant to the Superannuation Guarantee (Administration) Act 1992 (SGAA 1992) subsection 6(1)? | A1: No | Q2: If the answer to Question 1 is "yes", is this limited to the extent the cash settlement contributes to the employee's total OTE up to, but not exceeding, the Maximum Contributions Base for the quarter in which the cash settlement is paid, pursuant to the SGAA 1992 subsection 6(1)? | A2: Not applicable


Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 995-1(1) | Income Tax Assessment Act 1997 subsection 83A-10(2) | Superannuation Guarantee (Administration) Act 1992 subsection 6(1) | Superannuation Guarantee (Administration) Act 1992 subsection 11(3) Other ATO documents | Superannuation Guarantee Ruling 2009/2 - Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages'

Reasons for decision: Summary: The cash-settled payment made in respect to the PSA is not considered OTE pursuant to the SGAA 1992 subsection 6(1). | Detailed Reasoning - Detailed reasoning: An Employee Share Scheme (ESS) is defined by subsection 83A-10(2) of the Income Tax Assessment Act 1997 (ITAA 1997) as a scheme under which ESS interests in a company are provided to employees of the company (or a subsidiary of the company) in relation to the employee's employment. Subsection 995-1(1) of ITAA 1997 defines the term 'scheme' as follows: "scheme" means: (a) any * arrangement; or (b) any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise. The Plans meet the requirement of an ESS for the purpose of subsection 83A-10(2) of ITAA 1997, as they are schemes under which ESS interests are provided to Participants in relation to their employment or engagement with the company. Subsection 6(1) of SGAA provides that OTE in relation to an employee includes relevantly: a) Earnings in respect of ordinary hours of work other than earnings consisting of a lump sum payment of any of the following kinds made to the employee on the termination of his or her employment: i. A payment in lieu of unused sick leave; ii. An unused annual leave payment, or unused long service leave payment, within the meaning of the Income Tax Assessment Act 1997 ; b) Earnings consisting of over-award payments, shift loading or commission. The SGAA does not define the expression "earnings" in respect of ordinary hours of work. The Commissioner considers that the term "earnings" in the definition of OTE, it embraces all those amounts, and only those amounts, are 'salary or wages' paid by the employer to their employee. The Superannuation Guarantee Ruling SGR 2009/2 Superannuation Guarantee: meaning of the terms 'ordinary time earnings and 'salary and wages' explains the meaning of the expression in a number of contexts. Paragraph 12 of SGR 2009/2 explains that an employee's earnings are a reward for employee's services: 12. An employee's 'earnings', for the purpose of the definition of OTE, is the remuneration paid to the employee as a reward for the employee's services. The practical effect for superannuation guarantee purposes is that the expression 'earnings' means 'salary or wages'. Paragraph 28 of SGR 2009/2 states that earnings are OTE when it is paid as a reward for good performance: 28. Additional earnings received as a reward for good performance, and other like 'bonus' payments, are OTE in most cases. Exceptionally, a discrete and clearly identifiable bonus payment may relate solely to work performed entirely outside of ordinary hours. For example, an employer may pay a bonus specifically to recognise a special project that an employee contributed to in non-ordinary hours. The Commissioner expresses his view that performance bonus is OTE and salary and wages, paragraphs 275 and 276 of SGR 2009/2 states: 275. In Prushka, which involved payments to employees from a profit sharing bonus scheme based on specified revenue targets achieved, Tribunal Member Fice made the following fact findings: ... the bonuses paid by Prushka were clearly paid in an employment context and by reference to the specific performance of its employees as a group. 276. Accordingly, it was held that the payments were OTE as well as 'salary or wages' for superannuation guarantee purposes. A bonus that is a 'retention payment' is not based on the performance of the individual, but rather there is a contractual right to the bonus if the relevant individual has been employed for the full year and remains employed at the payment date. The payment is primarily designed to ensure retention of staff. The Commissioner, however, points out in paragraph 257 of SGR 2009/2 that some benefits provided by the employer to employees are not salary and wages. 257. Additionally, the Commissioner takes the view that other 'benefits', within the meaning of the FBTAA, given by employers to employees that are neither fringe benefits nor salary or wages within the meaning of the FBTAA are not salary or wages for SGAA purposes. For example: • contributions made by an employer to a complying superannuation fund for the benefit of an employee (including those required to be made by the superannuation guarantee legislation itself); and • the acquisition of a share, or of a right to acquire a share, under an employee share scheme (within the meaning of Division 13A of Part III of the Income Tax Assessment Act 1936 (ITAA 1936)), are not salary or wages for SGAA purposes. In forming this view the Commissioner takes into account the intent evidenced by subsection 11(3) and the general distinction drawn for income tax, fringe benefits tax and Pay as You Go purposes between salary or wages and other kinds of employment benefits. | Detailed Reasoning - Conclusion: The Incentive Plans meet the requirements of an employee share scheme. The PSAs granted under the Incentive Plans allow employee making an election to have a cash settlement payment (subject to Director's discretion). The payment is not considered salary or wages within the meaning of the Fringe Benefits Tax Assessment Act 1986 . As the payment is not salary and wages, it cannot be formed part of the OTE. The Company X in this case has no obligations to pay superannuation on cash-settled payment under the PSA. | Detailed Reasoning - Question 2: If the answer to Question 1 is "yes", is this limited to the extent the cash settlement contributes to the employee's total OTE up to, but not exceeding, the Maximum Contributions Base for the quarter in which the cash settlement is paid, pursuant to the SGAA 1992 subsection 6(1)? | Summary: The question is not applicable as the answer for Question 1 is No.

The applicant (Company X) is part of a company group which has headquarters in Country A and Australia. | Company X has shares listed on stock exchange in both countries. | Company X offers select employees the ability to participate in certain incentive plans. | The Incentive Plans allow for the grant of a PSA to a participating employee being 'a conditional right to acquire under the Plan' or 'Awards under which the Participant receive Shares for free automatically to the extent the Award Vests'. | PSAs will vest over a period set by the Directors. The incentive Plans do not specify a set vesting period, which is determined for the participating employee at the discretion of the Directors. | Vesting may be subject to various conditions, including entity performance and/or service conditions, also set by the Directors | As general rule, PSAs will elapse on an employee's notice of termination. However, PSAs may continue to vest upon cessation of employment, but only at the absolute discretion of the Directors. | PSAs may be cash-settled, but only at the discretion of the Directors. There is no stated practice or policy of settling PSAs in cash. Only in limited circumstances, including termination of employment, employees are given an option to cash settles their PSAs. | A cash settlement amount is calculated using the market value at vesting, being 'a cash payment equal to the value of the Shares to which the Participant would otherwise be entitled'. | Reasons for decision: These reasons for decision accompany the Notice of advice for Company X. | This is to explain how we reached our decision. This is not part of the advice. | Is the payment made in respect of Performance Share Award (PSA), for which terminated employee makes a cash settlement election under the Incentive Plans, considered the Ordinary Time Earnings (OTE) of the recipient employee, pursuant to the Superannuation Guarantee (Administration) Act 1992 (SGAA 1992) subsection 6(1)?