Private ruling: Superannuation guarantee payment in regards to GST
Published: May 2012

Ruling: Q2: Where the principal engages a contractor (who is not otherwise an employee of the principal but who is deemed to be an employee under section 12(3) of the SGAA), are superannuation contributions in respect of the deemed employee, sufficient to reduce any superannuation guarantee (SG) shortfall to nil, required to be calculated by reference to the payments made to the contractor on a GST exclusive basis? Advice Yes, the SG liability is calculated on the GST exclusive amount of the labour value of the contract. See detailed reasoning below.

Relevant facts and circumstances: Your advice is based on the facts stated in the description of the scheme that is set out below. If your circumstances are significantly different from these facts, this advice has no effect and you cannot rely on it. The fact sheet has more information about relying on ATO advice . You are an entity which engages independent contractors on a regular basis to perform various works You have contracts with the contractors setting out consideration for services which set out terms of service, insurance and other conditions. The contractors are deemed employees by the operation of section 12(3) of SGAA because the engagement under the contracts is wholly or principally for the labour of the contractors. The contractors are not otherwise your employees.

Relevant legislative provisions: Superannuation Guarantee Charge Act 1992 Section 5 | Superannuation Guarantee Charge Act 1992 Section 6 | Superannuation Guarantee (Administration) Act 1992 Section 6 | Superannuation Guarantee (Administration) Act 1992 Subsection 11(1) | Superannuation Guarantee (Administration) Act 1992 Subsection 12(3) | Superannuation Guarantee (Administration) Act 1992 Section 17 | Superannuation Guarantee (Administration) Act 1992 Section 19 | Superannuation Guarantee (Administration) Act 1992 Subsection 23(6)

Reasons for decision: Summary: SGC is calculated on the GST exempt value of the labour content of the contract. | Detailed Reasoning - Detailed reasoning: SGC is defined in section 6 of the SGAA as being the charge imposed by the Superannuation Guarantee Charge Act 1992 (SGCA). Section 5 of the SGCA states that the charge is imposed on any SG shortfall of an employer for a quarter. Section 6 of the SGCA states that the amount of SGC payable on a SG shortfall of an employer for a quarter is an amount equal to the amount of the shortfall. SG shortfall has the meaning given to it by section 17 of the SGAA which states that: If an employer has one or more individual superannuation guarantee shortfalls for a quarter, the employer has a superannuation guarantee shortfall for the quarter worked out by adding together: (a) the total of the employer's individual superannuation guarantee shortfalls for the quarter; and (b) the employer's nominal interest component for the quarter; and (c) the employer's administration component for the quarter. If an employer has not paid sufficient contributions for eligible employees by the cut-off date for each quarter of the year, the employer is required to lodge a Superannuation Guarantee Statement and pay the SGC to the ATO. The SGC is made up of three components: the SG shortfall, comprising the total of the individual employee SG shortfall amounts for the period interest on that amount (10% per annum) an administration fee ($20 per employee per quarter). Section 19 of the SGAA specifies the employer's individual SG shortfall for an employee, for a quarter, is the amount calculated using the following formula: Total salary and wages paid by the employer to the employee for the quarter X Charge percentage for the employer for the quarter 100 Subsection 23(6) of the SGAA allows for superannuation contributions made: by an employer for the benefit of an employee, and to a complying superannuation fund or an RSA, to be taken into account for an SG quarter if it is in fact made by the 28 th day after the end of the quarter. These contributions reduce the employer's charge percentage, and therefore liability, to the SGC. | Detailed Reasoning - Question 2: Summary SG liabilities on payments made to the contractors are calculated on the labour component of the contract exclusive of GST Detailed Reasoning Under the SGAA an employer must provide the required minimum level of superannuation support for its employees by the quarterly due date (unless the employees are exempt employees) or pay the superannuation guarantee charge. The minimum level of support is calculated by multiplying the charge percentage (currently 9%) by each employee's earnings base. In regards to contractors section 12(3) of the SGAA states: If a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract. Subsection 11(1) of the SGAA states that: In this Act, salary or wages includes: (ba) Payments under a contract referred to in subsection 12(3) that are made in respect of the labour of the person working under the contract. Furthermore, the Commissioner sets out his views in regards to such payments in the information package Superannuation guarantee for superannuation professionals (NAT 21250). Under the section for contractors the Commissioner stipulates that your contribution should be calculated only on the labour component of the contract. Fact sheet Tax Office advice | Detailed Reasoning - Income tax and superannuation: How does this advice protect you? This advice only applies in the circumstances set out in the 'Relevant facts and circumstances' section of the Notice of advice . If you 'rely' on the advice, that is, you conduct your tax affairs in a way that is consistent with the advice, we must apply the law to you in the way set out in the advice. If we find out later that the advice is incorrect and the correct interpretation of the law is to your advantage, we will apply the law to give you the advantage (unless a time limit prevents us from doing so). However, if the advice does not correctly set out how the law applies and you would have to pay more tax under the correct interpretation, the advice protects you from having to pay the difference, except when the advice is no longer appropriate: because the law has changed because a subsequent court or tribunal decision has affected our interpretation of the law, or for other reasons. If the law changes, the protection of this advice ceases from the date of effect of the change. Any change to the appropriateness of the advice due to our view of the law changing, or for other reasons, will normally be prospective. That is, you will not have to repay tax for earlier periods. Do you have to follow the advice? If you disagree with this advice, you can choose not to follow it. You can change your mind at any time (subject to time limits imposed by the law). If you choose not to follow the advice and your position is later found to be incorrect, you will owe any underpaid tax plus interest. That is, if you have not followed it, merely having this advice does not protect you from having to pay more tax. You may also have to pay penalties unless you can show that you have exercised reasonable care in deciding to adopt your tax position or have adopted a 'reasonably arguable' tax position Publishing your advice on our website To ensure the integrity of the advice we are giving, we publish a version of all binding advice we give on our website www.ato.gov.au in the Register of private binding rulings . Before we publish, we edit the advice to remove all identifying details. This ensures that your privacy is protected. A copy of this edited version is included with your advice. Do you want to change the edited version? If you are concerned that the edited version may still allow you to be identified, contact us within 28 days of the date of your advice at: Practice Management Unit Australian Taxation Office PO Box 9990 NEWCASTLE NSW 2300 If you do not contact us within 28 days, we will publish the edited version in the Register of private binding rulings. This publication was current at July 2009

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns. | Question 1: Where the principal engages a contractor (who is not otherwise an employee of the principal but who is deemed to be an employee under section 12(3) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)), is any superannuation guarantee charge (SGC) payable in respect of that employee by the principal calculated on the payments made to the contractor on a GST exclusive basis? | Yes. The SGC is calculated on the GST exclusive amount of the labour value of the contract. See detailed reasoning below. | This advice applies for the following period: 1 July 2011 to 30 June 2013