Private ruling: Superannuation guarantee liability
Date of advice: 29 September 2017
Published: February 2018

Ruling: Q1: Are deferred shares and share options granted to employees as part of an annual bonus considered ordinary time earnings (OTE) or salary and wages for the purposes of subsection 6(1) of the Superannuation Guarantee Administration Act 1992 (SGAA)? Advice No. Shares are not considered salary or wages for superannuation guarantee (SG) purposes. As a result, they are not included as OTE.

Relevant facts and circumstances: We received an application in relation to SG obligations. The application provided the following information: ● The employer grants deferred shares and share options under their Employee Share Scheme (ESS)

Relevant legislative provisions: Superannuation Guarantee Administration Act 1992 Section 6. | Superannuation Guarantee Administration Act 1992 Section 15. ATO view documents | Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms ‘ordinary time earnings’ and ‘salary or wages’

Reasons for decision: Summary: SGR 2009/2 specifically excludes share acquisitions as salary and wages. Therefore superannuation guarantee is not payable on deferred shares share options. | 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 9.5%) by each employee’s earnings base. 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. If the correct amount of superannuation is not paid by the cut off dates stipulated by legislation, then the employer is liable to pay superannuation guarantee, not only on an employee’s OTE, but on their salary and wages. SGR 2009/2 stipulates the Commissioner’s view on what is regarded as OTE and salary and wages for superannuation guarantee purposes. As per paragraphs 28 and 29 of SGR 2009/2, the Commissioner considers in most cases that bonuses and similar payments based on performance are considered OTE, and therefore form part of salary and wages. Paragraph 46 of SGR 2009/2 states that fringe benefits and other non-cash payments are not considered salary and wages, and therefore cannot be OTE. Paragraph 58 extends on this exclusion and states: ‘Fringe benefits as defined in the Fringe Benefits Tax Assessment Act 1986 (FBTAA) are excluded under subsection 11(3) of the SGAA. 5 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 that Act 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.’ (Note: Division 13A of Part III of the ITAA 1936 repealed; Division 83A of the Income Tax Assessment Act 1997 – now applicable). Paragraph 19 of SGR 2009/2 refers to a maximum contribution base (MCB) for a quarter which is defined under section 15 of the SGAA. The MCB is used to determine the maximum limit on any individual employee's earnings base for each quarter of any financial year. The employer does not have to provide superannuation guarantee support for earnings above this limit. The MCB for the 2017-18 income year is $52,760 per quarter. Under paragraph 46 of SGR 2009/2, the acquisition of shares or a right to acquire a share are specifically excluded from an employee’s salary and wages and therefore cannot form part of an employee’s OTE.

This advice applies for the following period: 1 July 2017 to 30 June 2020