On Wed 19.4.2017, the ATO issued Superannuation Guarantee Determination SGD 2017/1 asking:
Is an advance paid under s28 of the Fair Entitlements Guarantee Act 2012 to a former employee ‘salary or wages’ paid by the employer to the employee for the purposes of working out a superannuation guarantee charge liability under the Superannuation Guarantee (Administration) Act 1992?
It then answers this question: ‘Yes’, explaining:
- An advance paid under section 28 of the Fair Entitlements Guarantee Act 2012 (FEG Act), to a former employee is ‘salary or wages’ paid by the employer to an employee for the purposes of working out a liability for the superannuation guarantee charge.
- For superannuation guarantee purposes, the employer is the entity with the liability for the superannuation guarantee charge.
The SG Act imposes an obligation on employers to pay a charge to the ATO equal to any shortfall in the amounts they contribute to superannuation funds, for employees, below a stated percentage of ‘salary and wages’.
By way of background the SGD notes that the Fair Entitlements Act operates as follows.
- The primary objective of the FEG Act is to provide financial assistance (called an ‘advance’) to former employees, where the end of their employment is linked to the insolvency or bankruptcy of their employer. An advance is paid in respect of certain unpaid employee entitlements when there are insufficient funds or assets available to the employer to pay those entitlements.
- An advance that is paid to a former employee of a company in liquidation is ‘salary or wages’ within the ordinary meaning of those terms because the advance is paid in consideration of the services rendered by the former employee to the company, prior to the company entering into liquidation.
A payment that falls within the ordinary meaning of ‘salary or wages’ will be ‘salary or wages’ for the purposes of the SG Act and s15B extends the application of Part 3 to former employees:
15B. This Part applies to salary or wages paid to, and contributions for the benefit of, a former employee as if the former employee were an employee of the person who was the former employee’s employer.
The Determination goes on the explain:
- While the payment of the advance does not extinguish the salary or wages debt owed by the company to the former employee, the advance still constitutes ‘salary or wages’ within the ordinary meaning of those terms. As stated by Mansfield J in Deputy Commissioner of Taxation v. Applied Design Development Pty Ltd (in liq.) [2002] FCA 205 (paragraph 25):
A debt comprised of owed wages is ordinarily enforceable pursuant to a personal contractual right in an employee against an employer. However, the right to recover as a debt salary or wages owing is not an essential element of the ordinary meaning of the word ‘salary’ or the word ‘wage’. Whether the debt is enforceable pursuant to a personal contractual right, or whether the eventual payment of the debt is made pursuant to a statutory right to participate in the winding up of the company, the nature of the payment as a payment in respect of services rendered by an individual to an employer may nevertheless be unaltered.
- The gross amount of the advance, including the Pay As You Go tax withheld, constitutes ‘salary or wages’ for the purposes of the SGAA.
- The obligation of the employer to pay the superannuation guarantee charge does not change under the liquidation process. There is no provision in the SGAA imposing any personal liability upon a liquidator or other external administrator for payment of the superannuation guarantee charge out of its own funds.
DATE OF EFFECT: The Determination applies both before and after its date of issue. It replaces ATO ID 2017/1 (which was withdrawn Wed 19.4.2017) and ATO IDs 2015/13, 2015/14 and 2015/15 (which were withdrawn on 13 April 2017).
[FJM; ATO Website: SGD 2017/1; LTN 72, 19/4/17]