Beware: Some Employee reimbursements attract SGC
Recently, the Administrative Appeals Tribunal (‘AAT’) confirmed the Commissioner’s view that the description of the payment is not decisive when determining the superannuation guarantee (‘SG’) obligations; thus the taxpayer who reimbursed his employee for car expenses was required to pay the superannuation guarantee charge (‘SGC’) in relation to those reimbursements.
Superannuation Guarantee Charges
Employers are required to make quarterly SG contributions on behalf of eligible employees at a rate of 9.5% of an employee’s ordinary time earnings (‘OTE’) up to a maximum OTE of $52,760 per quarter for the 2018 income year.
Ordinary time earnings (‘salary or wages’) are generally what your employees earn for their ordinary hours of work, including:
- over-award payments
Furthermore, you are required to pay the superannuation guarantee charge (‘SGC’), for your eligible employees if you did not pay:
- any or enough superannuation
- superannuation contribution by the quarterly cut-off date
- superannuation contribution to an eligible employee’s nominated superannuation fund for any quarter with the start date on or after 1 July 2005.
The superannuation guarantee charge is payable to the Australian Taxation Office (ATO), is not tax deductible and is calculated using a broader base than OTE (i.e. it will include an overtime salary).
For the SG obligation and SGC it is important to define “salary or wages”. Hence, 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’. Similar, a reimbursement that compensates an employee for an expense they have incurred on behalf of the employer is also not ‘salary or wages’.
Nevertheless, in determining the superannuation obligation the ATO adopted a “substance over form” approach. In this recent case, the taxpayer paid its employees wages and motor vehicle reimbursement (‘MVR’) expenses. The payment was split between wages (20%) and MVR expenses (80%). The Commissioner argued that the MVR expenses were unrealistic and excessive and requested the expense to be included in ‘salary or wages’ for SGC purposes. The AAT confirmed the Commissioner view; consequently the taxpayer was found liable for SGC.
Here at the Quinn Group we can assist with any questions regarding employer’s superannuation guarantee obligations. Contact us on (02) 9223 9166 to discuss with one of our team of tax accountants or tax lawyers or fill out an online enquiry.