Preface This document provides a brief explanation of the pay-roll tax treatment of superannuation benefits but it does not constitute a ruling. If any uncertainty exists with a particular aspect of the information provided, you should seek advice from the State Revenue Office (SRO). The information in this document is correct at the time of release. Introduction Pay-roll tax is a State tax, administered in Victoria by the SRO, based on wages paid or payable by an employer. The definition of wages in the Pay-roll Tax Act 1971 (PTX Act) is very broad and requires employers to include various payments made to, or on behalf of, their employees or deemed employees. From 1 July 1997, the definition of wages was broadened to include 'superannuation benefits'. This means that all employer superannuation contributions made for employees or deemed employees are taxable where they relate to services performed on or after that date. This document provides information about the types of 'superannuation benefits' which attract pay-roll tax as well as addressing some of the more common questions raised by taxpayers and practitioners. Superannuation benefits The definition of 'superannuation benefits' contained in the PTX Act includes monies paid or payable by an employer for an employee: • to or as a superannuation fund within the meaning of the Commonwealth Superannuation Industry (Supervision) Act 1993; or • as a superannuation guarantee charge; or • to or as any other form of superannuation, provident or retirement fund or scheme including: • a Superannuation Holdings Accounts Reserve (SHAR); • a retirement savings account within the meaning of the Retirement Savings Accounts Act 1997; and • a wholly or partly unfunded fund or scheme. Superannuation fund The term 'superannuation fund' is defined in the Commonwealth Superannuation Industry (Supervision) Act 1993 as being: • a fund that is an indefinitely continuing fund and is a provident, benefit, superannuation or retirement fund; or • a public sector superannuation scheme. In this context, the term 'indefinitely continuing' means the fund is not one that will cease after a specified time. Superannuation Guarantee Charge The Commonwealth Superannuation Guarantee (Administration) Act 1992 (SGAA) requires that all employers to pay minimum levels of superannuation for all their employees. The minimum level of contribution for the 1998/1999 year is seven (7) per cent with that rate to increase to nine (9) per cent for 2002/2003 and following years. The term 'employee' is defined in section 12 of the SGAA to include all persons engaged to supply services that consist wholly or principally of the provision of labour. Superannuation guarantee charge contributions can be made to any complying superannuation fund. The PTX Act requires all contributions made as a superannuation guarantee charge to be included for pay-roll tax. While the superannuation guarantee charge may also include penalties imposed by the Australian Taxation Office (ATO), under sections 49, 59, 60 or 61 of the SGAA the SRO does not require employers to pay pay-roll tax on these penalties. The superannuation guarantee charge always includes: the total of the employer's individual superannuation guarantee charge shortfalls for the (i) year; (ii) the employer's nominal interest component for the year; and (iii) the employer's administration component for the year. The sum of these three components is subject to pay-roll tax. (See Revenue Ruling PT.086) Superannuation Holding Accounts Reserve (SHAR) SHAR is administered by the ATO and was created to receive superannuation contributions that must be paid under the Superannuation Guarantee Scheme. SHAR was created with effect from 1 July 1995 to protect small superannuation accounts from being eroded by fees and charges. Retirement Savings Accounts The Commonwealth Retirement Savings Accounts Act 1997 allows banks and other financial institutions to provide superannuation without a trust structure and with the funds within such accounts being capital guaranteed. The Retirement Savings Accounts' provisions started operation on 1 July 1997. Which superannuation contributions attract pay-roll tax? Superannuation benefits paid or payable for any person to whom payments are taxable under the Pay-roll Tax Act are considered to be wages for the purposes of pay-roll tax. This includes superannuation benefits for: • employees (excluding exempt employees, for example, apprentices); • deemed employees, and • company directors, Employees The Pay-roll Tax Act requires an employer to include all wages paid, or payable, to employees (including all employer superannuation contributions) in its pay-roll tax calculations. Superannuation contributions made by an employer on behalf of their employees (that is, after-tax contributions) have always been considered to be wages for pay- roll tax purposes. Deemed employees The Pay-roll Tax Act includes provisions that deem some contractors to be employees for pay-roll tax purposes. Any superannuation contributions made by an employer for a contractor who is a 'deemed employee' are subject to pay-roll tax. For further information on the contractor provisions refer to the SRO's pay-roll tax document 'Contractors'. Company Directors The definition of wages within the Pay-roll Tax Act also includes payments made to a company director irrespective of whether the director is a working or non- working director. Any superannuation benefits paid in respect of company directors are wages and are subject to pay-roll tax. Superannuation benefits paid before and after 1 July 1997 The Pay-roll Tax Act specifically provides that superannuation benefits paid on or after 30 April 1997, for services provided on or after 1 July 1997 (pre-payments), are considered to have been made on 1 July 1997 and therefore are taxable. Any superannuation contributions made on or after 1 July 1997 for services provided before that date are not superannuation benefits for pay-roll tax purposes and therefore are not taxable. Answers to commonly asked questions To help taxpayers in their understanding of the provisions, the following are some of the more common questions about superannuation benefits the SRO has received. If your circumstances are not covered by any of the following scenarios, or if you are uncertain about your obligations regarding superannuation benefits and pay- roll tax, you should contact the SRO for further advice. Question 1 Some of our staff can 'salary sacrifice' superannuation contributions. Is pay-roll tax payable on superannuation contributions made under salary sacrifice arrangements? Answer 1 Yes. The amended provisions of the PTX Act capture all superannuation contributions made by employers for their employees. This includes all employer contributions made where an employee has sacrificed part of their salary in return for employer superannuation contributions. Question 2 We make contributions to superannuation funds set up by some of our employees. What amount needs to be included as wages for pay-roll tax purposes? Answer 2 All superannuation contributions made by an employer for their employees are wages for pay-roll tax irrespective of who it was that set up the fund to which the contributions are being made. In some situations, employees will have their employer deduct superannuation contributions from their after- tax payments. As these payments are part of the employee's gross wages they are fully taxable. Question 3 In June 1997, our business was in a financial position that enabled us to make superannuation contributions in advance for services to be provided by our employees during the following months. Is it true that these contributions aren't taxable because they were made before 1 July 1997? Answer 3 No, that is not true. The amended provisions contain a clause (section 3(2AC)) that captures any superannuation contributions made by employers on or after 30 April 1997 but before 1 July 1997, in respect of services to be performed on or after 1 July 1997. These contributions are deemed to have been made on 1 July 1997 and are therefore subject to pay-roll tax. Question 4 Our business engages contractors to do some work for us. As part of our arrangements with these contractors we make contributions to the contractors' superannuation funds. These people provide their services to us through their own companies and are not our employees. Are the superannuation contributions we are making on their behalf taxable? Answer 4 The PTX Act contains provisions that 'deem' some contractors to be employees and the payments made to these contractors are 'deemed' to be wages. To determine if pay-roll tax is payable on the superannuation contributions made under the contract with the contractor, you must firstly establish if the contract is a 'relevant contract' and the contractor is a 'deemed employee' under the provisions of section 3C of the PTX Act (a circular entitled 'Contractors' is available from the SRO). If the contractor is deemed to be an employee then all payments made to the contractor, including any superannuation contributions, are taxable. Likewise, if the contractor is not deemed to be an employee unde r the contractor provisions, the superannuation contributions are not wages and are therefore not taxable. Question 5 We were late making our superannuation contributions for the 1996/1997 year and didn't actually make these contributions until early August 1997. As these contributions were made after 1 July 1997 do we have to include them in our August pay-roll tax payment? Answer 5 The amended provisions are designed to impose tax only on superannuation contributions in respect of services provided on or after 1 July 1997. Any contributions made on or after 1 July 1997 which relate to services provided in periods before 1 July 1997 are not taxable as long as the taxpayer maintains records sufficient to satisfy the SRO that the contributions relate to periods before 1 July 1997. Question 6 Our company is a subsidiary of an overseas company and we regularly have people from our overseas office work in our Melbourne office for periods of between six (6) and twelve (12) months. The arrangements for these people are that we make contributions to their superannuation funds which are located overseas. Do we have to include these contributions for pay-roll tax? Answer 6 Yes. The superannuation benefits provisions capture payments made to superannuation funds and include payments as a superannuation guarantee charge as well as payments to 'any other form of superannuation, provident or retirement fund or scheme'. This includes payments made to funds that are located overseas where those payments relate to work performed by the employee in Victoria for periods on or after 1 July 1997. Question 7 The superannuation fund, which all of our employees are members of, is funded to such an extent that it is currently in a 'contributions holiday'. How much do we have to include in our pay-roll tax declarations? Answer 7 The superannuation provisions within the PTX Act are intended to capture employer contributions to superannuation funds. When a fund is in a 'contribution holiday' the employer is not required to make contributions to that fund. As no contributions are being made, pay-roll tax cannot be imposed. If in the future, contributions are required to be made to the fund, then at that point, those contributions will be subject to pay-roll tax. Question 8 We are a public authority and our superannuation fund is an unfunded fund where contributions are actually made for a particular employee when that employee retires. How do we calculate the amount that we should include as wages for pay- roll tax? Answer 8 Working out the amount to declare as wages for pay-roll tax for unfunded superannuation funds can be a complex process. To determine how much to declare, the employer must establish the proportion of the payment which relates to services provided by the employee on or after 1 July 1997. This will require actuarial calculations. Question 9 We employ apprentices and are required to make superannuation contributions on their behalf. What amount do we have to declare for pay-roll tax? Answer 9 From 1 January 1995, the PTX Act was amended to exempt wages paid to approved apprentices and registered trainees. As a result, superannuation contributions made on behalf of apprentices and trainees are also exempt. Question 10 We make contributions to a superannuation fund in relation to administration costs and insurance premiums of the fund. Are these contributions subject to pay- roll tax? Answer 10 These payments should be included as taxable amounts for pay-roll tax purposes as they are still a contribution to a superannuation fund by an employer in respect of its employees. The above questions and answers are aimed at some of the more common questions directed to the SRO. If you are uncertain of your obligations, please contact the SRO.