The Australian Taxation Office (ATO) are stating that the employer compulsory Superannuation Guarantee Contribution (SGC) does apply to 17.5% annual leave loading unless you have a written company policy that specifies that the loading is paid when an employee goes on annual leave because the employee is missing out on paid overtime, which they would have normally work if they weren’t on leave.
The ATO’s interpretation seems to go back to a 2009 Tax Ruling on Superannuation (SGR 2009/2).
The ATO’s stated position in SGR 2009/2, which indicate that a payment identified in an award ( most awards, including the Meat Industry Award does not make any reference to annual leave loading offsetting overtime payment when a person goes on annual leave) or industrial agreement as annual leave loading will generally be sufficient evidence to establish that payment as annual leave loading provided that the payment can be genuinely characterised as compensation for a notional loss of opportunity to work overtime.
The ATO recognises that most awards do not state the basis for the annual leave loading entitlement. However, the ATO states that if an employer has self-assessed on the basis that annual leave loading is not OTE, they will be liable for historical superannuation guarantee shortfalls if there is a lack of evidence to demonstrate the purpose of the entitlement. The ATO will not, however, scrutinise the purposes of historical annual leave loading where the employer had a reasonable position to believe the annual leave loading was for a notional loss of opportunity to work overtime and there is no recent evidence that suggests otherwise.
In respect of future compliance, the ATO states that it would be satisfied that the entitlement is demonstrably referrable to a lost opportunity to work overtime if there is written evidence in support of this position. If the relevant instrument creating the entitlement states the basis for the entitlement, or other evidence such as a policy clarifies the reason for the entitlement and reflects the understanding of the parties to the agreement giving rise to the entitlement, this evidence would be accepted by the ATO.
If employers do not have evidence of the entitlement to annual leave loading as referrable to a lost opportunity to work overtime, the ATO expects employers to obtain evidence as soon as practicable or assess any future entitlements as falling within OTE.
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