Falcote Pty Ltd Trading as Grove Body Works and Commissioner of Taxation
[2001] AATA 924
•8 November 2001
DECISION AND REASONS FOR DECISION [2001] AATA 924
ADMINISTRATIVE APPEALS TRIBUNAL )
) No QT2000/144
TAXATION APPEALS DIVISION ) QT2000/148-151
Re FALCOTE PTY LTD TRADING AS GROVE BODY WORKS
Applicant
And COMMISSIONER OF TAXATION
Respondent
DECISION
Tribunal Mr K L Beddoe (Senior Member)
Date8 November 2001
PlaceBrisbane
Decision The Tribunal affirms the decisions under review.
…………………………….
Senior Member
Decision No: 924/2001
CATCHWORDS
TAXATION – Superannuation – salary or wages – whether above-award wages, bonus or salary/wages
Superannuation Guarantee Charge Act 1992 s 5,
Superannuation Guarantee (Administration) Act 1992 s 11, 16, 19
Murdoch v Commissioner of Payroll Tax (Vic) (1980) 31 ALR 637 at 845, 80 ATC 4424 at 4430
Terry Shields Pty Ltd v Commissioner of Payroll Tax (NSW) 20 ATR 901
Abrasiflex v Commissioner of State Taxation (WA) 93 ATC 4197
Douglas Thomas Dean v FC of T (1997) 861 FCA).
REASONS FOR DECISION
8 November 2001 Mr K L Beddoe (Senior Member)
The applicant company seeks review of objection decisions relating to the financial years 30 June 1995 to 30 June 1999 inclusive. The respondent decided that there was a superannuation guarantee shortfall in each of those financial years thereby making the company liable for a charge under section 5 of the Superannuation Guarantee Charge Act 1992 ("Charge Act") by virtue of the provisions of the Superannuation Guarantee (Administration) Act 1992 ("Administration Act").
Section 16 of the Administration Act provides that a superannuation guarantee charge imposed on an employer's superannuation guarantee shortfall for a financial year is payable by the employer.
Section 19 of the Administration Act determines an individual superannuation guarantee shortfall as the sum of the employer's quarterly shortfalls in respect of an employee for that financial year. Sub-section 19(2) applies a formula to determine the employer's shortfall in relation to an employee by applying the charge percentage for the employer for the quarter to the total salary or wages paid by the employer to the employee for the quarter.
"Salary or Wages" is defined in section 11 of the Administration Act to include commission but is not otherwise relevantly defined.
The Charge Act imposes a charge on a superannuation guarantee shortfall based on the amount of that shortfall.
The charge will be reduced to nil where the employer contributes the prescribed percentage of the notional earnings base. That will be determined by reference to the applicable industrial award (s 13). The legislation will be satisfied in effect if the employer is contributing the prescribed percentage in accordance with the employees' national earnings base which is in turn based on ordinary time earnings.
At the hearing Mr Brian Curran represented the applicant company and Ms Tham Dao represented the respondent Commissioner. The documents lodged in the Tribunal pursuant to section 37 of the AAT Act 1975 were before the Tribunal as the T documents and further documents were tendered and marked as exhibits.
Findings of FactNo oral evidence was given. Relying on the T documents and Exhibits A, C and D, I make the following findings of fact:
(a)the company carries on business as a motor vehicle smash repair shop and as such employs panel beaters and other employees such as detailers;
(b)panel beaters are paid under the Engineering Award for Queensland and the other employees are paid under the Motoring Services Award for South East Queensland;
(c)the Engineering Award requires that superannuation contributions shall be made by the employer, based on the employee's ordinary time earnings and which are defined as:
"the actual ordinary rate of pay the employee receives for their ordinary hours of work including shift loading and leading hand allowance where applicable. Ordinary time earnings shall not include overtime, disability allowances, penalty rates, fares and travelling time allowances or any other extraneous payment of a like nature".
(d) The Motoring Services Award requires that an employer shall contribute to an approved fund on behalf of each eligible employee, an amount calculated at 3% of the employee's ordinary time earnings which is defined as follows:
"…the actual ordinary rate of pay the employee receives for ordinary hours of work including shift loading and leading hand, in-charge or supervisory allowances where applicable. The term includes any overaward payment as well as casual rates received for ordinary hours of work. Ordinary time earnings shall not include overtime, disability allowances, commissions, bonuses, lump sum payments made as a consequence of the termination of employment, annual leave loading, penalty rates for public holiday work, fares and travelling time allowances or any other extraneous payment of a like nature."
(e)the applicant's practice was to negotiate wage rates with employees prior to the commencement of employment with the result that most employees are paid an above award rate wage;
(f)at the end of that negotiated wage process an employee to be paid more than the award wage was advised that the difference between the award wage and the negotiated wage would be viewed by the respondent as an attendance bonus;
(g)the payroll records do not reflect the attendance bonus as a bonus and the bonus continues to be paid while an employee is on sick leave or holiday leave;
(h)Exhibit C is a statutory declaration by the respondent's managing director in which he swears, and I accept, that when weekly remuneration is negotiated with prospective employees and if the gross wages figure is greater than that under the appropriate award, the interviewee is advised that the difference is viewed by the company as a bonus to encourage regular attendance;
(i)Exhibit D is a statutory declaration by a former employee spray painter who was employed from 31 July 1995 to 4 November 1999 and who says that he negotiated an above award weekly wage and the difference between the actual and the award rate of pay was, he was told, a bonus to encourage continual attendance for productivity reasons;
(j)the evidence shows that it was the applicant's practice to pay above award wages with the margin over the award rate of pay paid by the applicant as a bonus to encourage attendance;
(k)it was not the applicant's practice to not pay or reduce the attendance bonus while an employee was on sick leave or holiday leave;
(l)I have inferred that the attendance bonus was not paid while an employee was on unpaid leave albeit that the parties appear to have agreed that the bonus is not reduced if an employee is absent from work.
The applicant's case is that it pays employees award wages and a bonus to encourage the employees to attend for work. No reduction occurs where an employee is absent from work due to holiday leave or sick leave. Rather it is to encourage employees to continue working for the company. Employees are told this on engagement and it is part of the agreed remuneration package.
The respondent made detailed written submissions. In essence those submissions are as follows. To determine the correct earnings base of the applicant's employees reference must be made to the relevant industrial awards. Superannuation contributions are to be made on the basis of ordinary time earnings of the employees. Those ordinary time earnings, as defined in each award, include an over-award payment where the employee receives the payment for ordinary hours of work.
It is only after wages have been negotiated with a new employee that the applicant advises that the difference between the award rate and the agreed rate of pay will be treated as an attendance bonus.
The respondent concedes that if the Tribunal accepts the applicant's view that the excess rate of pay over the award rate of pay is an attendance bonus, then referring to the definitions of ordinary time earnings in the awards the bonus is outside the terms of those definitions.
The over-award payments do not reflect an attendance allowance because wages are not reduced when an employee does not attend for work due to sick leave or holiday leave. The payments do not have the character of a bonus (Murdoch v Commissioner of Payroll Tax (Vic)(1980) 31 ALR 637 at 845, 80 ATC 4424 at 4430; Terry Shields Pty Ltd v Commissioner of Payroll Tax (NSW)20 ATR 901; Abrasiflex v Commissioner of State Taxation (WA)93 ATC 4197 and Douglas Thomas Dean v FC of T (1997) 861 FCA).
The amount of the over-award payments is not be characterised as a bonus. The over-award payments are ordinary time payments as defined in the two awards.
Exhibit B is a copy of Superannuation Guarantee Ruling 94/4 (SGR 944) effective from 15 September 1994. SGR 94/4 considers the definition of ordinary time earnings in section 6(1) of the Act and therefore has no direct relevance to the present case. However I note that the ruling includes the following:
"…a payment will be taken to be earnings in respect of ordinary hours of work if it is made:
·for attendance, or for work done, in those hours; or
·to satisfy an entitlement that accrued as a result of attending or working in those hours."
I am uncertain as to how the respondent reconciles its concession in this case with the published ruling but as it transpires it will not be necessary for me to attempt to do so.
ConsiderationThe evidence satisfies me that the applicant agreed with its employees that the monetary difference between award rates of pay and the actual rates of pay ie the over-award amount, was paid as an attendance bonus. There is nothing before me to indicate that such a payment was contrary to the award.
The terms of the agreement between the applicant and its employees does not admit of the over-award amount being characterised as a bonus. In Murdoch(supra) the issue was whether payments made to employees of the George Adams Estate were "wages" as defined for the purposes of the Pay-roll Tax Act of Victoria. In accordance with the will governing the Estate the trustees paid 10% of the profits to employees. The question was whether that distribution of a share of the profit to employees represented wages as defined and more particularly whether it could be characterised as a bonus. The Court upheld the assessment of the distribution as "wages" for the purposes of the payroll tax. At page ALR 645 the combined judgment of Mason, Murphy and Wilson JJ refers to the judgment of McInerney J with approval. His Honour is quoted as follows:
"A bonus imports, in the case of an employee or agent, something given or paid over and above what is due and payable for his services. Often it is paid out of profit realized, in reward to those whose services have contributed to the making of the profit … in the case of an employee the payment of a bonus is ordinarily made as a voluntary gift, ex gratia, in recognition of the extent to which the services of that employee have contributed to the making of the profit." (cf also Mutual Acceptance Co Ltd v FC of T (1944) 69 CLR 389, at 396, 399, 401 and 403). The significance attaching to the fact that to come within the definition of "wages" the payments must be made "to any employee as such" is emphasized by Latham CJ in Mutual Acceptance Co Ltd v FC of T, supra, at 396 in the following words:
"…Therefore comprehend only payments made to an employee in connection with and by reason of his service as an employee or in respect of some incident of his service. Thus a merely personal gift by an employer to a person who happened to be an employee would not be included with 'wages', though a bonus paid to employees because they were employees would be so included."
It is common ground that in fact the payments in question were paid to employees of Tattersalls by their "employer", and that they were paid out of the net profits of the business. It is also accepted that in choosing the recipients and in determining the amount of the payment in each case the "employer" had regard to the value of the services rendered to the business by the particular person. If that were all, then it would seem to follow without doubt that the payments were subject to pay-roll tax."
The test to be satisfied in the present case is different. Clearly the bonuses paid in this case would be "wages" under the dicta set out above. The test here is whether the wages paid as an attendance bonus are within the respective definitions of ordinary time earnings. Both definitions either explicitly or implicitly exclude bonuses. However it is also clear that both definitions include "the actual ordinary rate of pay received for ordinary hours of work".
In my view the attendance bonus is paid because there is a contractual obligation to pay it for normal hours of work. That it is also paid for periods of paid leave is in my view irrelevant. It is clear, on the evidence, that the attendance bonus is paid for attending work, is not in any sense at the discretion of the applicant being an element in the contract of employment as agreed between the applicant and the employee at the time of commencing employment. The attendance bonus is not a bonus in the accepted sense and is correctly characterised as wages paid for attendance at work.
For these reasons I am satisfied that the objection decisions under review were correct and should be affirmed.
I certify that the 21 preceding paragraphs are a true copy of the reasons for the decision herein of Mr K L Beddoe (Senior Member)
Signed: .....................................................................................
AssociateDate/s of Hearing 7 February 2001
Date of Decision 8 November 2001
For the Applicant Mr Curran
For the Respondent Ms Dao
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