Q/ We currently pay superannuation on our tool and fixed rate car allowances based on advice from the ATO we’ve had in the past. However, I noticed the ATO has recently changed its “Withholding from Allowances” document to include a superannuation column. It says these allowances are not superable. Can you assist with what is actually correct?
A/ These allowances are what is known as “expense allowances”. The ATO’s Superannuation Ruling on Ordinary Time Earnings (SGR 2009/2) says the following:
72. 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’.
Unless you can say, on a “reasonable basis” that the tool and fixed car allowances are likely to be fully expended by the employee in the course of their employment with you, then they will be superable.
To have a reasonable basis about the expenditure, you must have some details about the costs involved in the expense and compare it to the amount of the allowance being given. e.g. for the fixed car allowance – the number of Kms expected to be driven for work related purposes and the running costs of the vehicle (or the cents per km rate) are a good starting point.
We wrote to the ATO about the conflict between the super ruling and the allowances document and they have provided the following response:
The decision is the employer’s to make. They need to decide whether they expect that the allowance will be fully expended on deductible items. They don’t have to believe that every single dollar given to every single worker will be fully expended in every year but there needs to be an expectation that tools will be purchased and that the allowance paid would be a reasonably appropriate amount to cover those purchases. It may be good practice to require the employee to assist with this process.
If it is determined that a smaller part of the allowance is expected to be spent on deductible purchase, then the difference would be subject to super.
If a car allowance is paid on a basis other than cents per kilometre, the treatment is essentially the same as for a tool allowance. The amount paid should be subject to withholding. The employer must make an estimation of the amount which will be deductible to the employee. They may of course seek the employee’s assistance in making that estimation. Super will not apply to that part of the allowance which is expected to be deductible to the employee.