In the decision of S&H Investments Pty Ltd and Commissioner of Taxation [2024] AATA 893, the Administrative Appeals Tribunal (AAT), the Tribunal affirmed the decision of the Commissioner of Taxation to assess the taxpayer for the superannuation guarantee charge for failing to pay superannuation for their employee/contractor referred to as “TW”.
TW had been a full time employee of the taxpayer since March 2014, and the restructure of her employment arrangement occurred from March 2015. There was no formal written contract for the changes and only emails to evidence the amended agreement.
The taxpayer claimed they had restructured TW’s arrangement in 2015 so that she became a contractor and was paid an hourly rate, at an amount negotiated to include a component of $2.19 per hour for her superannuation, which she was expected to contribute to her own superannuation fund.
TW was unable to delegate her tasks, was not required to attend company meetings, was paid dependant on her completion of her cleaning tasks, was required to invoice the taxpayer for her work weekly, had her own desk at the office, and among other things was free to have multiple customers (but she only had one in that time which was the taxpayer). TW had an ABN which was cancelled in 2018 because she could not show she was operating a business.
The Tribunal considered the expanded definition of “employee” under the Superannuation Guarantee (Administration) Act 1992 (SGAA) section 12(3) and a familiar list of recent case law on the topic. Section 12(3) includes in the expanded definition:
(3) If a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract.
Here, the Tribunal found that TW was not engaged to achieve a result but rather she was engaged wholly or principally for her labour in providing cleaning of the office of the taxpayer under an oral contract. Therefore the arrangement was held to fall within the expanded definition of “employee” under section 12(3) of the SGAA and the Commissioner’s decision to assess the taxpayer for the superannuation guarantee charge for failing to pay TW’s superannuation guarantee entitlements to a superannuation clearing house was affirmed. The Tribunal stated at paragraph 55:
[E]mployers cannot contract out of their superannuation obligations, nor can employees waive their entitlements under the SGAA. This issue was dealt with directly by Member Reitano in The Trustee For Virdis Family Trust t/a Rickard Heating Pty Ltd and Commissioner of Taxation [2022] AATA 3. The Tribunal observed that the statutory scheme makes no allowance for private arrangements [38]:
It is important to make clear that the Superannuation Guarantee Scheme has no regard for private arrangements that may have made to pay amounts of one kind or another as a substitute for superannuation contributions, nor for arrangements that are made to avoid obligations created by the Act: if superannuation contributions are not made to employees as defined by the Act, the Superannuation Guarantee Charge will apply regardless. It is not for parties to a private contract to determine when the law contained in the Act should apply. Far less is it for the Tribunal to determine that issue other than in accordance with the legislative prescription. The fact that Mr Pirie agreed to pay his own superannuation contributions or agreed that Rickard should not pay them is irrelevant to the liability of to pay the Superannuation Guarantee Charge.
While not breaking news, this case is a salient reminder that super contributions must be made for contractors that are engaged wholly or principally for their labour and that parties cannot contract out of, or waive, super guarantee obligations.
For further information please contact:
Phil Broderick
Principal
T +61 3 9611 0163 l M +61 419 512 801
E pbroderick@sladen.com.au
Terence Wong
Senior Associate
T +61 3 9611 0112 l M +61 0458 846 022
E twong@sladen.com.au