Contributed by Amber Agustin, Partner, Clayton Utz
Employers should be wary of advisers who offer rulings or outcomes that purport to offer certainty for superannuation liabilities.
There still seems to be some confusion about the ATO’s power to issue binding rulings in relation to the superannuation guarantee, in the context of a recent ATO statement about annual leave loading as ordinary time earnings.
The ATO statement, “Ordinary time earnings – annual leave loading” intends to offer some guidance to employers struggling to determine how to deal with the payment of superannuation on historical annual leave loading as ordinary time earnings. In this context, there still seems to be confusion about what level of assurance and certainty the ATO can give employers trying to deal with these historical issues. The answer is clear: the ATO’s power to make rulings is expressly limited to a list of subject matters that does not include the superannuation guarantee.
More particularly, the ATO cannot issue a ruling to waive, discharge or not require payment of superannuation liabilities.
Employers should be wary of advisers who claim they can secure ATO rulings to waive, discharge or not require payment of historical superannuation liabilities – and seek advice on the available alternatives that are within the ATO’s powers.
The ATO has some other forms of guidance to offer some level of assurance to taxpayers, including:
- administratively binding advice, and
- interpretive guidance.
Each of these forms of guidance is not legally binding on the ATO in a strict sense but they can give employers some assurance in relation to their overall approach to the issue and in relation to the imposition of penalties. These forms of guidance are issued under the general power of administration of the Commissioner and therefore the ATO sets the rules about how these forms of guidance work and the level of assurance employers can expect.
Option 1: Administratively binding advice
The ATO can issue guidance known as “Administratively Binding Advice” (ABA). The ATO issues ABA in a range of cases, including to employers in relation to the superannuation guarantee. ABA is not legally binding on the ATO and therefore does not offer certainty to employers. However, generally speaking, the ATO will administer the law consistent with an ABA, because the ABA will set out the ATO’s understanding of the law and its application in particular circumstances.
ABA offers some administrative protection to employers. There are usually three key elements in a superannuation guarantee issue on which an employer would seek ATO guidance:
- the superannuation shortfall
- penalties (there are two key penalties that can apply), and
- interest (of various types).
(There is also the administration charge.)
Benefits of ABA
Where the ATO has discretion, the amount of penalties imposed are a matter for the ATO to resolve with the employer and in this sense, an employer can usually have a high level of confidence that the ATO will not impose a penalty on an employer who has acted consistent with an ABA. This means an employer will usually have a strong case for seeking a reduction in penalties where ultimately there is a superannuation liability that is imposed contrary to the ATO’s view expressed in an ABA.
Limitations of ABA
An ABA does not waive, remove or resolve the liability to pay superannuation.
However, ABA can give a strong indication of the ATO’s view and the ATO says it will stand by its advice in ABA in most circumstances.
The ATO acknowledges it may be appropriate for it to depart from an ABA where:
- there have been legislative changes since the advice was given
- a tribunal or court decision has affected the ATO’s interpretation of the law since the advice was given, and
- the advice is no longer appropriate for other reasons.
Even though the ATO says it will stand by ABA, the ATO does acknowledge that ABA is not binding on the ATO in a legal sense and there may be a broad range of circumstances that could lead the ATO to conclude an ABA was no longer appropriate.
The value of ABA will also be affected by the quality of the request for the ABA made by the employer. If the ABA request is incomplete or misleading, the ABA will be of limited value.
Significantly, ABA will only provide assurance where the employer strictly follows the terms and intent of the ABA. The ATO will not consider that an ABA offers any assurance where both the terms and intent of the ABA are not followed.
Option 2: Interpretive guidance
The ATO can issue interpretive guidance in a number of forms. The ATO intends employers to be able to rely on interpretive advice, but where there is a shortfall, the liability will still apply. Interpretive guidance is usually less specific and sets out how the ATO will interpret particular provisions.
Where an employer relies on written guidance, and makes a mistake in that the guidance turns out to be incorrect, the employer will likely face no administrative penalty.
The level of protection will depend upon whether the employer’s reliance on the guidance was reasonable and in good faith, and whether the shortfall arose because of the legal issue on the subject of the guidance or a different issue.
Getting guidance on your superannuation liabilities
Employers who need guidance on their superannuation obligations will find the ATO can give some valuable guidance and assurance, but they should:
- be wary of advisers who offer rulings or outcomes that purport to offer certainty for superannuation liabilities
- consider the other options for seeking guidance and assurance from the ATO, and
- be aware of the limitations on ATO guidance and assurance on superannuation.
Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.
[This article was originally published in CCH Tax Week on 14 June 2019. Tax Week is included in various tax subscription services such as The Australian Federal Tax Reporter and CCH iKnow. CCH Tax Week is available for subscription in its own right. This article is an example of many practitioner articles published in Tax Week.]