Termination payments: what are the super contribution rules?

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The Court of Appeal rejected the taxpayer's claim with regard to the redundancy issue.

The superannuation issue arguments

The Court heard the following submissions on the superannuation issue:

• From the taxpayer the required 9% superannuation contribution under the Superannuation Guarantee (Administration) Act 1992 (Cth) (Act) applied to the notice payment — as it was equivalent to a salary payment.
• From the employer the employment contract required that the superannuation contribution be paid to the taxpayer's nominated superannuation fund in accordance with the Act — rather than to the taxpayer personally. As such, the superannuation contribution could not be included in the notice payment. Apart from this, the employer did not raise any objection to the taxpayer's superannuation claim.

The employer's submission did not directly respond to the legal issue — namely what types of payments to an individual require a corresponding super guarantee payment to the individual's super fund.

The superannuation issue decision

The Court held in the taxpayer's favour.

The Court noted that the taxpayer had accepted a remuneration package which consisted of a base salary of $208,980 and a superannuation component of $18,808.20. The superannuation component constituted 9% of the base salary. However, employers in the relevant income year were only required to pay superannuation contributions on wages up to $134,880. The superannuation component was therefore nearly twice the amount the employer was statutorily required to contribute under the Act. As such, the taxpayer had effectively 'salary sacrificed' by accepting a higher superannuation contribution and a lower base salary.

Importantly, in the Court's view, had the taxpayer worked out the full 6 months' notice period, as originally requested, he would have received 6 months' base salary and 6 months' superannuation component.

In response to the employer's submissions, the Court stated that:

• a payment made to a person's super fund is made entirely for their benefit, even though it is not paid directly to the person; and
• even though the employer paid the taxpayer the notice payment instead of a salary, the employer still had to fulfil its statutory obligation to make the superannuation contribution to the taxpayer's super fund.

The Court concluded that the taxpayer was entitled to an order that the employer pay $9,404.10 (9% of 6 months' base salary), together with interest, to the taxpayer's super fund.

Postscript

After the reasons for judgment had been written but before it was handed down, the employer informed the Court that it would, within 48 hours, pay $9,404.10 to the taxpayer's superannuation account (together with interest up to the date of payment).

The Court noted that this amounted to the employer conceding that the taxpayer had always been entitled to the superannuation contribution.