In August 2021, the NSW Office of Local Government published draft guidelines for ‘audit, risk and improvement committees’ (ARIC’s) for local councils in NSW.
In broad terms, the draft guidelines consider (amongst other things) how frequently members of the ARIC must meet, the ability for ARIC members to be involved with multiple ARICs, whether ARIC members can participate on a voluntary or paid basis and the remuneration structure if members are paid for their involvement.
In relation to superannuation obligations the draft ARIC guidelines state:
“Councils are obliged under the Superannuation Guarantee Administration Act 1992 [SGAA] to make compulsory superannuation guarantee contributions on behalf of audit, risk and improvement committee chairs and voting members”.
In the context of superannuation, the term ’employee’ has a specific statutory meaning and can include a person who at common law would not be regarded as an employee but is deemed to be an employee under the expanded meaning of that term.
Members of Commonwealth and State Parliament, members of ACT Legislative Assembly and members of NT Legislative Assembly are specifically incorporated into the definition of employee in the SGAA (refer sections 12(4) to 12(7)).
The expanded definition (refer section 12(9) also includes a person who holds, or performs the duties of, an appointment, office, or position under the Constitution or under a law of the Commonwealth, of a State or of a Territory.
It would appear the draft ARIC guidelines take the view that a remunerated member of an ARIC is within section 12(9) given the ARIC is established and chair and members appointed pursuant to the NSW Local Government Act 1993 and therefore entitled to superannuation. The position should be re-confirmed once the guidelines are finalised.
However the treatment of ARIC members gives rise to the question of how (in the absence of any other obligation for a Council to provide superannuation) are members of a local government body (e.g., councillors) treated for SGAA purposes?
To set the scene section 12(9) also includes the statement.
“However, this rule does not apply to a person in the capacity of the holder of an office as a member of a local government council”.
Section 12(9A) then provides:
“Subject to subsection (10), a person who holds office as a member of a local government council is not an employee of the council”.
Section 12(10) then provides:
“A person covered by paragraph 12-45(1)(e) in Schedule 1 to the Taxation Administration Act 1953 (about members of local governing bodies subject to PAYG withholding) is an employee of the body mentioned in that paragraph”.
An ‘eligible local governing body’ is a local governing body (council) established by, or under a state or territory law where the body has unanimously resolved pursuant to section 446-5 of the Taxation Administration Act 1953 that the remuneration of its members be subject to PAYG withholding.
Where there is in effect a valid section 446-5 resolution, a person who holds an office as an elected member of a council that is an eligible local government body is treated as an employee of the council for SGAA purposes as well as for other taxation purposes (PAYGW and FBT).
Thus the above statement that councils are obligated to make compulsory superannuation contribution on behalf of its elected members is true only to the extent that a local council has passed a unanimous valid section 446-5 resolution that is still in force.
In order for a local governing body’s resolution to be effective, section 446-5 requires that it must:
In addition, the Commissioner must be given written notice of the resolution within 7 days of it being made by the local governing body.
Unless it is cancelled by unanimous resolution, the section 446-5 resolution continues to be in force in spite of a change in the membership of the local governing body.
For local councils that have a section 446-5 resolution in force (meaning no further resolution has been made to cancel the resolution covered by section 446-5), there is potential to be exposed to historical superannuation payable for all their elected members (not just ARIC members) including interest and administration fees.
There is also the possibility of non-compliance with other taxation obligations. Allowances paid to councillors of eligible local government body are taken to be salary and wages subject to PAYG withholding. Certain benefits provided to councillors of eligible local government body that would otherwise be excluded from fringe benefit tax may now be exposed to that tax.
It is therefore an opportune time for councils and other local government bodies to review their record-keeping to determine whether there was a section 446-5 resolution made in the past that continues to be in force, whether there is a need to resolve to cancel that resolution and the extent of their exposure to SG, PAYG withholding obligations and FBT liabilities during the period that section 446-5 resolution continues to be in force.
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