Payroll Q&A ‘ Where a Councillor requests that amounts be paid to their Superannuation Fund should the amounts be shown as Reportable Employer Superannuation Contributions?

Normally, amounts paid by a local government council to councillors are assessable to the councillor when received (notwithstanding an absence of an employer/employee relationship). It may also be taken to have been received under ss. 6-5(4) ITAA 1997 where it is otherwise dealt with on behalf of the councillor, or alternatively s. 15-2 of the ITAA 1997 where it is provided in respect of, or for or in relation directly or indirectly to, any employment of, or services rendered by the councillor.

However, contributions made to a complying superannuation fund on behalf of a councillor as part of an agreement between the local government council and the councillor will not fall within the ambit of s. 6-5(4) because it is accepted by the ATO that the councillor has agreed to forgo part of the remuneration before earning the entitlement to receive that amount as ordinary income (refer to ATO ID 2007/205).

Employer contributions to a superannuation fund represent assessable income of the superannuation fund under s. 295-160 ITAA 1997. The High Court decision in Constable v FCT (1952) 86 CLR 402 supports the view that s. 15-2 ITAA 1997 does not apply to the making of contributions to a superannuation fund by an employer for the employees benefit. The scheme of superannuation and taxation law has been prefaced on the same view – i.e., contribution by an employer to a superannuation fund is not the income of the employee. In light of this and the decision in Constable, the ATO considered (in ATO ID 2007/205) the same reasoning as applied to employees in respect of the application of s. 15-2 would apply with equal force to local government councillors in the circumstance set out above.

Accordingly, contributions made by Council to councillors’ complying superannuation funds in the foregoing circumstance would not be assessable to the councillors. Therefore, Council should not report the amount contributed on a payment summary. Nonetheless, it is advisable for Council to inform councillors of the amounts paid into their superannuation fund as those contributions count towards councillors’ superannuation contribution cap limits. Contributions paid into superannuation funds are not reportable employer super contributions (RESC) because councillors are not employees and hence should not be reported as such (in case it impacts on the person’s liability/entitlement for various Government payments that include RESC in their calculation base).

The amounts certainly are not ‘salary sacrifice’ as they are not salary however a similar outcome is provided by ATO ID 2007/205 (i.e. the non-employee councillor can forego the entitlement and receive in the form of other than assessable income – in this case super).

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