Superannuation Guarantee (Administration) Act: Employer And Employee Appointment Process

Greg was a member of a three person SMSF with his two best friends. All three were trustees of the fund. The SMSF contained the following clause in its trust deed:

A member of this fund can make a Binding Death Benefit Nomination. This will have the effect of binding the trustee regarding the distribution of the member’s interest upon their death.

A Binding Death Benefit Nomination must satisfy the requirements in the Superannuation Industry (Supervision) Act 1993 and the relevant regulations.

Greg had been divorced for 6 years,  and had a 19 year old child who was a fulltime student who lived with him. His wealthy mother also lived with him. His mother paid all the household bills (including grocery bills). Greg’s mother, due to her arthritis, had limited mobility so from time to time Greg would drive her around. Greg and his mother had agreed that in a year’s time if she was in reasonably good health she would live with her other son in the USA.

During 2017 Greg had written and signed a letter which he titled “BindingDeath Benefit Nomination” that he had sent to all the trustees of the SMSF. Under it, he wrote that “I am binding the trustees to distribute 100% of my superannuation interest to my mother”. He had this witnessed and signed by his work colleague Linda.

Greg unexpectedly passed away in early 2018. His superannuation account was in its accumulation phase and had a balance of $600 000 (50 per cent taxable component).

1) Advise Greg’s child, ex-wife and mother as to:
i) their entitlements to Greg’s superannuation interest; and
ii) assuming that each of them got part of Greg’s superannuation money, how their entitlement would be taxed in each person’s hands. The precise amount of tax payable need not be calculated.

Introduction to Superannuation Guarantee Act

The present case is based on the terms and role of the Superannuation Guarantee (Administration) Act regarding the appointment of employers and the employees. According to provision of section 5, the provision of the Act will apply on the commonwealth authority and deals with the employment process of the commonwealth. The term commonwealth department means anybody that has been established under Parliamentary Service Act 1999 and including the public body of Australia. Certain provisions of this Act has discussed about the appointment process of an employer and the employee. According to section 12 of the Act, the meaning of the employer and employee can be defined ordinarily. However, certain extension has been made under section 12(2) to section 12(11) of the Act. It has been mentioned under section 12(2) of the Act, if a person gets certain payments from the institution for performing certain duties and becomes a member of the executive body of the institution, he will be known and called as employee. According o the provision of section 12(3) of the Act, if any contract has been made in between the employee and the company to work for the company entirely or principally, he will be regarded as the employee. Further, it has been mentioned in section 12(8) of the Act, if any person has performed certain duties based on the intellects and personal skill for the interest of an institution or the company, that person will be regarded as the employee of the institution. Concurrently, it has been prescribed under section 12(9) (a) of the Act, if a person holds a commonwealth office, he will be called as the employee of the office. However, an exception has been made under section 12(11) of the Act where it has been mentioned that if a worker has worked for less than 30 hours per week for a company, he will not be eligible to regard as an employee.

However, there are certain provisions that make a difference in between the status of an independent contractor and the employee. The grounds of such differences have been clearly defined in Farnan v Insurance Logic Pty Ltd & Anor [2017] FCCA 595. In this case, the court has stated whether an independent contractor is eligible to be paid superannuation like the employee according to the provision of Superannuation Guarantee (Administration) Act 1992 (SGA Act). A wide interpretation of section 12(3) of the Act discloses that if any person has worked for an institution principally, he will be treated as an employee. This principle has been established in the case of On Call Interpreters and Translators Agency Pty Ltd v Commissioner of Taxation (No.3) [2011] FCA 336. In Farnan v Insurance Logic, it has been held that if a contractor wants to get

Appointment Process of Employer and Employee

 from self-employment, he will not get the superannuation money.  It has been also been observed that if in an employment contract, the employee is principally work for a company and partly for other company, the person will be treated as an employee of the principal company. According to the ruling of SGR 2005/1, a person must be remunerated for their skills based on the terms of their contract no matter whether they are employee or independent contractor.  

In this case, it has been observed that the valuers of this case are working for the Aussie bank principally and they all have ABN number and registered for GST. Further, around 90% works they are done for the interest of Aussies Bank. According to the case, they are working for 40 hours per week and they are using cars and soft ware provided by the bank. Therefore, according to the contents of Section 12(3) of the Superannuation Guarantee (Administration) Act 1992, the valuers could be regarded as the employee of the bank and they are eligible to get superannuation money from the bank. Further, unlike Farnan’s case, the valuers are not intended to gain opportunity from the self-employment. Therefore, it can be stated that the valuers are employees under section 12 of the Superannuation Guarantee (Administration) Act 1992.

The present subject matter of the case is based on the entitlement of Binding Death Benefit Nomination and structural facility of the self-managed super fund (SMSF). The nature of the binding death benefit nomination is legal and it allows the trustees to get benefit after the death of certain person. According to the provisions of the Superannuation Industry (Supervision) Act 1993, the nomination should be valid. It means that the dependents should be nominated. Certain categories of persons are enlisted for the dependents according to the superannuation law such as the spouse, children, any legal personal representative and a person with whom certain interdependent relationship has been made. Processes have been made regarding the making of legitimate binding death benefit nomination. According to the law, trustee should be appointed in writing and certain properties should be allocated to him. At least two persons should witness the nomination and they should not be in the position of beneficiaries. Further, trustee should receive the nomination. According to the terms of the nomination, the beneficiaries will get the benefits of the trustee after his death and it works like a will. Section 59(1A) of the Superannuation Industry (Supervision) Act enables a trustee so that they can transfer their funds to the nominating member. Further, according to reg. 6.17A (4) of Superannuation Industry (Supervision) Regulation 1994, all the benefits should be paid to the persons whose name are mentioned in the notice.

Difference between Employee and Independent Contractor

Further, according to the provision of the case, it has been observed that the main trustee of the case was the holder of self-managed super fund (SMSF). This trust structure is different from others and in this case, the trustees can control their individual needs. According to the provision of the SMSF, after the death of the holder, his family members will get all the benefits.

It is therefore, to be advised that according to the rules of the Superannuation Industry (Supervision) Act, the person whose name has been mentioned in the notice will get the trust or fund money and it is the duty of the other trustees to allocate the money to them. It is therefore, advised to his family members that according to the rule, only his mother will get the balance amount.

If it can be assumed that Greg’s child, mother and former wife has a part in his superannuation money, they would be entitled to equal amount after deducting the taxable amount. According to Section 10 of the Superannuation Industry (Supervision) ACT 1993, superannuation should be distributed among the dependants, which includes the spouse, child and a person who has a relationship of interdependency. After making the appropriate deduction, Greg’s child, ex-wife and mother will get an equal part of his superannuation fund.

Contribution can be made to the superannuation fund before the person turns 75. It is the rule that if a person is aged 65 or over, he must satisfy a work test to make contribution to superannuation after 65. The work test requires an individual to work for at least forty hours for over a period of 30 consecutive days in the financial year that the contribution is made. Prior to making the contribution, the 40 hours of work needs to be completed. After the age of 65, a person is could only make non-concessional superannuation contribution, if the superannuation balance is not exceeding $1.6 Million. In this case study, Greg’s mother had arthritis and was unable to work for that reason. His mother is not eligible for making contribution to her superannuation fund. She does not meet the terms for being able to contribute to superannuation fund after her retirement. She is not fit for the work test that is mandatory for this purpose. She was not working at the time when she decided to make the contribution after 65 years age. Therefore, it is advised that she should not take an attempt to make contribution to superannuation fund as she did not work for forty hours over a period of 30 consecutive days.

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