Court rules SG charge to be excessive in recent appeal decision

The Department of Education for Victoria has won an appeal in the Federal Court against a number of amended assessments issued by the Commissioner of Taxation relating to superannuation guarantee charges (SGCs). The amended assessments covered the period between 1 April 2004 and 31 December 2022.

To determine whether the Department of Education was actually liable for SGC, the court had to decide whether payments made by the Department to employed teachers were to be included in teachers' notional earnings base and ordinary time earnings.

Justice Catherine Button noted that before 1 July 2008, this depended on state-level legislation. From 1 July 2008, changes to the Superannuation Guarantee (Administration) Act standardised calculations based on ordinary time earnings, and pre-21 August 1991 superannuation entitlements were no longer used to determine liability for the superannuation guarantee charge.

The commissioner had issued amended assessments to the Department of Education for superannuation guarantee charges after 18 employees raised queries with the commissioner.

The department lodged objections to the amended assessments, but the commissioner disallowed them. The department then initiated proceedings in the Federal Court.

The Department of Education contended that the salary loading allowance was not salary and was therefore not part of the notional earnings base because it was effectively an annual leave loading, and therefore excluded it as a recreation leave allowance. It also submitted that the salary loading allowance was not “salary” on the basis that it was a “temporary character” payment.

Prior to 1 July 2008, the Teaching Class (Employment Conditions, Salaries, Allowances and Selection) Order 2004 set out the terms for granting a salary loading allowance.

Clause 2.1.10 of the order reads: "subject to sub-clause 3, a teacher employed on 30 June of any year who has at that date completed one year of paid service commencing on 1 July of the preceding year, shall be entitled to receive an annual salary loading allowance equivalent to 17.5 per cent of four weeks of the total salary to which he or she is normally entitled at that date, or a maximum amount equivalent to 17.5 per cent of four weeks of the salary at sub division E-3a as specified in clause 1.2 of schedule 1 at that date, whichever is the lesser".

For the period following 1 July 2008, the entitlement to salary loading allowance continued on substantially the same terms. This was also reflected in the recent 2022 agreement.

Justice Button noted that the historical record on salary loading allowance suggested that it was introduced to give teachers an equivalent loading to the recreation leave loading enjoyed by their public service counterparts.

"The evidence also supports the contention, advanced by the Department, that the salary loading allowance was named as it was, and structured as it was, due to the particular arrangements of teachers which resulted in the formal entitlement to four weeks’ annual leave not being taken over an identified period within the school holidays," she said.

She also noted that the salary loading allowance was not linked to compensation for any lost opportunity to earn overtime during holiday periods.

"The documentary evidence does not support any conclusion that the salary loading allowance was introduced to compensate teachers for any lost opportunity to earn overtime, whether through teaching at night schools or otherwise," she said.

She accepted the Department of Education's submission that salary loading allowance was effectively the same as annual leave allowance.

Justice Button said that loading allowance would only be ordinary time earnings if it is part of a teacher’s “earnings in respect of ordinary hours of work".

"I do not consider that a payment, to which a teacher would be entitled if employed on a certain day of the year, but to which the teacher would not be entitled if he or she had resigned prior to that date, can be characterised as “earnings in respect of ordinary hours of work," she said.

"Rather, the payment of salary loading allowance is a payment made in addition to the payments made to teachers by way of salary, in respect of their ordinary hours of work."

The court said that salary loading allowance was not part of the relevant employees’ “notional earnings base” before 1 July 2008, and was not part of the relevant employees’ OTE between 1 July 2008 and 31 December 2022.

"It follows that the Department has established that the amended assessments were excessive," said Justice Button.