ATO clarifies position on superannuation and annual leave loading

By Simon Dewberry
Employment & Safety

In brief

The Australian Taxation Office (the ATO) has clarified that superannuation will be payable on annual leave loading unless there is evidence that the reason for the loading is connected to a lost opportunity to work overtime. Senior Associate Tegan Ayling and Law Graduate Muirgen O'Seighin report.

How does it affect you?

  • If annual leave loading hasn't been included as ordinary time earnings (OTE) in previous superannuation self-assessments, employers should consider revisiting previous quarters to determine whether they have evidence of the purpose of the loading; otherwise, they may be liable for the superannuation guarantee charge.
  • For future assessments, there must be written evidence that annual leave loading is for a lost opportunity to work overtime. Otherwise, the loading may fall within OTE.

The position

Superannuation Guarantee Ruling SGR 2009/2 excludes annual leave loading payable under some awards and industrial agreements from OTE if it is 'demonstrably referable to a notional loss of opportunity to work overtime'.

Given the uncertainty on this point, the ATO recently clarified its position by confirming that annual leave loading will be OTE unless there is written evidence clarifying the reason for the loading and that it is referrable to a lost opportunity to work overtime.

The ATO says it won't scrutinise previous quarters if an employer's self-assessment of annual leave loading as non-OTE is reasonable and there is no evidence from within the past five years that suggests the loading was for something else. For this and future quarters, if an employer doesn't include annual leave loading as OTE, written evidence – eg in the relevant industrial instrument or policy – is required.