Judgment summary
This is an appeal by the Department of Education (representing the State of Victoria) against a decision of the Commissioner of Taxation disallowing objections to amended assessments of superannuation guarantee charge for quarters between 1 April 2004 and 31 December 2022 [1], [3].
The dispute centred on whether a 'salary loading allowance' paid annually to teachers, calculated as 17.5% of four weeks of normal salary, formed part of the relevant earnings base for superannuation guarantee purposes [2]. For the period before 1 July 2008, the question was whether the allowance fell within the 'notional earnings base' under s 13 of the Superannuation Guarantee (Administration) Act 1992 (Cth), which depended on the meaning of 'salary' in the State Employees Retirement Benefits Act 1979 (Vic) and the State Superannuation Act 1988 (Vic) [1], [9]-[10]. For the period from 1 July 2008, following amendments made by the Superannuation Laws Amendment (2004 Measures No 2) Act 2004 (Cth), the question was whether the allowance formed part of 'ordinary time earnings' (OTE) under s 6(1) of the SGA Act [1], [2], [15].
Butn J found that, prior to 1 July 2008, the salary loading allowance was, in substance, a recreation leave allowance and was therefore excluded from the definition of 'salary' under the relevant Victorian Acts, even though it was paid in a manner not linked to the actual taking of annual leave, due to the historical practice of teachers' annual leave being 'acquitted' during school holidays [45]-[55], [57].
From 1 July 2008, the Court held that the salary loading allowance was not 'earnings in respect of ordinary hours of work' and therefore did not form part of OTE, because it was paid over and above the salary paid for ordinary hours of work, and eligibility depended on being employed on a specific date rather than on the performance of ordinary hours of work [63]-[65], [70].
The Court concluded that the Department had discharged its onus of establishing that the amended assessments were excessive for the whole period in dispute [73]-[74].
Background
The Department employed teachers in Victorian Government schools who were paid an annual 'salary loading allowance' equivalent to 17.5% of four weeks of their normal salary [2], [21]-[22], [26].
The Commissioner issued amended assessments of superannuation guarantee charge to the Department for each quarter between 1 April 2004 and 31 December 2022. The Department objected, the Commissioner disallowed the objections, and the Department appealed to the Federal Court [3].
The amended assessments related to 18 employees who had raised queries with the Commissioner, though the Court noted the outcome could have wider ramifications for the many thousands of teachers employed by the Department during the relevant period [4].
The historical evidence, given by Tony Bugden, Executive Director of People and Workplace Relations (Schools) at the Department, traced the salary loading allowance back to the mid-1970s, when it was introduced to give teachers an allowance equivalent to the recreation leave loading enjoyed by other public servants [5], [30]-[41]. The allowance was removed by Kennett government-era legislation in 1992-1993 (the Annual Leave Payments Act 1992 (Vic) and its 1993 amendment) but was reinstated from 1995 following a successful industrial claim before the Australian Industrial Relations Commission [42]-[44].
Core dispute
The core issue was whether the salary loading allowance paid to teachers was to be included in the calculation of superannuation guarantee liability, specifically:
For the period before 1 July 2008, whether the allowance fell within the definition of 'salary' under the State Employees Retirement Benefits Act 1979 (Vic) and the State Superannuation Act 1988 (Vic), or whether it was excluded as a 'recreation leave allowance' (a term not defined in either Act) [9]-[13].
For the period from 1 July 2008, whether the allowance constituted 'earnings in respect of ordinary hours of work' within the meaning of 'ordinary time earnings' in s 6(1) of the SGA Act [15]-[16].
The Department contended the allowance was, in substance, an annual leave loading and therefore excluded from 'salary', and separately was not OTE because it was not earnings for ordinary hours of work. The Commissioner contended the allowance was an 'ordinary' payment forming part of both the notional earnings base and OTE, given teachers did not need to work additional hours to receive it.
Court findings
The Court held that the expression 'recreation leave allowance' in the 1979 Act and 1988 Act should be construed as capturing an allowance that was, in substance, a recreation leave allowance, even if not paid when an employee literally took annual leave [50]-[51].
The evidence established that the salary loading allowance had, since the mid-1970s, been paid as an equivalent to recreation leave loading, structured in a bespoke manner because teachers' annual leave entitlements were taken to be acquitted during school holidays rather than taken on specific days [52]-[54]. Accordingly, for the pre-1 July 2008 period, the allowance was not 'salary' and was not part of the notional earnings base [55].
The Court rejected the Department's alternative argument that the allowance was excluded as a payment of a 'temporary character', finding that although paid once a year, it was paid on an ongoing, recurring basis [56].
The Court found the Department had not established any link between the introduction of the allowance and lost opportunities for teachers to earn overtime [56].
For the period from 1 July 2008, applying principles from BlueScope Steel (AIS) Pty Ltd v Australian Workers Union (2019) 270 FCR 359, the Court held that the salary loading allowance was paid over and above the salary paid to teachers for their ordinary hours of work, and eligibility depended on being employed on a particular date rather than on performance of ordinary hours [63]-[65]. The Court found the allowance could not be characterised as 'earnings in respect of ordinary hours of work' and therefore did not form part of OTE [65], [70].
The Court rejected arguments from both parties concerning whether the allowance was paid at an 'ordinary' or 'extraordinary' rate, finding the BlueScope discussion of ordinary versus extraordinary rates was directed to a different factual context involving periodic payments for particular hours [67]-[68]. The Court also held that the express exclusion of certain lump sum termination payments from OTE under s 6(1)(a)(i) did not imply that other lump sum payments, such as the salary loading allowance, must otherwise fall within OTE [69].
Outcome
The Court found that the Department had established that the 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' ordinary time earnings between 1 July 2008 and 31 December 2022 [73].
It followed that the Department had established the amended assessments of superannuation guarantee charge were excessive [74].
The Court ordered the parties to submit proposed orders giving effect to the reasons, and addressing costs, by 4:00pm on 17 July 2026.
Major issues / areas of contention
- Whether the salary loading allowance formed part of the 'notional earnings base' under s 13 of the Superannuation Guarantee (Administration) Act 1992 (Cth) for periods before 1 July 2008.
- Whether the salary loading allowance was excluded from the definition of 'salary' in the State Employees Retirement Benefits Act 1979 (Vic) and the State Superannuation Act 1988 (Vic) as a 'recreation leave allowance'.
- Whether the salary loading allowance was a payment of a 'temporary character' excluded from the definition of 'salary'.
- Whether the salary loading allowance formed part of 'ordinary time earnings' under s 6(1) of the SGA Act for periods from 1 July 2008.
- Whether the salary loading allowance constituted 'earnings in respect of ordinary hours of work'.
- The relevance of the historical origins and industrial context of the salary loading allowance to its proper characterisation.
- Whether the salary loading allowance was linked to a lost opportunity for teachers to earn overtime.
- The application of the principles in BlueScope Steel (AIS) Pty Ltd v Australian Workers Union (2019) 270 FCR 359 concerning ordinary rates and ordinary hours.