## GST-free NDIS supplies

A supply to a NDIS participant is GST-free if **all** the following requirements are met:

- the NDIS participant has a [NDIS plan in effect](https://www.ato.gov.au/businesses-and-organisations/gst-excise-and-indirect-taxes/gst/in-detail/your-industry/gst-and-health/national-disability-insurance-scheme#NDISplanineffect)
- the supply is of [reasonable and necessary supports](https://www.ato.gov.au/businesses-and-organisations/gst-excise-and-indirect-taxes/gst/in-detail/your-industry/gst-and-health/national-disability-insurance-scheme#reasonableandnecessarysupports) that are specified in the statement of supports in the participant's NDIS plan
- there is [a written agreement](https://www.ato.gov.au/businesses-and-organisations/gst-excise-and-indirect-taxes/gst/in-detail/your-industry/gst-and-health/national-disability-insurance-scheme#madeunderawrittenagreement) between you and the NDIS participant (or another person)
- it is a supply covered by one of the tables in the [A New Tax System (Goods and Services Tax) (GST free Supply—National Disability Insurance Scheme Supports) Determination 2021External Link](https://www.legislation.gov.au/F2021L00846/latest/text) (NDIS Determination).

The [explanatory statement to the NDIS DeterminationExternal Link](https://www.legislation.gov.au/F2021L00846/latest/text) provides examples to assist participants with the types of supplies listed in the NDIS Determination.

## NDIS plan is in effect

The participant's NDIS plan must be in effect under section 37 of the *National Disability Insurance Scheme Act 2013* (NDIS Act), which means it must be approved by the National Disability Insurance Agency (NDIA).

The plan ceases to be effective when it is replaced by another plan, or when the NDIS participant ceases to be a participant in the NDIS.

## Reasonable and necessary supports

The supply must be of one or more reasonable and necessary supports, as defined in the participant's NDIS plan.

Where the participant’s NDIS plan specifies an amount such as time or quantity of reasonable and necessary supports, any supplies of supports in excess of these specifications will not be a GST-free NDIS supply.

## Made under a written agreement

There must be made a written agreement between you, the supplier, and the NDIS participant (or another person).

The written agreement must:

- identify the NDIS participant
- state that the supply is a supply of one or more of the reasonable and necessary supports specified in the statement included, under subsection 33(2) of the NDIS Act, in the participant’s NDIS plan.

The written agreement can be between you and a person other than the NDIS participant. Other people can include those who manage the plan and funding for the NDIS participant. This would include the NDIA, a plan management provider registered with NDIA, or a guardian or relative of the NDIS participant.

The written agreement may be a single document or a combination of documents, such as letters between you and the other party and receipts or invoices you issue. It may include documents in electronic form.

As long as you have written evidence of a legally binding obligation for you to make the supply to the NDIS participant and that it is a reasonable and necessary support as specified in the participant’s NDIS plan, the requirement for a written agreement is satisfied.

### Example: supply made under a written agreement in accordance with a self-managed participant's NDIS plan

Joe, a participant in the NDIS, has an NDIS plan that specifies that he requires 5 hours of support on a weekly basis. He requests XYZ Co to supply him with the support for a period of 3 months based on the NDIS published price. Joe provides XYZ with a letter identifying:

- that he is a NDIS participant
- the type of support he is to be provided with (as specified in his plan)
- that the support is one of the reasonable and necessary supports specified in Joe’s NDIS plan.

XYZ writes to Joe to confirm its agreement to provide the support including the start date and signs the letter. For the next 3 months, XYZ supplies Joe with the requested support.

The written agreement under requirement 3 is satisfied.

End of example
Note that the written agreement does not need to be made under one document.

### Example: supply made under a written agreement in accordance with a participant’s NDIS plan managed by a plan management provider registered with the NDIA

ABB Co is registered with the NDIA as a plan management provider. A number of NDIS participants have engaged ABB to manage their plans for them.

Thanh, a NDIS participant, would like Elite, a provider of disability supports, to deliver one of the reasonable and necessary supports in her plan. With Thanh's consent, ABB emails Elite with Thanh's relevant requirements, including her name and the number of hours of support needed as specified in her plan. The email also states that the support is one of the reasonable and necessary supports specified in Thanh’s NDIS plan. Elite writes to Thanh and ABB setting out the details of the support to be provided and the price to be paid but makes no reference to Thanh's plan. ABB replies in writing to confirm Thanh's agreement to receive the supports from Elite.

The written agreement requirement is satisfied by the written evidence provided by the combination of ABB’s email setting out the supports required, Elite’s letter confirming support arrangements and ABB's letter of acceptance.

**Note:** Neither Elite's letter nor ABB's letter of acceptance would be sufficient evidence of the written agreement requirement. This is because these 2 documents do not state that the supply is of a reasonable and necessary support as specified in Thanh's plan. ABB’s initial email on its own is also not sufficient evidence of the written agreement because it does not evidence a binding obligation on Elite to make the supplies to Thanh. It is only the combination of the 3 documents that provide sufficient evidence of the written agreement requirement.

End of example
## A supply covered by the Disability Services Minister’s Determination

For the supply to be GST-free, as well as meeting the other 3 requirements outlined above, your supply to the NDIS participant must be of a kind covered by the NDIS Determination. The NDIS Determination applies to supplies made on or after 1 July 2021 but before 1 July 2025.

The NDIS Determination has 2 tables:

- The table in subsection 6(1) – supplies of supports that are GST-free ([Table 1](https://www.ato.gov.au/businesses-and-organisations/gst-excise-and-indirect-taxes/gst/in-detail/your-industry/gst-and-health/national-disability-insurance-scheme#Schedule1)).
- The table in subsection 6(2) – supplies of supports that are GST-free if they are listed in other determinations ([Table 2](https://www.ato.gov.au/businesses-and-organisations/gst-excise-and-indirect-taxes/gst/in-detail/your-industry/gst-and-health/national-disability-insurance-scheme#Schedule2)).

If your supply is covered by an item listed in Table 1, the requirement to be covered by the NDIS Determination is satisfied.

If Table 1 doesn't apply, you can consider Table 2. When an item in Table 2 is relevant to your supply, the requirement to be covered by the NDIS Determination is only satisfied if the item is also covered by one of 3 other determinations.

This is explained further below.

### Table 1

The supplies covered by Table 1 of the NDIS Determination are:

- specialist disability accommodation and accommodation or tenancy assistance (the [National Disability Insurance Scheme (Specialist Disability Accommodation) Rules 2020External Link](https://www.legislation.gov.au/F2020L00769/latest/text) sets out the requirements that must be met to supply specialist disability accommodation)
- assistance in coordinating or managing life stages, transitions and supports, including daily tasks in a group or shared living arrangement
- household tasks
- assistance with and training in travel or transport arrangements, excluding taxi fares
- interpreting and translation
- assistance to access and maintain education and employment
- assistive equipment for recreation
- early intervention supports for early childhood
- management of funding for supports in a participant’s plan.

### Table 2

If your supply is not covered by Table 1, the supply is only covered by the NDIS Determination if it is both:

- listed in Table 2
- listed in any one of 3 other determinations

- [Schedule 1 to the GST-free Supply (Care) Determination 2017External Link](https://www.legislation.gov.au/Details/F2017L00374) (Care Determination)
- [Section 6 of the A New Tax System (Goods and Services Tax) (GST-free Supply–Residential Care–Government Funded Supplier) Determination 2015External Link](https://www.legislation.gov.au/Details/F2015L00110) (Residential Care Determination), or
- [Sections 6 or 7 of the GST-free Supply (Health Services) Determination 2017External Link](https://www.legislation.gov.au/Details/F2017L00377) (Health Services Determination).

The supplies listed in Table 2 are:

- assistance with daily personal activities
- specialised assessment and development of daily living and life skills, including community participation
- assistive equipment for general tasks and leisure, including assistive technology specialist assessment, set up and training
- behavioural support and therapeutic supports
- home modifications.

The most common examples of supplies covered by Table 2 and any of the other determinations are set out below in Examples.

Examples: supplies that are both covered by Table 2 and one of the 3 other determinations

*Table 2 item in the NDIS Determination (see [Note](https://www.ato.gov.au/businesses-and-organisations/gst-excise-and-indirect-taxes/gst/in-detail/your-industry/gst-and-health/national-disability-insurance-scheme#Note))

Relevant other determination

Examples of supplies covered by Table 2 and one of the 3 other determinations

1. Assistance with daily personal activities

[Care DeterminationExternal Link](https://www.legislation.gov.au/Details/F2017L00374)

Personal care

Medication management

Continence management

Training in use of aids and appliances

2. Specialised assessment and development of daily living and life skills, including community participation

[Care DeterminationExternal Link](https://www.legislation.gov.au/Details/F2017L00374)

Counselling

Training in use of aids and appliances

Day care

Assessment of person’s care needs

Individual care planning or case management

2. Specialised assessment and development of daily living and life skills, including community participation

[Residential Care DeterminationExternal Link](https://www.legislation.gov.au/Details/F2015L00110)

Social activities in a residential care setting

Recreational therapy in a residential care setting

3. Assistive equipment for general tasks and leisure, including assistive technology specialist assessment, set up and training

[Care DeterminationExternal Link](https://www.legislation.gov.au/Details/F2017L00374)

Basic equipment for social support (sale or hire)

Provision and monitoring of personal alert systems (sale or hire)

Assessment of person’s care needs

Training in use of aids and appliances

3. Assistive equipment for general tasks and leisure, including assistive technology specialist assessment, set up and training

[Residential Care DeterminationExternal Link](https://www.legislation.gov.au/Details/F2015L00110)

Goods to assist with toileting and incontinence management in a residential care setting (sale or hire)

Furnishings in a residential care setting (sale or hire)

4. Behavioural support and therapeutic supports

[Care DeterminationExternal Link](https://www.legislation.gov.au/Details/F2017L00374)

Counselling

Personal care

Community paramedical services

Individual care planning or case management

4. Behavioural support and therapeutic supports

[Residential Care DeterminationExternal Link](https://www.legislation.gov.au/Details/F2015L00110)

Treatment and procedures in a residential care setting

Support for people with a cognitive impairment in a residential care setting

Emotional support in a residential care setting

Rehabilitation support in a residential care setting

5. Home modifications

[Care DeterminationExternal Link](https://www.legislation.gov.au/Details/F2017L00374)

Home modifications which are supplies that assist a person to remain living at home

**Note:** Table 2 items are within the [A New Tax System (Goods and Services Tax) (GST free Supply–National Disability Insurance Scheme Supports) Determination 2021External Link](https://www.legislation.gov.au/F2021L00846/latest/text) and [explanatory statementExternal Link](https://www.legislation.gov.au/C2004A00446/latest/text).

#### Example: supply of when exercise physiology is not GST-free

Bernie, a participant in the NDIS, has a NDIS plan that specifies that he requires exercise physiology on a fortnightly basis. Bernie lives at home and attends Health Co, a clinic (not a hospital), to receive the service. No Medicare benefit is payable for the service.

The supply of exercise physiology services to Bernie satisfies the first 3 elements in that:

- he is a NDIS participant
- exercise physiology is a reasonable and necessary support specified in his plan
- there is a written agreement between Bernie and Health Co.

However, the fourth requirement is not satisfied because the supply of exercise physiology services is not covered by the NDIS Determination. This is because:

- Table 1 of the NDIS Determination does not cover exercise physiology services.
- Under Table 2, item 4 lists behavioural and therapeutic supports which includes exercise physiology, but this service is not covered by one of the 3 other determinations unless it is supplied in a residential care facility. The supply to Bernie is provided at Health Co's clinic.

However, a supply of exercise physiology services to Bernie can be GST-free, regardless of whether it is made to an NDIS participant, if:

- there is a Medicare benefit payable for the service made to Bernie (see [medical services](https://www.ato.gov.au/businesses-and-organisations/gst-excise-and-indirect-taxes/gst/in-detail/your-industry/gst-and-health/medical-services))
- the exercise physiology therapy service is supplied as part of GST-free hospital treatment (see [hospital treatment](https://www.ato.gov.au/law/view/document?DocID=GSD/GSTD20124/NAT/ATO/00001&PiT=99991231235958)).

End of example
## Third party NDIS supplies – plan management

A NDIS participant’s plan may involve other parties. For example, a participant may elect to have their NDIS plan managed by a plan manager. Those services may be GST-free, provided the normal requirements are met.

### Example: plan management services – GST-free

Brian is an NDIS participant with a current NDIS plan. He chooses to engage a plan manager – PQR Pty Ltd (PQR) – to manage his NDIS plan funds and coordinate the provision of his NDIS supports. PQR and Brian enter into a written agreement for this purpose. The plan management services that PQR supplies to Brian are a reasonable and necessary support specified in Brian’s NDIS plan. In addition, the plan management services supplied by PQR to Brian are covered by item 9 in Table 1 in the NDIS Determination.

As PQR’s supply of plan management services to Brian also meet all the other conditions set out in section 38-38 of the GST Act, they are GST-free.

End of example
## Third party NDIS supplies facilitated by a plan manager

Plan managers can play a vital role for NDIS participants in facilitating the provision of their supports and managing the flow of funds from the NDIA and to providers of supports.

Under normal circumstances, supplies of NDIS supports are made to the participant, not to the plan manager.

### Example: NDIS supports facilitated by a plan manager

Following on from the above example, Brian’s NDIS plan also includes assistance with daily personal activities as a reasonable and necessary support. He asks PQR to locate a suitable qualified therapist near his home. Using its database of support providers, PQR offers 3 potential therapists to Brian.

After Brian selects Javier from the 3 therapists, PQR, on behalf of Brian, arranges for Javier to supply the daily personal activities assistance services to Brian.

PQR enters into a written agreement with Javier on behalf of Brian, which identifies Brian as the NDIS participant. The written agreement states that the supply of the daily personal activity's assistance is a supply of one of the reasonable and necessary supports specified in Brian’s NDIS plan.

Javier supplies the agreed daily personal activities assistance to Brian.

The supply of assisting with daily personal activities is covered by item 1 in Table 1 in the NDIS Determination.

It is agreed between PQR and Javier that his services will be invoiced monthly, with the invoices being sent directly to PQR. PQR will then use the NDIS *myplace* provider portal to pay Javier on behalf of Brian using Brian’s NDIS funds.

This arrangement meets all the requirements of section 38-38 of the GST Act and therefore Javier’s supply of daily personal assistance to Brian is GST-free.

End of example
## NDIS supports provided by a third party

When third parties are used by NDIS-registered providers of supports, it is important to distinguish between supplies that are GST-free and those which are not.

### Example: supports provided by a third party

Casey is an NDIS participant and self-manages her NDIS plan which includes home and yard maintenance as a reasonable and necessary support since she is not able to undertake these activities herself. LMN Pty Ltd (LMN) specialises in home and yard maintenance for NDIS participants and is a NDIS-registered provider. LMN offers Casey a package deal that will require LMN to maintain her home and yard for a period of 12 months, for a monthly set fee. Casey accepts the offer.

The written agreement Casey enters into with LMN does not specify who will actually perform the maintenance services. For that purpose, LMN has a stable of contractors it uses, and allocates jobs as and when they are due to be performed according to who is available at the time.

The written agreement states that that the supply of the home and yard maintenance services is a supply of one or more of the reasonable and necessary supports specified in Casey’s NDIS plan. The essential home and yard maintenance services supplied to Casey are covered by item 3 in Table 1 in the NDIS Determination.

The supply of the maintenance services from LMN to Casey meets all the requirements of section 38-38 of the GST Act and is therefore GST-free.

The contractors engaged by LMN to provide Casey’s home and yard maintenance are making a separate supply of services to LMN. Since LMN is not an NDIS participant, the supply of services by the contractors to LMN is not GST-free under section 38-38 of the GST Act and is instead taxable, provided all requirements under section 9-5 of the GST Act are met.


## Operating expenses

Operating expenses are the expenses you have paid for (incurred), or have to pay for (incur), in the everyday running of your business. Examples include office stationery, renting premises and purchase of trading stock. These expenses are sometimes called working or revenue expenses.

You can generally claim a tax deduction for most operating expenses associated with running your business in the same income year you incur them. Ensure you keep accurate and complete records of these expenses as they occur.

You can only claim the business portion of these expenses if they relate to both business and private use, for example mobile phone calls.

## General business operating expenses

Operating expenses that are common in business include:

- purchases of trading stock, including delivery charges
- advertising and sponsorship
- public relations
- legal expenses, such as those incurred defending future earnings, borrowing money, discharging a mortgage or obtaining tax advice
- tender costs, even if the tender is unsuccessful
- bad debts
- bank fees and charges
- annual fees charged by statutory bodies (for example, ASIC)
- penalties and fines imposed by statutory bodies as a result of breaches of an Australian law are not deductible (for example, late payment fees are usually penalties)
- insurance premiums, including accident or disability, fire, burglary, professional indemnity, public risk, motor vehicle, loss of profits insurance, or workers compensation
- interest on money borrowed for
- producing assessable income or purchasing income-producing assets
- income tax obligations, employer super contributions, or late payment or lodgment of tax
- lease expenses
- stationery
- small-value mobile phone and tablet accessories
- for example, protective covers and earphones
- costs for running a commercial website
- for example, site maintenance and content updates
- internet service provider fees
- subscription fees for off-the-shelf software
- transport and freight
- waste removal and recycling
- parking fees (but not parking fines)
- small-value items costing $100 or less.

## Other expenses (similar to those claimed by employees)

As a business owner, you are also able to claim deductions for some business expenses that are the same as those that can be claimed as a deduction by employees, including:

- union dues and subscription fees to trade, business or professional associations
- clothing expenses (corporate wardrobes or uniforms and occupation-specific and protective clothing)
- expenses relating to education and technical or professional qualification
- subscription costs for business or professional journals, information services, newspapers and magazines
- costs for sunglasses, sunhats and sunscreen when your business activities require outdoor work
- other items that protect you or your employees from a health or injury risk in your work environment
- gifts and donations to organisations that have a deductible gift recipient [(DGR)](https://www.ato.gov.au/businesses-and-organisations/not-for-profit-organisations/getting-started/in-detail/types-of-dgrs) status.

## Operating expenses from employing people

Expenses associated with employing people including:

- [salary, wages and super](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/income-and-deductions-for-business/deductions/deductions-for-salaries-wages-and-super-contributions)
- fringe benefits, including the cost of any fringe benefit provided and the associated fringe benefits tax
- protective clothing required for employees to carry out work activities
- allowances and reimbursements paid to employees who use their own mobile device for work purposes
- travel expenses for relocating employees
- losses due to misappropriation of money by an employee or agent, for example, fraud, theft or embezzlement.

## Business premises operating expenses

Business premises operating expenses include:

- electricity
- landline phone calls and line rental
- mobile phone calls (prepaid or as part of a plan)
- internet service fees
- data plans
- cloud storage
- water
- renting or leasing business premises
- rates
- land tax.

If you incur expenses associated with setting up and using your [Digital ID](https://www.ato.gov.au/online-services/accessing-online-services-with-digital-id-and-ram) to access our online services in the course of running your business, such as phone and internet expenses, you may be able to claim tax deductions for the business portion of those expenses.

## Tax-related operating expenses

Tax-related expenses include:

- registered tax agent and accountant fees
- tax-related expenses, such as
- having a bookkeeper prepare your business records
- preparing and lodging tax returns and activity statements
- objecting to or appealing against your assessment
- attending an ATO audit
- obtaining tax advice about your business
- credit card/charge card payment fee associated with paying a business tax liability, for example, GST liability.

Remember you need to [keep records](https://www.ato.gov.au/businesses-and-organisations/preparing-lodging-and-paying/record-keeping-for-business) to substantiate your claims.


**What this Guideline is about
**

1. This Guideline outlines the factors the Commissioner will consider when deciding whether to exercise the discretion[[1]](https://www.ato.gov.au/law/view/document?docid=COG/PCG201616/NAT/ATO/00001#fp1) to treat an interest in the income or capital of a trust as being a fixed entitlement. This can result in a trust being treated as a fixed trust under the trust loss provisions and is also relevant when applying other provisions in the tax legislation which rely on the concept of 'fixed entitlement' (listed in
**Attachment A
** of this Guideline).[[2]](https://www.ato.gov.au/law/view/document?docid=COG/PCG201616/NAT/ATO/00001#fp2)

2. In practice, it may be difficult for many trusts to satisfy the definition of 'fixed trust' unless the Commissioner exercises his discretion to treat the beneficiaries' interests as fixed entitlements.

3. This Guideline also outlines (at
**Attachment B)
** a safe harbour compliance approach for trustees of certain trusts that allows them to manage the trust's tax affairs as if the Commissioner had exercised the discretion to treat beneficiaries as having fixed entitlements to income and capital of the trust.

4. This Guideline does not apply:

•For the purposes of the 'non-arm's length income' rules in section 295-550 of the *Income Tax Assessment Act 1997* (ITAA 1997) or the 'special income' rules in the former section 273 of the ITAA 1936. The Commissioner's view of the concept of fixed entitlement in those provisions is explained in Taxation Ruling TR 2006/7 *Income tax:  special income derived by a complying superannuation fund, a complying approved deposit fund or a pooled superannuation trust in relation to the year of income.*
•For the purposes of applying former subsection 160APHL(14) of the ITAA 1936 (about the holding period rule for franking credits).
•To a trust that is an attribution managed investment trust (AMIT) within the meaning of section 276-10 of the ITAA 1997. An AMIT is treated as being a fixed trust, and its members are treated as having fixed entitlements to its income and capital.[[3]](https://www.ato.gov.au/law/view/document?docid=COG/PCG201616/NAT/ATO/00001#fp3)

5. Law Administration Practice Statement PS LA 2002/11 *Issues concerning fixed entitlements to a share of the income or capital of a trust* continues to instruct ATO officers about how to ensure that such issues are decided consistently.

**Structure of this Guideline
**

6. The structure of this Guideline is represented in the following flowchart which outlines the process for determining if beneficiaries have fixed entitlements to all of the income and capital of a trust.

**Date of effect
**

7. This Guideline applies both before and after its date of issue.

**Fixed entitlements under subsection 272-5(1)
**

8. The concept of a 'fixed entitlement' is central to the trust loss provisions.[[4]](https://www.ato.gov.au/law/view/document?docid=COG/PCG201616/NAT/ATO/00001#fp4) It is used to determine whether a trust is a fixed trust, whether a trust's beneficiaries have maintained the requisite proportion of ownership, and for tracing direct and indirect entitlements.

9. A beneficiary will have a fixed entitlement to a share of the income or capital of the trust if, under a trust instrument, their interest in the income or capital is vested and indefeasible.[[5]](https://www.ato.gov.au/law/view/document?docid=COG/PCG201616/NAT/ATO/00001#fp5)

10. A trust is a fixed trust if the beneficiaries have fixed entitlements to all of the income and capital of the trust.[[6]](https://www.ato.gov.au/law/view/document?docid=COG/PCG201616/NAT/ATO/00001#fp6)

***Under a trust instrument*
**

11. For these purposes, the Commissioner accepts that a 'trust instrument' includes a deed or constitution as supported by documentation such as a Product Disclosure Statement, Investment Memorandum or other document that modifies or supplements the terms of the trust set out in the deed or constitution.

12. The beneficiaries of a trust[[7]](https://www.ato.gov.au/law/view/document?docid=COG/PCG201616/NAT/ATO/00001#fp7) that does not have a 'trust instrument' are not capable of having fixed entitlements in the absence of the exercise of the Commissioner's discretion. Trustees of such trusts cannot rely on the safe harbour compliance approach in managing the trust's tax affairs.

***Vested interests*
**

13. In terms of the concept of 'fixed entitlement', an interest is 'vested' if it is vested in interest or vested in possession.[[8]](https://www.ato.gov.au/law/view/document?docid=COG/PCG201616/NAT/ATO/00001#fp8) An interest is vested in possession when it gives its holder a right of present enjoyment, whereas an interest is vested in interest if it gives its holder a present right to future enjoyment.

14. The mere object of a discretionary trust does not have a vested interest in, and therefore does not have a fixed entitlement to, either the income or capital of the trust.[[9]](https://www.ato.gov.au/law/view/document?docid=COG/PCG201616/NAT/ATO/00001#fp9)

***Indefeasible interests*
**

15. An interest is defeasible if it can be defeated by the actions of one or more persons or by the occurrence of one or more subsequent events. An interest of a default beneficiary in the income or capital of the trust is an example of a defeasible interest.

16. Powers in modern trust instruments which cause a beneficiary's interests to be defeasible include:

•Broad powers to amend the trust instrument.[[10]](https://www.ato.gov.au/law/view/document?docid=COG/PCG201616/NAT/ATO/00001#fp10)
•Powers to issue new units after the trust is settled, or to redeem existing units.[[11]](https://www.ato.gov.au/law/view/document?docid=COG/PCG201616/NAT/ATO/00001#fp11)
•A power to reclassify existing units so that they do not all have equal rights to receive the income and capital of the trust.
•A power to classify receipts as being on income or capital account where the units that have been issued do not all have the same rights to receive the income and capital of the trust.
•A power to appoint a beneficiary's interest in the income or capital of the trust to another beneficiary.
•A power to settle or appoint any part of the corpus of the trust to a new trust with different beneficiaries.
•A power to enforce the forfeiture or cancellation of partly paid units due to the non-payment of a call except where such partly paid units would be void *ab initio.*

17. For the purposes of working out whether all beneficial interests have the same rights to receive the income and capital of the trust (sometimes referred to as establishing whether or not there are different classes of interests in the trust), the Commissioner will disregard the following factors which may otherwise result in a different conclusion:[[12]](https://www.ato.gov.au/law/view/document?docid=COG/PCG201616/NAT/ATO/00001#fp12)

•fees or charges imposed by the trustee in relation to the beneficial interests
•issue price and redemption price of the beneficial interests (provided that the savings rule in subsection 272-5(2) is satisfied as explained below), and
•exposure of the beneficial interests to foreign exchange gains and losses.

**Satisfaction of the 'savings rule' in subsection 272-5(2)
**

18. The mere fact that a trustee has power to redeem units in a unit trust, or issue further units, for an appropriate value, being:

•where the units are listed for quotation in the official list of an approved stock exchange - the same price as other units are offered for sale on that exchange at the time of the redemption or issue, or
•where the units are not so listed - a price determined on the basis of the net asset value of the unit trust at the time of the redemption or issue according to Australian accounting principles

does not mean that unit holders' interests in the income or capital of the unit trust are defeasible.[[13]](https://www.ato.gov.au/law/view/document?docid=COG/PCG201616/NAT/ATO/00001#fp13) For the purposes of this Guideline, this is referred to as the 'savings rule'.

19. The Commissioner considers that the savings rule is satisfied where further units may be issued[[14]](https://www.ato.gov.au/law/view/document?docid=COG/PCG201616/NAT/ATO/00001#fp14) or existing units redeemed[[15]](https://www.ato.gov.au/law/view/document?docid=COG/PCG201616/NAT/ATO/00001#fp15) in any of the following situations:

•for a price based on a market value[[16]](https://www.ato.gov.au/law/view/document?docid=COG/PCG201616/NAT/ATO/00001#fp16) of the assets and liabilities of the trust which has been determined by a licensed valuer
•for a price based on a market value of the assets and liabilities of the trust which has not been determined by a licensed valuer, but which nevertheless is accurate
•for a price determined by reference to a value of the trust which is sufficiently close to its net asset value (allowing an adjustment for transaction costs)
•for a price determined by reference to a value of the trust which is sufficiently close to its net asset value (allowing an adjustment for transaction costs), including where accrued distributions are excluded from the net asset value based on a 'unit day's pricing model'
•for a price based on the volume weighted average price (VWAP) of the units, or
•in accordance with ASIC Corporations (Managed investment product consideration) Instrument 2015/847, ASIC Class Order [CO 13/655] and ASIC Class Order [CO 13/657] (if relevant), or any other ASIC guidance or relief on the same subject.

***Reference to units includes interests in percentage shares*
**

20. The Commissioner considers that a reference to 'units' in the savings rule includes a class of vested interest which can be expressed as being a beneficial interest in a percentage share of the total income or capital of the trust. The interest must also be capable of being measured as a percentage of the total beneficial interest in the income or capital of the trust enjoyed by the holders of that same class of interest in the trust.

***Reference to Australian accounting principles*
**

21. The reference to 'Australian accounting principles'[[17]](https://www.ato.gov.au/law/view/document?docid=COG/PCG201616/NAT/ATO/00001#fp17) means the accounting standards, statements of accounting concepts or authoritative pronouncements of the Australian Accounting Standards Board, as applicable to the trust that seeks to satisfy the requirements of the savings rule.

***Partly paid units*
**

22. Partly paid units are capable of satisfying the savings rule. In this regard, the relevant price per unit should be adjusted to reflect the proportion of the paid up amount.

**Safe harbour - Compliance approach
**

23. The trustee of a trust described in
**Attachment B
** can manage the trust's tax affairs as if the Commissioner has exercised the discretion to treat the beneficiaries as having fixed entitlements to the income and capital of the trust.

24. The 'safe harbours' in this Guideline can only be satisfied in relation to known facts. A trustee that requires certainty as to whether or not the beneficiaries of the trust have fixed entitlements in relation to a future time must request the exercise of the Commissioner's discretion.

**Discretion to treat an interest as a fixed entitlement in subsection 272-5(3)
**

25. Where a trust is not a fixed trust, because all of the beneficiaries' interests in the income and capital of the trust are not fixed entitlements, and the trust does not satisfy the requirements for a 'safe harbour' in this Guideline, the trustee may request that the Commissioner exercise the discretion to treat beneficiaries' interests as being vested and indefeasible.

*Note:  the Commissioner is not able to exercise the discretion in relation to:*

•*the mere objects of a discretionary trust - they do not have vested interests in the income or capital of the trust under a trust instrument, or*
•*an interest of a default beneficiary - although it may be a vested, proprietary interest in a trust, it is defeasible because the trustee may resolve to appoint the income or capital to another beneficiary.*[[18]](https://www.ato.gov.au/law/view/document?docid=COG/PCG201616/NAT/ATO/00001#fp18)

26. A trust can both rely on the savings rule in relation to some trustee powers in a trust instrument (the power to issue or redeem units), and request that the Commissioner exercise the discretion in the context of other powers that may defeat a beneficiary's interest (such as in relation to a power to amend).

27. In deciding whether or not to exercise the discretion, the Commissioner must consider:[[19]](https://www.ato.gov.au/law/view/document?docid=COG/PCG201616/NAT/ATO/00001#fp19)

•the circumstances in which the interest is capable of not vesting or being defeated
•the likelihood of the interest not vesting or being defeated, and
•the nature of the trust.

28. The Commissioner will also consider factors relevant in the context of the trust loss rules.

***Circumstances in which the interest is capable of not vesting or being defeated*
**

29. When examining the *circumstances* in which a beneficiary's interest is capable of not vesting or being defeated, the Commissioner will have regard to any factor that may affect the defeasance of any beneficiary's interest, including:

•the number of circumstances of potential defeasance, and
•the significance of those circumstances.

30. This includes having regard to:

•any person who is capable of altering the beneficiary's interest
•the nature of their relationship to the beneficiary, and
•any limitation on their capability to so alter that interest.

***The likelihood of the interest not vesting or the defeasance happening*
**

31. When considering the *likelihood* of the interest not vesting or being defeated, the Commissioner must form a view as to the probability that the contingency or defeasance will happen. Where the likelihood of the contingency or event of defeasance occurring is low, this will weigh towards a favourable exercise of the discretion.

32. Where the trustee or manager of the trust has a particular power to defeat a beneficiary's interest, it is relevant to consider how often, if at all, they have exercised that power over a relevant period.

33. Any preconditions or caveats that affect the likelihood of a beneficiary's interest not vesting or being defeated are also relevant.

***The nature of the trust*
**

34. The *nature of the trust* refers to its basic legal characteristics and its economic function, both actual and intended. The ability of the trustee or manager of the trust to adversely affect the interests of beneficiaries could be limited where:

•additional responsibilities are placed on the trustee by legislation, most commonly as a registered managed investment scheme under Chapter 5C of the *Corporations Act 2001*
•contractual restrictions limit the trust manager's access to trust assets
•the trust is subject to industry regulations, licensing or registration requirements, which are legally enforceable, such as the Australian Securities Exchange (ASX) Listing Rules which are enforceable against listed entities and their associates[[20]](https://www.ato.gov.au/law/view/document?docid=COG/PCG201616/NAT/ATO/00001#fp20)
•commitments are made in a Product Disclosure Statement, Investment Memorandum or other document to exercise powers in a particular (restrictive and/or non-adverse) way
•the trust deed restricts the ability of the trustee to issue and redeem units at anything other than market value or other values approximating net asset value, or
•the unanimous (100%) approval of the beneficiaries is required prior to the exercise of a power capable of defeating a beneficiary's interest by the trustee or manager.

***Other contextual factors*
**

35. Having regard to the subject matter, scope and purpose of the trust loss rules, it is relevant for the Commissioner to consider whether the exercise of the discretion would allow a person to obtain a tax benefit from a trust claiming a deduction for a tax loss, bad debt deduction or debt/equity swap deduction when the person did not bear the economic loss incurred by the trust.

36. The concept of a fixed entitlement is central to the operation of the trust loss rules, the purpose of which is to prevent the transfer of the tax benefit of those losses or deductions. The tax benefit of a loss is transferred when a person who did not bear the economic loss at the time it was incurred by the trust obtains a benefit from the trust being able to deduct the loss.[[21]](https://www.ato.gov.au/law/view/document?docid=COG/PCG201616/NAT/ATO/00001#fp21)

37. Because the discretion to treat beneficiaries' interests as being a fixed entitlement is part of the trust loss rules, and because of the resultant consequences of being treated as a fixed trust, these contextual factors are also relevant even when the reason for requesting that the Commissioner exercise the discretion is related to one of the other legislative provisions listed in
**Attachment A.
**

***Factors influencing the exercise of the Commissioner's discretion*
**

38.
**Attachment C
** to this Guideline contains a non-exhaustive list of the factors that the Commissioner will consider when deciding whether or not to exercise the discretion.

39. In each case the Commissioner will weigh up all factors (favourable and unfavourable) in the context of the facts and circumstances of the case. The presence of more favourable factors will increase the likelihood that the Commissioner will exercise the discretion.

40. However, a single power in a trust instrument may pose such a serious threat to beneficiaries' interests that, in the absence of any mitigating factors, the Commissioner will not exercise the discretion.

41. Conversely, the absence of some or all of the favourable factors described in
**Attachment C
** does not necessarily preclude the exercise of the discretion.

**Examples
**

42. The following examples illustrate the application of the savings rule and how the Commissioner would consider the exercise of the discretion in various situations.

***Example 1:  savings rule applies*
**

43. *The interests in the income and capital of a trust are defeasible only because the trustee may issue or redeem units for a price determined on the basis of the net asset value of the trust. The savings rule will apply in this circumstance to ensure that the beneficiaries' interests are not defeasible, and are fixed entitlements.*

***Example 2:  savings rule applies*
**

44. *The trustee of a trust issues units for a price that is higher than a price determined on the basis of the net asset value of the trust. The higher price is attributable to transaction costs associated with the issue of the units. The savings rule will apply in this circumstance to ensure that the beneficiaries' interests are not defeasible and are fixed entitlements.*

***Example 3:  savings rule and a safe harbour apply*
**

45. *If, in relation to the trust in Example 1, the trustee also had an unlimited power to amend the trust deed, the beneficiaries' interests would be defeasible and would not constitute fixed entitlements. However, if the requirements of one of the safe harbours in the compliance approach in*
***Attachment B*
** *are satisfied, the trustee can manage the trust's tax affairs as if the Commissioner has exercised the discretion to treat the beneficiaries as having fixed entitlements to the income and capital of the trust.*

***Example 4:  savings rule does not apply but a safe harbour applies*
**

46. *The beneficiaries' interests in the trust are not fixed entitlements, and the savings rule does not apply, because the trustee may issue or redeem units for a price not determined on the basis of the net asset value of the trust. If the requirements of one of the safe harbours in the compliance approach in*
***Attachment B*
** *are satisfied, the trustee can manage the trust's tax affairs as if the Commissioner has exercised the discretion to treat the beneficiaries as having fixed entitlements to the income and capital of the trust.*

***Example 5:  exchange of interests in a trust under Subdivision 124-M of the ITAA 1997*
**

47. *Two trustees are contemplating a transaction whereby all of the units in one trust (the selling trust) will be acquired by the trustee of the other trust (the acquiring trust) in return for new units in the acquiring trust. The scrip for scrip roll-over provisions require that entities have fixed entitlements to all of the income and capital of each trust immediately before, during and immediately after the exchange of units.*

48. *The beneficiaries' interests in the selling trust are not fixed entitlements, and because of the prospective nature of the proposed transaction, the safe harbours in the compliance approach cannot be relied upon.*

49. *Accordingly, before entering into the transaction, the trustee of the selling trust applies to the Commissioner for a ruling in relation to whether the requirements of scrip for scrip roll-over will be satisfied, including whether fixed entitlements will exist at a future date. The trustee asks the Commissioner to exercise the discretion if the beneficiaries' interests at the future date are not fixed entitlements.*

**Attachment A - Other provisions
**

50. Other provisions that, directly or indirectly, rely upon the meaning of 'fixed entitlement' in section 272-5

***Income Tax Assessment Act 1936*
**

Schedule 2F
Trust loss provisions

section 102UC
Trustee beneficiary reporting

sections 160APA; 160APHD
Franking of dividends

***Income Tax Assessment Act 1997*
**

section 104-72
CGT event E4 and trusts

section 115-50
Discount capital gains

section 115-110
Foreign or temporary residents - individuals with trust gains

section 116-35
Capital proceeds - market value substitution rule

section 118-510
CGT and venture capital

section 124-781
Capital gains and scrip-for-scrip rollover

Subdivision 165-F
Company tax losses - ownership of a company by non-fixed trusts

section 170-265
Company as a member of a linked group

section 328-440
Small business restructure roll-over - ultimate economic ownership of a non-fixed trust

section 415-20
Designated infrastructure entity

section 703-40
Consolidation:  treating entities held through non-fixed trusts as wholly-owned subsidiaries

section 707-325
Consolidation:  modified market value of an entity becoming a member of a consolidated group

section 713-50
Consolidation:  determining destination of distribution by non-fixed trust

section 719-35
Consolidation:  treating entities held through non-fixed trusts as wholly owned subsidiaries

section 725-65
Direct value shifting:  cause of the value shift

section 727-110
Indirect value shifting:  common ownership nexus test

sections 727-360; 727-365; 727-400; 727-410
Indirect value shifting:  control, common ownership and ultimate stake tests

section 855-40
Capital gains or losses of foreign residents

***A New Tax System (Goods and Services Tax) Regulations 1999*
**

Regulations 48-10.01 and 48-10.03A
Approval of GST groups

**Schedule 1 to the
**
***Taxation Administration Act 1953*
**

section 45-287
Trust income included in instalment income of a beneficiary

**Attachment B - Compliance approach - safe harbours
**

***Safe harbour - Administration*
**

51. The trustee of a trust that satisfies the conditions for one of the categories below can manage its tax affairs as if the Commissioner had exercised the discretion to treat the beneficiaries as having a fixed entitlement to the income and capital of the trust for the purposes of section 272-5.

52. Accordingly, other than ensuring that a trust satisfies the relevant conditions of the category relied upon, the Commissioner will not allocate compliance resources to determine whether beneficiaries have fixed entitlements in cases where one of the categories below is met. A safe harbour only has application during the period in which the conditions for the relevant category are satisfied. A trustee that requires certainty as to whether or not the beneficiaries of the trust have fixed entitlements in relation to a future time must request the exercise of the Commissioner's discretion.

53. Taxpayers should maintain relevant records that support their claim that they meet the relevant conditions being relied on.

***Safe harbour - Conditions*
**

54. To qualify for access to a safe harbour, a trust must, at all relevant times, satisfy the conditions of one of the categories below:

**(1)
**
**Listed trusts
**The trust's units are listed for quotation in the official list of an approved stock exchange (as defined in subsection 995-1(1) of the ITAA 1997 and Regulation 995-1.05 of, and Schedule 5 to, the *Income Tax Assessment Regulations 1997).* This includes depository and nominee arrangements in relation to such units.

**(2)
**
**Registered managed investment schemes that are trusts
**The trust complies with all of the following conditions:

•it is a 'registered scheme' as defined in subsection 995-1(1) of the ITAA 1997 (that is, a managed investment scheme that is registered under section 601EB of the *Corporations Act 2001)*
•the trustee, Responsible Entity, manager or other controller has complied with all of the requirements of Chapter 5C of the *Corporations Act 2001,* and any applicable ASIC relief (for example, authorising issuing units at a discount), and
•all beneficial interests have the same rights to receive the income and capital of the trust (see paragraph 17 of this Guideline).

**(3)
**
**Certain widely held trusts that satisfy licensing requirements
**The trust complies with all of the following conditions:

•either:

-the only members of the trust are entities that are covered by subsection 275-20(4) of the ITAA 1997, Investor Directed Portfolio Services ('IDPS' - as defined in ASIC Class Order [CO 13/763]) or 'IDPS-like schemes' (as defined in ASIC Class Order [CO 13/762]); or
-the only members of the trust are entities that are managed investment trusts in relation to the income year because of subsection 275-10(2), and

•the trust is covered by section 275-15 of the ITAA 1997 (it is not required to be registered in accordance with section 601ED of the *Corporations Act 2001)*
•the trust satisfies the licensing requirements in section 275-35 of the ITAA 1997, and
•all beneficial interests have the same rights to receive the income and capital of the trust (see paragraph 17 of this Guideline).

**(4)
**
**Unregistered managed investment schemes that satisfy licensing requirements
**The trust complies with all of the following conditions:

•it is a managed investment scheme (as defined in section 9 of the *Corporations Act 2001)*
•the trust is covered by section 275-15 of the ITAA 1997 (it is not required to be registered in accordance with section 601ED of the *Corporations Act 2001)*
•the trust satisfies the licensing requirements in section 275-35 of the ITAA 1997
•the trust must have a trust instrument
•all beneficial interests in the income and capital of the trust are vested
•all beneficial interests have the same rights to receive the income and capital of the trust (see paragraph 17 of this Guideline)
•all beneficial interests in the income and capital of the trust can be expressed as a percentage of the total income and capital of the trust, and
•the trust is not a discretionary trust or a trust with default income or capital beneficiaries - that is, no beneficial interest in the income or capital of the trust is capable of being defeated, partly or wholly, by the exercise of a power of appointment of income or capital by the trustee or other donee.

**(5)
**
**Specific single interest holder trusts
**The trust complies with all of the following conditions:

•the trust must have a trust instrument
•all beneficial interests in the income and capital of the trust are vested
•all beneficial interests have the same rights to receive the income and capital of the trust (see paragraph 17 of this Guideline)
•all beneficial interests in the income and capital of the trust can be expressed as a percentage of the total income and capital of the trust
•the trust is not a discretionary trust or a trust with default income or capital beneficiaries - that is, no beneficial interest in the income or capital of the trust is capable of being defeated, partly or wholly, by the exercise of a power of appointment of income or capital by the trustee or other donee
•one of the following types of entity holds all of the interests, directly or indirectly, in the trust and has the right to receive all of the income and capital of the trust, directly or indirectly, for their own benefit (that is, excluding a nominee, custodian or agent)

(a)an individual
(b)a trust that satisfies category 1 above (a listed trust)
(c)a trust that satisfies category 2 above (a registered managed investment scheme), and

•an arrangement has not been entered into which would result in:

(a)section 272-35 having application
(b)the trafficking of the tax benefit of a tax loss, bad debt deduction or debt/equity swap deduction, or
(c)fraud or evasion.

**(6)
**
**Other trusts
**The trust complies with all of the following conditions:

•the trust must have a trust instrument
•all beneficial interests in the income and capital of the trust are vested
•all beneficial interests have the same rights to receive the income and capital of the trust (see paragraph 17 of this Guideline)
•all beneficial interests in the income and capital of the trust can be expressed as a percentage of the total income and capital of the trust
•the trust is not a discretionary trust or a trust with default income or capital beneficiaries - that is, no beneficial interest in the income or capital of the trust is capable of being defeated, partly or wholly, by the exercise of a power of appointment of income or capital by the trustee or other donee
•a trustee or manager has never exercised a power capable of defeating a beneficiary's interest to defeat a beneficiary's interest in the income or capital of the trust,[[22]](https://www.ato.gov.au/law/view/document?docid=COG/PCG201616/NAT/ATO/00001#fp22) and
•an arrangement has not been entered into which would result in:

(a)section 272-35 having application
(b)the trafficking of the tax benefit of a tax loss, bad debt deduction or debt/equity swap deduction, or
(c)fraud or evasion.

**Attachment C - Relevant factors in the exercise of the Commissioner's discretion to treat an interest in a trust as being a fixed entitlement
**

***Factors favourable to the exercise of the Commissioner's discretion*
**

55. The Commissioner regards the following factors favourably when deciding whether to exercise the discretion:

•a trustee or manager has never exercised a power capable of defeating a beneficiary's interest to defeat a beneficiary's interest in the income or capital of the trust
•commitments are made in unit holder agreements, Product Disclosure Statements or other documents with legal consequences that the trustee or manager will not exercise a power capable of defeating a beneficiary's interest at all, or in a way that is adverse to the rights of beneficiaries to receive the income and capital of the trust
•all beneficiaries have the same rights to receive the income and capital of the trust
•the trust instrument can only be amended with the unanimous (100%) approval of all the beneficiaries
•although the trust instrument can be amended without the unanimous approval of beneficiaries, the approval percentage calculated on the current interest or unit holdings of beneficiaries effectively means that all beneficiaries must approve any amendment (for example, where the approval of 75% of unit holders is required to make the amendment and the smallest unit holding is more than 25% of the units)
•the trust instrument has been amended in accordance with section 601GC of the *Corporations Act 2001* (so as to assist with the efficient administration of the trust) but no beneficial interests in the income and capital of the trust are adversely affected
•the beneficiaries whose rights to receive the income and capital of the trust have been adversely affected by the exercise of a power capable of defeating a beneficiary's interest have explicitly consented to that specific act (such as upon the redemption of the interests of an employee not covered by the savings rule upon the cessation of employment)
•the trustee or manager deals with the beneficiaries of the trust on an arm's length basis
•the trust is governed by a foreign law that is similar to Chapter 5C of the *Corporations Act 2001,* and
•the trust would satisfy the basic and specific conditions (as applicable to the type of trust) for access to a safe harbour.

***Factors adverse to the exercise of the Commissioner's discretion*
**

56. The Commissioner regards the following factors unfavourably when deciding whether to exercise the discretion:

•a trustee or manager exercises a power to defeat beneficiaries' interests in the income or capital of the trust, however:

-the nature of the power that is exercised will be important, for example, compulsorily redeeming units where a unit holder's stake is less than a minimum specified in the trust instrument, and the unit holder receives the redemption price of those units, is unlikely to preclude the exercise of the discretion
-where external factors (such as those in the Global Financial Crisis) temporarily affect the ability of the trustee or manager to fund distributions or redemptions, this is unlikely to preclude the exercise of the discretion (for example, a temporary wholesale freezing or deferral of interests)

•there are significantly different beneficiaries of the trust in an income year for which an entity seeks to have a fixed entitlement, than the beneficiaries of the trust in the income year(s) in which the trust made a tax loss, or incurred a bad debt deduction or debt/equity swap deduction
•an arrangement has been entered into which would result in:

(a)section 272-35 having application
(b)the trafficking of the tax benefit of a tax loss, bad debt deduction or debt/equity swap deduction, or
(c)fraud or evasion.

**Commissioner of Taxation**

13 September 2017


Do you want to manage your cashflow throughout the year to avoid a large tax bill? If you answered yes and have investment and business income, pay as you go (PAYG) instalments might be for you!

PAYG instalments are prepayments you can make during the year. These will be credited against your expected tax bill, leaving you with little or no tax to pay when you lodge your tax return.

### How will I know if I’ve been automatically entered into PAYG instalments?

You will enter the PAYG instalments system automatically if you meet the following criteria:

We’ll send you a letter through our ATO Online service or by post. This will let you know how much you need to pay and when, and the dates you need to lodge by.

Didn’t get a letter? Check your [myGov inbox this opens in a new window ](https://my.gov.au/) or check in with your [registered tax or BAS agent. this opens in a new window ](https://www.ato.gov.au/individuals/Your-tax-return/How-to-lodge-your-tax-return/Lodge-your-tax-return-with-a-registered-tax-agent/)

Find out how to change your communications preferences at [ATO and myGov communications. this opens in a new window ](https://www.ato.gov.au/General/Online-services/Online-services-for-individuals-and-sole-traders/ATO-online-services-and-myGov/ATO-and-myGov-communications/)

### How do I voluntarily enter PAYG instalments?

Do you think you’re going to earn business and investment income over the threshold? Minimise the risk of a large tax bill by voluntarily entering into PAYG instalments.

You can simply enter by using your myGov account linked to our online services:

You can also enter through your registered tax agent.

### What does instalment income include?

Instalment income is your gross business and investment activities (excluding GST), this includes:

When reporting your instalment income make sure to take your time and be accurate to avoid any penalties.

### How are PAYG instalments worked out?

Your PAYG instalments are calculated using two methods.

The easiest and most popular option is to pay using the **instalment amount option**. This will be shown on your business activity statement or instalment notice before your PAYG instalments are due.

The other option is the **instalment rate option**. This works best if your business income fluctuates each period (for example, seasonal business income). This option can help you manage your cash flow, because the amounts you would pay change in line with your income for that period.

Need more help working out which option is best for you? Have a read of [this information. this opens in a new window ](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/payg-instalments/calculate-your-payg-instalments#ato-Chooseyourpaymentoption)

Once you know which method you’ll use, you can use the [PAYG instalment calculator this opens in a new window ](https://www.ato.gov.au/Calculators-and-tools/Host/?anchor=PAYGI&anchor=PAYGI/questions&anchor=PAYGI/questions#PAYGI/questions) to get an idea of how much you’ll pay.

### How often do I need to pay PAYG instalments?

Typically, most people will pay [quarterly instalments. this opens in a new window ](https://www.ato.gov.au/Business/PAYG-instalments/When-are-PAYG-instalments-due/#Quarterlyinstalments) The letter we send may give you different options, depending on your circumstances – like paying 2 instalments per year or one annual instalment.

If you pay more in instalments than you owe, you’ll be refunded the excess when you lodge your tax return. If you haven’t paid the required instalments, you will receive a tax bill. By paying it in full and on time you'll avoid any interest charges on it.

If you’re unsure on how to lodge and pay you can use a registered tax or BAS agent.

### Can I change my PAYG instalment options?

Yes, you can! But only before the due date on your first business activity statement or instalment notice of your financial year.

You can’t change your instalment option mid-financial year. You’ll need to wait for the start of your next financial year to change your instalment option.

### How do I manage and pay my instalments?

The easiest way to manage your PAYG instalments is by using our ATO online services. You can view, lodge, pay and vary your PAYG instalment obligations in one place. Instalments can be paid electronically by BPAY®, credit card or debit card.

You’ll find all your payment details, including your payment reference number, in your online services account.

### How does PAYG instalments work with my tax return?

PAYG instalments are designed so you can make regular payments during the financial year, rather than as a lump sum when you lodge your income tax return.

Instalments you have paid are credited when your tax return is processed, and if you’ve paid too much, you’ll receive a refund.

If your tax bill is larger than you expected, you’ll need to pay the outstanding amount. We encourage you to review your PAYG instalments regularly, so you don’t get caught out.

### How do I exit PAYG instalments?

You’ll be automatically removed from PAYG instalments when you no longer meet the entry criteria. This is based on your most recent tax return lodged.

If you’re no longer earning business and investment income, you can choose to exit PAYG instalments.

The fastest way to exit PAYG instalments is by using our [online services. this opens in a new window ](https://www.ato.gov.au/Business/PAYG-instalments/Stopping-PAYG-instalments/#Exitingyourself:~:text=Individuals%2C%20including%20sole,exit%20PAYG%20instalments.) You can also ask to exit through your registered tax agent.

Cancelling your ABN or ceasing business won’t exit you from PAYG instalments. You’re still required to lodge and pay any outstanding instalment notices and business activity statements.


## About payment types

As an employer, you use:

- **ordinary time earnings (OTE)** to work out the [minimum super guarantee contribution](https://www.ato.gov.au/businesses-and-organisations/super-for-employers/paying-super-contributions/how-much-super-to-pay) for your employees. OTE is the amount you pay employees for their ordinary hours of work, including things like commissions and shift loadings. OTE is defined in the *Superannuation Guarantee (Administration) Act 1992* (SGAA).
- **salary and wages** to work out the super guarantee charge. You only need to do this if you missed paying the minimum super guarantee contribution by the due date. Salary and wages are similar to OTE but also include any overtime payments.

The following tables are a non-exhaustive list of common amounts employers pay. They are aligned to the [Single Touch Payroll Phase 2 reporting guidelines](https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/single-touch-payroll/in-detail/single-touch-payroll-phase-2-employer-reporting-guidelines/reporting-the-amounts-you-have-paid/disaggregation-of-gross) and indicate which amounts are considered salary and wages and OTE.

You can use these tables to help you work out the minimum SG contribution for your employees. You may have additional superannuation obligations under an [industrial instrumentExternal Link](https://www.ato.gov.au/sitecore/service/notfound.aspx?item=web%3a%7b9D5420E8-F93B-424C-B74C-376869619342%7d%40en#extra-terms) (award or agreement) to pay super on amounts that are not OTE.

### Gross

How you work out OTE might be impacted if your employee has a [salary sacrifice](https://www.ato.gov.au/businesses-and-organisations/super-for-employers/paying-super-contributions/how-much-super-to-pay/list-of-payments-that-are-ordinary-time-earnings#Salarysacrifice) arrangement in place.

You may have additional super obligations under an [industrial instrumentExternal Link](https://www.ato.gov.au/sitecore/service/notfound.aspx?item=web%3a%7b9D5420E8-F93B-424C-B74C-376869619342%7d%40en#extra-terms) (award or agreement) to pay super on amounts that are not OTE.

Table 1: Gross

Payment

Salary and wages

OTE (for the purposes of SGAA)

[Ordinary hours of workExternal Link](https://www.fairwork.gov.au/employment-conditions/hours-of-work-breaks-and-rosters/hours-of-work):

- as defined in an award or agreement, or if the ordinary hours of work are not stated in an award or agreement, or not separated from other hours, the total hours

Yes

Yes

Casual loading

Yes

Yes

[Shift penaltiesExternal Link](https://www.fairwork.gov.au/pay-and-wages/allowances-penalty-rates-and-other-penalties#penalty-rates) (including public holiday penalties)

Yes

Yes

[Workers compensationExternal Link](https://www.fairwork.gov.au/employment-conditions/workers-compensation) – payment for hours an employee performs work or is required to attend work

See [Workers' compensation (paid leave type W)](https://www.ato.gov.au/businesses-and-organisations/super-for-employers/paying-super-contributions/how-much-super-to-pay/list-of-payments-that-are-ordinary-time-earnings#WorkerscompensationpaidleavetypeW)

Yes

Yes

[Piece ratesExternal Link](https://www.fairwork.gov.au/pay-and-wages/minimum-wages/piece-rates-and-commission-payments#piece-rates) for work done during ordinary hours

Yes

Yes

Daily rates for employees compensated using a flat daily rate

Yes

Yes

Flexi time:

- all ordinary hours paid to employees under a flexi time arrangement
- flexi time arrangements are considered different to rostered days off (RDOs) and time off in lieu (TOIL)

Yes

Yes

[Breach of break paymentsExternal Link](https://www.fairwork.gov.au/employment-conditions/hours-of-work-breaks-and-rosters/breaks), such as for rest, meal and crib:

- where an employee doesn't get an appropriate break, some awards require employees to be paid at overtime rates until the employee is released from duty
- even though the employee is being paid at overtime rates, they are working ordinary hours

Yes

Yes

Time for travel or training paid within the span of ordinary hours

Yes

Yes

Charge rates for work performed, outcomes achieved, or targets met by [contractors](https://www.ato.gov.au/businesses-and-organisations/super-for-employers/work-out-if-you-have-to-pay-super/super-for-independent-contractors)

Yes

Yes

[Public holidaysExternal Link](https://www.fairwork.gov.au/employment-conditions/public-holidays#entitlements) – not worked, or worked as ordinary hours. For more information see [overtime](https://www.ato.gov.au/businesses-and-organisations/super-for-employers/paying-super-contributions/how-much-super-to-pay/list-of-payments-that-are-ordinary-time-earnings#Overtime11).

Yes

Yes

#### Example: ordinary hours of work not stated

Kim works in a call centre. Under her contract she works a minimum number of hours per week. She also works extra shifts when needed, though there is no clear pattern to this.

There is no award or agreement that specifies Kim's ordinary hours of work, and she is not paid overtime rates for her extra shifts.

All of Kim's wages are OTE. As there are no stipulated ordinary hours of work, and no pattern of regular or usual hours, Kim's ordinary hours of work are all the hours she actually works.

All the payments to Kim are also salary or wages.

End of example

#### Example: piece-rates where no ordinary hours stated

Evan works part time as a fruit picker for Golden Fruit Farm Pty Ltd. He is paid 15 cents for every kilogram of apples he picks. There are no ordinary hours specified in any award or agreement.

Evan picks 5,000 kilograms of apples in his 30 working hours in the week and is paid $750 by Golden Fruit Farm Pty Ltd, as the piece rate amount is higher than his minimum wage guarantee under the Horticulture Award.

The $750 paid to Evan is OTE. As his ordinary hours of work are not specified in any award or agreement, his ordinary hours of work are the hours that he actually works.

The $750 paid to Evan is also salary or wages.

End of example
## Paid leave and other payments

Paid leave includes the various forms of payment including absences, cashing out in service or upon termination.

### Other paid leave (paid leave type O)

How you work out OTE might be impacted if your employee has a [salary sacrifice](https://www.ato.gov.au/businesses-and-organisations/super-for-employers/paying-super-contributions/how-much-super-to-pay/list-of-payments-that-are-ordinary-time-earnings#Salarysacrifice) arrangement in place.

You may have additional super obligations under an [industrial instrumentExternal Link](https://www.ato.gov.au/sitecore/service/notfound.aspx?item=web%3a%7b9D5420E8-F93B-424C-B74C-376869619342%7d%40en#extra-terms) (award or agreement) to pay super on amounts that are not OTE.

Table 2: Other paid leave (paid leave type O)

Payment

Salary and wages

OTE (for the purposes of SGAA)

[Annual leaveExternal Link](https://www.fairwork.gov.au/leave/annual-leave)

Yes

Yes

Annual leave loading that is clearly linked to a lost opportunity to work overtime

Yes

No

[Annual leave loadingExternal Link](https://library.fairwork.gov.au/viewer/?krn=K600323) – all other

Yes

Yes

[Long service leaveExternal Link](https://www.fairwork.gov.au/leave/long-service-leave) that is **not paid** under a portable long service leave scheme

Yes

Yes

Long service leave that is **paid** under a [portable long service leave schemeExternal Link](https://www.fairwork.gov.au/leave/long-service-leave#Portable-long-service-leave)

No

No

[Family and domestic violence leaveExternal Link](https://www.fairwork.gov.au/leave/family-and-domestic-violence-leave)

Yes

Yes

[Rostered days offExternal Link](https://www.fairwork.gov.au/employment-conditions/hours-of-work-breaks-and-rosters/rostered-days-off) – time taken and paid at ordinary rates

Yes

Yes

[Sick, personal and carers leaveExternal Link](https://www.fairwork.gov.au/leave/sick-and-carers-leave/paid-sick-and-carers-leave)

Yes

Yes

[Time off in lieu (TOIL) of overtimeExternal Link](https://www.fairwork.gov.au/pay-and-wages/penalty-rates-allowances-and-other-payments/overtime-pay#time-off-instead-of-overtime-pay) – time taken and paid at ordinary rates

Yes

Yes

Study leave

Yes

Yes

Special paid leave

Yes

Yes

Gardening leave

Yes

Yes

### Paid parental leave (paid leave type P)

How you work out OTE might be impacted if your employee has a [salary sacrifice](https://www.ato.gov.au/businesses-and-organisations/super-for-employers/paying-super-contributions/how-much-super-to-pay/list-of-payments-that-are-ordinary-time-earnings#Salarysacrifice) arrangement in place.

You may have additional super obligations under an [industrial instrumentExternal Link](https://www.ato.gov.au/sitecore/service/notfound.aspx?item=web%3a%7b9D5420E8-F93B-424C-B74C-376869619342%7d%40en#extra-terms) (award or agreement) to pay super on amounts that are not OTE.

**Table 3: Paid parental leave (paid leave type P)**

Payment

Salary and wages

OTE (for the purposes of SGAA)

Employer [paid parental leaveExternal Link](https://www.fairwork.gov.au/leave/parental-leave), such as maternity leave, paternity leave or adoption leave

No

No

Government paid parental leave (GPPL)

No

No

### Workers' compensation (paid leave type W)

When considering workers’ compensation for OTE purposes, this refers only to amounts you pay in relation to compensation schemes administered by either a:

- federal, state or territory workers’ compensation authority
- federal, state or territory road and transport accident authority.

How you work out OTE might be impacted if your employee has a [salary sacrifice](https://www.ato.gov.au/businesses-and-organisations/super-for-employers/paying-super-contributions/how-much-super-to-pay/list-of-payments-that-are-ordinary-time-earnings#Salarysacrifice) arrangement in place.

You may have additional super obligations under an [industrial instrumentExternal Link](https://www.ato.gov.au/sitecore/service/notfound.aspx?item=web%3a%7b9D5420E8-F93B-424C-B74C-376869619342%7d%40en#extra-terms) (award or agreement) to pay super on amounts that are not OTE.

Table 4: Workers' compensation (paid leave type W)

Payment

Salary and wages

OTE (for the purposes of SGAA)

[Workers compensationExternal Link](https://www.fairwork.gov.au/employment-conditions/workers-compensation) – payment for hours an employee performs work or is required to attend work

Yes

Yes

[Workers compensationExternal Link](https://www.fairwork.gov.au/employment-conditions/workers-compensation) – employee is not required to work, including any top-ups or make-up pay to bring the amount paid on these absences up to their normal rate of pay

No

No

### Ancillary and defence leave (paid leave type A)

Fair Work defines a range of leave types that are collectively referenced as 'ancillary' leave.

How you work out OTE might be impacted if your employee has a [salary sacrifice](https://www.ato.gov.au/businesses-and-organisations/super-for-employers/paying-super-contributions/how-much-super-to-pay/list-of-payments-that-are-ordinary-time-earnings#Salarysacrifice) arrangement in place.

You may have additional super obligations under an [industrial instrumentExternal Link](https://www.ato.gov.au/sitecore/service/notfound.aspx?item=web%3a%7b9D5420E8-F93B-424C-B74C-376869619342%7d%40en#extra-terms) (award or agreement) to pay super on amounts that are not OTE.

Table 5: Ancillary and defence leave (paid leave type A)

Payment

Salary and wages

OTE (for the purposes of SGAA)

[Community service leaveExternal Link](https://www.fairwork.gov.au/leave/community-service-leave), including voluntary emergency management activities for bodies such as a State Emergency Service, Country Fire Authority and the RSPCA

No

No

[Jury duty leaveExternal Link](https://www.fairwork.gov.au/leave/community-service-leave/jury-duty), including attendance for jury selection and jury duty

No

No

[Defence reserve leaveExternal Link](https://www.fairwork.gov.au/tools-and-resources/fact-sheets/rights-and-obligations/defence-reservists-rights-and-responsibilities-at-work), paid to volunteers of the Australian Defence Forces to undertake defence services

No

No

### Cash out of leave in service (paid leave type C)

How you work out OTE might be impacted if your employee has a [salary sacrifice](https://www.ato.gov.au/businesses-and-organisations/super-for-employers/paying-super-contributions/how-much-super-to-pay/list-of-payments-that-are-ordinary-time-earnings#Salarysacrifice) arrangement in place.

You may have additional super obligations under an [industrial instrumentExternal Link](https://www.ato.gov.au/sitecore/service/notfound.aspx?item=web%3a%7b9D5420E8-F93B-424C-B74C-376869619342%7d%40en#extra-terms) (award or agreement) to pay super on amounts that are not OTE.

Table 6: Cash out of leave in service (paid leave type C)

Payment

Salary and wages

OTE (for the purposes of SGAA)

[Cashed out annual leaveExternal Link](https://www.fairwork.gov.au/leave/annual-leave/cashing-out-annual-leave) and leave loading in service

Refer to [Overtime](https://www.ato.gov.au/businesses-and-organisations/super-for-employers/paying-super-contributions/how-much-super-to-pay/list-of-payments-that-are-ordinary-time-earnings#Overtime11) for leave loading that is referrable to the lost opportunity to work overtime

Yes

Yes

Cashed out long service leave in service

Refer to [Other paid leave (paid leave type O)](https://www.ato.gov.au/businesses-and-organisations/super-for-employers/paying-super-contributions/how-much-super-to-pay/list-of-payments-that-are-ordinary-time-earnings#OtherpaidleavepaidleavetypeO) for long service leave paid under a portable leave scheme

Yes

Yes

Cashed out [sick, personal and carer’s leave in serviceExternal Link](https://www.fairwork.gov.au/leave/sick-and-carers-leave)

Yes

Yes

Cashed out rostered days off in service

Yes

Yes

Cashout of TOIL of overtime pay in service

Yes

No

### Unused leave on termination (paid leave type U)

How you work out OTE might be impacted if your employee has a [salary sacrifice](https://www.ato.gov.au/businesses-and-organisations/super-for-employers/paying-super-contributions/how-much-super-to-pay/list-of-payments-that-are-ordinary-time-earnings#Examples) arrangement in place.

You may have additional super obligations under an [industrial instrumentExternal Link](https://www.ato.gov.au/sitecore/service/notfound.aspx?item=web%3a%7b9D5420E8-F93B-424C-B74C-376869619342%7d%40en#extra-terms) (award or agreement) to pay super on amounts that are not OTE.

This section only applies to the specific leave types referenced below. For other types of leave paid upon termination, see [Termination paymentsExternal Link](https://www.fairwork.gov.au/tools-and-resources/fact-sheets/minimum-workplace-entitlements/notice-of-termination-and-redundancy-pay)

Table 7: Unused leave on termination (paid leave type U)

Payment

Salary and wages

OTE (for the purposes of SGAA)

[Annual leave or leave loadingExternal Link](https://www.fairwork.gov.au/ending-employment/notice-and-final-pay/final-pay#final-pay-payments) accrued after 17 August 1993 paid on a normal termination, such as voluntary resignation, employment terminated due to inefficiency, or retirement

Yes

No

[Long service leaveExternal Link](https://www.fairwork.gov.au/ending-employment/notice-and-final-pay/final-pay#final-pay-payments) accrued after 17 August 1993 paid on a normal termination, such as voluntary resignation, employment terminated due to inefficiency, or retirement

Yes

No

### Allowances

[AllowancesExternal Link](https://www.fairwork.gov.au/pay-and-wages/penalty-rates-allowances-and-other-payments/allowances) may be paid to compensate employees:

- for their work efforts to recognise a higher skill level
- to compensate for adverse work conditions
- to compensate for the employee incurring an expense.

How you work out OTE might be impacted if your employee has a [salary sacrifice](https://www.ato.gov.au/businesses-and-organisations/super-for-employers/paying-super-contributions/how-much-super-to-pay/list-of-payments-that-are-ordinary-time-earnings#Salarysacrifice) arrangement in place.

You may have additional super obligations under an [industrial instrumentExternal Link](https://www.ato.gov.au/sitecore/service/notfound.aspx?item=web%3a%7b9D5420E8-F93B-424C-B74C-376869619342%7d%40en#extra-terms) (award or agreement) to pay super on amounts that are not OTE.

Table 8: Allowances

Payment

Salary and wages

OTE (for the purposes of SGAA)

Hourly on-call allowance for ordinary hours of work

Yes

Yes

Task allowances for:

- work efforts or skills – such as industry allowances, higher duties, leading hand, first aid or supervisor allowances
- adverse conditions – such as allowances for working at heights, in confined spaces, in the cold, wet or heat, or danger
- staying employed with the current employer – such as for retention allowances.

These are reported as allowance type KN in your STP reporting.

Yes

Yes

Expense allowances that are paid with the reasonable expectation that the money will be fully expended by the employee in the course of providing their services

No

No

Allowances that represent partial compensation for expenses likely to be incurred by employees that are paid:

- regardless of whether or not the employee incurred the expense, or
- where the allowance amount has no relationship to the actual cost incurred by the employee.

Yes

Yes

#### Example: expense allowance expected to be used in full

Matteo is paid a tool allowance under the [Joinery and Building Trades AwardExternal Link](https://awards.fairwork.gov.au/MA000029.html). It is expected that Matteo will use the whole allowance to supply and maintain his tools.

Matteo’s employer doesn't make SG contributions on the tool allowance as it is not OTE.

End of example
### Overtime

[OvertimeExternal Link](https://www.fairwork.gov.au/employment-conditions/hours-of-work-breaks-and-rosters/hours-of-work/when-overtime-applies) payments are not OTE, provided the employee's ordinary hours of work are clearly identified in the award or agreement.

If you can't distinctly identify overtime amounts, all the hours actually worked are included in the employee's ordinary hours of work in the award or agreement.

These rules also apply if the payments are calculated as an annualised or lump sum component of a total salary package. Overtime payments must be clearly identifiable. Otherwise, all hours worked are considered ordinary hours of work.

How you work out OTE might be impacted if your employee has a [salary sacrifice](https://www.ato.gov.au/businesses-and-organisations/super-for-employers/paying-super-contributions/how-much-super-to-pay/list-of-payments-that-are-ordinary-time-earnings#Salarysacrifice) arrangement in place.

You may have additional super obligations under an [industrial instrumentExternal Link](https://www.ato.gov.au/sitecore/service/notfound.aspx?item=web%3a%7b9D5420E8-F93B-424C-B74C-376869619342%7d%40en#extra-terms) (award or agreement) to pay super on amounts that are not OTE.

Table 9: Overtime

Payment

Salary and wages

OTE (for the purposes of SGAA)

[OvertimeExternal Link](https://www.fairwork.gov.au/employment-conditions/hours-of-work-breaks-and-rosters/hours-of-work/when-overtime-applies) payments – provided the employee's ordinary hours of work are clearly identified such as:

- beyond their ordinary hours of work
- outside the agreed number of hours
- outside the spread of ordinary hours (the times of the day ordinary hours can be worked)

Yes

No

Annual leave loading referrable to the lost opportunity to work overtime

Yes

No

[Time off in lieu (TOIL)External Link](https://www.fairwork.gov.au/pay-and-wages/penalty-rates-allowances-and-other-payments/overtime-pay#time-off-instead-of-overtime-pay) – cash out of TOIL in service

For unused TOIL on termination, see [termination payments](https://www.ato.gov.au/businesses-and-organisations/super-for-employers/paying-super-contributions/how-much-super-to-pay/list-of-payments-that-are-ordinary-time-earnings#Terminationpayments10)

Yes

No

On call allowance for hours outside ordinary hours of work

Yes

No

Call back allowance

Yes

No

Bonuses and commissions paid solely for work performed entirely outside ordinary hours

Yes

No

#### Example: overtime identified in an award or agreement

Pierre is employed under an award to work 38 ordinary hours per week with additional reasonable overtime. However, Pierre’s roster includes shifts with planned overtime. He works a total of 48 hours per week including 10 hours of overtime paid at overtime rates.

The payment to Pierre for his 38 ordinary hours of work is OTE.

The 10 hours of overtime payments are not OTE.

The payment for all 48 hours is salary or wages.

End of example
### Bonuses and commissions

How you work out OTE might be impacted if your employee has a [salary sacrifice](https://www.ato.gov.au/businesses-and-organisations/super-for-employers/paying-super-contributions/how-much-super-to-pay/list-of-payments-that-are-ordinary-time-earnings#Salarysacrifice) arrangement in place.

You may have additional super obligations under an [industrial instrumentExternal Link](https://www.ato.gov.au/sitecore/service/notfound.aspx?item=web%3a%7b9D5420E8-F93B-424C-B74C-376869619342%7d%40en#extra-terms) (award or agreement) to pay super on amounts that are not OTE.

Table 10: Bonuses and commissions

Payment

Salary and wages

OTE (for the purposes of SGAA)

[Commission paymentsExternal Link](https://www.fairwork.gov.au/pay-and-wages/minimum-wages/piece-rates-and-commission-payments#commission-payments)

Yes

Yes

Commission solely for work performed entirely outside ordinary hours

Yes

No

Performance bonus

Yes

Yes

Christmas bonus

Yes

Yes

Bonus labelled as ex gratia but in respect of ordinary hours work

Yes

Yes

Sign-on bonus for new employees

Yes

Yes

Referral bonus

Yes

Yes

Return to work bonus after parental leave

Yes

Yes

Bonus solely for work performed entirely outside ordinary hours

Yes

No

#### Example: bonus paid in respect of overtime

Jessie is in IT, on an above award annual salary which includes payment for reasonable additional hours. His ordinary hours are Monday to Friday. As part of a project, Jessie works on Sunday. As a reward for meeting a project milestone which was entirely due to the work they did on Sunday, members of the team are each paid a $1,000 bonus.

As the bonus is being paid in respect of work that was done entirely outside of ordinary hours, the $1,000 is overtime and not OTE.

End of example
### Directors' fees

**Directors' fees include payments to:**

- the director of a company
- a person who performs the duties of a director of the company
- a member of the committee of management of the company, or as a person who performs the duties of such a member if the company is not incorporated.

**Directors’ fees may include payment to cover travelling costs, costs associated with attending meetings and other expenses incurred in the position of a company director.**

Table 11: Directors' fees

Payment

Salary and wages

OTE (for the purposes of SGAA)

Remuneration you pay to a working director

Yes

Yes

Remuneration you pay to a non-working director

Yes

Yes

## Lump sum payments

### Payments in arrears (lump sum E)

Lump sum E refers to [back pay or an arrears paymentExternal Link](https://www.fairwork.gov.au/workplace-problems/common-workplace-problems/i-think-ive-underpaid-my-employee) that was payable more than 12 months before the payment was made. Regardless of the period to which the payment relates, OTE is worked out on the actual component of pay that is being paid.

For example, if the back pay or arrears payment includes ordinary hours, higher duties allowances, paid annual leave and overtime, then all but the overtime is OTE.

### Return to work payments (lump sum W)

How you work out OTE might be impacted if your employee has a [salary sacrifice](https://www.ato.gov.au/businesses-and-organisations/super-for-employers/paying-super-contributions/how-much-super-to-pay/list-of-payments-that-are-ordinary-time-earnings#Salarysacrifice) arrangement in place.

You may have additional super obligations under an [industrial instrumentExternal Link](https://www.ato.gov.au/sitecore/service/notfound.aspx?item=web%3a%7b9D5420E8-F93B-424C-B74C-376869619342%7d%40en#extra-terms) (award or agreement) to pay super on amounts that are not OTE.

Table 12: Return to work payments (lump sum W)

Payment

Salary and wages

OTE (for the purposes of SGAA)

Bonus paid to an ex-employee to encourage them to return to the employer

Yes

Yes

Bonus payments made to end industrial action and have employees resume work

Yes

Yes

Bonus paid to an employee who has resigned and is encouraged to withdraw their resignation

Yes

Yes

### Termination payments

Payments made in consequence of the [termination of employmentExternal Link](https://www.fairwork.gov.au/ending-employment/notice-and-final-pay/final-pay#final-pay-payments)** **are generally not OTE.

How you work out OTE might be impacted if your employee has a [salary sacrifice](https://www.ato.gov.au/businesses-and-organisations/super-for-employers/paying-super-contributions/how-much-super-to-pay/list-of-payments-that-are-ordinary-time-earnings#Salarysacrifice) arrangement in place.

You may have additional super obligations under an [industrial instrumentExternal Link](https://www.ato.gov.au/sitecore/service/notfound.aspx?item=web%3a%7b9D5420E8-F93B-424C-B74C-376869619342%7d%40en#extra-terms) (award or agreement) to pay super on amounts that are not OTE.

Table 13: Termination payments

Payment

Salary and wages

OTE (for the purposes of SGAA)

Unused leave on termination, including annual leave, annual leave loading and long service leave.

This applies regardless of the reason for termination or treatment for tax purposes.

Yes

No

[Payment in lieu of noticeExternal Link](https://www.fairwork.gov.au/ending-employment/notice-and-final-pay#can), for all termination reasons.

This applies regardless of the reason for termination or treatment for tax purposes.

Yes

Yes

Unused personal/carers leave on termination, for all termination reasons.

This applies regardless of the reason for termination or treatment for tax purposes.

Yes

No

Unused rostered days off (RDOs) and time off in lieu (TOIL) of overtime paid on termination

Yes

No

Other payments in consequence of the termination of employment, such as:

- a gratuity or golden handshake
- [genuine redundancyExternal Link](https://www.fairwork.gov.au/ending-employment/redundancy) or early retirement scheme payments above the tax-free limit
- severance pay
- non-genuine redundancy
- compensation for loss of job
- compensation for wrongful dismissal
- invalidity payments other than compensation for personal injury
- lump sum payments paid due to the death of an employee.

No

No

#### Example: termination of employment due to genuine redundancy

Unfortunately, Michael's job is no longer required to be performed by anyone. His job is now redundant, and after consulting with Michael, his employer pays him a genuine redundancy on 14 March 2025. It totals $40,000, and comprises:

- payment of $10,000 in lieu of notice for 4 weeks of wages
- redundancy payment of $25,000
- ex-gratia payment of $5,000.

Out of the total payment of $40,000, only the $10,000 payment in lieu of notice is OTE. Michael's employer must pay SG on the payment in lieu of notice, and works out the SG as follows:

$10,000 × 11.5% = $1,150.

End of example
## Salary sacrifice

Generally, when an employee has a [salary sacrifice arrangement](https://www.ato.gov.au/businesses-and-organisations/super-for-employers/setting-up-super-for-your-business/how-to-set-up-salary-sacrifice-for-super) in place, you need to consider how the salary that is being sacrificed is taken into account when determining the employee's OTE and salary and wages under the SGAA.

Table 14: Salary sacrifice

Sacrificed amounts

Salary and wages

OTE (for the purposes of SGAA)

Salary sacrificed to superannuation – where the salary that is sacrificed would otherwise be OTE if it was instead paid to the employee

Yes

Yes

Salary sacrificed to superannuation – where the salary that is sacrificed would not otherwise be OTE if it was instead paid to the employee, such as paid parental leave or overtime

Yes

No

Salary sacrificed to other employee benefits – including amounts that are fringe benefits and exempt fringe benefits

No

No