EXPLANATORY STATEMENT
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EXPLANATORY STATEMENT
Select Legislative Instrument 2005 No. 173
Issued by authority of the Minister for Revenue
and Assistant Treasurer
Fringe Benefits Tax Assessment Act 1986
Fringe Benefits Tax Amendment Regulations 2005 (No. 2)
Section 135 of the Fringe Benefits Tax Assessment Act 1986 (the Act) provides that the Governor-General may make regulations prescribing matters required or permitted by the Act to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to the Act.
The purpose of the amending Regulations is to prescribe four funds for the purposes of paragraph 58PB(2)(a) of the Act as approved worker entitlement funds. A worker entitlement fund is a fund that provides for the protection and portability of employee entitlements, such as unused leave or redundancy payments.
Sections 58PA and 58PB of the Act provide an exemption from fringe benefits tax (FBT) for certain payments to approved worker entitlement funds. This exemption is designed to ensure that certain payments to approved worker entitlement funds are not taxed twice — once as a fringe benefit when paid into the fund and again when paid out of the fund to the employee.
The Regulations commenced on 1 April 2005, and apply for the 2005‑06 FBT year and later years. Subsection 12(2) of the Legislative Instruments Act 2003 (LIA 2003) prohibits the retrospective operation of regulations, or a provision of regulations, which adversely affect the rights of, or impose liabilities on, a person other than the Commonwealth in respect of anything done or omitted to be done before the date of notification. The retrospective commencement of the amending Regulations does not contravene subsection 12(2) of the LIA 2003. This is because the regulations confer a benefit, in that payments which would otherwise be subject to FBT are now exempt from that tax.
Consultation was not undertaken in relation to this instrument because it is minor or machinery in nature and does not substantially change the law.
Overview
The Fringe Benefits Tax Amendment Regulations 2005 (No. 2) were enacted by authority of the Minister for Revenue and Assistant Treasurer to amend the Fringe Benefits Tax Assessment Act 1986. These regulations aim to address a specific issue within the existing legislative framework by providing an exemption from fringe benefits tax for certain payments to approved worker entitlement funds. This exemption is crucial for preventing double taxation, ensuring that payments to funds which protect and make portable employee entitlements, such as unused leave or redundancy payments, are not taxed twice. The regulations came into effect on 1 April 2005, applying from the 2005-06 fringe benefits tax year onwards. Although the Legislative Instruments Act 2003 generally prohibits retrospective regulations that adversely affect rights or impose liabilities, these regulations are an exception as they confer a benefit by exempting certain payments from fringe benefits tax. No consultation was necessary as the changes were of a minor and procedural nature, not substantially altering the law.
Scope and Application
The Fringe Benefits Tax Amendment Regulations 2005 (No. 2) apply to entities and employers who are subject to the Fringe Benefits Tax Assessment Act 1986. Specifically, the Regulations prescribe certain funds as approved worker entitlement funds for the purposes of providing an exemption from fringe benefits tax on payments made to these funds. This legislation is designed to ensure that payments to approved worker entitlement funds, which hold employee entitlements such as unused leave or redundancy payments, are not subject to double taxation. The Regulations commenced on 1 April 2005 and apply to the 2005-06 fringe benefits tax year and subsequent years. Although the Regulations do not operate retrospectively to impose liabilities on individuals or entities, they do confer a benefit by exempting certain payments from fringe benefits tax. Notably, no consultation was conducted in relation to these Regulations, as they are considered minor and of a machinery nature, not substantially altering the existing law.
Key Provisions
The Fringe Benefits Tax Assessment Regulations 2005 (No. 2) outline specific provisions under the Fringe Benefits Tax Assessment Act 1986. Section 135 of the Act allows for the creation of regulations that are necessary or convenient for the Act's implementation, and these Regulations serve to specify certain funds as approved worker entitlement funds (sections 58PA and 58PB). These funds are designed to protect and ensure the portability of employee entitlements, such as unused leave or redundancy payments. By exempting payments to these funds from fringe benefits tax (FBT), the Regulations aim to prevent double taxation on such payments.
Under these Regulations, certain obligations and requirements are placed on the entities involved. For instance, employers are required to ensure that payments into approved worker entitlement funds are correctly identified and documented to qualify for the FBT exemption. Additionally, the funds themselves must meet the criteria set forth in the Act to be recognised as approved worker entitlement funds. This includes having appropriate governance structures and processes to manage and disburse the funds in compliance with FBT laws.
There are no explicit offences or penalties mentioned in the text for non-compliance with these Regulations. However, any failure to correctly identify and document payments to approved worker entitlement funds could result in the employer being liable for FBT on those payments, which could lead to financial penalties or interest charges. Moreover, if the funds do not meet the criteria for being recognised as approved worker entitlement funds, the exemption from FBT may not apply, leading to potential tax liabilities for the employer or the fund itself. It is important to note that while specific penalties are not outlined in the provided text, the general FBT legislation imposes significant penalties for non-compliance, including fines and interest on unpaid taxes.