EXPLANATORY STATEMENT
Select Legislative Instrument 2006 No. 103
Issued by authority of the Minister for Revenue
and Assistant Treasurer
Fringe Benefits Tax Assessment Act 1986
Fringe Benefits Tax Amendment Regulations 2006 (No. 1)
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 three 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 also moved the list of approved worker entitlement funds from regulation 6 of the Principal Regulations to a schedule, reordered the funds in alphabetical order and included the date from which listing took effect.
The Regulations commenced on 1 April 2006, and apply for the 2006‑07 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 does not contravene subsection 12(2) 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 2006 (No. 1) were enacted to amend the Fringe Benefits Tax Assessment Act 1986, addressing the problem of double taxation on payments to worker entitlement funds. These funds, designed to protect and ensure the portability of employee entitlements such as unused leave or redundancy payments, were previously subject to fringe benefits tax both when the payments were made into the fund and when they were disbursed to employees. The Regulations, issued under the authority of the Minister for Revenue and Assistant Treasurer, aim to ensure these funds are appropriately recognised and exempt from such double taxation. The changes included prescribing specific funds as approved worker entitlement funds, relocating the list of these funds to a schedule within the regulations, and reordering the list alphabetically. The Regulations commenced on 1 April 2006 and apply from the 2006-07 fringe benefits tax year onwards. Given their nature, the Regulations do not have a retrospective effect that would adversely impact individuals, thus aligning with the prohibitions outlined in the Legislative Instruments Act 2003. The enacting body was the Australian Parliament, with the intent to streamline the tax treatment of these specific funds in alignment with the policy objective of preventing double taxation.
Scope and Application
The Fringe Benefits Tax Amendment Regulations 2006 (No. 1) serve to amend the Fringe Benefits Tax Assessment Act 1986 by prescribing specific funds as approved worker entitlement funds under section 58PB(2)(a) of the Act. These funds, which include provisions for the protection and portability of employee entitlements such as unused leave or redundancy payments, are exempt from fringe benefits tax (FBT). This exemption is intended to prevent double taxation of certain payments made to these funds, both when they are contributed and when they are subsequently disbursed to employees. The Regulations commenced on 1 April 2006 and apply to the 2006-07 FBT year and subsequent years, ensuring that the benefits provided by the exemption are effective from the start of the relevant tax year. Although the Regulations do not operate retrospectively in a manner that adversely affects pre-existing rights or liabilities, they do confer a benefit by exempting certain payments from FBT, thereby aligning with the non-retrospective operation provisions outlined in the Legislative Instruments Act 2003. Notably, the Regulations were issued without prior consultation due to their minor and procedural nature, which does not substantially alter the existing legal framework.
Key Provisions
The Fringe Benefits Tax Amendment Regulations 2006 (No. 1) make significant changes to the Fringe Benefits Tax Assessment Act 1986, primarily by prescribing certain funds as approved worker entitlement funds under section 58PB(2)(a) of the Act (section 3). These funds are designated to protect and ensure the portability of employee entitlements, such as unused leave or redundancy payments, which are often critical for employees transitioning between jobs or retiring. This designation is crucial because it enables the exemption of certain payments into these funds from fringe benefits tax (FBT), thus preventing double taxation—once when the benefit is paid into the fund and again when it is paid out to the employee.
The Regulations impose obligations on employers and employees by ensuring that payments to these specified funds are not subject to FBT. This requirement is designed to streamline the process of transferring employee entitlements and to provide clarity on which funds are eligible for the FBT exemption (section 3). Employers must ensure that the funds they use for employee entitlements are listed in the schedule of approved funds, and employees must be aware of the tax implications of their entitlements being held in such funds.
Under the Act, any failure to comply with the requirements for approved worker entitlement funds could result in the payments being subject to FBT, which could lead to additional tax liabilities and penalties. While the Regulations do not explicitly state civil or criminal penalties for non-compliance, the general framework of the Fringe Benefits Tax Assessment Act 1986 may apply. Typically, penalties for FBT non-compliance can include interest on unpaid FBT and additional tax assessments. The severity of penalties can vary based on the nature and extent of the non-compliance, but the Act provides for significant deterrents to ensure adherence to the tax obligations.