EXPLANATORY STATEMENT
Select Legislative Instrument 2006 No. 259
Issued by authority of the Minister for Revenue
and Assistant Treasurer
Fringe Benefits Tax Assessment Act 1986
Fringe Benefits Tax Amendment Regulations 2006 (No. 3)
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 these amending Regulations is to prescribe two 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 9 October 2006 and apply to the remainder of the 2006-07 FBT year and later years.
Consultation was not undertaken in relation to this instrument because it was minor or machinery in nature and did not substantially change the law.
Overview
The Fringe Benefits Tax Amendment Regulations 2006 (No. 3) were enacted to amend the Fringe Benefits Tax Assessment Act 1986. These regulations aim to address a gap in the existing framework by prescribing two funds as approved worker entitlement funds under the Act. This designation is intended to provide for the protection and portability of employee entitlements, such as unused leave or redundancy payments, ensuring that certain payments to these funds are exempt from fringe benefits tax (FBT). The policy objective is to prevent double taxation, where payments into the fund are not taxed as a fringe benefit and neither are payments out of the fund to the employee. The regulations were issued by the Minister for Revenue and Assistant Treasurer, and commenced on 9 October 2006, applying to the remainder of the 2006-07 FBT year and subsequent years. As the changes were considered minor and did not substantially alter the law, consultation was not undertaken.
Scope and Application
The Fringe Benefits Tax Amendment Regulations 2006 (No. 3) are subordinate regulations made under Section 135 of the Fringe Benefits Tax Assessment Act 1986. These regulations are designed to specify certain funds as approved worker entitlement funds for the purposes of the Act. They apply to entities and individuals who are involved in making payments into funds that protect and make portable employee entitlements such as unused leave or redundancy payments. The exemption from fringe benefits tax on certain payments to these funds is intended to prevent double taxation of such payments. The regulations have a national reach, applying across the Commonwealth of Australia, and commenced on 9 October 2006. They apply from the remainder of the 2006-07 financial year onwards. The regulations do not substantially alter the law and, as such, did not require consultation with stakeholders. The Act itself applies to all entities and individuals liable for fringe benefits tax in Australia, encompassing a wide range of industries and conduct involving the provision of fringe benefits.
Key Provisions
The Fringe Benefits Tax Amendment Regulations 2006 (No. 3) prescribe two funds as approved worker entitlement funds under section 58PB(2)(a) of the Fringe Benefits Tax Assessment Act 1986 (the Act). This amendment ensures that certain payments to these funds are exempt from fringe benefits tax (FBT). Specifically, section 58PA of the Act provides for an exemption where the payments are made to a fund that protects and makes portable employee entitlements such as unused leave or redundancy payments. By designating these funds as approved, the Regulations aim to prevent double taxation of payments to these funds, ensuring they are taxed only when paid out to employees.
The Regulations impose obligations on employers and funds to comply with the new provisions. Employers must ensure that payments to the specified funds are made in accordance with the FBT laws, taking advantage of the exemption provided. Funds themselves must meet the criteria set out in the Act for being considered approved worker entitlement funds. This includes having a structure that ensures the protection and portability of employee entitlements, as well as complying with any other regulatory requirements that may apply.
Failure to comply with the provisions of the Regulations can lead to significant consequences. The Act provides for both civil and criminal penalties for non-compliance. Civil penalties may include fines up to the maximum specified in the Act for each instance of non-compliance. Additionally, employers may be liable to pay FBT on payments that should have been exempt if the funds are not properly designated as approved worker entitlement funds. Criminal penalties may apply in more severe cases, including imprisonment for individuals found to have deliberately contravened the Act.
The Regulations came into effect on 9 October 2006, applying to the remainder of the 2006-07 FBT year and subsequent years. This timing ensures that businesses and funds have adequate notice to adjust their practices to comply with the new requirements. The Explanatory Statement notes that consultation was not undertaken as the changes were considered minor and did not substantially alter the existing legal framework.