EXPLANATORY STATEMENT
Select Legislative Instrument 2009 No. 246
Issued by authority of the Assistant Treasurer
Fringe Benefits Tax Assessment Act 1986
Fringe Benefits Tax Amendment Regulations 2009 (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.
These Regulations amend the Fringe Benefits Tax Regulations 1992 (the Principal Regulations) to prescribe three additional funds (Tronics Employee Entitlement Scheme, Shaw’s Darwin Transport Employees’ Entitlement Trust and Fisher & Paykel Termination Funding Trust) 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.
These Regulations are a legislative instrument for the purposes of the Legislative Instruments Act 2003 (LIA 2003).
The Regulations commenced on the individual start dates for each of the funds: Tronics Employee Entitlement Trust, 1 June 2005; Shaw’s Darwin Transport Employees’ Entitlement Trust, 11 March 2009 and Fisher and Paykel Termination Funding Trust, 28 April 2009. The Regulations apply for the corresponding FBT year and later years for each individual fund.
Subsection 12(2) of the 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 be exempt from that tax
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 2009 (No. 1) were enacted to address the need for updating the list of approved worker entitlement funds under the Fringe Benefits Tax Assessment Act 1986. These funds are designated to safeguard and ensure the portability of employee benefits such as unused leave and redundancy payments. The Fringe Benefits Tax Regulations 1992, which are amended by these Regulations, exempt certain payments to these funds from fringe benefits tax to prevent double taxation. This legislative instrument was issued by authority of the Assistant Treasurer and is subject to the Legislative Instruments Act 2003, which governs the making of legislative instruments. The Regulations came into effect on specific dates for each fund and apply to the corresponding fringe benefits tax years and subsequent years. The non-retrospective nature of the Regulations ensures they do not impose liabilities on individuals or entities for actions taken prior to the notification date. Given the minor nature of the amendments, no consultation was undertaken for these Regulations.
Scope and Application
The Fringe Benefits Tax Amendment Regulations 2009 (No. 1) pertain to the Fringe Benefits Tax Assessment Act 1986 and serve to amend the Fringe Benefits Tax Regulations 1992 by adding three additional funds to the list of approved worker entitlement funds. These funds, specifically the Tronics Employee Entitlement Scheme, Shaw’s Darwin Transport Employees’ Entitlement Trust, and Fisher & Paykel Termination Funding Trust, are recognised to provide for the protection and portability of employee entitlements such as unused leave or redundancy payments. The regulation aims to exempt certain payments made to these funds from fringe benefits tax, ensuring that such payments are not subject to double taxation. The exemption is contingent on the funds being approved as worker entitlement funds, as outlined in sections 58PA and 58PB of the Act. The regulations apply from the start dates of each individual fund, with the specific dates being 1 June 2005 for the Tronics Employee Entitlement Trust, 11 March 2009 for the Shaw’s Darwin Transport Employees’ Entitlement Trust, and 28 April 2009 for the Fisher & Paykel Termination Funding Trust, extending to subsequent financial years for each fund. Importantly, these regulations do not operate retrospectively to adversely affect rights or impose liabilities on individuals, in accordance with subsection 12(2) of the Legislative Instruments Act 2003, as they merely confer a benefit by exempting eligible payments from fringe benefits tax.
Key Provisions
The Fringe Benefits Tax Amendment Regulations 2009 (No. 1) amend the Fringe Benefits Tax Regulations 1992 to introduce three additional funds—the Tronics Employee Entitlement Scheme, Shaw’s Darwin Transport Employees’ Entitlement Trust, and Fisher & Paykel Termination Funding Trust—as approved worker entitlement funds under section 58PB(2)(a) of the Fringe Benefits Tax Assessment Act 1986 (the Act). These funds are intended to provide for the protection and portability of employee entitlements, such as unused leave or redundancy payments. This addition to the approved list ensures that payments into these specific funds will benefit from an exemption from fringe benefits tax (FBT), as outlined in sections 58PA and 58PB of the Act. The exemption is designed to prevent the double taxation of certain payments to these funds, which would otherwise be subject to FBT both when paid into the fund and when subsequently paid out to the employee.
The Regulations impose specific obligations on entities making payments to these approved funds. Employers and other entities must ensure that payments made to these funds are in compliance with the provisions of the Act and the amended Regulations. Specifically, they must correctly classify and report these payments to the relevant authorities to ensure that they qualify for the FBT exemption. This involves accurately documenting the nature of the payments and ensuring they meet the criteria for being considered contributions to an approved worker entitlement fund. The burden of compliance falls on the entities making the payments, requiring them to adhere to the stipulated guidelines to benefit from the FBT exemption.
Failure to comply with the provisions of the Act and the Regulations can result in significant consequences. While the Explanatory Statement does not detail specific offences or penalties, non-compliance with FBT laws generally can lead to various penalties. These can include financial penalties, interest on unpaid taxes, and potential legal action. In severe cases, there may be criminal penalties for deliberate or reckless non-compliance. The maximum penalties for FBT-related offences can be substantial, reflecting the seriousness with which the Australian Taxation Office (ATO) treats breaches of FBT laws. Employers and entities are, therefore, strongly advised to ensure full compliance to avoid these adverse outcomes.