EXPLANATORY STATEMENT
Select Legislative Instrument 2011 No. 34
Issued by authority of the Assistant Treasurer
Fringe Benefits Tax Assessment Act 1986
Fringe Benefits Tax Amendment Regulations 2011 (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 an additional fund (John Holland Group Worker Entitlement Fund) for the purposes of paragraph 58PB(2)(a) of the Act as an approved worker entitlement fund. 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 are a legislative instrument for the purposes of the Legislative Instruments Act 2003 (LIA 2003).
The Regulations commence on the start date for the specified fund: 24 May 2010. The Regulations apply for the corresponding FBT year and later years.
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 confers 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 2011 (No. 1) were enacted to amend the Fringe Benefits Tax Regulations 1992, specifically to add the John Holland Group Worker Entitlement Fund as an approved worker entitlement fund under the Fringe Benefits Tax Assessment Act 1986. This legislation was introduced to address the gap in the existing regulatory framework by providing an exemption from fringe benefits tax for certain payments made into worker entitlement funds, thereby preventing double taxation of such payments. These Regulations were made by authority of the Assistant Treasurer and are a legislative instrument under the Legislative Instruments Act 2003. They came into effect on 24 May 2010, applying from that date onwards for the corresponding fringe benefits tax year. The objective of these Regulations is to ensure that payments into specified worker entitlement funds are not subjected to fringe benefits tax, aligning with the broader policy goal of protecting and ensuring the portability of employee entitlements.
Scope and Application
The Fringe Benefits Tax Amendment Regulations 2011 (No. 1) pertains to entities and individuals who are subject to the Fringe Benefits Tax Assessment Act 1986. These Regulations specifically amend the Fringe Benefits Tax Regulations 1992 by adding the John Holland Group Worker Entitlement Fund as an approved worker entitlement fund under the Act. This addition aims to provide an exemption from fringe benefits tax for certain payments to such funds, ensuring that these payments are not subject to double taxation. The Regulations apply on a Commonwealth level and are designed to take effect from 24 May 2010, impacting the corresponding Fringe Benefits Tax year and subsequent years. It is important to note that the Regulations do not operate retrospectively in a manner that would adversely affect the rights or impose liabilities on entities or individuals prior to the notification date, as per subsection 12(2) of the Legislative Instruments Act 2003. These Regulations do not require consultation as they are considered minor or of a machinery nature and do not substantially alter the existing law.
Key Provisions
The Fringe Benefits Tax Amendment Regulations 2011 (No. 1) introduce a new approved worker entitlement fund under the Fringe Benefits Tax Assessment Act 1986 (section 135). This fund, the John Holland Group Worker Entitlement Fund, is now eligible for the exemption from fringe benefits tax (FBT) as provided in sections 58PA and 58PB of the Act (subsection 12(2) of the Legislative Instruments Act 2003). This means that payments made to this fund are exempt from FBT, provided they are for the protection and portability of employee entitlements, such as unused leave or redundancy payments. This exemption is intended to prevent double taxation, where payments into the fund are not taxed as a fringe benefit, and subsequent payments out of the fund to employees are also exempt.
The inclusion of the John Holland Group Worker Entitlement Fund in the regulations imposes specific obligations on employers who use this fund. They must ensure that any payments into the fund for employee entitlements are managed in accordance with the conditions set out in the Act. Employers must also maintain accurate records of these payments and be prepared to demonstrate their compliance with the FBT provisions. Failure to comply with these obligations can result in the fund losing its approved status, thereby subjecting the payments to FBT.
The Act imposes penalties for non-compliance with the FBT requirements. Employers who fail to properly manage payments to approved worker entitlement funds or misrepresent the nature of these payments may be liable for penalties. For example, under section 285-15 of the Taxation Administration Act 1953, penalties can be imposed for providing a false or misleading document. The maximum penalty for each contravention can be up to $2,100 for individuals and $10,500 for bodies corporate, depending on the severity of the breach. In addition to financial penalties, non-compliance can result in the fund being disqualified from the FBT exemption, thereby subjecting the payments to FBT. This can lead to additional tax liabilities and interest charges, further compounding the consequences for non-compliant employers.