Worker entitlement funds recognise the transitory nature of employment in certain industries. For example, the building and construction industry. If you are a member of a worker entitlement fund, you need to be aware of the tax treatment of payments from the fund.
These funds provide benefits to employees who would normally receive benefits on termination of employment under the terms and conditions of their employment. Many awards and enterprise agreements recognise the use of the funds.
Employers contribute to the funds to assist in satisfying their obligations when employees leave their employment. Typically, employers contribute to the funds at some point in each pay cycle. When you terminate your employment with your employer, the fund makes a payment to you. The amount you receive from the fund is offset against the amount your employer pays you under your employment agreement or industrial award.
Approved worker entitlement funds meet certain criteria under fringe benefits tax (FBT) legislation and receive concessional FBT treatment. For more guidance, see FBT guide: 20.9 Worker entitlement contributions.
Awards and industrial agreements requiring employers to make periodic payments into worker entitlement funds establish entitlements for employees.
By entering into employment arrangements, it is the employer's obligation to make contributions. Subject to the conditions of the fund being met, employees can access the benefits. In general, the entitlements exist independent of whether termination is due to voluntary termination, dismissal or dismissal because of genuine redundancy.
For tax purposes, certain criteria must be met before we consider a payment made upon termination of employment as a genuine redundancy payment. If the amount is a genuine redundancy payment, the amount for concessional treatment is the excess of what the employee could receive in consequence of a voluntary termination.
It is unlikely payments from worker entitlement funds meet the criteria for genuine redundancy payments under the tax laws. This is because entitlements aren't necessarily contingent on dismissal due to genuine redundancy. It is also unlikely the payment the employee receives is over or above what they would receive due to voluntary termination. Where the criteria aren't met, the concessional treatment given to genuine redundancy payments can't apply.
Payments from worker entitlement funds usually receive concessional treatment as Employment termination payments as termination of employment is generally a condition. This occurs so long as the criteria for those payments are met.
You need to ensure you complete your tax return correctly so that payments from worker entitlement funds receive the appropriate tax treatment.
For more redundancy payment information, see:
- TR 2009/2 Income tax: genuine redundancy payments
- CR 2010/40 Income tax: payments from Redundancy Payment Central Fund No 2 and Redundancy Payment Approved Worker Entitlement Fund 2