Class Ruling

CR 2004/21

Fringe benefits tax: Contribution to an Approved Worker Entitlement Fund: the Victorian Certified CEPU (Plumbing Division) Enterprise Agreement 2002 to 2005

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FOI status:

may be released

What this Class Ruling is about

1. This Ruling sets out the Commissioner's opinion on the way in which the 'tax law(s)' identified below apply to the defined class of persons, who take part in the arrangement to which this Ruling relates.

Tax law(s)

2. The tax law dealt with in this Ruling are:

•

section 58PA of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986); and

•

subsection 136(1) of the FBTAA 1986.

Class of persons

3. The class of persons to which this Ruling applies is all employers who employ their employees under the Plumbing Trades (Southern States) Construction Award 1999 and have in place a certified Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia (CEPU) (Plumbing Division) Enterprise Agreement 2002 to 2005.

Qualifications

4. The Commissioner makes this Ruling based on the precise arrangement identified in this Ruling.

5. The class of persons defined in this Ruling may rely on its contents provided the arrangement actually carried out is carried out in accordance with the arrangement described in paragraphs 9 to 16.

6. If the arrangement actually carried out is materially different from the arrangement that is described in this Ruling, then:

•

this Ruling has no binding effect on the Commissioner because the arrangement entered into is not the arrangement on which the Commissioner has ruled; and

•

this Ruling may be withdrawn or modified.

7. This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to:

Commonwealth Copyright Administration

Intellectual Property Branch

Department of Communications, Information Technology and the Arts

GPO Box 2154

CANBERRA ACT 2601

or by e-mail to: commonwealth.copyright@dcita.gov.au.

Date of effect

8. This ruling applies from the 1 April 2004 to 31 March 2006. Further, the Class Ruling only applies to the extent that:

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there is no material change in the arrangement or in the class of persons involved in the arrangement;

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it is not later withdrawn by notice in the Gazette;

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it is not taken to be withdrawn by an inconsistent later public ruling; or

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the relevant tax laws are not amended.

Arrangement

9. The arrangement that is the subject of this Ruling is described below. This description is based on the following documents. These documents, or relevant parts of them, as the case may be, form part of and are to be read with the description. The relevant documents or parts of documents incorporated into this description of the arrangement are:

•

Class ruling application by Master Plumbers and Mechanical Services Association of Australia dated 5 November 2003;

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Plumbing Trades (Southern States) Construction Award 1999; and

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CEPU (Plumbing Division) Enterprise Agreement 2002 to 2005.

10. The Master Plumbers and Mechanical Services Association of Australia is a national representative body for employer's in the plumbing industry and is a registered organisation under the Workplace Relations Act 1996 (Cth).

11. The Victorian members of Master Plumbers and Mechanical Services Association of Australia employ their employees under the Plumbing Trades (Southern States) Construction Award 1999. These members may also have in place a certified CEPU (Plumbing Division) Enterprise Agreement 2002 to 2005.

The Redundancy obligations under the certified CEPU (Plumbing Division) Enterprise Agreement 2002 to 2005

12. Employers with a certified CEPU (Plumbing Division) Enterprise Agreement 2002 to 2005 in place have an obligation to pay redundancy contributions to a redundancy protection scheme pursuant to Clause 29 of the agreement.

13. Clause 29 states:

'Redundancy Protection

The Enterprise shall participate in a Redundancy Protection Scheme shall make relevant contributions on behalf of all employees to provide for the payment of redundancy benefits to employees.

The benefits to be provided to the employees shall be equivalent to, or superior than, the benefits provided by the Incolink Redundancy Protection Scheme.

The particular Redundancy Protection Scheme to be provided shall be agreed between the Union and the Enterprise. The Incolink Redundancy Protection Scheme or a similar scheme providing equivalent or superior benefits shall be taken as agreed to by the Parties for the purpose of this clause.'

The interaction of the certified CEPU (Plumbing Division) Enterprise Agreement 2002 to 2005 and the Plumbing Trades (Southern States) Construction Award 1999

14. Clause 7 of the certified CEPU (Plumbing Division) Enterprise Agreement 2002 to 2005 outlines the relationship to the Plumbing Trades (Southern States) Construction Award 1999. Paragraph (a) of clause 7 provides that the CEPU (Plumbing Division) Enterprise Agreement 2002 to 2005 is supplementary to, and will be read and interpreted wholly in conjunction with the Plumbing Trades (Southern States) Construction Award 1999. As such employers with a CEPU (Plumbing Division) Enterprise Agreement 2002 to 2005 will interpret their certified agreement in conjunction with the Plumbing Trades (Southern States) Construction Award 1999.

The Redundancy obligations under the Plumbing Trades (Southern States) Construction Award 1999

15. Pursuant to clause 34.6 of the Plumbing Trades (Southern States) Construction Award 1999 the redundancy amount which a terminating employee is entitled to receive will be the greater of the award benefit, specified in subclause 34.2 of the Plumbing Trades (Southern States) Construction Award 1999, or the amount paid by the approved worker entitlement fund.

16. Subclause 34.2 of the Plumbing Trades (Southern States) Construction Award 1999 states:

'A redundant employee will receive redundancy/severance payments, calculated as follows, in respect of all continuous service (as defined by this award) with his/her employer.

Period of continuous service with an employer	Redundancy/Severance pay
1 year or more but less than 2 years	2.4 week's pay plus, for all service in excess of 1 year, 1.75 hours pay per completed week of service up to a maximum of 4.8 week's pay
2 years or more but less than 3 years	4.8 week's pay plus, for all service in excess of 2 years, 1.6 hours pay per completed week of service up to a maximum of 7 week's pay
3 years or more but less than 4 years	7 week's pay plus, for all service in excess of 3 years, 0.73 hours pay per completed week of service up to a maximum of 8 week's pay
4 years or more	8 weeks pay

Provided that an employee employed for less than twelve months will be entitled to a redundancy/ severance payment of 1.75 hours per week of service if, and only if, redundancy is occasioned otherwise than by the employee.'

Ruling

17. An employer who makes a redundancy contribution for an employee to an approved worker entitlement fund pursuant to their obligations under clause 29 of their certified CEPU (Plumbing Division) Enterprise Agreement 2002 to 2005, will be providing an exempt fringe benefit for the purposes of section 58PA of the FBTAA 1986.

18. The redundancy contribution/s made by the employer will only be an exempt fringe benefit up to the amount which the employer is required to make. From time to time employers may be notified by the respective approved worker entitlement fund chosen under clause 29 of the CEPU (Plumbing Division) Enterprise Agreement 2002 to 2005 of the required minimum redundancy contributions which must be made for their employees.

Explanation

19. When an employer makes a contribution to an approved worker entitlement fund that contribution may be an exempt fringe benefit if it meets the requirements in section 58PA of the FBTAA 1986.

20. Section 58PA of the FBTAA 1986 states:

'If:

(a)

a person makes a contribution to an approved worker entitlement fund; and

(b)

the person is required to make the contribution under an industrial instrument; and

(c)

the contribution is either:

(i)

required for the purposes of ensuring that an obligation under the industrial instrument to make leave payments (including payments in lieu of leave) or payments when an employee ceases employment is met; or

(ii)

for the reasonable administrative costs of the fund;

the contribution is an exempt benefit.'

The contribution must be made to an approved worker entitlement fund

21. Paragraph 58PA(a) of the FBTAA 1986 requires the contribution to be made to an approved worker entitlement fund. Whether an employer makes redundancy payments to an approved worker entitlement fund is a question of fact. Therefore, as long as the Incolink Redundancy Protection Scheme or an equivalent fund used by the employer is an approved worker entitlement fund, paragraph 58PA(a) will be satisfied.

The contribution must be required under an industrial instrument

Is the certified CEPU (Plumbing Division) Enterprise Agreement 2002 to 2005 an industrial instrument?

22. Paragraph 58PA(b) of the FBTAA 1986 requires the contribution to be made under an 'industrial instrument'. An 'industrial instrument' is defined in subsection 136(1) of the FBTAA 1986 as 'a law of the Commonwealth or of a State or Territory or an award, order, determination or industrial agreement in force under any such law'.

23. An Enterprise Agreement is certified when it meets certain criteria required under the Workplace Relations Act 1996 (Cth) and is certified by the Australian Industrial Relations Commission. Once certified the Enterprise Agreement is given force under the Workplace Relations Act 1996 (Cth), which is a Commonwealth law.

24. Therefore the certified CEPU (Plumbing Division) Enterprise Agreement 2002 to 2005 is an industrial instrument for the purposes of paragraph 58PA(b) of the FBTAA 1986.

Is the contribution required under an industrial instrument?

25. Clause 4 of the certified CEPU (Plumbing Division) Enterprise Agreement 2002 to 2005, provides that the agreement shall be binding upon the 'enterprise' named in clause 1 of the agreement (that is, the employer). Clause 29 of the agreement provides that 'the enterprise shall participate in a Redundancy Protection Scheme [and] shall make relevant contributions on behalf of all employees to provide for the payment of redundancy benefits to employees'. As the employer is bound by the terms of the agreement they are required to make the contribution under clause 29 of the agreement (an industrial instrument), therefore the requirement in paragraph 58PA(b) of the FBTAA 1986 is satisfied.

26. Clause 29 further provides that 'the particular Redundancy Protection Scheme shall be agreed between the Union and the employer' and that 'the Incolink Redundancy Protection Scheme or a similar scheme providing equivalent or superior benefits shall be taken as agreed to by the Parties for the purpose of this clause'. There is no legislative requirement in the FBTAA 1986 that the fund the employer makes the contribution to is specified in the industrial instrument.

27. Therefore whether the employer contributes to the Incolink Redundancy Protection Scheme or a similar scheme that provides equivalent or superior benefit does not preclude paragraph 58PA(b) of the FBTAA 1986 from being satisfied.

Is the amount of contribution an amount required under the industrial instrument?

28. Only the amount which the employer is required to make as a redundancy contribution will be an exempt fringe benefit. In determining the amount of the required redundancy contribution the Plumbing Trades (Southern States) Construction Award 1999, the CEPU (Plumbing Division) Enterprise Agreement 2002 to 2005 and the Trust Deed of the relevant approved worker entitlement fund will be considered together.

The contribution must be to ensure that an obligation under an industrial instrument to make payments when an employee ceases employment are met

29. Paragraph 58PA(c) of the FBTAA 1986 requires that the contribution is either for the purposes of ensuring that an obligation under the industrial instrument for leave or termination payment is met, or for the reasonable administrative purposes of the fund.

30. As the contributions under clause 29 of the CEPU (Plumbing Division) Enterprise Agreement 2002 to 2005 are contributions to provide for the payment of redundancy benefits to an employee which will be paid on termination, paragraph 58PA(c) of the FBTAA 1986 will be satisfied.

Conclusion

31. As the requirements of section 58PA of the FBTAA 1986 are met the required redundancy contribution made by an employer to comply with its obligations under clause 29 of the CEPU (Plumbing Division) Enterprise Agreement 2002 to 2005 and subclause 34.2 of the Plumbing Trades (Southern States) Construction Award 1999 will be an exempt fringe benefit.

Detailed contents list

32. Below is a detailed contents list for this Class Ruling:

Commissioner of Taxation
10 March 2004

Not previously issued as a draft.

References

ATO references:
NO 2004/3311

Related Rulings/Determinations:

CR 2001/1
TR 92/1
TR 97/16

Subject References:
approved worker entitlement fund
fringe benefits tax
redundancy payment

Legislative References:
Copyright Act 1968
TAA 1953 Part IVAAA
FBTAA 1986 58PA
FBTAA 1986 58PA(a)
FBTAA 1986 58PA(b)
FBTAA 1986 58PA(c)
FBTAA 1986 136(1)