ATO Interpretative Decision

ATO ID 2004/488 (Withdrawn)

Fringe Benefits Tax

• This ATO Interpretative Decision is withdrawn from the database because it contains a view in respect of a provision of the Fringe Benefits Tax Assessment Act (1986) that doesn't apply after the 2004-2005 fringe benefits tax year. Despite its withdrawal from the database, this ATO Interpretative Decision continues to be a precedential view in respect of decisions for fringe benefits tax years up to and including the 2004-2005 fringe benefits tax year.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Will contributions made by the taxpayer to an approved worker entitlement fund, in order to provide for the redundancy entitlements of employees under an industrial instrument, constitute an exempt benefit under section 58PA of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), where the taxpayer has a choice as to whether or not to use a worker entitlement fund to meet the obligation?

Decision

No. Contributions made by the taxpayer to an approved worker entitlement fund, in order to provide for the redundancy entitlements of employees under an industrial instrument, will not be an exempt benefit under section 58PA the FBTAA, where the taxpayer has a choice as to whether or not to use a worker entitlement fund to meet the obligation.

Facts

The taxpayer is an employer subject to an industrial instrument that requires employers to make redundancy payments to employees in accordance with their length of service.

The industrial instrument allows employees to choose whether or not to use a worker entitlement fund to meet the obligation to make redundancy payments.

The industrial instrument states that 'an employer bound by this award may utilise a fund to meet all or some of the liabilities created by this award'.

Reasons for Decision

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

Section 58PA of the FBTAA provides that a contribution by an employer is an exempt benefit if:

(a)

the employer makes a contribution to an approved worker entitlement fund; and

(b)

the employer 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.

Paragraph 58PA(a) of the FBTAA will be satisfied where the contribution is made to an approved worker entitlement fund.

Paragraph 58PA(b) of the FBTAA will be satisfied where the contribution is required under an industrial instrument. In this case, although the industrial instrument requires employers to make redundancy payments to employees, it does not require employers to provide for the redundancy payments by way of a contribution to a fund. The industrial instrument merely states that an employer 'may utilise a fund' to meet the liabilities created by the industrial instrument in regards to redundancy payments.

This is not sufficient for the purposes of paragraph 58PA(b) of the FBTAA. As the industrial instrument does not require the taxpayer to make a contribution to a worker entitlement fund, the contribution by the taxpayer to the approved worker entitlement fund will not be an exempt benefit under section 58PA of the FBTAA.

Year of income:  Year ended 31 March 2005

Legislative References:
Fringe Benefits Tax Assessment Act 1986
   section 58PA
   paragraph 58PA(a)
   paragraph 58PA(b)

ATO Interpretative Decisions overturned by this decision
ATO ID 2003/1030

Keywords
Fringe benefits tax
Exempt benefits
Worker entitlement funds

Business Line:  Business and Personal Taxes Centre of Expertise

Date of publication:  11 June 2004

ISSN: 1445-2782