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Fringe Benefit Tax
FRINGE BENEFIT TAX ON REDUNDANCY CONTRIBUTIONS
Dear Members,
This circular is very important. We urge you to take the time to read it and then seek advice from your own taxation adviser as to the FBT impact on your business of the FBT legislative changes that will apply from 1 April 2005 .
In 2003 the Federal Government introduced legislation confirming an ATO view that employers were required to pay FBT on redundancy contributions. At the 11th hour the Federal Government announced a moratorium was going to apply to this new law until 1st April 2004 .
The reason given was that there were a number of issues with the new law that had to be resolved in order that it would not adversely affect 'genuine' contributions to a fund to secure employees benefits. It was expected that by the 1st April 2004 these issues would be resolved. They proved more complex than the Government expected and the transitional FBT exemption was extended until 1 April 2005 .
The original law stated that only contributions that had to be paid into a redundancy fund, as a requirement of a registered Industrial Instrument, would be exempted from FBT. It further stated that such contributions would only be exempted if the Fund into which they were paid were a Complying Worker Entitlement Fund. The combination of those requirements meant that even if paid into a Complying Worker Entitlement Fund the contributions would still be subject to FBT UNLESS paid into that fund under an OBLIGATION contained in an Industrial Instrument.
V arious conditions and certain standards had to be met before the Australian Tax Office would register a fund as a Complying Worker Entitlement Fund. The directors of WACIRF LTD established the WAConstruction Industry Redundancy No 2 Fund, which met the requirements of the law and was duly registered as a Complying Worker Entitlement Fund.
The second condition for FBT exemption remained, that contributions had to be made under an obligation imposed by an Industrial Instrument. This posed a real obstacle to many employers accessing an on-going FBT exemption for their redundancy fund contribution. It only encompassed a registered industrial agreement or award rather than the many other un-registered obligations taken on by employers to make redundancy fund contributions for their employees. To all intents and purposes the contributions that most employers were making to WACIRF would only continue to be FBT free if made under a registered EBA or its equivalent. Even then many employers would still be denied FBT exemption as their registered EBA only gave an option to make contributions as a means to satisfy redundancy commitments to their employees. That option in an un-registered arrangement, did no satisfy the second condition for FBT exemption under the original law even though fulfilling the same purpose as a contribution at precisely the same rate that might be made under an Industrial Instrument obligation to make contributions.
The law was quite specific and would only grant exemption from FBT on continuing contributions if the contribution were made as a condition of a registered EBA or its registered equivalent. This means that if you continued paying your workers’ contributions into WACIRF No.2 (a Complying Worker Entitlement Fund) under the terms of an EBA or other arrangement, but that agreement was not registered with the appropriate authority, those contributions would attract FBT from 1 April 2005. On the other hand another employer paying the same rate of contribution to satisfy a registered EBA obligation will, quite inequitably, continue to have no FBT liability.
On the 17 th March 2005 an Amending Bill was introduced into the Federal Parliament. This was supposed to cure the inequity of only some employer being FBT exempt and others, who were committed to make contributions under non-registered arrangements, still being subjected to FBT. The amendments proposed by the Bill WILL NOT overcome that inequity for many WA contributing employers. The FBT law, even after the proposed amendment, WILL STILL impose an FBT liability on contributions into WACIRF No.2 (and other redundancy funds) unless the continuing contributions are made under a registered agreement.
It appears that the proposed revised law will acknowledged that where employers are making redundancy contributions into WACIRF No.2 (and other Complying Worker Entitlement Funds) by way of either a State or Federal award then part of the contribution equal to the award requirement may be exempted from FBT. Even this WILL NOT help the many WA employers contributing under non-registered arrangements as at 1 April 2005. This is because the amending Bill, introduced on the 17 March 2005, has not been passed and both Houses of Federal Parliament have gone into a 7-week recess. At best WA awards only provide an option for employers to contribute into a redundancy fund (rather than requiring such a contribution) and as a result all contributions from 1 April 2005 will technically become subjected to FBT. It is not known whether the Australian Tax Office will allow some administrative concession pending the Parliament ultimately considering the present amending Bill in 7-weeks time.
We cannot tell you what you should do as to paying or not reporting for FBT with your BAS, from 1 April 2005, as we do not know your individual circumstances with respect to obligations you have undertaken with your employees to make redundancy contributions into our fund. We can only say with certainty that if you are make redundancy contributions into WACIRF No2 in an amount required by a registered industrial agreement or award you will not be subjected to FBT on those contributions from the 1April 2005.
As additional information becomes available to us from the Government or ATO we will update you on developments. Enclosed with this advice is your monthly WACIRF No2 Fund “Contribution Statement” for the March 2005, showing contributions in amounts to which you have previously committed to make as a member of WACIRF. At the head of the “Contribution Statement” you will see that the contributions are to be made to WACIRF No.2 and we ask that all future cheques be made payable to WAConstruction Industry Redundancy No 2 Fund. In order to update our records we also enclose a No.2 Fund Contribution Agreement that we request you complete and return to us when submitting your March 2005 Contribution Return.
In the near future we will be issuing new membership numbers for both Employer and Employee Members. In the interim we will continue to use your existing numbers even in the new fund. The relevant WACIRF or WACIRF No 2 Fund, to which your contributions have been credited, will henceforth process claims for Redundancy Payments by your employees.
We would like to take this opportunity to thank you for your cooperation and understanding as to this very complex matter
Yours faithfully
Murray M Rzepecki
Chief Executive Officer
WA Construction Industry Redundancy No.2 Fund
