FBT exemption: payments to approved worker entitlement funds

Is the employer, who makes a contribution to an approved worker entitlement fund to meet its obligation to make leave payments for its employees, providing an exempt fringe benefit under section 58PA of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), when it has a discretion as to whether or not to use an approved worker entitlement fund to meet this obligation?

No. The employer who makes a contribution to an approved worker entitlement fund to meet its obligation to make leave payments for its employees, is not providing an exempt fringe benefit under section 58PA of the FBTAA when it has a discretion as to whether or not to use an approved worker entitlement fund to meet its obligation to make the leave payments.

The relevant industrial instrument governing worker entitlements imposes an obligation on the employer to make leave payments for its employees.

The relevant instrument allows the employer discretion as to whether or not to use an approved worker entitlement fund to meet this obligation. The employer makes a contribution to an approved worker entitlement fund to meet its obligation to make the leave payment.

Under section 58PA of the FBTAA provides that a contribution by an employer is an exempt fringe 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.

Section 58PA of the FBTAA will be satisfied if the contribution to an approved worker entitlement fund is 'required' under the relevant industrial instrument.

In this case, although the employer has an obligation to make leave payments to the employee, the use of an approved worker entitlement fund to meet this obligation is discretionary. The employer is not required to make the contribution to the approved worker entitlement fund under the relevant industrial agreement.

Therefore, the requirements of section 58PA of the FBTAA are not satisfied and the employer is not providing an exempt benefit under section 58PA of the FBTAA when it has discretion as to whether or not to use an approved worker entitlement fund to meet its obligation to make leave payments.