Private ruling: Employer deductions
Date of advice: 2 September 2025
Published: 3 November 2025
Ruling period: Income year ended 30 June 20XX | Income year ended 30 June 20XX | Income year ended 30 June 20XX | Income year ended 30 June 20XX | Income year ended 30 June 20XX
Date scheme commenced: XX May 20XX

Ruling: Q1: Is A Co as head company of the A Co tax consolidated group (A TCG) entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for redundancy contributions made by the Company under the Company's Union Enterprise Agreement 2023 (UEA) to the Company's Employee Entitlement Trust (Fund)? | A1: Yes

Relevant facts and circumstances: A Co is the head company of the A TCG. The Company was acquired by A Co in 20XX through the acquisition of the issued share capital at which the Company became a member of the A TCG. The main activities of the Company include providing electrical and engineering services to commercial clients in states. The Company employs approximately XXX people. The Company negotiates with the unions regarding the entry into industrial instruments on behalf of the employees. Union enterprise agreement The Company's Union Enterprise Agreement (UEA) was approved by the Fair Work Commission on May 20XX pursuant to Division 4 of the Fair Work Act 2009 . The UEA has a nominal expiry of February 20XX. Where an UEA is nominally expired, it will remain in place until the Fair Work Commission decides to cancel it. Relevant employees of the Company have their employment conditions and arrangements governed by the UEA. Alternatively, where an employee is 'staff', the arrangement is defined by individual contracts of employment. Redundancy contributions Under the UEA, employees (excluding apprentices, trainees, Juniors and probationary employees, casual employees and employees engaged for a specific period or task(s)) will be entitled to have contributions as prescribed in the Appendices of the UEA, made to an approved Employee Entitlement Fund as nominated by the Company or may elect by notice in writing to the Company, to have all or part of such redundancy contribution in excess of $X per week paid to the employee's nominated complying Super Fund on their behalf. When an employee's employment is terminated by the Company for reasons set out in Clause XX of the UEA, the Company will pay to the employee a lump sum that equals the amount the Company is obliged to pay pursuant to the UEA in regard to redundancy less the aggregate of any balances in the employee's account in the Employee Entitlement Fund, any Redundancy Fund, and any amounts paid into the employee's nominated complying superannuation fund pursuant to clause XX of the UEA. At the termination of an employee who has completed more than 1 years' service, due to retirement, voluntary resignation, death or permanent disability the employee's total credit balance in an approved Employee Entitlement Fund as nominated by the Company, will be paid (directly) by the Company into a complying superannuation fund of the Employee's choice. The Fund reimburses the Company for this superannuation contribution. The company's group employee entitlement trust The Fund The Company's Group Employee Entitlement Trust Deed (Trust Deed) was executed on XX June 20XX. The Trustee of the Fund (Trustee) is a member of the A TCG. The Trust was established to allow for the accumulation, protection and distribution of assets to fund the Worker Entitlements of group employees. The Fund is an Approved Worker Entitlement Fund (AWEF) from XX April 20XX. Certain contributions made to an AWEF, pursuant to section 58PA of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), are an exempt fringe benefit.The Fund has not made any significant changes that would prevent it from continuing to satisfy the requirements under section 58PB of the FBTAA. 'Worker Entitlement' is defined in the Trust Deed as a 'leave payment (or payment in lieu of leave) or a payment upon cessation of employment to which the Employee becomes entitled to receive in accordance with the terms of any applicable Industrial Instrument'. The Trust Deed provides that the Trustee may accept from a Group Employer, subject to due compliance with any applicable Industrial Instrument and the terms of the Deed, contributions towards Worker Entitlements and the reasonable administrative costs for the Fund, and such contributions will be held by the Trustee as part of the Fund. The Trustee is required to keep an account for each Employee in respect of whom a contribution has been made by a Group Employer. The account must be kept in a manner that allows for the calculation of that Employee's Worker Entitlements at any time, including adjustments for Worker Entitlements paid directly by the Group Employer. Under the Trust Deed, the Trustee must not: • appoint or engage a Group Employer or an Associate of a Group Employer to assist in the management of the Fund, including the managing of an investment or asset of the Fund; • invest any assets of the Fund in a Group Employer or an Associate of a Group Employer or an entity of which a Group Employer has Control; • use the Fund to provide or facilitate any form of financial assistance, including by loan to a Group Company or an Associate of a Group Employer and an Employee or an Associate of an Employee. Under the Trust Deed, amounts shall only be paid from the capital contributions made to the Fund by the Trustee for specified purposes, including: • the payment of Worker Entitlements to Employees (or to transfer Worker Entitlements to another AWEF); • investments for the purpose of generating income for the Fund; • the payment of Fund expenses including remuneration of Trustee; • to reimburse a Group Employer, where the Group Employer has made a Worker Entitlement payment directly to an Employee, to the extent that a full or part contribution has previously been paid to the Fund towards that Worker Entitlement Under the Trust Deed, amounts shall only be paid from the income earned on the Fund by the Trustee for specified purposes, including: the payment of Worker Entitlements to Employees (or to transfer Worker Entitlements to another AWEF); • investments for the purpose of generating income for the Fund; • payment of Fund expenses including remuneration of Trustee; • to reimburse a Group Employer, where the Group Employer has made a Worker Entitlement payment directly to an Employee, to the extent that a full or part contribution has previously been paid to the fund towards that Worker Entitlement; • to make payment to an Employee in the following circumstances where amounts have been contributed to the Fund in respect of that Employee and the contribution is an Exempt Benefit and either the payment is a payment of a Worker Entitlement where the contribution for which would be an Exempt Benefit or the payment is not a Worker Entitlement; 'Group Employer' is defined in the Trust Deed to mean 'the Company or another employer that is an Associate of the Company', where 'Associate' is defined as having the same meaning as given by section 136 of the FBTAA. The Taxpayer advises that in respect of reimbursements made by the Company to a Group Employer: • the reimbursement mechanism is provided in the relevant clauses of the Trust Deed, to accommodate the practical reality that often the payments are most conveniently (particularly, on the most timely basis) made by the employer as part of an employee's termination of employment - so that the Fund later reimburses the payments made by the employer. • The employer's journal entry for the original payment would reflect that the payment would be recovered from the Fund: DR: Receivable from Fund CR: Cash • The Fund's journal entry would reflect that the payment to the employer is a payment to satisfy the payment required to the employee: DR: Employee entitlement (reduction of Fund equity) CR: Cash • The employer's journal entry for the reimbursement would reflect satisfaction of the receivable from the Fund: DR: Cash CR: Receivable from Fund Under the operation of Clause X of the Trust Deed, the Company is the default beneficiary of the net income of the Fund.

Relevant legislative provisions: ITAA 1997 section 6-5 | ITAA 1997 section 8-1 | ITAA 1997 subsection 8-1(1) | ITAA 1997 subsection 8-1(2) | ITAA 1997 paragraph 8-1(2)(a)

Reasons for decision: Summary: A Co as head company of the A TCG will be entitled to a deduction under section 8-1 for redundancy contributions made by the Company under clause X of the UEA to the trustee for the Fund. | Detailed Reasoning - Detailed reasoning: Subsection 8-1(1) allows taxpayer to deduct from the assessable income any loss or outgoing to the extent that it is incurred in gaining or producing assessable income or is necessarily incurred in carrying on a business for the purpose of gaining or producing the assessable income. However, under subsection 8-1(2), a loss or outgoing is not deductible to the extent that it is a loss or outgoing of capital, or of a capital nature. | Detailed Reasoning - "Incurred" in gaining or producing assessable income or in carrying on a business: What makes the outgoing deductible under section 8-1 is the existence of a sufficient connection, a "link" or "nexus", between the loss or outgoing and the production of the taxpayer's assessable income. A taxpayer's subjective purpose in incurring a loss or outgoing is not normally relevant to whether a sufficient connection exists. To the extent the Company is bound by the UEA which governs the terms and conditions of employment for many of its employees and has an ongoing legal obligation to make contributions to the Fund in respect of its employees' redundancy entitlements, it is accepted that these expenses are productive of A Co's assessable income and are relevant to the income earning activity of the A TCG. That is, there is sufficient nexus between: • the redundancy contributions made by the Company to the Trustee to satisfy the requirement under the UEA, and • its own income earning activities, where those employees engage in activities that derive income assessable in Australia. | Detailed Reasoning - Not capital or of a capital nature: The redundancy contributions incurred by the Company will be an outgoing for the periodic funding under the UEA for the Company's employees. Costs incurred are in relation to more than one employee, and the Company is bound by the UEA to continue satisfying the requirements under the UEA. This indicates that the redundancy contributions made by the Company to the Trust are ongoing in nature and are part of the Company's broader employment expenditure. When the Company makes the redundancy contributions to the Fund, the Company is meeting its recurring legal obligations to its employees under the UEA and the obligation is directly connected to the income earning capacity of its business. The payment of redundancy contributions is part of the immediate ordinary flow of business expenditure and as such should be considered revenue in nature.

Reasons for decision: Unless otherwise stated, all legislative references are to the provisions of the Income Tax Assessment Act 1997 (ITAA 1997). | Questions 1 - application of the single entity rule in section 701-1 | The consolidation provisions of the ITAA 1997 allow certain groups of entities to be treated as a single entity for income tax purposes. Under the single entity rule (SER) in section 701-1, the subsidiary members of an income tax consolidated group are taken to be parts of the head company. As a consequence, the subsidiary members cease to be recognised as separate entities during the period that they are members of the income tax consolidated group, with the head company of the group being the only entity recognised for income tax purposes. | The meaning and application of the SER is explained in Taxation Ruling TR 2004/11 Income tax: consolidation: the meaning and application of the single entity rule in Part 3-90 of the Income Tax Assessment Act 1997 . | As a consequence of the SER, the actions and transactions of the subsidiary members of the A TCG are treated, for income tax purposes, as having been undertaken by A Co as the head company of the A TCG.