Class Ruling CR 2012/94
Date of effect: 1 July 2012

What this ruling is about: 1. This Ruling sets out the Commissioner's opinion on the way in which the relevant provision(s) identified below apply to the defined class of entities, who take part in the scheme to which this Ruling relates. Relevant provision(s) 2. The relevant provisions dealt within this Ruling are: All legislative references in this Ruling are to the ITAA 1997 unless otherwise indicated. Class of entities 3. The class of entities to which this Ruling applies is all employers who make contributions to the Australian Construction Industry Redundancy Trust (ACIRT) on behalf of the workers who are members of ACIRT (members). Qualifications 4. The Commissioner makes this Ruling based on the precise scheme identified in this Ruling. 5. The class of entities defined in this Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 10 to 24 of this Ruling. 6. If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then: 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:

Class of entities or scheme: 3. The class of entities to which this Ruling applies is all employers who make contributions to the Australian Construction Industry Redundancy Trust (ACIRT) on behalf of the workers who are members of ACIRT (members). | Qualifications: 4. The Commissioner makes this Ruling based on the precise scheme identified in this Ruling. 5. The class of entities defined in this Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 10 to 24 of this Ruling. 6. If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then: 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: 8. This Ruling applies from 1 July 2012 to 30 June 2018. The Ruling continues to apply after 30 June 2018 to all entities within the specified class who entered into the specified scheme during the term of the Ruling. However, this Ruling will not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of this Ruling (see paragraphs 75 and 76 of Taxation Ruling TR 2006/10). 9. This ruling is an extension of Class Ruling CR 2007/28 Income tax : deductibility of employer contributions to the Australian Construction Industry Redundancy Trust which was previously issued to ACIRT. 10. The following description of the scheme is based on information provided by the applicant. 11. ACIRT is an Australian resident trust fund governed by a trust deed (Trust Deed) which established the fund in Australia. The central management and control of the fund is in Australia. 12. The trustee of ACIRT is ACIRT Pty Ltd ACN 0623330170 (Trustee), an Australian resident company. 13. The Trustee has appointed an administrator of ACIRT and an investment manager to manage the investments of ACIRT on behalf of the Trustee. 14. ACIRT is an approved worker entitlement fund for fringe benefit tax (FBT) purposes from 26 February 2004. 15. Employers are obligated by various industrial awards and enterprise agreements (industrial instruments) to provide redundancy benefits for their workers. Employers can fund worker redundancy benefits that they are required to make by the payment of contributions to ACIRT. 16. An employer must apply to the Trustee for admission to ACIRT and must complete a Deed of Adherence to participate in ACIRT. 17. ACIRT accepts contributions from employers, on a monthly basis, for each week of service in respect of which contributions are legally payable under an industrial instrument or the Deed of Adherence, to fund each worker's redundancy benefit. Under clause 4.1 of the Trust Deed, the amount to be contributed by the employer in respect of each worker is: 18. As outlined in clause 5.1 of the Trust Deed, all contributions made to ACIRT by employers will be placed into separate member accounts identifying contributions for that member. 19. On becoming redundant, as defined in the Trust Deed, an employee is entitled to be paid a redundancy benefit of the amount held in the member's account. 20. In addition to receiving contributions from employers on behalf of workers, ACIRT earns income on the contributions it holds. After payment of fund expenses, ACIRT distributes all of the net income each year to members. 21. The net income available for distribution is divided amongst members in proportion to the members' account balances (subject to a minimum balance requirement). 22. Clause 19.4 of the Trust Deed contains a facility for reimbursement of the employer, where it has paid the redundancy amount to the member directly. 23. Members can transfer the benefits they have accumulated with another similar redundancy fund into ACIRT where such transfer is permitted by the other fund. 24. Members can transfer benefits from ACIRT to another approved worker entitlement fund. 25. An employer who makes contributions for worker redundancy benefits to ACIRT under the Trust Deed can claim a deduction under section 8-1 for the amount of the contribution. 26. Where an employer pays an amount directly to a worker, which the worker is entitled to on redundancy under the Trust Deed, and then seeks reimbursement from ACIRT, the amount of the payment will be an allowable deduction under section 8-1. 27. A reimbursement received by an employer from ACIRT for an amount paid directly to a worker, which the worker is entitled to on redundancy under the Trust Deed, will be assessable income under section 6-5 at the time the amount is derived by the employer. Commissioner of Taxation 24 October 2012 | Application of section 8-1: 28. Section 8-1 provides that you can deduct from your 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 assessable income and is not: | Nexus to gaining and producing assessable income: 29. Employers, in the course of carrying on their business activities, are obligated by various industrial instruments to provide redundancy benefits for their workers. Employers can fund these worker redundancy benefits that they are required to make by the payment of contributions to ACIRT. 30. If an employer chooses to fund their work redundancy benefits via contributions to ACIRT, a Deed of Adherence is executed between the employer and ACIRT. 31. In addition to the employer's legal obligations under the relevant industrial instrument, the employer is also required to meet the obligations under the Deed of Adherence and the Trust Deed. The administrative provisions require the employer to make monthly contributions to ACIRT in respect of worker entitlements. 32. It is accepted that there is a nexus between the business activities being carried on by the employer and the employer's obligation to provide for worker redundancy benefits, such that payment of the contributions is incidental and relevant to the production of the assessable income of the business. | Incurring the amount: 33. At the point at which an employer makes a contribution to the Trustee of ACIRT the amount is placed into member accounts and the amount is no longer available to the employer. This differs from the situation in Walstem Pty Ltd v. Federal Commissioner of Taxation [2003] FCA 1428; 2003 ATC 5076; (2003) 54 ATR 423 where there were no members of the trust. The contributions were not expenses incurred by the employer as they remained funds of the employer. 34. The fact that amounts may be returned to the employer under the Trust Deed when the employer is reimbursed for payments made directly to a worker (a factor which does not prevent ACIRT being an approved worker entitlement fund under section 58PB of the Fringe Benefits Tax Assessment Act 1986 ) does not affect whether the monthly contributions are incurred by the employer. 35. Even though the Trust Deed enables the employer to seek reimbursement in certain circumstances, the contributions to ACIRT are definite payments which employer is required to make to meet the legal obligations under the industrial instruments or Deed of Adherence which arise in the course of carrying on their business activities. As such the employer incurs the expenditure on contributions when the liability to make the payment arises each month. | Conclusion: 36. The employer's monthly contributions to ACIRT are outgoings necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income for the purposes of section 8-1. | Is the contribution revenue in nature?: 37. Whether the payment of contributions for worker redundancy benefits to ACIRT is revenue or capital in nature depends on the character of the payment when made by the employer. As stated in GP International Pipecoaters Pty Ltd v. Federal Commissioner of Taxation (1990) 90 ATC 4413 at 4419; (1990) 21 ATR 1 at 7: 38. In making the monthly contributions to ACIRT as required by clause 4.1 of the Trust Deed, the employer meets their immediate legal obligation under an industrial instrument or the Deed of Adherence. 39. The employer is making repetitive monthly contributions to discharge an immediate obligation and the obligation is directly connected to the income earning capacity of the business. Accordingly, the payment of the contributions is revenue in nature. | Payments by employer to employee: 40. It is accepted that there is a nexus between the business activities being carried on by the employer and the employer's obligation to provide for worker redundancy benefits, such that payment of the worker redundancy benefits directly to a worker by an employer is incidental and relevant to the production of the assessable income of the business. 41. Accordingly the payment of a worker redundancy benefit directly to a redundant worker would be an allowable deduction under section 8-1 as an outgoing incurred in gaining or producing assessable income or in carrying on a business for that purpose. | Reimbursement of payment by employer: 42. Where an employer has paid a worker their worker redundancy benefit directly, the employer may apply to ACIRT for a reimbursement of this amount. ACIRT may reimburse the employer for this amount under clause 19.4 of the Trust Deed. 43. Where an employer has claimed or will claim a deduction for a worker redundancy benefit paid directly to a redundant worker under section 8-1, the reimbursement of this expense must be declared as income. In these cases it is considered that the reimbursement is income received in the ordinary course of business and assessable under section 6-5 in the income year in which it is derived. 44. The following is a detailed contents list for this Ruling: Not previously issued as a draft

Ruling: 25. An employer who makes contributions for worker redundancy benefits to ACIRT under the Trust Deed can claim a deduction under section 8-1 for the amount of the contribution. 26. Where an employer pays an amount directly to a worker, which the worker is entitled to on redundancy under the Trust Deed, and then seeks reimbursement from ACIRT, the amount of the payment will be an allowable deduction under section 8-1. 27. A reimbursement received by an employer from ACIRT for an amount paid directly to a worker, which the worker is entitled to on redundancy under the Trust Deed, will be assessable income under section 6-5 at the time the amount is derived by the employer. Commissioner of Taxation 24 October 2012


Appendix: Application of section 8-1: 28. Section 8-1 provides that you can deduct from your 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 assessable income and is not: | Nexus to gaining and producing assessable income: 29. Employers, in the course of carrying on their business activities, are obligated by various industrial instruments to provide redundancy benefits for their workers. Employers can fund these worker redundancy benefits that they are required to make by the payment of contributions to ACIRT. 30. If an employer chooses to fund their work redundancy benefits via contributions to ACIRT, a Deed of Adherence is executed between the employer and ACIRT. 31. In addition to the employer's legal obligations under the relevant industrial instrument, the employer is also required to meet the obligations under the Deed of Adherence and the Trust Deed. The administrative provisions require the employer to make monthly contributions to ACIRT in respect of worker entitlements. 32. It is accepted that there is a nexus between the business activities being carried on by the employer and the employer's obligation to provide for worker redundancy benefits, such that payment of the contributions is incidental and relevant to the production of the assessable income of the business. | Incurring the amount: 33. At the point at which an employer makes a contribution to the Trustee of ACIRT the amount is placed into member accounts and the amount is no longer available to the employer. This differs from the situation in Walstem Pty Ltd v. Federal Commissioner of Taxation [2003] FCA 1428; 2003 ATC 5076; (2003) 54 ATR 423 where there were no members of the trust. The contributions were not expenses incurred by the employer as they remained funds of the employer. 34. The fact that amounts may be returned to the employer under the Trust Deed when the employer is reimbursed for payments made directly to a worker (a factor which does not prevent ACIRT being an approved worker entitlement fund under section 58PB of the Fringe Benefits Tax Assessment Act 1986 ) does not affect whether the monthly contributions are incurred by the employer. 35. Even though the Trust Deed enables the employer to seek reimbursement in certain circumstances, the contributions to ACIRT are definite payments which employer is required to make to meet the legal obligations under the industrial instruments or Deed of Adherence which arise in the course of carrying on their business activities. As such the employer incurs the expenditure on contributions when the liability to make the payment arises each month. | Conclusion: 36. The employer's monthly contributions to ACIRT are outgoings necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income for the purposes of section 8-1. | Is the contribution revenue in nature?: 37. Whether the payment of contributions for worker redundancy benefits to ACIRT is revenue or capital in nature depends on the character of the payment when made by the employer. As stated in GP International Pipecoaters Pty Ltd v. Federal Commissioner of Taxation (1990) 90 ATC 4413 at 4419; (1990) 21 ATR 1 at 7: 38. In making the monthly contributions to ACIRT as required by clause 4.1 of the Trust Deed, the employer meets their immediate legal obligation under an industrial instrument or the Deed of Adherence. 39. The employer is making repetitive monthly contributions to discharge an immediate obligation and the obligation is directly connected to the income earning capacity of the business. Accordingly, the payment of the contributions is revenue in nature. | Payments by employer to employee: 40. It is accepted that there is a nexus between the business activities being carried on by the employer and the employer's obligation to provide for worker redundancy benefits, such that payment of the worker redundancy benefits directly to a worker by an employer is incidental and relevant to the production of the assessable income of the business. 41. Accordingly the payment of a worker redundancy benefit directly to a redundant worker would be an allowable deduction under section 8-1 as an outgoing incurred in gaining or producing assessable income or in carrying on a business for that purpose. | Reimbursement of payment by employer: 42. Where an employer has paid a worker their worker redundancy benefit directly, the employer may apply to ACIRT for a reimbursement of this amount. ACIRT may reimburse the employer for this amount under clause 19.4 of the Trust Deed. 43. Where an employer has claimed or will claim a deduction for a worker redundancy benefit paid directly to a redundant worker under section 8-1, the reimbursement of this expense must be declared as income. In these cases it is considered that the reimbursement is income received in the ordinary course of business and assessable under section 6-5 in the income year in which it is derived.


What this Ruling is about | NOT LEGALLY BINDING SECTION: | A public ruling is an expression of the Commissioner's opinion about the way in which a relevant provision applies, or would apply, to entities generally or to a class of entities in relation to a particular scheme or a class of schemes. | If you rely on this ruling, the Commissioner must apply the law to you in the way set out in the ruling (unless the Commissioner is satisfied that the ruling is incorrect and disadvantages you, in which case the law may be applied to you in a way that is more favourable for you - provided the Commissioner is not prevented from doing so by a time limit imposed by the law). You will be protected from having to pay any underpaid tax, penalty or interest in respect of the matters covered by this ruling if it turns out that it does not correctly state how the relevant provision applies to you. | The character of expenditure is ordinarily determined by reference to the nature of asset acquired or the liability discharged by the making of the expenditure, for the character of the advantage sought by the making of the expenditure is the chief, if not the critical, factor in determining the character of what is paid: Sun Newspapers Ltd v. F.C. of T . (1938) 61 C.L.R. 337 at p. 363. | Is the contribution revenue or capital in nature ? | Appendix 2 - Detailed contents list


Related rulings: TR 2006/10 CR 2007/28
Legislative references: ITAA 1997 6-5 ITAA 1997 8-1 ITAA 1997 Div 230 FBTAA 1986 58PB TAA 1953 TAA 1953 Sch 1 357-75(1) Copyright Act 1968
Case references: GP International Pipecoaters Pty Ltd v. Federal Commissioner of Taxation (1990) 90 ATC 4413 at 4419 (1990) 21 ATR 1
Subject references: assessable recoupments deductions and expenses eligible termination payments income