House of Representatives

Explanatory Memorandum

(Circulated by authority of the Assistant Treasurer, Minister for Housing and Minister for Homelessness, Social and Community Housing, the Hon Michael Sukkar MP)

Chapter 1 - Fringe benefits tax exemption to support retraining and reskilling

Outline of chapter

1.1 Schedule 1 to the Bill amends the Fringe Benefits Tax Assessment Act 1986 to provide employers with an exemption from FBT if they provide training or education to a redundant, or soon to be redundant, employee for the purpose of assisting that employee to gain new employment.

1.2 All legislative references in this Chapter are to the Fringe Benefits Tax Assessment Act 1986 unless otherwise indicated.

Context of amendments

1.3 The increased rate of globalisation and technological change, and the changing nature of work and the labour market, are among the forces driving the need for continued upgrading of skills throughout life. Retraining and reskilling plays an important role in allowing Australia's labour force to benefit from the ongoing transformation of jobs and workplaces.

1.4 Against this background, the Government is supporting employers to retrain and reskill individuals for future employment opportunities.

1.5 To incentivise employers to retrain and reskill redundant (or soon to be redundant) employees so that they are better prepared to transition to their next career, Schedule 1 to the Bill provides employers an exemption from FBT for benefits provided to these employees for the purpose of enabling them to gain new employment.

Summary of new law

1.6 Schedule 1 to the Bill amends the Act to provide employers with an exemption from FBT if they provide training or education to a redundant, or soon to be redundant, employee for the purpose of assisting that employee to gain new employment.

Comparison of key features of new law and current law

Detailed explanation of new law

New FBT exemption for retraining and reskilling redundant employees

1.7 Under the new law, a benefit is exempt from FBT if all of the following conditions are satisfied:

•

the benefit is provided in, or in respect of, the tax year for education or training undertaken by an employee of an employer;

•

the employee is redundant;

•

the employer has complied with any obligations under the Fair Work Act 2009 that applies in relation to the redundancy (such as any requirements to consult about the redundancy); and

•

the education or training is for the primary purpose of enabling the employee to gain or produce salary or wages in respect of any employment to which the education or training relates.

[Schedule 1, item 1, subsection 58ZE(1)]

1.8 A benefit may receive concessional treatment under the new FBT exemption if it is provided in, or in respect of, a tax year (within the existing meaning under section 138A of the Act).

1.9 The benefit must be provided in respect of education or training undertaken by an employee of the employer. This covers the provision of the education or training (such as reimbursing or paying the course fees or giving training) and also benefits associated with the education or training (such as related course materials, textbooks, travel and accommodation).

1.10 'Employee' is defined under existing section 136 of the Act and includes current employees, former employees and future employees.

1.11 For the purposes of the FBT exemption, an employee is redundant if the employee's employer no longer requires, or reasonably expects to no longer require, the employee's job to be performed by anyone because of changes in the operational requirements of the employer's business or undertaking. [Schedule 1, item 1, subsection 58ZE(2)]

1.12 The concept of redundancy for the purposes of the new FBT exemption is broad. It covers circumstances where an employee is made redundant in one part of the employer's business but is able to be redeployed to another part of its business (or within an associate's business). It also covers circumstances where the employer reasonably expects the employee to be redundant but has not yet been made redundant. If circumstances change, and the employee is not made redundant (for example, because the employer restructures its business in such a way so as to retain the employee), the employer will not be denied the FBT exemption for any benefits provided during the period throughout which the redundancy test has been satisfied.

1.13 In addition, as noted above, the employer must also be satisfied that the education or training is being undertaken for the primary purpose of enabling the employee to gain or produce salary or wages in respect of any employment to which the education or training relates. Education or training that is undertaken primarily for personal reasons or interest will not satisfy this test. There must be a direct nexus between the education or training and the expected employment the employee is planning to pursue.

1.14 Some benefits are excluded from the new FBT exemption. In particular, the following benefits will continue to be subject to FBT under the existing law:

•

benefits provided under a salary packaging arrangement;

•

benefits that are a payment or other amount covered by subsection 26-20(1) of the ITAA 1997 (such as student contributions towards a Commonwealth supported place at a higher education institution);

•

benefits that involve a primary course or secondary course - broadly primary and secondary school education courses (as defined under the A New Tax System (Goods and Services Tax) Act 1999); and

•

benefits provided to relatives of certain employers (or certain individuals that are connected to the employer).

[Schedule 1, item 1, subsection 58ZE(3)]

Example 1.1 : Employee's redundancy and departure from an employer

Michael is a production supervisor employed by Paper Mill Pty Ltd (Paper Mill), a pulp and paper manufacturing company based in Australia.

Paper Mill is planning to shut down its Australian operations over the next five years. In May 2021, it advises all affected employees, including Michael, that it expects their positions will be made redundant by May 2026.

In relation to these expected redundancies, Paper Mill is complying with all relevant obligations under industrial relations law and is offering affected employees the opportunity to reskill for future employment.

Michael is not a director or shareholder, or relative of a director or shareholder, of Paper Mill.

Michael wishes to undertake a gardening course to gain future employment as a horticulturalist. Michael also plans to use the skills and knowledge acquired to cultivate a vegetable patch at his home. However, this is not the main reason why he wishes to undertake this training.

Paper Mill is satisfied that this training is for the primary purpose of gaining future employment and agrees to support Michael's studies.

Michael accepts a full fee paying place at the Australian Nature University to undertake a Science of Gardening degree.

Paper Mill covers the costs associated with the degree by reimbursing Michael for the tuition fees. This benefit is covered by the new FBT exemption for retraining and reskilling.

If Michael had instead accepted a Commonwealth supported place for this degree it would not have been covered by the new FBT exemption for retraining and reskilling - meaning Paper Mill would be liable for FBT on any benefit provided to Michael in respect of this education or training.

As expected, in May 2026, Michael is made redundant from his position at Paper Mill. After his departure, he is not able to find employment as a horticulturalist as planned. Instead, he takes up a new job that is not related to his studies at another manufacturing plant. This does not change Paper Mill's eligibility for the new FBT exemption for retraining and reskilling.

Example 1.2 : Employee's redundancy and redeployment to another job within the same employer

Gary is a retail store manager employed by Paperclip Pty Ltd (Paperclip), a company based in Australia, with retail stores selling office supplies and stationery across Australia.

On 20 March 2021, due to a decline in foot traffic and sales from its retail shopfronts, Paperclip announced a series of store closures over the next year as it transitions its business model to online sales. Employees at affected locations, including Gary, were advised their positions would be made redundant within this period.

In relation to these redundancies, Paperclip is complying with all relevant obligations under industrial relations law and is offering affected employees the opportunity to reskill for future employment.

Gary is not a director or shareholder, or relative of a director or shareholder, of Paperclip.

Gary wishes to undertake a diploma in information technology at the Institute of Technology for the purpose of gaining future employment as a web developer. Gary does not currently have the skills required to pursue this career.

Upon hearing about Gary's study plans, Paperclip offers to redeploy Gary to its web development team after he has completed his studies to work on the development and maintenance of its online sales platform. Gary accepts.

Paperclip covers the costs associated with the diploma by paying the tuition fees directly to the Institute of Technology. Paperclip also reimburses Gary for the costs of the textbooks he requires for the course. These benefits are covered by the new FBT exemption for retraining and reskilling.

On completion of his studies in December 2021, Gary is redeployed to his new position within Paperclip in its web development team.

Example 1.3 : Expected redundancy from an employer

Scranton Media Pty Ltd (Scranton Media) publishes the local newspapers in regional areas across Australia. Scott is employed as an editor at Scranton Media, based in Warrnambool, Victoria.

On 8 October 2021, Scranton Media announces that it will restructure and consolidate its media and print operations by the end of the year - reducing its number of print publications overall. As part of this restructure, a number of employees in Victoria, including Scott, are expected be made redundant.

In relation to these expected redundancies, Scranton Media is complying with all relevant obligations under industrial relations law and is offering affected employees the opportunity to reskill for future employment.

Scott is not a director or shareholder, or relative of a director or shareholder, of Scranton Media.

Scott wishes to undertake a short course in illustration to gain future employment as an illustrator for children's books. The course involves an intensive workshop over one weekend in Melbourne, Victoria in late October.

Scranton Media is satisfied that the course is for the primary purpose of gaining future employment as an illustrator.

Scranton Media covers the costs associated with the short course by reimbursing Scott for the tuition fees, as well as reasonable travel and accommodation expenses for the intensive workshop in Melbourne. These benefits are covered by the new FBT exemption for retraining and reskilling.

In November, after Scott has completed the short course, Scranton Media's circumstances change following renewed interest in its print publications. It decides that it no longer needs to consolidate its media and print operations in Victoria. This means Scott's redundancy is no longer required. Scott agrees to remain employed as an editor with Scranton Media.

This change in circumstance does not affect the FBT exemption previously claimed.

Application and transitional provisions

1.15 The new law applies to benefits provided on or after 2 October 2020 - being the date of announcement of the measure. [Schedule 1, item 2]

1.16 The measure applies retrospectively, however, its application is wholly beneficial for affected employers and their employees as it provides that affected benefits are not subject to FBT and are instead exempt benefits.

1.17 The amendments commence on the first day of the first quarter after Royal Assent. [Clause 2]