Taxation
NEST has applied for and holds a number of important taxation rulings. These rulings, along with other taxation rules, provide benefits to employers, employees and the NEST fund.
| Ruling Type | Issued By | Description |
|---|---|---|
| Class ruling 2004/40 Tax deductibility | Australian Taxation Office | That employer contributions into NEST are tax deductible at the time the contributions are made. |
| Class ruling 2009/49 Member payments | Australian Taxation Office | Payments directly from NEST to an employee retain the same concessional treatment as if NEST was the employer. |
| Private Ruling 38224 Contributions are not income | Australian Taxation Office | That the Trustee of NEST is not assessable under the “Income Tax Assessment Act 1997” on employer contributions made to the fund. |
| Legislative Fringe benefits tax | Commonwealth of Australia | NEST is endorsed by the Commissioner of Taxation under Div 426 in Schedule 1 the Taxation Administration Act 1953 (Cth), in accordance with the Fringe Benefits Tax Assessment Act 1986 paragraph 58PB. |
Contributions are tax deductible
Under existing laws, employers are required to pay or accrue provisions for employee entitlements in accordance with their relevant employment agreement(s). Currently under the Income Tax Assessment Act 1997 (ITAA 97) s26-10 in relation to leave contributions, the employer only receives a tax deduction once the employee’s entitlements are paid to the individual to whom it relates in the income year of payment.
NEST holds Class Ruling (CR 2004/40) with the Australian Taxation Office (ATO) which enables participating employers to claim a deduction under the Income Tax Assessment Act 1997 (ITAA) S8-1 for the amount of the contribution to NEST. This means that any employee entitlements contributed to NEST, as required by an Employment Agreement, are tax deductible at the time that it is paid into NEST.
Member payments have concessional treatment
NEST holds Class Ruling (CR 2009/49) with the Australian Taxation Office which states; where an employee member of NEST receives a payment of employee entitlements directly from NEST, then that payment may receive concessional taxation treatment, in the same manner applicable, had the payment been made by the employer to the employee.
This means that no employee member of NEST will be disadvantaged when paid their entitlements directly from NEST. Regardless of the type of employee entitlement paid the employee will receive the exact same amount after tax that would have been received had the employer made the payment to the employee.
Contributions are not assessable as trust income
NEST holds Private Ruling Authorisation Number (38224) which states; NEST is not assessable under section 6-5 of the "Income Tax Assessment Act 1997" on the employer contributions made to the fund.
This means that contributions made by employers into NEST, representing employee entitlement accruals for the capital of the NEST trust and will not be taxed as income to the fund. This private ruling ensures that both employers and employees are protected from having employee entitlement contributions diluted by tax.
Contributions do not attract finge benefits tax
Contributions made to NEST are FBT exempt as NEST is endorsed by the Commissioner of Taxation under Div 426 in Schedule 1 the Taxation Administration Act 1953 (Cth), in accordance with the Fringe Benefits Tax Assessment Act 1986 paragraph 58PB. This means that contributions representing employee entitlements that are paid into NEST will not create a fringe benefit tax liability to the employer or employee.
Genuine Redundancy Payment Members receive additional concessional treatment
Members that elect to be Genuine Redundancy Payment Members and who are paid from NEST, will receive additional concessional tax treatment on amounts paid under their claim in the event their employment is terminated due to redundancy. This concessional tax treatment allows Genuine Redundancy Payment Members to receive their payment on a tax-free basis up to the limit set by the Australian Taxation Office, which may be subject to review.
Currently (for Financial Year 2024/25), the tax-free limit is the amount of $12,524 plus $6,264 multiplied by the number of complete years of service of the employee. For example, if you retired from your employment after 10 years, you would be entitled to receive your payment tax-free up to $75,164.
Once the tax-free limit is exceeded, the balance of the amount paid will be subject to the same concessional tax rate as Termination Members, as discussed above.
Other Taxation Matters
GST on administration fees
GST does apply to administration fees charged to the trust. The government however allows up to 75% of GST charged to the fund to be reclaimed. NEST claims GST paid by the trust and distributes it to the beneficiaries annually (assuming there is surplus income in the fund).
Tax File Numbers
Where employee Tax File Numbers are not provided and where applicable, NEST must deduct tax from payments made to employees at the highest marginal tax rate. This usually occurs where an employee receives a trust distribution or interest payment.
State Taxes and Levies
NEST does not change the way an employer accounts for and pays state taxes and/or levies such as payroll tax and workers compensation premiums. Employers can continue to run these obligations through their normal payroll process.