Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello MP)Chapter 4 - Fringe benefits tax exemption thresholds for long service award benefits
Outline of chapter
4.1 Schedule 4 to this Bill amends the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986) to increase the fringe benefits tax (FBT) exemption thresholds for long service award benefits.
Context of amendments
4.2 A long service award benefit is a fringe benefit provided by an employer to an employee in respect of the employee's employment in recognition of the employee's period of service of not less than 15 years.
4.3 Long service award benefits granted in recognition of 15 years or more of service are exempt from FBT if the value of the benefit does not exceed a specified maximum amount, or threshold.
4.4 The current exemption thresholds are:
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- $500 for 15 years' service; and
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- $50 for each year more than 15 years that is being recognised.
4.5 Thus the current exemption threshold is $500 where the period of service being recognised by the award is 15 years. If the award recognises a period of service greater than 15 years, the exemption threshold increases by $50 for each additional year.
Summary of new law
4.6 This amendment increases the exemption thresholds from $500 to $1,000 for 15 years' service, and from $50 to $100 for each additional year of service.
Comparison of key features of new law and current law
| New law | Current law |
|---|---|
| Long service award benefits are exempt from FBT where the value of the benefit does not exceed $1,000 for 15 years' service and $100 for each additional year of service. | Long service award benefits are exempt from FBT where the value of the benefit does not exceed $500 for 15 years' service and $50 for each additional year of service. |
Detailed explanation of new law
4.7 The benefit is exempt provided that the value of the benefit is not more than $1,000 plus $100 for each year of service 15 years or more that is being recognised. [Schedule 4, item 1, paragraph 58Q(1)(c) (formula)]
Example 4.1
Peter & Friends Pty Ltd provides a long service award benefit to an employee, Paul, in recognition of Paul's 20 years' service. Peter & Friends Pty Ltd is exempt from FBT on the value of Paul's benefit, provided that the value of the benefit does not exceed $1,500.
The exemption threshold is calculated as $1,000 for Paul's 15 years' service, plus $100 for each year 15 years or more that is being recognised:
$1,000 + ($100 * (20 - 15))
4.8 Where the employer provides a subsequent benefit, the benefit is exempt provided that the value of the benefit is not more than $100 per annum for each year of service in excess of the years of service for which a benefit was previously provided. [Schedule 4, item 2, paragraph 58Q(1)(d) (formula)]
Example 4.2
Peter & Friends Pty Ltd is also providing a long service award benefit to another employee, Mary, in recognition of Mary's 25 years' service. Five years ago, Mary received a long service award benefit for her first 20 years of service. Peter & Friends Pty Ltd is exempt from FBT on the value of Mary's benefit, recognising her last five years of service, provided that the value of the benefit does not exceed $500.
The exemption threshold is calculated as $100 for each year of Mary's additional 5 years' service being recognised since her previous award:
$100 * (25 - 20)
Application and transitional provisions
4.9 This amendment applies for the FBT year beginning on 1 April 2005 and later FBT years. [Schedule 4, item 3]