Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello MP)Chapter 4 - Fringe benefits tax - rebatable employer status of certain government institutions
Outline of chapter
4.1 Schedule 4 to this Bill amends the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986) to correct an anomaly that would allow government institutions that are charitable institutions at law to be eligible for fringe benefits tax (FBT) rebatable employer status from 1 July 2005.
Context of amendments
4.2 Schedule 10 of the Tax Laws Amendment (2004 Measures No. 1) Act 2004 introduced a requirement for charities, public benevolent institutions and health promotion charities to be endorsed by the Commissioner of Taxation in order to access certain taxation concessions, including FBT rebatable employer status. FBT rebatable employers are eligible for a 48 per cent rebate of the FBT amount that would otherwise be payable.
4.3 In introducing this new requirement, a caveat of the law precluding charitable institutions of the Commonwealth, a state or a territory from claiming FBT rebatable employer status was omitted. As a result of this anomaly, institutions such as public universities, public museums, public art galleries and other government bodies accepted as charitable at law will become eligible FBT rebatable employers from 1 July 2005.
4.4 These government institutions have traditionally been ineligible for FBT rebatable status as their overriding purpose is considered to be to carry out the functions or responsibilities of government. It is appropriate that this arrangement continues after 1 July 2005 in recognition of this distinction.
Summary of new law
4.5 This amendment will ensure that government institutions of the Commonwealth, a state or a territory that are accepted as charitable at law will continue to be ineligible for FBT rebatable employer status from 1 July 2005.
Comparison of key features of new law and current law
| New law | Current law |
|---|---|
| From 1 July 2005 government institutions of the Commonwealth, a state or a territory that are charitable institutions at law will remain ineligible for FBT rebatable employer status. | Government institutions of the Commonwealth, a state or a territory that are charitable institutions at law will become eligible for FBT rebatable employer status from 1 July 2005. |
Detailed explanation of new law
4.6 Subsection 65J(1) of the FBTAA 1986 treats certain employers as 'rebatable employers' for the purposes of calculating their FBT liability. FBT rebatable employers are eligible for a rebate of 48 per cent of the FBT amount that would otherwise be payable.
4.7 An amendment is made to ensure that institutions of the Commonwealth, a state or a territory that are accepted as charitable institutions at law will remain ineligible for FBT rebatable employer status from 1 July 2005. [Schedule 4, item 1, paragraph 65J(1)(baa)]
4.8 A technical correction is made to paragraph 123E(1)(a) by omitting a reference to subsection 123E(3). [Schedule 4, item 2, paragraph 123E(1)(a)]
Application and transitional provisions
4.9 The amendments will apply from 1 July 2005. [Schedule 4, item 3]