House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello MP)

Chapter 4 - Cross-border employee shares or rights

Outline of chapter

4.1 Schedule 4 to this Bill more closely aligns the taxation of shares or rights acquired under an employee share scheme (employee shares or rights) with international norms developed by the Organisation for Economic Co-operation and Development (OECD). These amendments will be relevant where an individual works in more than one country or changes country of residence.

4.2 These amendments will help prevent double or nil taxation of employee shares or rights and provide greater certainty for individuals. This is achieved primarily by allowing employee shares or rights to benefit from existing mechanisms to prevent double taxation, and clarifying the treatment of individuals with employee shares or rights who subsequently become employed in Australia. Additional rules clarify capital gains tax (CGT) interactions, and make other improvements.

4.3 Unless otherwise indicated, all legislative references are to the Income Tax Assessment Act 1936.

Context of amendments

4.4 These amendments are part of the Government's response to the Board of Taxation's report to the Treasurer on international taxation. They will reduce the potential for double or nil taxation of income from employee shares or rights in the international context. Providing a more internationally consistent treatment of employee shares or rights will ensure a fairer and more certain outcome for relevant individuals. It will also assist Australian businesses in attracting skilled workers.

4.5 Employee shares or rights provided at a discount can be seen as a substitute for employment income. The discount may relate to employment over a long period. Hence problems can arise in respect of individuals who acquire such shares or rights and who subsequently change their country of residence, work in more than one country, or work in one country while resident of another. Many of these problems arise as countries tax employee shares or rights in many different ways. To help address these problems, the OECD recently approved revisions to the Commentary to its Model Tax Convention on Income and on Capital clarifying the tax treaty treatment of employee rights.

4.6 The OECD commentary on the articles of the model tax convention is relevant in interpreting Australia's tax treaties. The revised commentary treats the benefit accruing up to the exercise of a right as an employment benefit to which Article 15 (Income from Employment) of the model tax convention applies. The commentary recognises that the facts and circumstances of the particular case will determine the period of employment to which the right relates. The number of days worked in a treaty country during this employment period then determines the extent of that country's source taxing rights.

4.7 These amendments do not seek to incorporate the OECD approach into Australian domestic law. Rather, the amendments align the domestic law more closely with the OECD approach by emphasising the employment income nature of employee shares or rights, clarifying residence and source country taxing arrangements, and improving the interaction of the employee share scheme and CGT provisions.

Summary of new law

4.8 Individuals acquiring employee shares or rights will have access to existing offshore employment income exemptions. Similarly, the foreign tax credit and foreign loss provisions will apply to employee share scheme income in the same way as other assessable employment income.

4.9 The amendments make clear that the employee share scheme provisions also apply to individuals who become employed in Australia (Australian employees) after acquiring employee shares or rights relating to that employment. The concessional treatment available for qualifying shares or rights will extend to such cases. Further, amounts that relate to employment offshore while not a resident will not be assessable income.

4.10 The amendments also rectify existing problems for employee share trusts in respect of employment offshore, better address overlaps with the foreign investment fund rules, and improve interactions with the CGT provisions for both residents who become non-residents and non-residents who become residents.

4.11 The amendments relating to the acquisition of employee shares or rights by individuals, and individuals who first become Australian employees holding employee shares or rights, will generally apply from the date of Royal Assent.

4.12 The amendments for shares or rights acquired under an employee share trust apply to shares or rights to which a beneficiary becomes absolutely entitled on or after Royal Assent. The remaining CGT amendments apply to CGT events occurring on or after Royal Assent. Amendments to the fringe benefits tax and foreign investment fund rules apply from the relevant income year ending after Royal Assent.

Comparison of key features of new law and current law

Detailed explanation of new law

Overview of current employee share scheme provisions (Division 13A of Part III)

4.13 The employee share scheme provisions apply to shares or rights acquired by an individual (or an associate) in respect of the individual's employment (or service). Where the share or right is acquired for a price less than market value - that is, at a discount - the discount is part of the individual's assessable income. How and when a discount is included in assessable income depends in part on whether it is qualifying or not-qualifying.

Treatment of not-qualifying shares or rights

4.14 The discount on not-qualifying shares or rights is included in the individual's assessable income in the year the share or right is acquired (subsection 139B(2)). Where an individual acquires an employee share or right offshore, it may be unclear how the provisions apply. Further, as a practical matter, an individual who acquires an employee share or right while offshore will probably not be aware of the potential application of the employee share scheme provisions.

Treatment of qualifying shares or rights

4.15 Individuals receiving qualifying shares or rights can benefit from either:

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the first $1,000 of the discount on the shares or rights not being taxable (exemption benefit), subject to meeting additional conditions, or

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a deferral of the year of assessment, until a further event known as a 'cessation time' occurs (for a deferral period of a maximum of ten years). Assessable income is then determined by the value of the discount as calculated at the cessation time, not in the year of acquisition.

4.16 To obtain the exemption benefit, an individual must elect to be taxed in the year in which the share or right is acquired before lodging a tax return for that year (section 139E). If an election is not made, the second concession applies (subsection 139B(3)).

Conditions to be a qualifying share or right

4.17 There are a number of conditions for a share or right to be a qualifying share or right (section 139CD). One condition is that the shares or rights offered are in a company which is the employer or holding company of the employer (subsection 139CD(3)).

4.18 An employer is defined as a person who is required to pay work and income support related withholding payments and benefits (section 139GA, subsection 221A(1)). Employers are generally required to withhold from payments to employees in Australia. However, employers of individuals offshore will generally fall outside this definition (see paragraph 4.27). Employee shares or rights acquired by an individual employed offshore will therefore generally not be a qualifying share or right, and not eligible for concessional treatment under Division 13A.

Treating employee share scheme income as employment income

4.19 International double taxation problems may arise where Australian tax is paid by a resident individual on an employee share or right under the employee share scheme provisions, and the individual also pays tax overseas as some of the relevant service took place offshore.

4.20 Domestic relief from such double taxation on the income earned offshore by Australian residents can be achieved by providing either an exemption for the offshore income or providing a foreign tax credit. For offshore employment income in general, exemptions are currently provided for:

•

the foreign earnings of an Australian resident individual, where the foreign service is conducted overseas for a continuous period of 91 days or more and subject to certain conditions (section 23AG), and

•

eligible foreign remuneration of an Australian resident individual performing qualifying services on an approved overseas development project for a continuous period of 91 days or more and subject to certain conditions (section 23AF).

4.21 As the discounts taxed under the employee share scheme provisions are a substitute for employment or services income, the amendments will allow them to benefit from the exemptions where all relevant conditions are satisfied. This is done by modifying the definitions in the relevant provisions of the type of income that can benefit to include amounts otherwise included in assessable income under the employee share provisions. [Schedule 4, item 2, subsection 23AF(18), paragraph (a) of the definition of 'eligible foreign remuneration'; item 3, subsection 23AF(18), paragraph (b) of the definition of 'eligible foreign remuneration'; item 4, subsection 23AG(7), definition of 'foreign earnings']

4.22 Where an exemption is not available, a credit for foreign tax paid on foreign income may be available (Division 18 of Part III). The foreign tax credit provisions divide foreign income into baskets, limiting the credits available to Australian tax payable on the income in each basket. Employment income generally falls within the 'other' income basket, but current taxpayer practice is that employee share or right income may fall within 'passive income' as passive income includes profits of a capital nature.

4.23 Employee share or right income will be specifically excluded from the passive income basket [Schedule 4, item 24, paragraph 160AEA(1)(q)]. Such income will therefore clearly fall within the other income basket along with employment income. Doing so will prevent foreign tax credit mismatches between alternative forms of employment remuneration. This amendment will also flow through to the definition of 'modified passive income' in the foreign loss provisions (subsection 160AEA(2)).

Inbound individuals with employee shares or rights relating to Australian employment

4.24 An individual employed offshore who acquires an employee share or right may subsequently be employed in Australia for a period of time that relates to the share or right. Part of the income (discount) earned by the individual therefore relates to employment in Australia, but currently none of it may be taxed in Australia. The amendments will address this potential case of nil taxation.

Meaning of 'foreign service', 'employee' and 'employer'

4.25 A key concept that will be introduced into Division 13A by the amendments is foreign service. It will be defined as service in a foreign country as the holder of an office or in the capacity of an employee. [Schedule 4, item 22, section 139GBA; item 23, section 139GH]

4.26 Currently, the definitions of 'employee' and 'employer' only include individuals who are entitled to receive work and income support related withholding payments and benefits, and the employers of these individuals (sections 139GA and 221A).

4.27 Employers are not required to withhold tax under section 12-1 of Schedule 4 to the Taxation Administration Act 1953 where the salary of the taxpayer is exempt income. In the case of an individual employed offshore, the income will generally be exempt:

•

for non-residents, if it is not Australian sourced (paragraph 23(r)), and

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for residents employed offshore, if an exemption for salary or wage income applies (section 23AF or 23AG).

4.28 The new concept of foreign service will add to the current, limited definitions of employee and employer in the employee share scheme provisions, by including (adding) offshore employees and employers [Schedule 4, item 20, section 139GA]. This will clarify, rather than extend, the operation of the employee share scheme provisions.

4.29 The broader definition of employee will have two components: Australian employees and employees engaged in foreign service. This allows for clarification of where the employee share scheme provisions apply to Australian employment, and where they apply to both Australian and foreign service. The first outcome is achieved by excluding foreign service from the meaning of employee for the purposes of some provisions. [Schedule 4, item 20, paragraph 139GA(2)(b)]

4.30 In this explanatory memorandum, individuals employed in Australia (satisfying the section 221A definition) are referred to as 'Australian employees'. The term used for the new broad case including both Australian and foreign service employees is 'employee'.

Treatment of individuals who become Australian employees (inbound individuals)

4.31 These amendments have the effect that individuals who acquire employee shares or rights while offshore, and then later become Australian employees while still engaged in employment or service that is relevant to the acquisition of the shares or rights, will apply the employee share scheme provisions at the point of becoming an Australian employee [Schedule 4, item 6, subsection 139B(2); item 7, subsection 139B(2A)]. Where an individual acquires an employee share or right in relation to the employment of an associate, the employee share scheme provisions will apply at the time that associate first engages in employment or service in Australia in relation to the acquisition of the share or right. [Schedule 4, item 14, paragraph 139D(1)(c); item 15, subsection 139D(2); item 16, subsection 139D(3)]

4.32 Individuals will need to examine their circumstances and specific employee share plan to determine whether the period after becoming an Australian employee is relevant to the acquisition of the employee share or right The period of employment after becoming an Australian employee will generally not be relevant if no forfeiture conditions remain at the time an individual becomes an Australian employee. If the employee share or right may be forfeited unless the individual undertakes further employment or services at the time employment commences in Australia, a portion of the discount will generally be assessable in Australia.

Example 4.1

Under the terms of his employee share plan Arnold is required to complete five years of service before obtaining an unforfeitable right to an employee right. Arnold becomes an Australian employee when only four years of service have been completed. One year as an Australian employee will be relevant to the acquisition of Arnold's right.

4.33 For such inbound individuals, they will either be assessed in the year they become a relevant employee for the first time or at a cessation time for qualifying shares or rights where the relevant election is not made (see paragraph 4.35). If assessed in the year of income in which they become an employee in Australia, the discount will still be valued as at acquisition. [Schedule 4, item 7, subsection 139B(2A); item 9, subsection 139CC(2)]

4.34 However, for inbound individuals the portion of the discount that relates to foreign service when a non-resident will not be included in assessable income. This exclusion may also apply in other cases, such as where a taxpayer ceases to be a resident before the end of the relevant period of employment (see paragraph 4.43). [Schedule 4, item 5, subsection 139B(1A)]

4.35 Individuals with qualifying shares or rights can currently elect in the year of income of acquisition to be assessed in that year. To cater for the new treatment of inbound individuals, an equivalent election is provided. Inbound individuals will be able to elect in the year of first becoming an Australian employee to be assessed in that year on all employee shares or rights acquired in an income year prior to becoming an Australian employee. Shares or rights acquired prior to becoming an Australian employee, but in the same income year, are covered by the current, and separate, election (subsection 139E(1)). [Schedule 4, item 7, subsection 139B(2A); item 8, subsection 139B(3); item 18, subsection 139E(2); item 19, subsections 139E(3) and (4)]

4.36 These amendments allow inbound individuals to access the favourable treatment available to qualifying shares or rights, subject to a further condition. Access will be achieved by the extension of the definition of employer to include the employer of a person engaged in foreign service [Schedule 4, item 20, subsection 139GA(3)]. This will allow an employee share or right granted offshore to be a qualifying share or right, as one condition that needs to be met to qualify involves having an employer as defined (subsection 139CD(3)).

4.37 However, employee shares or rights acquired in foreign service will not be qualifying shares or rights if a cessation time is reached prior to when the individual first becomes an employee in Australia in respect of employment related to the share or right. This is necessary because the deferral concession cannot be meaningfully applied to these shares or rights. [Schedule 4, item 10, paragraphs 139CD(1)(a) and (b); item 11, note 1 to subsection 139CD(1); item 12, note 2 to subsection 139CD(1); item 13, section 139CDA]

4.38 Employee shares must already satisfy one additional condition for qualifying status. Seventy-five per cent of permanent employees must be eligible to acquire shares in the scheme. The definition of 'permanent employees' excludes employees who are exempt visitors, are not resident, or are not physically present in Australia (subsection 139GB(3)). To preserve this outcome, the current limited definition of employee (excluding foreign service) is retained for the purpose of defining permanent employee. [Schedule 4, item 20, paragraph 139GA(2)(b); item 21, subsection 139GB(1)]

4.39 The definition of permanent employee also has relevance for the additional conditions that apply for a qualifying share or right to be eligible for the $1,000 discount (section 139CE). The employee share scheme must be operated on a non-discriminatory basis, and this is only satisfied if 75 per cent of permanent employees are eligible to participate in the scheme (subsection 139CE(4)). Again, offshore employee share plans will not satisfy this in many cases, and this will remain unchanged. However, an eligible offshore employee will receive the full $1,000 discount (regardless of any exemption for foreign service).

The extent to which employee share scheme income relates to relevant service offshore

4.40 The amendments extend existing exemptions related to offshore employment (sections 23AF and 23AG) to employee shares or rights, and will introduce a specific exclusion related to foreign service.

•

The exemption in section 23AG relates to foreign earnings (which will include the discount on employee shares or rights) derived from the relevant foreign service (as defined in that section) (subsection 23AG(1)).

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The exemption in section 23AF relates to any eligible foreign remuneration (which will include the discount on employee shares or rights) that is attributable to relevant qualifying service (subsection 23AF(1)).

•

The new exclusion will apply to the amount of the discount to the extent that the share or right acquired is in respect of the taxpayer's engagement in foreign service while not a resident of Australia (see paragraph 4.34).

4.41 How, for these provisions, the amount of the otherwise assessable discount will be assigned to the relevant foreign or qualifying service will depend on the facts and circumstances of each case. This is essentially the approach adopted by the OECD in respect of rights, and therefore also of relevance in interpreting the relevant articles of Australia's tax treaties.

4.42 The revised OECD commentary does, however, set out a number of principles that offer guidance as to what outcome the facts and circumstances would typically point to. Those principles suggest that a generally reasonable approach would look at the time worked in the relevant foreign or qualifying service as a proportion of the total period of employment to which the right relates.

4.43 Sections 23AF and 23AG cannot easily be applied prospectively, as it will generally not be clear in advance that all conditions in these sections are satisfied. New subsection 139B(1A) raises similar issues. As a result, the most reasonable approach would in general be to assume that the status quo at assessment time will prevail. For example, an individual becoming an Australian employee in relation to the previous acquisition of shares or rights would generally include the entire discount in assessable income, except for the portion that relates to past foreign service, on the basis that having become an Australian employee they will remain so.

4.44 Although this is a general presumption, there may be facts and circumstances where an individual could rebut this. For example, a contract for employment may make it clear that an individual will only be engaged in relevant employment in Australia for a certain period. An individual is expected to take a reasonable approach given all the facts and circumstances. If in the event the actual circumstances differ from those assumed at the original assessment time, adjustments can be made.

Extended time for the amendment of assessments

4.45 As discussed, an individual may, after a taxing point under the employee share scheme provisions, engage in foreign service that relates to the acquisition of an employee share or right and which benefits from an exemption or exclusion. While assessments can be amended, in some cases the general four year period for amendment may have ended. For example, an amount may be included in assessable income when a share or right is acquired, but the relevant period of employment or services may only end 10 years later.

4.46 To address this problem, the amendments will allow assessments to be amended:

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for a period of four years beginning at the end of the income year when the relevant period of employment ends, and

•

but only where section 23AF or 23AG (for residents) or new subsection 139B(1A) (for foreign service while a non-resident) apply.

[Schedule 4, item 17, section 139DG]

Example 4.2

Barbara acquired an employee right in year 1. At the time of acquisition, Barbara was employed in the United Kingdom where she was also resident. Under the conditions of the scheme, Barbara was required to work for six years to be able to exercise the right. Barbara was transferred to Australia in year 3, when two years of the relevant employment had been completed, and became a resident here.

Though Barbara satisfied the conditions for a 'qualifying right' she elected to be taxed in the year of income she first became employed in Australia. She includes two-thirds of the total discount (as calculated at acquisition) in assessable income, as one-third clearly relates to the previous period of employment in the United Kingdom while a non-resident, and it is presumed that the rest of her employment will be in Australia.

While based in Australia, Barbara worked in the Hong Kong office for three uninterrupted periods of four months. Barbara returned to work in the United Kingdom at the beginning of year 6, becoming resident there again, and completing the remaining year of employment.

At the end of the relevant six years of service, Barbara realises that only one-third, rather than two-thirds, of the discount related to relevant service in Australia. For one-sixth of the period, while a resident but working in Hong Kong, she was eligible for exemptions under section 23AG. For a further one-sixth of the period, in addition to the original one-third, she was a non-resident while working in foreign service and new subsection 139B(1A) applies. Barbara amends her assessment for the relevant year to include only one-third of the value of the discount at acquisition.

Clarification of capital gains tax cost base rules

4.47 All legislative references in paragraphs 4.48 to 4.55 are to the Income Tax Assessment Act 1997.

4.48 The CGT provisions contain special cost base rules for employee shares or rights (Subdivision 130-D). There are also general cost base rules for assets, without the necessary connection with Australia, owned by non-residents who become residents (Subdivision 136-B). Where such inbound residents hold employee shares or rights it may be unclear which rules apply.

4.49 These amendments clarify which rules apply in particular situations, where an employee share or right does not have the necessary connection with Australia. (Where a share or right has the necessary connection with Australia, for example is in an Australian private company, only the employee share or right cost base rules (Subdivision 130-D) can apply and so no clarification is needed.) The amendments follow a general rule that the CGT provisions are only intended to have application to gains (or losses) on employee shares or rights that arise after the discount taxed under the employee share scheme provisions was valued.

4.50 Therefore, where an inbound resident owns a qualifying share or right for which the cessation time is yet to happen, the cost base of the share or right will be its market value at the subsequent cessation time, as determined by the employee share or right cost base rules (Subdivision 130-D) [Schedule 4, item 31, paragraph 130-83(1)(b); item 33, subsection 130-83(4); item 36, subsection 136-40(4)]. This treatment reflects the fact that at the time an individual changes residence, changes in value for these shares or rights are still subject to assessment under the employee share scheme provisions.

4.51 In all other cases, the employee share or right owned by the inbound resident will be taxable under the employee share scheme provisions only by reference to the discount valued at acquisition. In these cases, the cost base will be determined by the market value at residence change time (Subdivision 136-B). This treatment reflects the fact that gains (or losses) in respect of these shares or rights following acquisition but before becoming a resident are not intended to be within Australia's tax base. [Schedule 4, item 30, subsection 130-80(4); item 34, subsection 130-85(4)]

Removal of potential double taxation for outbound residents

4.52 Lack of clarity in the interaction between the employee share scheme and CGT provisions may also create potential double taxation for outbound residents. CGT event I1 may create a CGT liability when an individual stops being a resident of Australia.

4.53 However, an individual with a qualifying employee share or right may not have reached a cessation time before becoming non-resident. Consequently, the individual may be taxed at a later time on the same gain or discount already taxed under the CGT provisions.

4.54 These amendments will provide that a capital gain or loss in respect of CGT event I1 is disregarded if a share or right is qualifying, not covered by an election (to be assessed in the year of income of acquisition or of becoming an Australian employee), and has not yet reached a cessation time. [Schedule 4, item 28, subsection 104-160(5); item 29, subsection 104-160(6)]

4.55 These amendments will also clarify the link between CGT event I1 and the Subdivision 130-D rules. Subsection 130-83(2) provides that where certain CGT events happen at the same time as a cessation time, or within 30 days, any capital gain or loss is disregarded. This is because the change in value to cessation time has been accounted for, and it is not necessary for the CGT rules to have any application. An amendment adds CGT event I1 to the list of relevant CGT events in that subsection. [Schedule 4, item 32, subsection 130-83(2)]

Other amendments

4.56 Some additional amendments are necessary to provisions outside Division 13A to ensure that employee shares and rights are taxed appropriately in the international context.

Employee share trusts

4.57 Two amendments relate to incorporating the new definition of foreign service in rules relating to employee share trusts.

4.58 Currently, a trustee of an employee share trust may disregard a capital gain or loss made when a beneficiary becomes absolutely entitled to a share or right. The capital gain is only disregarded if the beneficiary (or associate) is an Australian employee. This can leave an unwarranted liability for a trustee where a beneficiary (or associate) is engaged in foreign service.

4.59 These amendments will resolve this problem by including an individual (or associate) who is engaged in foreign service in the list of relevant beneficiaries. [Schedule 4, item 35, paragraph 130-90(1A)(c)]

4.60 A similar problem arises under the fringe benefits tax provisions. Benefits arising in respect of the provision of money or shares to an employee share trust are excluded from the definition of 'fringe benefit' where the activities of the trust are limited to obtaining shares, or rights to acquire shares, in a company, or the holding company of the company and providing those shares to employees. These amendments will extend this exclusion to employee share trusts that also provide shares, or rights to acquire shares to employees and individuals engaged in foreign service. [Schedule 4, item 1, subsection 136(1), paragraph (hb) of the definition of 'fringe benefit']

Foreign investment funds

4.61 The foreign investment fund rules may include an amount in the assessable income of taxpayers with interests in certain offshore companies. Where an employee share or right relates to an offshore company, there is the potential for the employee share scheme and foreign investment fund rules to overlap.

4.62 The foreign investment fund rules currently seek to prevent double taxation where an interest in a foreign investment fund is a qualifying share or right and assessment under the employee share scheme provisions has been deferred to a cessation time. This is done by providing an exemption equivalent to the increase in market value (as calculated by the employee share scheme rules) of an employee share or right during a relevant foreign investment fund period.

4.63 However, the market value as calculated by the employee share scheme rules may be different to the amount of deemed assessable income calculated under the foreign investment fund rules. In these cases, there may still be foreign investment fund income in relation to the employee share or right.

4.64 These amendments will provide a more straight-forward relief from double taxation by reducing the foreign investment fund income to zero where, for the whole of the relevant period, the individual holds a qualifying employee share or right and is deferring taxation to a cessation time which is still to occur. [Schedule 4, item 25, subsection 530A(1A)]

4.65 Where an employee share or right is held for only part of a notional accounting period (eg reaches a cessation time during a relevant period), a method of dividing assessable amounts between the foreign investment fund and employee share scheme rules is still necessary. The current approach will be retained for these purposes. [Schedule 4, item 26, paragraph 530A(1)(a); item 27, paragraph 530A(1)(b)]

Application and transitional provisions

4.66 The amendments to the employment income provisions, and to the general application of Division 13A including to inbound individuals, apply to employee shares or rights acquired on or after the date of Royal Assent. [Schedule 4, subitems 38(1) and (2)]

4.67 However, these amendments will also apply to employee shares or rights acquired before Royal Assent if:

•

the individual holding the shares or rights was not an Australian employee immediately before Royal Assent, and

•

becomes an Australian employee, in relation to acquisition of these employee shares or rights, on or after Royal Assent.

[Schedule 4, subitems 38(3) to (5)]

4.68 This application to individuals who become Australian employees reflects the fact that the relevant Australian employment in respect of which the discount on the employee shares or rights becomes assessable arises after Royal Assent, even if the shares or rights were acquired before.

4.69 The amendments to clarify the cost base for inbound residents, and to remove potential double taxation for outbound residents apply to CGT events happening on or after the day of Royal Assent. [Schedule 4, item 40]

4.70 The amendment to the CGT rules for an employee share trust applies to shares or rights to which a beneficiary becomes absolutely entitled on or after the day of Royal Assent. [Schedule 4, item 41]

4.71 The amendments to clarify the interaction of the employee share scheme provisions and foreign investment fund rules apply to years of income ending after Royal Assent [Schedule 4, item 39]. The amendment to the definition of 'exempt fringe benefit' applies to fringe benefit tax years ending after Royal Assent [Schedule 4, item 37]. As the amendments to the foreign investment fund and fringe benefit tax rules are beneficial to taxpayers, the changes apply for the first prospective assessment.