House of Representatives

Explanatory Memorandum

Circulated by the authority of the Treasurer, the Hon Wayne Swan MP

General outline and financial impact

Fringe benefits tax

Meal cards

Part 1 of Schedule 1 to this Bill amends the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986) to ensure food or drink provided as part of a salary sacrifice arrangement (eg, 'meal card' arrangement) is excluded from the fringe benefits tax (FBT) exemption in section 41 of the FBTAA 1986 that applies to property consumed on an employer's premises.

Date of effect : These amendments apply to food and drink provided after 7.30 pm Australian Eastern Standard Time (AEST), 13 May 2008. Any food or drink that relates to an existing balance on a meal card at that time will not be subject to FBT if the food and drink is provided before 1 April 2009. Any food or drink purchased with additional credits ('top-ups') that occur after 13 May 2008, will be subject to FBT.

Proposal announced : This measure was announced in the 2008-09 Budget and in the Treasurer's Press Release No. 048 of 13 May 2008.

Financial impact : The revenue impact is $610 million over the forward estimates.

Compliance cost impact : Minimal.

Eligible work-related items

Part 1 of Schedule 1 to this Bill amends the FBTAA 1986, the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997 to:

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restrict the FBT exemption for eligible work-related items in section 58X of the FBTAA 1986 to items that are used primarily for work-related purposes;

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limit the exemption to one item per employee per FBT year unless the item is a replacement item and extend the exemption to apply to all work-related portable electronic devices;

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deny 'decline in value' deductions under Division 40 for depreciable assets that are exempt under section 58X of the FBTAA 1986; and

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ensure that an employee can continue to claim decline in value deductions for other depreciable assets provided as an expense payment fringe benefit.

Date of effect : The amendments to the FBT exemption for eligible work-related items will apply to items acquired after 7.30 pm (AEST), 13 May 2008.

Employees will be denied decline in value deductions for eligible work-related items that are exempt under section 58X of the FBTAA 1986 for items purchased after 7.30 pm (AEST), 13 May 2008. If the item was purchased before this date, depreciation will be allowed until 30 June 2008.

Proposal announced : This measure was announced in the 2008-09 Budget and in the Treasurer's Press Release No. 048 of 13 May 2008.

Financial impact : The revenue impact is $530 million over the forward estimates.

Compliance cost impact : Minimal.

Employee share schemes

Election mechanism

Part 2 of Schedule 1 to this Bill amends Division 13A of the Income Tax Assessment Act 1936 so that an employee who wishes to be assessed on discounts on shares or rights received in the year of acquisition must make the election in the income tax return for the income year in which the shares or rights are acquired.

Date of effect : These amendments apply to assessments for the 2008-09 income year and later income years.

Proposal announced : This measure was announced in the 2008-09 Budget and in the Treasurer's Press Release No. 044 of 13 May 2008.

Financial impact : The revenue impact is $77 million over the forward estimates.

Compliance cost impact : Minimal.

Removal of double taxation

Part 2 of Schedule 1 to this Bill amends the capital gains provisions in the Income Tax Assessment Act 1997 to ensure a trustee or beneficiary of an employee share trust is not subject to capital gains tax (CGT) where an employee who exercises employee share scheme rights becomes absolutely entitled to the shares in the trust.

Date of effect : These amendments apply to CGT events occurring from 7.30 pm (Australian Eastern Standard Time), 13 May 2008.

Proposal announced : This measure was announced in the 2008-09 Budget and in the Treasurer's Press Release No. 044 of 13 May 2008.

Financial impact : Nil.

Compliance cost impact : Nil.

Depreciation of computer software - four year statutory effective life

Schedule 2 to this Bill amends the Income Tax Assessment Act 1997 to increase the period over which taxpayers write off for tax purposes depreciable in-house software, from 21/2 years to four years.

Date of effect : The new statutory effective life applies from 7:30 pm (by legal time in the Australian Capital Territory) on 13 May 2008, in relation to newly held software assets.

Proposal announced : This measure was announced in the 2008-09 Budget and in the Treasurer's Press Release No. 049 of 13 May 2008.

Financial impact : This measure has an ongoing gain to revenue, which is estimated at around $1.3 billion over the period 2007-08 to 2011-12, as set out in the table below:

Compliance cost impact : Low. This measure involves a small change to the taxation treatment of in-house software