SENATE

REPLACEMENT Explanatory Memorandum

(Circulated by the authority of the Treasurer the Hon John Dawkins, M.P.)THIS MEMORANDUM TAKES ACCOUNT OF AMENDMENTS MADE BY THE House of Representatives TO THE BILL AS INTRODUCED

Chapter 1 Fringe Benefits Tax - Extension of Child Care Exemptions

Summary of proposed amendments

Purpose of amendment: Subsection 47(8) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) will be amended to extend the exemption which is currently available to priority of access payments made to eligible child care centres to priority of access payments (made for similar purposes) to Family Day Care, Outside School Hours Care and Vacation Care.

The amendment also contains a transitional provision which reflects the change of the name of the program known as Services for Families with Children to the Children's Services Program.

Date of Effect: The amendment applies to benefits provided on or after 1 July 1993. The transitional provision will apply to benefits provided on or after 1 July 1992 and before 1 July 1993.

Background to the legislation

Subsection 47(8) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) currently exempts from fringe benefits tax the benefit to an employee of a priority of access payment to an eligible child care centre in respect of the employee's children made by the employer.

Two broad conditions must be satisfied before an employer qualifies for the exemption.

First, the benefit provided (the contribution by the employer or associate of the employer) must relate to the obtaining of priority of access for a child or children of an employee at a child care centre that is an "eligible child care centre" for the purposes of the Child Care Act 1972 .

The second requirement which must be satisfied to qualify for the exemption is that the priority of access contribution must be made under the program administered by the Commonwealth (currently the Commonwealth Department of Health, Housing, Local Government and Community Services) known as Services for Families with Children. Specifically, the contribution must be made to the eligible child care centre under guidelines called the "Employer Contribution Guidelines" which are issued under the auspices of that program.

Explanation of proposed amendments

Subsection 47(8) of the FBTAA will be amended to extend the exemption to priority of access payments to Family Day Care, Outside School Hours Care and Vacation Care. [Clause 4]

Which priority of access payments will be exempt?

A contribution by an employer to obtain priority of access for a child or children of an employee will be an exempt benefit where the employer makes the contribution under a program administered by the Department of Health, Housing, Local Government and Community Services [new subparagraph 47(8)(b)] and where the benefit provided is in relation to:

(i)

a place that is an eligible child care centre for the purposes of any provision of the Child Care Act 1972: or

(ii)

family day care; or

(iii)

care outside school hours; or

(iv)

care in school vacation. [new subparagraph 47(8)(a)]

More detail on what constitutes an eligible child care centre, family day care, care outside school hours or care in school vacation will be set out in the "Employer Contribution Guidelines" to be issued under the Children's Services Program administered by the Department of Health, Housing, Local Government and Community Services, copies of which will be available from that Department.

Transitional provision

A transitional provision will be inserted which will reflect the change of name of the program known as Services for Families with Children to Children's Services Program. The name of the program changed to Children's Services Program from and including 1 July 1992. The transitional provision will ensure that the FBT exemption will apply to benefits provided on or after 1 July 1992 under the Children's Services Program as if the program were named the Services for Families with Children. [Clause 6]