senate

Explanatory Memorandum

(Circulated by the authority of the Treasurerthe 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 - AMENDMENT TO DEFINITION OF 'STAND-BY VALUE'

Overview

1.1 The Bill will amend the definition of 'stand-by value' in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA). This term is used in the calculation of the taxable value of an airline transport fringe benefit. The method for determining this value is set out in section 33 of the FBTAA.

Summary of amendments

Purpose of amendment

1.2 Under that part of the definition of 'stand-by value' in subsection 136(1) of the FBTAA which covers travel over a domestic route, the 'stand-by value' is calculated by reference to the 'economy air fare' of the provider of the service where flights are scheduled. Where flights are not scheduled, the 'stand-by value' is calculated by reference to the economy air fare charged by Australian Airlines.

1.3 The amendments will update the definition to reflect that, in a deregulated airline industry, no particular airline will be specified for valuation purposes. The amendment will also ensure that where an airline has a published economy air fare which differs in value from a non-published economy air fare, it is only the published economy air fare which is used for this definition.

Date of effect

1.4 The amendment applies to benefits provided on or after the date the Bill receives Royal Assent [Clause 10] .

Background to the legislation

1.5 Under section 32 of the FBTAA, an airline transport fringe benefit arises where an employer (being an airline operator or travel agent) provides transport to an employee or an associate of an employee and the transport is provided in respect of the employment of that employee. The transport provided by an employer who is an airline operator need not be on a flight of that operator.

1.6 This section requires that the transport that is provided must be subject to the stand-by restrictions that usually apply in relation to the provision of airline transport to employees in the airline industry. Under these restrictions, the stand-by travel rights of an employee come behind those of members of the general public.

1.7 Under section 33 of the FBTAA the taxable value of an airline transport fringe benefit in relation to a year of income is the stand-by value of the transport provided less any amount contributed by the employee towards that benefit.

1.8 'Stand-by value' is a term defined in subsection 136(1) of the FBTAA. Under the definition, rules apply for calculating stand-by values according to whether the relevant flight is over a domestic or international route. It is only that part of the definition that applies to domestic flights that is to be amended by this Bill.

1.9 Under the part of the definition of 'stand-by value' which covers travel over a domestic route, the 'stand-by value' is calculated by reference to 'economy air fare'. In the case of scheduled flights, the 'stand-by value' is based on a percentage (i.e. 37.5%) of the economy air fare of the provider of the service. In the case of flights which are not scheduled, the value is based on a percentage (i.e. 37.5%) of the economy air fare charged by Australian Airlines over that route (or a combination of services operated by Australian Airlines over that route), and if Australian Airlines do not operate a service over that route, a percentage (i.e. 37.5%) of the economy air fare of a carrier (or combination of carriers) which operate a service (or services) over that route.

1.10 In any other case, (i.e. no scheduled service is operated by any passenger air service) the stand-by value is a percentage (i.e. 75%) of the notional value at the time the benefit was provided. The notional value is the amount the recipient could reasonably expect to pay the provider for the transport under an arm's length transaction.

Explanation of the amendments

1.11 The definition of 'stand-by value' in subsection 136(1) of the FBTAA will be amended to change the method of working out the taxable value of a domestic airline transport fringe benefit. [Clause 8]. The stand-by value will be based on the lowest publicly advertised economy air fare of an airline (or airlines in the case of a combination of flights).

1.12 The amended definition reflects that an airline may offer more than one economy air fare, one which may be publicly advertised and one which is not. The amendments also ensure that the 'stand-by value' is not calculated by reference to the economy air fares of a particular airline.

1.13 Paragraph (a) of the definition of 'stand-by value' will be amended so that:

•

if the flight is a scheduled flight, the stand-by value is 37.5% of the lowest publicly advertised economy air fare charged by the provider at the comparison time (i.e. the time the benefit was provided);

•

if the flight is not scheduled and another carrier or other carriers operate a scheduled passenger air service over that route at or about the comparison time, the stand-by value is 37.5% of the lowest publicly advertised economy air fare charged by a carrier operating a scheduled flight over that route at the comparison time;

•

if the transport provided is not on a scheduled flight and no carrier operates a scheduled passenger air service over that route at or about the comparison time, or a combination of scheduled flights operated by any carrier or carriers at or about the comparison time would enable a person to travel over a route, the stand-by value is 37.5% of the lowest combination of publicly advertised economy air fares charged by carriers at or about the comparison time in respect to travel provided over that route;

•

in any other case, the stand-by value is 75% of the notional value at the comparison time of the transport provided. [Clause 9] .