Explanatory Memorandum
(Circulated by the authority of the Treasurer the Hon John Dawkins, M.P.)Non-Government Schools
Overview
3.1 This Bill will amend section 65J of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) so that certain non-profit, non-government schools established under Commonwealth, State or Territory legislation will be listed as rebatable employers.
Summary of the amendments
3.2 From 1 April 1994, fringe benefits tax (FBT) will be levied on the tax inclusive value of a fringe benefit and any FBT payable will become deductible for income tax purposes. This method, known as the 'grossing up' method, ensures that, broadly, the same amount of tax is paid on a fringe benefit as would be paid on the wages that would be required, after payment of income tax, to purchase those benefits.
3.3 Section 65J provides a tax rebate of 48% of the FBT payable under the grossing up method for certain non-profit, non-government organisations. These organisations (known as 'rebatable employers') are listed in subsection 65J(1).
3.4 Certain non-profit, non-government schools have not been included as rebatable employers as a result of the wording used in paragraph 65J(1)(b). This paragraph was intended to cover all non-profit, non-government schools. The non-government schools that have not been included are those which have been established under Commonwealth, State or Territory legislation.
3.5 The amendment will ensure that these non-government schools are listed as rebatable employers under subsection 65J(1).
3.6 The amendment is to apply with effect from 1 April 1994.
Background to the legislation
3.7 As a result of amendments made to the FBTAA by the Taxation Laws Amendment (Fringe Benefits Tax Measures) Act 1992 , FBT will be levied on the tax inclusive value of a fringe benefit, i.e., the sum of the fringe benefit and the tax to be paid on the benefit. Also, the Income Tax Assessment Act 1936 has been amended to allow any FBT payable to be deductible for income tax purposes. This method of taxing fringe benefits, known as the 'grossing up' method, is to apply from 1 April 1994.
3.8 The 'grossing up' method of taxing fringe benefits has been introduced to ensure that, where fringe benefits are provided in lieu of wages, broadly the same amount of tax in total is paid on the fringe benefit as would be paid on wages that would be required, after the payment of income tax, to purchase the benefit.
3.9 Under the amending legislation, section 65J was also inserted into the FBTAA. This section provides a tax rebate of 48% of the FBT liability for certain non-profit, non-government organisations. Organisations eligible for the rebate ("rebatable employers") are listed in subsection 65J(1) and the formula for the rebate is set out in subsection 65J(2). The rebate ensures that the amount of FBT payable by rebatable employers after 1 April 1994 will be similar, although not identical, to that due under the pre 1 April 1994 legislation.
3.10 One of the rebatable employers listed in paragraph 65J(1)(b) is 'a public educational institution (other than an institution of the Commonwealth, a State or a Territory)'. The meaning of "institution of the Commonwealth, a State or Territory" as set out in subsection 65J(3) includes an institution established by a law of the Commonwealth, a State or Territory. The listing in paragraph 65J(1)(b) was intended to include non-profit, non-government schools.
3.11 Some non-government schools have been established under State Legislation. The Grammar Schools Act (Qld) 1975-84 which establishes certain schools in Queensland is an example of such legislation. Because these schools have been established under state legislation they do not qualify as a rebatable employer under paragraph 65J(1)(b).
Explanation of the amendments
3.12 Section 65J is being amended so that non-profit, non-government schools which have been established by Commonwealth, State or Territory legislation will qualify as rebatable employers.
3.13 The amendment will insert a paragraph into subsection 65J(1) which will include these schools as rebatable employers. These schools are described as non-profit schools (including a pre-school but not including a tertiary institution) which are institutions of the Commonwealth, a State or Territory but are not conducted for or on behalf of the Commonwealth, a State or Territory [Clause 11] .