Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Ralph Willis, MP)Chapter 4 - FBT exemption of certain benefits
Overview
4.1 Schedule 4 of this Bill amends the Fringe Benefits Tax Assessment Act 1986 (FBTAA) to exempt from fringe benefits tax (FBT) a range of benefits. The type of benefits that will be exempt are employment-related and generally any private use of these benefits by employees is incidental to their employment use.
Summary of the amendments
4.2 These amendments will exempt a range of employment-related benefits from FBT. The benefits will only be exempt where they are provided to employees and not to their associates.
4.3 In addition, car phones and mobile phones provided to employees will be exempt benefits where the phones are primarily for use in the employee's employment.
4.4 These amendments will remove the need for an employer to obtain declarations for these benefits.
4.5 The amendments in relation to expense payment fringe benefits will apply to the recipients' expenditure incurred on or after 1 April 1995. [Sub item 4(2)]
4.6 The amendments to any other fringe benefit will apply where the benefit is provided for the FBT year beginning on 1 April 1995. [Sub item 4(2)]
Background to the amendments
4.7 An employee is required to provide to the employer a declaration stating the percentage of employment-related use of a benefit before the taxable value of the benefit can be reduced under the 'otherwise deductible' rule. This rule applies to reduce the taxable value of a benefit provided to an employee by the percentage of employment-related use of the benefit.
4.8 There is a range of employment-related benefits for which an employee is required to provide a declaration before the taxable value of the benefit can be reduced under this rule.
4.9 Often the private use of these benefits is incidental to employment use but, because the benefits are not exclusive employee benefits, an employee declaration is required. Exclusive employee benefits are benefits where, if the employee had incurred the cost of providing the benefit, that expense would have been deductible for income tax purposes.
Explanation of the amendments
Exempt benefits - provision of certain work related items
4.10 The Bill inserts new subsection 58X in the FBTAA [item 2] . The section will exempt the following benefits from FBT where they are provided to an employee:
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- a mobile phone or a car phone;
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- an item of protective clothing that is required for the employment of the employee;
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- a briefcase;
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- a calculator;
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- a tool of trade;
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- an item of computer software for use in the employee's employment;
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- an electronic diary or similar item;
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- a notebook computer, a laptop computer or a similar portable computer. [New subsection 58X(2)]
4.11 The exemption will apply where the benefits are provided as expense payment, property or residual fringe benefits [new subsection 58X(1)] .
4.12 The FBT exemption for a notebook computer, a laptop computer or a similar portable computer will be limited to the purchase or reimbursement of one computer per year per employee [new subsection 58X(4)] . This rule is intended to prevent the abuse of the exemption.
4.13 Car phones and mobile phones will only be exempt from FBT where the use is primarily for use in the employee's employment. [New subsection 58X(3)]
Examples of when a car or mobile phone is primarily for use in the employee's employment
4.14
Example 1:
Natalie, a real estate agent, is provided with a car phone by her employer for use in contacting her clients and contacting her office when on inspections. Natalie generally uses her phone for these purposes. Occasionally, however, she uses the phone for private purposes such as cancelling a private lunch booking or ringing home to say that she will be working late. The private use of the phone is considered to be incidental to its primary employment use.
4.15
Example 2:
Quentin, a bank manager, uses the mobile phone provided by his employer to help his wife run her catering business. On his wife's behalf he deals with various suppliers and banks on a regular basis. The use of the phone will not be considered to be primarily for employment purposes.
Exempt benefits - membership fees and subscriptions
4.16 New section 58Y will exempt from FBT any benefit that arises in relation to:
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- an employee's subscription to a trade or professional journal, or
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- an employee's membership fees for a corporate credit card, or
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- an employee's membership fees for an airport lounge membership.