Supplementary Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Chapter 2 - Fringe benefits tax interaction
Outline of Chapter
2.1 Requests for amendments 1 and 2 make a technical correction to the provisions in the Indirect Tax Legislation Amendment Bill 2000 (the Bill) relating to the interaction of fringe benefits tax (FBT) and GST. The provisions, as drafted, are too broad and should not operate to deny a financial supply provider an input tax credit on an acquisition or importation where no FBT would be payable.
Detailed explanation of new law
2.2 In certain circumstances financial service providers will be entitled to only a small proportion of the input tax credit for an acquisition or importation that is provided as a fringe benefit, but are subject to the higher FBT gross up rate. Item 5A of the Bill inserts new Division 71 into the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) to overcome this problem by denying input tax credits on acquisitions or importations that are made for the purpose of providing fringe benefits to an employee of a financial supply provider that is wholly or partly denied the input tax credit. Where no input tax credit is available, the lower FBT gross up rate applies.
2.3 However, the current provisions are too broad and apply to deny an input tax credit to the financial supply provider in some situations where no FBT is payable, such as where the benefit is exempt or has no taxable value.
2.4 Requests for amendments 1 and 2 amend new sections 71-5 and 71-10 to ensure that financial supply providers are only denied an input tax credit where:
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- FBT is payable on the provision of the benefit; and
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- the acquisition or importation would have been a GST-creditable benefit if this section did not operate to deny input tax credits on the acquisition and importation.
2.5 The first requirement ensures that where no FBT is payable on the provision of the benefit, the financial supply provider will not be denied input tax credits. For example, where the benefit is an exempt benefit or has no taxable value. Request for amendment 3 inserts a definition of 'fringe benefits tax' into section 195-1 of the GST Act.
2.6 The second requirement ensures that financial supply providers are denied input tax credits only on GST-creditable benefits. This ensures that the denial of input tax credits only applies to acquisitions or importations of things that are themselves provided as fringe benefits. Financial supply providers are not denied an input tax credit for acquisitions or importations that are incidental or indirectly relate to the fringe benefit. GST-creditable benefit has the meaning given by section 149A of the Fringe Benefits Tax Assessment Act 1986 . [Request for amendment 4]
2.7 Generally, a GST-creditable benefit is a benefit provided in respect of the employment of an employee where the person who provided the benefit (or another member of the same GST group) was entitled to an input tax credit:
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- for the acquisition or importation of the benefit; or
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- for that benefit by the operation of Division 111 of the GST Act.