Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Ralph Willis, MP)General Outline and Financial Impact
Entertainment
Amends the fringe benefits and income tax laws to:
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- allow an employer who provides 'meal entertainment' benefits to choose one of three methods to determine the fringe benefits tax (FBT) liability on the cost of 'meal entertainment' provided to employees. These methods are a ratio based on 12 weeks of record keeping, a 50/50 split or actual expenditure;
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- make it clear that corporate boxes and other similar hospitality arrangements are not treated as 'business premises' thus ensuring that food and drink consumed by employees and their associates on those premises will be subject to FBT;
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- provide that a 50/50 apportionment may be applied to leasing or hiring costs of corporate boxes and other similar hospitality arrangements to determine what amount will be subject to FBT.
Date of effect: 1 April 1995.
Proposal announced: Treasurer's Press Release of 24 February 1995.
Financial impact: The proposed measures will have a small but unquantifiable cost to revenue.
Compliance cost impact: Employers have been particularly concerned about the compliance costs involved in determining their liability to FBT on entertainment provided to employees. The main difficulty has been the application of the law to many situations where meal entertainment may occur. The compliance costs in this area will be reduced by providing employers with three options for determining the FBT liability.
The 50/50 apportionment method is the most simple to apply. Under this method it will be accepted that 50% of the total meal entertainment expenditure incurred by an employer will be subject to FBT, with the balance being non-deductible for income tax purposes.
The 12 week record keeping method provides that the apportionment of total expenditure can be based on a register which needs to be maintained by the provider of meal entertainment benefits for a representative continuous 12 week period in an FBT year. A new register will have to be kept every 5 years or if total expenditure varies by more than 20 percent.
The 50/50 apportionment method will reduce compliance costs. It will remove the need for employers to maintain records to split entertainment expenditure between employees and associates and non-employees who receive food and drink under these arrangements.
Living away from home allowance
Amends the fringe benefits tax law to modify the conditions that must exist before an allowance received by an employee will be a living away from home allowance (LAFHA) fringe benefit. Changes will also be made to the definitions of 'exempt food component' and 'exempt accommodation component'. These are the amounts by which the taxable value of a LAFHA fringe benefit can be reduced.
Consequential changes will be made to the exemption for accommodation and food provided to employees living away from home where the benefit is provided by way of expense payment fringe benefit or residual fringe benefit or property fringe benefit. These amendments will complement the changes made to the LAFHA fringe benefit provisions.
Date of effect: 1 July 1995.
Proposal announced: This measure was announced in the Treasurer's Press Release of 24 February 1995. Subsequently, the 12 month rule has been extended to 2 years for those employees living in remote areas and removed for those employees who are living at the work site on a "fly-in, fly-out" basis. The date of effect has been postponed from 1 April 1995 to 1 July 1995. These changes have not been announced previously.
Financial impact: The measures will have an unquantifiable effect on revenue.
Compliance cost impact: Simple and certain rules about when an employee is considered to be living away from home will significantly reduce compliance costs. Time limits for when an employee is taken to be living away from his or her usual place of residence will remove the uncertainty that has existed on this issue. The guidelines issued by the Commissioner of Taxation in Taxation Ruling MT2030 have been difficult for many employers to apply.
The need for an employer and employee to provide appropriate documentation to verify the time that an employee will be living away from his or her usual place of residence will impose a small additional compliance cost.
The terms 'exempt food component' and 'exempt accommodation component' will be redefined so that these amounts can be more easily determined:
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- the amount of 'exempt food component' has been particularly difficult to calculate. This calculation will be simplified.
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- the definition of 'exempt accommodation component' will be amended so it will also be more easily determined, i.e., it will be the amount actually incurred by the employee on accommodation. However, before the taxable value of a LAFHA fringe benefit can be reduced the amounts will need to be fully substantiated. This substantiation requirement will lead to an increase in compliance costs but it is necessary to maintain the integrity of the measure.
Car parking benefits
Amends the fringe benefits tax law to:
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- provide that the taxable value of a car parking benefit may be determined under an 'average commercial parking station' method;
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- ensure that a car parking benefit can only arise where there is a 'commercial parking station' within a 1 km radius of the employer's premises which charges more than $5 a day at the start of the FBT year;
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- allow an employer to choose one of three methods to calculate the number of car parking benefits provided in a year, i.e., the statutory formula method, the 12 week record keeping method or the number of actual benefits provided; and
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- make consequential amendments to section 51AGB of the Income Tax Assessment Act 1936, which provides for the deductibility of car parking expenses to self-employed persons.
The Bill will also make a technical correction to section 58G of the Fringe Benefits Tax Assessment Act 1986 to ensure that car parking benefits provided to the employees of government public educational institutions are exempt from fringe benefits tax.
Date of effect: 1 April 1995 for all the measures other than the amendment to section 58G, which will be effective from 1 April 1993.
Proposal announced: These measures were announced in the Treasurer's Press Release of 24 February 1995, except for the amendment to section 58G which has not been announced previously.
Financial impact: The cost of these measures is estimated at $76 million in 1995-96 and $62 million in each later year. The amendment to section 58G will have no financial impact.
Compliance cost impact: As a result of these amendments, the compliance costs associated with car parking benefits will be reduced as follows:
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- by allowing an employer to value a car parking benefit under an 'average valuation method', the necessity for an employer to obtain daily values of the lowest fee charged by commercial parking station operators is removed. All that is required is for the employer to obtain an average of the lowest fee charged on the first and last day that the benefit is provided in a FBT year.
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- because a car parking benefit will only arise where there is a 'commercial parking station' within a 1 km radius of the employer's premises which charges more than $5 a day, many employers located in regional areas will no longer be subject to FBT on car parking benefits provided to employees;
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- by allowing employers to use the 12 week register method or the statutory formula method to calculate the number of car parking benefits provided during the year. Both methods require considerably less record keeping than determining the actual number of car parking benefits provided.
The amendment to section 58G will have no compliance cost impact.
FBT exemption of certain benefits
Amends the fringe benefits tax law so that a range of primarily business related benefits provided to employees will be exempt from FBT. In addition, car phones and mobile phones will not be subject to FBT where private use is only minor or incidental to the primary business use.
Date of effect: 1 April 1995.
Proposal announced: Treasurer's Press Release of 24 February 1995.
Financial impact: There will be some cost to revenue by exempting these items from FBT. However, this cost is expected to be small and cannot be reliably estimated.
Compliance cost impact: These measures complement the changes made to the declaration requirements. The number of declaration forms that need to be supplied by an employee to an employer will be reduced further by exempting these primarily business related items from FBT.
In addition, employers who only provided this range of minor fringe benefits may no longer need to be concerned with the FBT system.
Taxi travel provided to employees
Amends the fringe benefits tax law so that taxi travel provided by an employer to sick employees to travel home or to employees who are required to travel to and from home between 8pm and 6am will be exempt from FBT.
Date of effect: 1 April 1995.
Proposal announced: Treasurer's Press Release of 24 February 1995.
Financial impact: The estimated cost to revenue is $45m in 1995-96 and $30m in each later year.
Compliance cost impact: Under the existing law, employers providing regular taxi travel to their employees must keep sufficient records to determine the taxable value for FBT purposes. This measure will remove the record keeping required for taxi travel between 8pm and 6am.
Rebate for medical research bodies
Amends the fringe benefits tax law to provide for certain non-profit, non-government medical research bodies a rebate under section 65J of an amount broadly equivalent to the amount of tax paid under the grossing up provisions.
Date of effect: 1 April 1994.
Proposal announced: Not previously announced.
Financial impact: Negligible.
Compliance cost impact: None.
Declarations
Amends the fringe benefits tax law to reduce the number of declarations which an employer must obtain from an employee before the taxable value of benefits can be reduced.
Date of effect: 1 April 1995.
Proposal announced: Treasurer's Press Release of 24 February 1995.
Financial impact: The above measure is unlikely to have any impact on revenue.
Compliance cost impact: When a benefit is provided to an employee and the benefit is used for both business and private purposes, the employee is required to submit to the employer a declaration form indicating the business percentage usage of the benefit. The requirement to lodge a large number of declarations was identified as a major area of compliance costs.
This problem has been addressed by reducing the number of declarations required. This is achieved by providing that where an employee receives a series of identical benefits, generally only one declaration is to be provided.
A further proposal is that where an employer only reimburses business expenses, or where the employer does not permit private use of a benefit, an employer will be able to make a single annual declaration.
Car benefits - statutory formula method
Amends the fringe benefits tax law to increase the statutory fractions used in the statutory formula method for determining the taxable value of a car benefit.
Date of effect: 1 April 1995.
Proposal announced: Treasurer's Press Release of 24 February 1995.
Financial impact: The estimated gain to revenue is $121m in 1995-96 and $91m in each later year.
Compliance cost impact: As the amendment only changes the fractions that form part of a statutory formula, there will be no change to compliance costs where an employer continues to use the statutory formula method. Some employers may, as a result of this measure, choose to use the operating cost method to determine the taxable value of a car benefit. The compliance costs in using the operating cost method are greater than those in using the statutory formula method.
Substantiation rules
Amends the fringe benefits tax law to ensure that the FBT substantiation rules are substantially consistent with the revised income tax substantiation rules. The changes will:
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- revise the rules for calculating the business use percentage of cars;
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- reduce the number of situations requiring a new log book;
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- simplify the requirements for making entries in log books, odometer records, petty cash books and travel diaries;
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- remove the need for travel diaries for short term overseas travel;
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- reduce the retention period for FBT records from 7 years to 5 years and for statutory evidentiary documents (required by the FBT substantiation provisions) from 6 years to 5 years;
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- modify the Commissioner's discretion to review a failure to substantiate; and
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- extend the time to obtain documentary evidence of expenses.
Date of effect: 1 April 1995.
Proposal announced: Assistant Treasurer's Press Release of 29 March 1995.
Financial impact: Negligible.
Compliance cost impact: Compliance costs will be reduced. Calculating the business use percentage for cars will be easier. Fewer records will be required and record keeping will be simpler. The period that records need to be kept will be reduced.
Chapter 1 - Entertainment
Overview
1.1 Schedule 1 of this Bill will amend the Fringe Benefits Tax Assessment Act 1986 (FBTAA) and the Income Tax Assessment Act 1936 (ITAA) to reduce the cost to employers of complying with the requirement to pay fringe benefits tax (FBT) on meal entertainment expenditure incurred on employees and their associates.
1.2 The amendments will:
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- enable an employer to choose one of three methods to determine the proportion of 'meal entertainment' provided to employees and associates;
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- clarify that corporate boxes and other similar hospitality arrangements are not 'business premises', ensuring that food and drink consumed by employees and their associates on those premises will be subject to FBT; and
- •
- allow a 50/50 split to be applied to leasing or hiring costs of corporate boxes and other similar hospitality arrangements to determine what amount will be subject to FBT.
Summary of the amendments
1.3 The FBTAA and the ITAA will be amended to allow employers to apportion 'meal entertainment' expenditure between employees (and associates) and non-employees by one of three methods. These methods are a 50/50 split, an apportionment based on a 12 week register or based on actual expenditure incurred on entertainment.
1.4 The FBTAA will be amended to clarify that a corporate box is not considered to be 'business premises' of the employer. This amendment will ensure that food and drink provided to employees and their associates at corporate boxes is subject to FBT.
1.5 The amendments provide that the 50/50 split method will also be applicable to leasing or hiring costs of corporate boxes and other similar hospitality arrangements.
1.6 The amendments will apply to assessments for the FBT year beginning on 1 April 1995 and later years. [Item 5]
Background to the legislation
1.7 As part of the 1993 Budget measures, amendments were made to the FBTAA and the ITAA so that certain benefits provided by an employer to an employee or associate of the employee became liable to FBT. These amendments applied from 1 April 1994.
1.8 The benefits affected by the amendments include:
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- the provision of entertainment;
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- club fees;
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- leisure facilities;
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- travel expenses of accompanying relatives;
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- Higher Education Contribution Scheme (HECS) payments; and
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- Student Financial Supplement Scheme (SFSS) payments.
1.9 Prior to the amendments, all of these benefits, where they had the necessary nexus with the employee's employment, were fringe benefits under the FBTAA. However, because the expense of providing these benefits was non-deductible under the ITAA, their taxable values for FBT purposes were reduced by the amount that they were non-deductible, i.e. to nil and therefore no liability to FBT arose.
1.10 As a result of the amendments, providers of fringe benefits are now able to claim a deduction under the ITAA for the cost of providing these benefits to employees or associates of employees.
1.11 For example, the provision of entertainment by way of food and drink is currently non-deductible under subsection 51(1) of the ITAA because of the effect of subsection 51AE(4). However, exceptions to this general prohibition on deductibility are contained in subsection 51AE(5). Entertainment expenses can be claimed as income tax deductions where they are provided as fringe benefits under subsection 51AE(5AA).
1.12 Taxation Laws Amendment Act (No. 2) 1994 made further amendments to the FBTAA and the ITAA. Section 63A was inserted into the FBTAA to reduce the taxable value of an expense payment fringe benefit arising where a provider makes a payment or reimburses an employee for expenditure incurred on entertaining persons other than the employee or an associate of the employee. In such situations, the taxable value of the expense payment fringe benefit is reduced by the amount of the expenditure incurred on entertaining persons other than the employee or associate.
1.13 Subsection 51AE(5AA) was amended and subsection 51AE(5AB) was inserted to ensure that where the taxable value of a benefit is reduced under section 63A of the FBTAA, the amount by which the taxable value is reduced will also not be deductible for income tax purposes.
1.14 The amendments ensured uniform treatment of entertainment provided as a residual fringe benefit or an expense payment fringe benefit. Prior to the amendments, where entertainment was provided in the form of an expense payment fringe benefit the total amount of the reimbursement became a fringe benefit.
1.15 The above amendments have not affected the tax treatment of entertainment provided to non-employees, i.e. they continue to be non-deductible under the ITAA and are not subject to FBT.
1.16 In order to determine the FBT liability, it is necessary for the provider of the benefit to calculate the expenditure incurred on the provision of entertainment to employees, associates and other persons. The ATO issued Tax Determination TD 94/25 so that where employees and their associates and non-employees are jointly entertained, the costs can be allocated on a 'per head' basis rather than an actual expense basis.
Explanation of the amendments
1.17 This Bill inserts new Division 9A into Part III of the FBTAA [item 1] . The new Division provides that an employer can elect to determine the taxable value of 'meal entertainment' provided to employees and their associates by one of two methods. These methods are the 50/50 split method or the 12 week register method. If the employer does not make an election to use one of these methods, the taxable value will be determined according to actual expenditure.
1.18 When an employer elects to use one of these two methods, the election will apply for the full FBT year. Where meal entertainment is provided, a 'meal entertainment' benefit will arise at the time the benefit is provided. [New sections 37AA & 37AC]
1.19 New section 37AC defines the term 'provision of meal entertainment'. The meaning of this term is similar to the 'provision of entertainment' in subsection 51AE(3) of the ITAA. However, unlike that definition, the provision of meal entertainment does not include recreation. It also includes the payment or reimbursement of entertainment expenses.
1.20 'Provision of meal entertainment' will also include any ancillary accommodation or travel provided in connection with the meal entertainment. For example, taxi travel to and from a restaurant will be included in the provision of meal entertainment.
1.21 The terms 'meal entertainment benefit' and 'meal entertainment fringe benefit' will be defined in subsection 136(1) of the FBTAA. [Item 3]
Effect on other fringe benefits
1.22 New sections 37AD, 37AE, 37AF will ensure that under the 50/50 split or 12 week register methods:
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- no benefit will arise to an employer where the same benefit arises to another employer;
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- a fringe benefit may arise where the employer has not provided the benefit, or where the employer has provided the benefit but the benefit is a fringe benefit in relation to another employer.
1.23
Example:
X and Y are related companies. Employees of both companies attend a staff function provided by X. X elects that the new Division 9A applies. The meals provided by X to X's employees will be meal entertainment benefits. New section 37AE ensures that X will only be subject once to fringe benefits tax on these benefits.
1.24
As X and Y are associated, the meals provided by X to Y's employees will be subject to fringe benefits tax in Y's hands. New section 37AD makes it clear that X's decision to elect that the new Division 9A applies does not cause the benefit to be a meal entertainment benefit in Y's hands. The benefit will be taxed under the other provisions of the FBTAA [new section 37AF] .
1.25 The first method to determine the taxable value of meal entertainment benefits is to halve the total 'meal entertainment' expenditure incurred by an employee in an FBT year. The split is based on the total expenditure incurred by an employer on the provision of meal entertainment to employees (and associates) and non-employees regardless of whether the expenditure would be deductible for income tax purposes. [New sections 37B & 37BA]
1.26 As a result of new sections 37AD, 37AE and 37AF , the taxable value of meal entertainment provided to employees by an associate of the employer will not be included in the taxable value of meal entertainment fringe benefits. The taxable value of these benefits will be determined under the relevant existing provisions. This measure ensures that an employer will not be able to avoid paying FBT on entertainment provided to his or her employees by an associate who will be able to claim a deduction for providing the entertainment.
1.27 It should be noted that the taxable value of the 'meal entertainment' benefits cannot be reduced by employee contributions or under the 'otherwise deductible' rule.
1.28 New subsection 51AEA will provide that where an employer elects to use the 50/50 split method, a deduction for 50% of meal entertainment expenses is allowable to the taxpayer for the year of income in which the expenditure is incurred. No other deduction will be allowed for the same expenditure. [Item 6]
1.29
Example:
An employer incurs total expenditure on meal entertainment of $200,000 in an FBT year. Expenditure has been incurred on employees entertaining clients at restaurants, a Christmas party, and the provision of food and drink for a staff social club. The employer chooses to use the 50/50 split method. Meal entertainment benefits of $100,000 will be subject to FBT and deductible under the ITAA. $100,000 will not be subject to FBT and will be non-deductible under the ITAA.
12 week register method: FBTAA
1.30 If an employer elects to use this method, the taxable value of the meal entertainment benefit provided is determined by reference to a 12 week register. [New section 37C]
1.31 If the election is made, no benefit will arise under any other provision of the FBTAA.
1.32 The taxable value of meal entertainment fringe benefits for the FBT year will be the total meal entertainment expenditure incurred by the employer on all persons in the FBT year multiplied by the register percentage . The register percentage is a percentage of:
((total value of meal entertainment fringe benefits provided in 12 week period) / (total value of meal entertainment provided in 12 week period))
1.33
Example:
An employer's total meal entertainment expenditure in an FBT year is $100,000. The employer maintains a 12 week register which allows the employer to determine that 30% of meal entertainment expenditure was provided as a fringe benefit. The taxable value of meal entertainment fringe benefits provided during the FBT year is.
$100,000 * 30%, i.e. $30,000
1.34 The employer must keep the register for a continuous period of at least 12 weeks of the FBT year. The period over which the register is kept must be representative of the meal entertainment patterns during the year. [New section 37CC]
1.35 The register can be used for the year in which the register is kept and the subsequent 4 years. If the register is kept over two years, it can only be used for the second year and the following 4 years. [New subsection 37CD]
1.36 If total meal entertainment expenditure in an FBT year is more than 20% higher than the same expenditure incurred in the year that the register was kept, then the register can no longer be used after the end of the FBT year. A new one will need to kept in the following FBT year. Also, if two registers are kept within the same FBT year, the first register cannot be used. [New subsections 37CD(2) & (3)]
1.37 New subsection 37CE(1) provides details of what is to be recorded in the register.
1.38 The entries need to be made as soon as practicable after the entertainment has been provided. [New subsection 37CE(2)]
1.39 A register is not valid if fraudulent entries have been made in the register. [New section 37CF]
1.40 New section 51AEB will provide a deduction for certain meal entertainment expenses [item 6] . The amount that is deductible will not only include the amount that relates to meal entertainment fringe benefits but also other deductible entertainment expenditure.
1.41 More specifically, the deductible amount will be the amount of meal entertainment expenditure incurred in an FBT year multiplied by the register percentage. The register percentage is the ratio of the total deductions for register meal entertainment to the total register meal entertainment expenses. The formula for calculating the register percentage is set out in new section 51AEB .
Tax exempt body entertainment fringe benefits
1.42 Division 10 of Part III of the FBTAA creates a tax-exempt body entertainment fringe benefit. In broad terms, a tax-exempt body entertainment fringe benefit is the provision of entertainment to an employee, or an associate of the employee, where the employer is an income tax-exempt body. Accordingly, where an income tax-exempt body provides entertainment to both employees (and their associates) and non-employees, the FBT will only apply in respect of the employees (and associates).
1.43 Tax exempt bodies can also elect that new Division 9A of the FBTAA applies.
1.44 Food and drink provided to employees on business premises are exempt benefits under section 41 of the FBTAA. The definition of 'business premises' in subsection 136(1) will be amended to make it clear that corporate boxes, boats, planes and other premises used for entertainment purposes are not business premises. However, certain boats, planes and other premises will continue to be treated as business premises so that food and drink provided to employees on these premises will remain exempt benefits. These are boats, planes and other premises which are either:
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- used by employers who carry on the business of providing entertainment, e.g., a restaurant owner might hold a staff party in the restaurant, or
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- not used primarily for entertainment purposes, e.g., an airline's plane on which meals were served to employees. [Item 2]
Election for 50/50 apportionment to apply to certain leasing and hiring costs: FBTAA
1.45 New section 152B will allow the 50/50 split method to be applied to the leasing and hiring costs of corporate boxes and other similar hospitality arrangements [item 4] . This means that a 50/50 split will be accepted for the purposes of determining what proportion of the leasing or hiring costs is subject to FBT.
1.46 The term 'entertainment facility leasing expenses' will be defined in subsection 136(1). Entertainment facility leasing expenses will include leasing or hiring expenses for corporate boxes, boats, planes or other premises or facilities leased or hired for the purpose of providing entertainment. However, they will not include the expenses attributable to the provision of food or drink or advertising. [Item 3]
Election for 50/50 apportionment to apply to certain leasing and hiring costs: ITAA
1.47 New section 51AEC provides that, where an employer has elected to apply the 50/50 split method to corporate box leasing or hiring expenses, a deduction equal to 50% of the expenses will be allowable to the employer for those expenses for the year of income in which the expense was incurred. [Item 6]
Chapter 2 - Living away from home allowance benefits
Overview
2.1 Schedule 2 of this Bill will amend the Fringe Benefits Tax Assessment Act 1986 (FBTAA) to change the rules relating to living away from home allowance (LAFHA) benefits. The rules that determine whether an allowance received by an employee is a LAFHA fringe benefit will be modified.
2.2 The definitions of 'exempt accommodation component' and 'exempt food component', which are the amounts by which the taxable value of a LAFHA fringe benefit can be reduced, will be amended.
2.3 Complementary changes will be made to the exemption from fringe benefits tax (FBT) for accommodation and food provided to employees living away from home where the benefit is provided other than by cash allowance.
Summary of the amendments
2.4 The rules in Division 7 of the FBTAA that determine whether an allowance received by an employee is a LAFHA benefit will be amended.
2.5 An allowance paid by an employer to an employee will only be a LAFHA benefit where the employee is living away from his or her usual place of residence for a definite period. To evidence this, supporting documentation will be required from the employer and the employee.
2.6 The definitions of the terms 'exempt accommodation component' and 'exempt food component' will be amended so that the taxable value of a LAFHA fringe benefit can be reduced by:
- •
- the amounts actually expended by the employee on accommodation while living away from his or her usual place of residence; and
- •
- reasonable amounts to cover the additional cost of food less a statutory food amount.
2.7 Consequential changes will be made to the provisions that exempt from FBT accommodation provided to employees living away from their usual place of residence by way of expense payment fringe benefit or residual fringe benefit. The rule that reduces the value of living away from home food fringe benefits will also be changed to reflect the principle amendments.
2.8 These amendments will apply to benefits for employees who start to live away from their usual place of residence after 30 June 1995. [Item 14]
Background to the legislation
2.9 A LAFHA benefit is created under Division 7 of Part III of the FBTAA. Where an allowance is paid to an employee for living away from home and the allowance does not fall within Division 7, it will generally be taxable in the hands of the employee for income tax purposes.
2.10 Section 30 sets out the circumstances in which an allowance paid by an employer to an employee will qualify as a LAFHA benefit. It is an allowance paid to an employee that is in the nature of compensation for additional expenses incurred, and other disadvantages suffered, because the employee is required to live away from his or her usual place of residence in order to perform the duties of employment. Additional expenses do not include expenses for which the employee would be entitled to an income tax deduction.
2.11 The term 'place of residence' is defined in subsection 136(1) to mean, in relation to a person, a place at which the person resides or a place at which the person has sleeping accommodation, whether on a permanent or temporary basis and whether or not on a shared basis.
2.12 The taxable value of the LAFHA fringe benefit is calculated in accordance with rules set out in section 31 of the FBTAA. The taxable value is the amount of the LAFHA fringe benefit reduced by either or both of two components, the 'exempt accommodation component' and the 'exempt food component'. These terms are defined in subsection 136(1):
- •
- 'exempt accommodation component' is so much of the allowance that is in the nature of compensation for additional expenses on accommodation that the employee could reasonably be expected to incur.
- •
- 'exempt food component' is so much of the allowance as is reasonable compensation for additional expenses on food.
2.13 To determine what is reasonable compensation for increased expenditure on food, the following terms are defined in subsection 136(1):
- •
- 'food component', which is so much of the allowance as is in the nature of compensation for expenses the employee could reasonably be expected to incur on food and drink (it can represent either additional food expenses or total food expenses); and
- •
- 'statutory food amount', which is set at $42 for persons aged 12 and over and $21 for persons less than 12 years of age.
2.14 Under the definition of 'exempt food component', only so much of the food component of the allowance that exceeds the statutory amount for home food costs is treated as an exempt food component.
2.15 If the amount of the food component of the allowance which is set to cover additional food costs has been determined after estimating the normal cost of food at the employee's home, and the estimated home food cost for this purpose is at least equal to the $42 statutory amount, the 'exempt food component' will be the full amount of the food component of the allowance.
2.16 If the estimated home food cost adopted in paying the allowance was less than the $42 statutory amount, so much of the food component as exceeds the difference between the estimated home food cost and the $42 statutory amount will apply to reduce the taxable value of the LAFHA fringe benefit.
2.17 The purpose of the definition is to only tax that part of the food component that covers expenses on food that the employee would have incurred anyway while living at home.
2.18 Where the food component of the allowance is paid to compensate for the cost of food purchased for the employee and a spouse or child, the above rules apply on an equivalent basis by reference to the aggregate of the statutory food amounts applicable to the employee and family members who also moved with the employee.
2.19 The taxable value of a LAFHA fringe benefit may not be reduced by the 'exempt accommodation component' and the 'exempt food component' unless the employee gives the employer a declaration that sets out particulars of the employee's usual place of residence and actual place of residence for the period during which the LAFHA was paid in the year of tax.
Accommodation expense payment benefit
2.20 Under section 21 of the FBTAA, an expense payment benefit which relates to expenditure incurred by an employee on accommodation because the employee was required to live away from home is exempt from FBT. This provision complements the LAFHA fringe benefit provisions.
2.21 The employee provides the employer with a declaration for the exemption to apply. The declaration must be in an approved form setting out:
- •
- the employee's usual place of residence; and
- •
- the place at which the employee actually resided while living away from his or her usual place of residence.
Living away from home allowance - residual fringe benefits
2.22 Under subsection 47(5) of the FBTAA, a residual benefit which consists of a lease of residential accommodation granted to an employee who is required to live away from his or her usual place of residence in order to perform employment duties is exempt from FBT. This provision complements the LAFHA fringe benefit provisions.
2.23 In order to qualify for the exemption, either the accommodation must have been provided under a 'fly-in fly-out' arrangement or the employee must give the employer a declaration specifying both the employee's usual place of residence and the place at which the employee is residing while living away from his or her usual place of residence.
Living away from home food fringe benefits
2.24 Under section 63 of the FBTAA, the taxable value of a property benefit which consists of giving, or selling food at a subsidised cost, to employees who are required to live away from their usual place of residence can be reduced by the amount that the 'food component' exceeds the statutory food amounts for the employee and family members. This provision complements the LAFHA fringe benefit provisions.
2.25 Before the employer can claim a reduction in the taxable value under this provision, the employee must give the employer a declaration which states:
- •
- the employee's usual place of residence; and
- •
- the place at which the employee actually resided while living away from his or her usual place of residence.
Explanation of the amendments
2.26 This Bill will amend subsections 21(1), 30(1), 47(5) and 63(1) of the FBTAA to include additional conditions that need to be satisfied for the purpose of those provisions.
2.27 As explained above, subsection 30(1) of the FBTAA sets out when an allowance paid by an employer to an employee will be a LAFHA benefit. Subsections 21(1), 47(2) and 63(1) complement this provision to provide comparable FBT treatment where accommodation and food benefits are provided by another type of benefit.
What new conditions need to be satisfied before a LAFHA benefit arises?
2.28 Subsection 30(1) will be amended to set out the conditions that need to be satisfied before an employee is considered to be living away from his or her usual place of residence [items 3 and 4] . Corresponding changes will also be made to subsections 21(1), 47(2) and 63(1) [items 1, 2, 6, 7, 8 and 9] .
2.29 The first condition is that the total unbroken residence period for which the employee has lived, or is required to live away from his or her usual place of residence does not exceed a maximum residence period . [New paragraphs 21(2)(a), 30(1A)(a), 47(5A)(a), 63(3)(a)]
2.30 New section 140A sets out the maximum residence period for various groups of employees. Broadly, if the employee is a person working in Australia on a temporary entry permit or an Australian working overseas, the maximum residence period will be 4 years. If the employee is an Australian resident relocated elsewhere in Australia, the maximum residence period will be 12 months unless the employee is living in a remote area, in which case the period will be 2 years. [Item 13]
2.31 The term total unbroken residence period will be defined in subsection 136(1) of the FBTAA. The total unbroken period will start at the time that the employee began to live away from his or her usual place of residence. It will end at the time that the employee is no longer required to live away from his or her usual place of residence [item 12] . Any break of six months or less will be disregarded. [New section 65HC]
2.32
Example 1:
An employee is required to live in Sydney for a period of 15 months. The employee's usual place of residence is Melbourne. As the total unbroken residence period of 15 months exceeds the maximum residence period of 12 months, any allowance received by the employee for living away from home will not be a LAFHA benefit. The allowance would be assessable to the employee under the income tax law.
2.33
Example 2:
A US expatriate employee is contracted to work in Australia for 3 years. However, at the end of the three 3 years, the employee enters into another contract to stay for a further 2 years. At the time of entering into the first contract, the total unbroken residence period (of 3 years) did not exceed the maximum residence period (of 4 years). Any living away from home allowance paid to the employee during the period of the first contract will be dealt with under the LAFHA fringe benefit provisions of the FBT law. Once the second contract was entered into, the total unbroken residence period (of 5 years) exceeded the maximum residence period. Thus, from the time of entering into the second contract, any allowance would not be treated as a LAFHA benefit for FBT purposes.
2.34
Example 3:
An employee is required to live in Darwin for 7 months. The employee's usual place of residence is Perth. At the end of 7 months he returns to Perth. Eight months later his employer requires him to return to Darwin for a further eight months. Even though the employee resides in Darwin for a total period which exceeds the maximum residence period of 12 months the period has been broken by the employee returning to his usual place of residence for eight months. Accordingly, neither of the two periods spent in Darwin exceed the maximum residence period and any allowance paid will qualify as a LAFHA benefit for FBT purposes.
2.35 The second condition is that the employer and employee will need to make declarations under new section 65HA. [Item 10, new paragraphs 21(2)(b), 30(1A)(b), 47(5A)(b), 63(3)(b)]
2.36 Under new section 65HA the employer must make a written declaration stating that:
- -
- the employee is required to live away from home for a period not exceeding the maximum residence period;
- -
- the allowance paid or accommodation or food provided (where either subsections 21(1), 47(2) or 63(1) applies) is an allowance paid or accommodation or food provided for the purpose of those provisions. [New subsection 65HA(2)]
2.37 In addition, an employee must give the employer a declaration stating that he or she has lived, or intends to live, away from his or her usual place of residence for a total unbroken residence period that does not exceed the maximum residence period. The declaration must be given to the employer for each year that the expenses were incurred. [New subsection 65HA(3)]
2.38 A declaration made by an employer under subsection 65HA(2) will not be effective unless the employer has the supporting documentation required by new subsection 65HB(1) .
Employees working on a fly-in fly-out basis
2.39 New subsection 30(1B) provides that an allowance as described in subsection 30(1) will always be a LAFHA benefit when provided to employees who work on a fly-in fly-out basis [item 4] . Generally, an employee will be working on a fly-in fly-out basis where the employee's usual place of employment is an oil rig or another remote location and the employee returns to his or her usual place of residence on scheduled days off.
2.40 Corresponding amendments will be made to subsections 21(1), 47(5) and 63(1). [Items 2, 7 and 9]
Record keeping requirements - employees
2.41 New section 31A provides that where an employer pays a LAFHA to an employee, the employee must keep documentary evidence of the amount spent or paid on behalf of the employee and his or her family on accommodation for the period for which the allowance was paid. [Item 5]
2.42 The employee must give this evidence to the employer before the declaration date for each FBT year for which the allowance is paid [new subsection 31A(1)] . If the documentary evidence is not provided by the declaration date, then no reduction in the taxable value of the benefit is allowable.
Exempt food component and exempt accommodation component
2.43 For the purposes of reducing the taxable value of a LAFHA fringe benefit under section 31, the definitions of 'exempt accommodation component' and 'exempt food component' in subsection 136(1) will be amended:
- •
- the amount of the 'exempt accommodation component' will be limited to the 'recipients allowance' that has actually been expended by the employee (including amounts paid by or on behalf of an 'eligible family member') on accommodation during the 'recipients allowance period'. The terms 'eligible family member', 'recipients allowance' and 'recipients allowance period' are defined in subsection 136(1).
- •
- the amount of the 'exempt food component' will be the difference between a 'reasonable food component' and the 'statutory food amount' [item 11] . The term 'statutory' food component' is defined in subsection 136(1). The 'reasonable food component' will be defined in subsection 136(1) as an amount determined by the Commissioner. [Item 12]
2.44 As outlined above, the 'exempt food component' is to be the 'reasonable food component' less the 'statutory food amount'. The Commissioner will issue a Tax Determination notifying taxpayers of the 'reasonable food component.'
Chapter 3 - Car Parking Benefits
Overview
3.1 The amendments in Schedule 3 of this Bill will amend the Fringe Benefits Tax Assessment Act 1986 (FBTAA) to reduce the cost to employers of complying with the requirement to pay fringe benefits tax (FBT) on car parking benefits. The amendments will:
- •
- ensure that FBT does not apply to car parking unless a commercial car park which charges more than $5 a day at the beginning of the FBT year is located within a one kilometre radius of the employer provided car parking facilities;
- •
- provide various options for calculating the taxable value of car parking benefits. These options will help to reduce the employer's costs in complying with the car parking provisions of the law;
- •
- make consequential amendments to section 51AGB of the Income Tax Assessment Act 1936 (ITAA).
These amendments are explained in Section 1 of this chapter.
3.2 Schedule 4 will make a technical correction to section 58G of the FBTAA so that car parking benefits provided to government employees in public educational institutions will be exempt from fringe benefits tax. This amendment is explained in Section 2 of this chapter.
Section 1 - Measures reducing the cost of compliance for car parking benefits
Summary of the amendments
3.3 Division 10A of the FBTAA will be amended so that:
- •
- one of the conditions that must be satisfied before a car parking benefit can arise will be changed so that a car parking benefit can only arise where there is a 'commercial parking station' within a 1 kilometre radius of the employer's premises that charges more than $5 a day at the beginning of the FBT year;
- •
- employers will be allowed to value car parking benefits provided to employees and their associates under an average cost method [new section 39DA] ;
- •
- an employer can elect to use one of two alternative methods to calculate the total taxable value of car parking benefits provided in a year, i.e. the 'statutory formula' method [new Subdivision C of Division 10A of Part III] and the '12 week record keeping' method [new Subdivision D of Division 10A of Part III] .
3.4 Consequential amendments will also be made to section 51AGB of the ITAA. This section denies a deduction for car parking expenses incurred by self-employed persons. Amendments are required so that the amount of the deduction to be disallowed under this provision can be calculated on the same basis as the taxable value of car parking benefits is calculated under Division 10A of the FBTAA.
3.5 Subject to a transitional arrangement, the amendments will apply from the FBT year commencing 1 April 1995. [Item 9]
Background to the legislation
3.6 Certain car parking benefits provided to employees after 1 July 1993 are subject to FBT under Division 10A of the FBTAA.
3.7 Section 39A of the FBTAA sets out a number of conditions that must be satisfied before a car parking benefit can arise. One of these conditions, is that a commercial parking station is located within 1 kilometre of the employer provided car parking facilities.
3.8 The two methods for determining the taxable value of a car parking fringe benefit are set out in sections 39C and 39D of the FBTAA:
- •
- under the 'commercial parking station' method , the taxable value of the benefit provided is determined by reference to the lowest fee charged by the operator of a commercial parking station located within a 1 km radius in the ordinary course of business to members of the public for all-day parking on that day reduced by any employee contribution.
- •
- under the 'market value' method , an employer can elect to base the taxable value of the benefit on the market value of the car parking (as determined by a suitably qualified valuer) reduced by any employee contribution.
3.9 Under Division 10A there is no rule for determining the number of car parking spaces available. The Commissioner of Taxation has issued Taxation Ruling TR93/18 which sets out what records need to be kept by an employer to substantiate their liability to FBT in respect to car parking benefits. The records need to indicate the number of car parking benefits provided over the course of an FBT year.
3.10 As set out in Taxation Ruling TR93/18, one of these record keeping methods is the register system. Under this system, a register is to be compiled over a 12 week period in respect of all the vehicles to which the information will apply. The register can be used to provide an indication of the number of car parking benefits that have arisen in an FBT year.
3.11 This Bill will also amend section 51AGB of the ITAA. That section, which applies to certain non-employees, denies a deduction for car parking expenses where conditions similar to those in section 39A of the FBTAA apply. While the amount of the deduction denied is the actual amount of the expense incurred in providing the car parking facilities, a taxpayer may elect to choose an alternate amount based on either the 'commercial parking station' method of valuation or the 'market value' method of valuation.
Explanation of the amendments
Change to commercial parking stations within 1km rule
3.12 One of the conditions that must be satisfied before a car parking benefit can arise, as set out in subparagraph 39A(a)(i), is that there must be a commercial parking station located within a 1 km radius of the provider's premises.
3.13 New subparagraph 39A(a)(iii) will ensure that a car parking benefit will not arise where there is no commercial parking station operator within a 1km vicinity of the provider's premises who charges more than $5 a day at the beginning of the FBT year [item 1] . The amendment will confine FBT on car parking to areas where benefits have significant values, such as CBDs.
3.14 Any fee on the first business day of an FBT year that is not representative is to be disregarded. [Item 2, new sections 39AA & 39AB]
Valuation of car parking benefits under 'average cost' method
3.15 In addition to those existing methods set out in sections 39C and 39D, a further method for valuing car parking benefits will be provided by new subsection 39DA(1) [item 3] . An employer can elect that the method, called the 'average cost' method , can be applied to any or all of the employer's car parking benefits provided in an FBT year.
3.16 The 'average cost' method will enable the provider of the car parking benefit to determine the taxable value of a car parking benefit by reference to an average of the lowest fees charged by any operator of a commercial parking station within a 1km radius of the employer's premises on particular days, i.e. the first and last days of the FBT year on which a benefit was provided. The taxable value can be reduced by a recipient's contribution towards the benefit. [New subsection 39DA(2) & (3)]
3.17 The formula for determining the taxable value of the benefit is set out in new subsection 39DA(3) .
3.18 The lowest fee charged must be reasonably representative, i.e., it must not be substantially greater or less than the average daily fee charged by an operator 4 weeks either before and after the particular day. [New subsection 39DA(4)]
3.19 It will not be necessary for an employer to use the lowest fee charged on the relevant days by the same commercial parking station operator. If there is more than one commercial parking station operator within a 1 km radius of the employer's premises, the lowest fee charged by any of the operators on the relevant dates will be acceptable.
Alternative methods for determining the value of car parking benefits provided
3.20 New Subdivisions C and D in Division 10A will provide two alternative methods for valuing car parking benefits. If an employer does not choose one of these methods, the taxable value of car parking benefits will need to be determined according to one of the three methods set out in Subdivision B of Division 10A based on the number of actual car parking benefits provided.
3.21 An employer will be able to elect to calculate the total taxable value of car parking benefits provided in a FBT year by the statutory formula method under new Subdivision C. [Item 4]
3.22 It is not necessary for an employer to apply this method to all employees for calculating the number of car parking benefits provided. An employer may elect to apply the method to all employees, particular employees or class of employees. The amount calculated under this method will be the total taxable value for employees covered by the election. [New subsections 39FA (1), (2) & (3)]
3.23 The taxable value for each space for which there is at least one car parking benefit for an employee covered by an election is calculated by multiplying the statutory number of days (240) by the daily rate amount (the value of the benefit as determined under the 'average cost method' assuming no recipient's contribution).
3.24 However, where the space is available for only part of an FBT year this value will be reduced proportionately.
3.25 The total taxable value (i.e. total statutory benefits) will be the sum of each of these taxable values, calculated for all employees covered by the election. The total taxable value will be reduced by the sum of any recipient's contributions. [New subsection 39FA(4) and new sections 39FC, 39FD and 39FE]
3.26 Where the average number of spaces exceeds the average number of employees, the taxable value of benefits will be reduced by the formula set out in new section 39FB .
3.27
Example:
An employer elects to use the statutory formula method to determine the taxable value of car parking benefits provided to 50 employees. The employer provides 60 parking spaces. The benefits are provided for only half of the FBT year and the taxable value of a benefit calculated under the 'average cost' method is $6. The taxable value of one benefit is $ 740, calculated as follows:
$6 * 240 * (188/366)
For the 50 employees the total taxable value is
$37,000 ($740 * 60 * 50/60).
3.28 The 12 week register method is another method that an employer will be able to use to calculate the total taxable value of car parking benefits under new Subdivision D . [Item 4]
3.29 To use this method, a valid register must be kept. The employer must specify in the election whether the election covers all employees, employees of a particular class or to particular employees. [New section 39GA]
3.30 The total taxable value of car parking benefits provided during the full FBT year is based on the total value of car parking benefits provided during the 12 week period as determined by the register under the formula set out in new section 39GB . The number of benefits provided and the taxable value of those benefits (i.e. the total value of car parking benefits) can be determined from the register. The taxable value of car parking benefits can be determined by any of the methods set out in Subdivision B of Division 10A of the FBTAA, i.e. the 'commercial parking station' method , the 'market value' method or the 'average cost' method . [New sections 39GB, 39GC & 39GD]
3.31 Where the car parking benefits have been provided for a period less than a full year, the value of the benefits is reduced proportionately under the formula in new section 39GB .
3.32
Example:
After keeping a register for a 12 week period, an employer determines that 250 car parking benefits each with a taxable value of $10 have been provided to employees from 1 October (half-way through the FBT year) to the end of the FBT year. The total taxable value of benefits provided is calculated as follows:
250 * 10 * (52/12) * (183/366)
3.33 If this method is used, a car parking register needs to be maintained by or on behalf of the provider for a continuous period of at least 12 weeks throughout which car parking benefits are provided to employees and their associates covered by the election. The period over which the car parking register is kept needs to be representative of car parking usage over the year of tax. [New section 39GE]
3.34 If the 12 week period is in the same FBT year the register can be used for that year and the next four years. If the 12 week period extends over two years, the register is not valid for the first year. [New subsections 39GF(1) & (2)]
3.35 A further register will need to be kept in the following FBT year where the number of car parking spaces (or the number of employees allowed to park if this is less) increases by more than 10 percent in a year. If more than one register is kept within a year the later one applies. [New subsections 39GF(3) & (4)]
3.36 The details that need to be recorded in the car parking register are set out in new subsection 39GG(1) .
3.37 The register applies to cars that are the subject of a car benefit, a car that is owned or leased to an employee or otherwise made available to an employee covered by the election. [New subsection 39GG(4))]
3.38 The entries need to be made as soon as practicable after a vehicle has entered or left the car parking facilities. [New subsection 39GG(2)]
3.39 A register is not valid if fraudulent entries are made in the register. [New section 39GH]
3.40 As set out in paragraphs 17 and 19 of Taxation Ruling TR 93/18, a provider of car parking benefits can maintain a 12 week register to indicate the number of benefits that have been provided to employees and their associates during the course of an FBT year.
3.41 A transitional measure provides that, where a provider of car parking benefits has under a previous administrative arrangement (eg Taxation Ruling TR 93/18) maintained a 12 week register in determining the number of car parking benefits provided, this register may continue to be used for the purposes of the new measures providing the following conditions are satisfied:
- •
- it provides the information required for a register;
- •
- the number of car parking spaces (or the number of employees allowed to park if this is less) has not increased by more than 10 percent since the register was completed. [Item 10]
3.42 Amendments will be made to sections 39C and 39D to substitute 'a year of tax' with 'an FBT year', 'the year of tax' with 'the FBT year' and 'a particular year of tax' with 'a particular FBT year' [items 5, 6 and 7] . A definition of 'FBT year' will be inserted into subsection 136(1) of the FBTAA [item 4 in Schedule 6] .
3.43 An amendment will be made to subsection 39E(1) to replace "Subdivision" with "Division". Subsection 39E(1) contains a formula which provides for the calculation of a daily rate equivalent where, in the ordinary course of business, a commercial car parking station provides all-day parking to the public on a weekly, monthly, yearly or other periodic basis. Following the amendment to subparagraph 39A(a), the formula contained in this subsection will also be used for calculating the daily rate equivalent for all-day parking so it can be determined whether a car parking benefit can arise, i.e. if the daily rate equivalent is no more than $5, no car parking benefit will arise. [Item 8]
3.44 Section 51AGB of the ITAA which applies in relation to expenditure incurred by a taxpayer on or after 1 July 1994 operates to deny a deduction or reduce a deduction which would otherwise be allowable for car parking expenses incurred by self-employed persons.
3.45 This Bill replaces section 51AGB with a new Division 4A of Part III of the ITAA. New Division 4A has been drafted in the new plain English style and reflects the amendments made to Division 10A of the FBTAA. [Item 11]
3.46 Before this Division can apply, a number of conditions need to be satisfied. The conditions set out in subsection 51AGB(1) have been redrafted and are now included in new Subdivision A of the new Division.
3.47 A further condition that reflects the amendments made to Division 10A of the FBTAA is that there must be a commercial parking station located within a 1 km radius of the parking premises and the lowest fee charged by the operator of any such commercial parking station for all-day parking on the first business day of the year is more than $5 a day. [New paragraph 89AB(4)(d)]
Regulations to exclude certain cases
3.48 This Division also redrafts paragraph 51AGB(1)(h) so that the provision will not apply where there are regulations excluding the provision of certain car parking from the operation of this Division. [New Section 89AC]
Deduction calculated using approved valuation method
3.49 Under the new Division 4A of Part III of the ITAA, one of five valuation methods can be used to value the car parking provided. The calculation is necessary to determine the amount of deduction to be disallowed for car parking expenses. [New section 89B]
3.50 Two of the valuation methods that are available include the 'commercial parking station' method and the 'market valuation' method. These methods are presently contained in subsections 51AGB(3), (4), (5), (6), and (7) of the ITAA. The methods are now set out in Subdivisions C and D of the new Division and there has been no change in the way they operate. They apply in a similar manner to sections 39C and 39D of the FBTAA. [New sections 89B, 89C, 89CA, 89D, 89DA & 89DB]
3.51 As a result of the amendments to the FBTAA, three other valuation methods can be used to determine the amount by which the gross deduction allowable for car parking can be denied or reduced. These methods are the 'average cost' method, 'statutory formula' method and the '12 week record keeping' method. These methods are set out in Subdivisions E, F and G of the new Division. These methods operate in a similar manner to those contained in Subdivisions C and D and new section 39DA of Division 10A of the FBTAA. These provisions are explained above. [New sections 89E, 89EA, 89EB, 89F, 89FA, 89FB, 89FC, 89FD, 89G, 89GA, 89GB, 89GC, 89GD, 89GE, 89GF, 89GG & 89GH]
3.52 The anti-avoidance measure contained in existing section 51AGB of the ITAA, is now included in the new Subdivision H of the Division 4A of Part III of the ITAA.
3.53 A further anti-avoidance measure is that, for the purposes of paragraph 89AA(4)(d), any fee charged by a commercial parking station operator after 31 March in a year that is not representative will be taken to be more than $5. [New section 89HA]
3.54 New Division 4A of Part III of the ITAA will include interpretation provisions.
3.55 Subsections 51AGB(8) and (9) of the ITAA have been redrafted and are now contained in new Subdivision J . [New sections 89J & 89JA]
3.56 An explanation of when fees are not representative is similar to that contained in new section 39AB of Division 10A of the FBTAA. [New section 89JB]
3.57 New Subdivision J also contains definitions for the new provisions. [New section 89JC]
3.58 Paragraph 51AGB(1)(i) will be amended so that the existing provisions no longer apply from 1 July 1995. [Item 12]
3.59 The Bill also amends subsection 262(4AK) to ensure the record keeping requirements for the report of a valuer as required under subsection 51AGB(7) also apply to new section 89DB . [Item 13]
3.60 The Bill inserts a transitional measure for the purpose of the 12 week register method. If a register has been kept before the commencement of these measures then the register will be regarded as having been kept for the purposes of this method if it satisfies the necessary requirements. [Item 14]
3.61 A further transitional measure provides that if regulations have been made for the purposes of paragraph 51AGB(1)(h) they will also be taken to have been made for the purposes of new section 89AB. [Item 14]
Section 2 - Exemption of car parking benefits provided by government public educational institutions
Summary of the amendments
3.62 A technical correction will be made to section 58G of the FBTAA so that car parking benefits provided to government employees working in public educational institutions will be exempt from fringe benefits tax in the same way as car parking benefits provided to employees of non-government public educational institutions.
3.64 This amendment is retrospective. It will apply to assessments for the FBT year commencing on 1 April 1993, when FBT was imposed on car parking benefits, and later years. [Sub item 4(1) of Schedule 4]
Background to the legislation
3.65 A car parking benefit is provided, broadly, if commercial car parking is available and an employee is given car parking at the place of employment for a car used for travel to and from work.
3.66 Car parking benefits provided by certain employers, including public educational institutions, are exempt from tax under section 58G. On the other hand, government-provided benefits, including car parking benefits, are generally taxable.
3.67 The exemption provided by s.58G does not cover car parking benefits provided by a Commonwealth, State or Territory government educational institution because the employer is the Commonwealth, State or Territory government, not the public educational institution. This unintended outcome is contrary to the original intention of the provision, and will be corrected by this amendment.
Explanation of the amendments
3.68 Section 58G is amended so that car parking benefits provided by a Commonwealth, State or Territory government educational institution will be exempt car parking benefits. [Item 1 of Schedule 4; new subsection 58G(3)]
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:
- •
- a mobile phone or a car phone;
- •
- an item of protective clothing that is required for the employment of the employee;
- •
- a briefcase;
- •
- a calculator;
- •
- a tool of trade;
- •
- an item of computer software for use in the employee's employment;
- •
- an electronic diary or similar item;
- •
- 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:
- •
- an employee's subscription to a trade or professional journal, or
- •
- an employee's membership fees for a corporate credit card, or
- •
- an employee's membership fees for an airport lounge membership.
Chapter 5 - Taxi travel provided to employees
Overview
5.1 Schedule 4 of this Bill will amend the Fringe Benefits Tax Assessment Act 1986 (FBTAA) so that taxi travel provided by an employer to employees who are required to travel home between 8pm and 6am, or to sick employees to travel home or to another place of care, will be exempt from fringe benefits tax (FBT).
Summary of the amendments
5.2 Taxi travel provided to employees will be exempt from FBT where the taxi travel is provided:
- •
- for an employee to travel directly between the work place and home between the hours of 8pm and 6am;
- •
- to a sick or injured employee to travel between the work place and home or to any other place where care can be obtained.
5.3 The amendments will apply to any taxi travel provided for employees on or after 1 April 1995. [Sub item 4(2)]
Background to the legislation
5.4 A fringe benefit arises where an employer incurs the cost of an employee's travel to and from work. The type of benefit that can arise when a taxi is provided depends on how the taxi is paid for:
- •
- an expense payment fringe benefit arises if the employee pays for the taxi and is subsequently reimbursed by his or her employer or if the employee pays for the taxi by way of credit card and the employer subsequently pays the credit card.
- •
- a residual benefit arises if the employee uses the employer's credit card to pay for the taxi.
5.6 The cost of travel between home and work is of a private nature and is not deductible to the employee for income tax purposes. Therefore, the 'otherwise deductible' rule does not operate to reduce the taxable value of the benefit provided.
5.7 The provision of transport by an employer to an employee for travel to and from work may nevertheless be exempt from FBT if it is an exempt minor benefit under section 58P of the FBTAA. In general terms, a benefit is an exempt 'minor benefit' where the benefit provided is small and similar benefits are provided irregularly or infrequently. These amendments will widen the circumstances in which taxi travel may be an exempt benefit.
Explanation of the amendments
Taxi travel provided between 8pm and 6am
5.8 New subsection 58Z(1) will exempt a benefit that arises from taxi travel provided to employees where the travel is provided for direct travel between the workplace and home and the taxi is provided between the hours of 8pm and 6am. [Item 2]
5.9 The exemption applies whether the taxi travel covered all or part of a journey between home and work. The journey between home and work has to be direct.
5.10 The exemption will still apply if the taxi travel covers only part of a direct journey between home and work. For example, an employee may travel by taxi to a railway station and travel the rest of the way home by train. However, stopping at a hotel for a drink on the way home, for example, will not be considered to be travel directly to home.
Taxi travel for sick or injured employees
5.11 New subsection 58Z(2) will exempt a benefit that arises where a taxi is provided for a sick or injured employee to travel from the work place to home. [Item 2]
5.12 The exemption also applies where an employee is taken to a place other than home or via that place on the way home, providing that the employee is transported to that other place because of the sickness or injury. For example, an employee falls sick and travels by taxi to see a doctor. After consultation with the doctor the employee travels from the surgery to home in another taxi. In this case, any benefit arising from either journey will be exempt.
Chapter 6 - Section 65 rebate for medical research bodies
Overview
6.1 Schedule 4 of this Bill will amend the Fringe Benefits Tax Assessment Act 1986 (FBTAA) so that certain non-profit medical research bodies that are not operated for governments will be entitled to a rebate of fringe benefits tax under section 65J. The amount of the rebate is broadly equivalent to the amount of tax paid under the grossing up provisions.
Summary of the amendments
6.2 Section 65J provides to certain non-profit, non-government bodies a rebate of fringe benefits tax (FBT) broadly equivalent to the amount of additional tax paid under the grossing up provisions. Medical research bodies which are not established under a Commonwealth, State or Territory law qualify for this rebate.
6.3 This amendment will extend the section 65J rebate to certain medical research bodies established under Commonwealth, State or Territory laws but which are not conducted by or on behalf of a government.
6.4 This amendment is retrospective. It will apply to assessments for the FBT year commencing on 1 April 1994, when the grossing up provisions came into effect, and later years. [Sub item 4(3)]
Background to the legislation
6.5 Since 1 April 1994, FBT has been imposed on the tax inclusive value of a fringe benefit and any FBT payable is deductible for income tax purposes. The purpose of this measure, called 'grossing up', is to make the amount of FBT payable in respect of a fringe benefit similar to the amount of income tax that would be payable at the highest marginal rate on the equivalent amount of salary income.
6.6 Certain non-profit, non-government bodies are entitled under section 65J of the FBTAA to a rebate of an amount slightly less than the additional tax paid under the grossing up provisions. These bodies, called rebatable employers, are listed in subsection 65J(1). The rebate is provided by subsection 65J(2).
6.7 The purpose of this rebate is to compensate these bodies for the impact of the grossing up provisions. Because these bodies are exempt from income tax, they do not benefit from the income tax deduction for fringe benefits tax. Consequently, the increase in tax payable by these bodies under the grossing up provisions is much greater than for taxable bodies that are entitled to an income tax deduction.
6.8 A medical research body is entitled to the section 65 rebate providing that it is not an institution of the Commonwealth, a State or a Territory. It is a rebatable employer under paragraph 65J(1)(b) because it is a scientific institution.
6.9 However, a medical research body established under a Commonwealth, State or Territory law is not entitled to the rebate. Under subsection 65J(3), such a body is an institution of the Commonwealth, State or Territory, even if it does not engage in activities for or on behalf of the Commonwealth, State or Territory. It is therefore excluded from being a rebatable employer under paragraph 65J(1)(b).
Explanation of the amendments
6.10 Subsection 65J(1) will be amended so that certain medical research bodies established under a Commonwealth, State or Territory law but which do not engage in activities for or on behalf of the Commonwealth, State or Territory will qualify as rebatable employers and therefore be entitled to the rebate under subsection 65J(2). [Item 3 in Schedule 4; new paragraph 65J(1)(aa)]
Chapter 7 - Declarations
Overview
7.1 The amendments in Schedule 5 of this Bill will amend the Fringe Benefits Tax Assessment Act 1986 (FBTAA) to reduce the number of declarations that an employer must obtain from employees for certain fringe benefits.
7.2 Where an employer provides to an employee a series of fringe benefits that are essentially the same, the employee will need to provide a declaration only for the first benefit. The need for the employer to obtain a declaration for each of the later benefits will be removed.
7.3 Where an employer reimburses only business expenses, or an employer's procedures effectively prevent private use of benefits, the employer will be able to provide an annual declaration stating that the benefits were used only for employment-related purposes. Benefits covered by the declaration will be exempt benefits.
Summary of the amendments
7.4 The purpose of these amendments is to reduce the number of declarations that an employer must obtain from an employee where the employer provides a series of similar benefits or provides fringe benefits only for employment-related purposes.
7.5 Where an employee receives a series of expense payment fringe benefits, property fringe benefits or residual fringe benefits that are essentially the same but for differences in the value of the benefit or the proportion of business use of the benefit, a declaration (called a ' recurring fringe benefit declaration ') will need to be provided by the employee only for the first benefit.
7.6 The employer will not have to obtain a declaration from the employee for each of the later benefits covered by the recurring fringe benefit declaration.
7.7 A further recurring fringe benefit declaration will be required five years after the last declaration or if there is a decrease in the business use of the benefit by the employee of more than 10 percentage points.
7.8 This measure will apply to those benefits where a declaration is required to specify the proportion of employment-related use of the benefit. It will not apply to benefits provided in respect of an employee's car.
Benefits used only for employment-related purposes
7.9 Where an employer reimburses only employment-related expenses, or where an employer enforces a policy that benefits be used only for employment-related purposes, the employer will be able to make an annual declaration (a ' no-private-benefit declaration ') stating that the benefits were provided only for employment-related purposes.
7.10 This measure will apply to certain expense payment fringe benefits and residual fringe benefits.
7.11 Benefits covered by a no-private-benefit declaration will be exempt benefits. Under the existing law, these benefits are taxable. However, no tax is payable on the benefits because the taxable value of the benefits is reduced to nil as the benefits are used only for employment-related purposes.
7.12 These amendments will apply to assessments for the fringe benefits tax (FBT) year commencing on 1 April 1995 and later years. [Item 8]
Background to the legislation
7.13 The taxable value of a fringe benefit is reduced according to the proportion of the employee's use of the benefit for employment-related purposes. This is called the 'otherwise deductible' rule, because the employee would have been entitled to an income tax deduction if the employee had incurred the expense actually incurred by the employer in providing the benefit.
7.14 The effect of the otherwise deductible rule is that the benefit received is subject to FBT only to the extent of the employee's private use of the benefit. Any employment-related benefit is effectively not taxed.
7.15 For the otherwise deductible rule to apply, an employer needs to obtain a declaration from the employee for most categories of fringe benefits. A declaration must be in a form approved by the Commissioner. The employee must state the percentage of employment-related use of the benefit and give sufficient information to support the percentage. A declaration generally must be obtained before the employer's FBT return is lodged.
7.16
Example - otherwise deductible rule:
An employer provides an employee with miscellaneous minor tools valued at $500, which is a property fringe benefit. The employee's use of the tools is 80% employment-related and 20% private. The taxable value of the benefit is reduced by $400 to $100 under the 'otherwise deductible' rule.
7.17 If a declaration is required for a fringe benefit, a declaration is required for each similar benefit provided by the employer. For example, a declaration must be obtained every time an employer pays an employee's telephone account, even if the proportion of employment-related use of the telephone remains fairly constant.
7.18 Consequently, employers are required to obtain and retain large numbers of declarations where there may be a high degree of duplication in the information contained in the declarations.
7.19 The reduced number and frequency of declarations required as a result of the amendments in this Bill are designed to reduce employers' costs of complying with the FBTAA.
Explanation of the amendments
Recurring fringe benefit declaration
7.20 An employee will be able to make a single declaration that will cover all subsequent similar benefits under new section 152A [item 7] . This declaration will be called a ' recurring fringe benefit declaration '.
What benefits will be covered?
7.21 The declaration will cover all subsequent benefits that are 'identical' [new subsection 152A(6)] . Benefits will be identical for the purpose of subsection 152A(6) if there are only slight differences between them. Benefits will also be identical if the differences relate only to the deductible proportion (i.e., the proportion of employment-related use) or the value of the benefit [new subsection 152A(10)] .
7.22 Any decrease in the deductible proportion must not be greater than 10 percentage points. [New subsection 152A(7)]
7.23
Example - recurring fringe benefit declaration:
An employer regularly reimburses an employee for the total cost of home telephone bills. This is an expense payment fringe benefit. The employee may give the employer a recurring fringe benefit declaration that specifies that the employment-related use of the phone is 50%. The declaration will cover all further reimbursements of telephone bills over the next five years providing that the employment related use of the phone is not less than 40%.
7.24 The declaration will cover all identical benefits provided in the five year period starting when the first benefit was provided, unless the declaration is revoked before the end of the five year period. [New subsection 152A(6)]
7.25 A recurring benefit declaration will cover those expense payment fringe benefits, property fringe benefits and residual fringe benefits covered by paragraphs 24(1)(e), 44(1)(c) or 52(1)(c) of the FBTAA. These are generally fringe benefits where a declaration is required to show the proportion of employment-related use of the benefits. Fringe benefits that relate to an employee's car will not be covered by a recurring benefit declaration because declarations for such benefits include other essential details about each benefit.
7.26 An earlier declaration given in relation to a benefit will be revoked by a later declaration in relation to an identical benefit [new subsection 152A(8)] . This is a technical rule to ensure that a later declaration will prevail over an earlier declaration.
How is the nominal deduction for benefits covered by a recurring fringe benefit declaration calculated?
7.27 The amount by which the taxable value of benefits covered by a recurring benefit declaration is reduced under the otherwise deductible rule will be calculated by reference to the percentage of employment related use specified in the declaration.
7.28 Apart from fringe benefits provided in relation to an employee's car, the value of fringe benefits is reduced under the otherwise deductible rule generally by an amount called the 'notional deduction'. This is the amount of the hypothetical income tax deduction to which the employee would have been entitled if the employee had incurred the expenses incurred by the employer in providing the fringe benefit.
7.29 For expense payment fringe benefits, the formula for the calculation of the notional deduction is set out in paragraph 24(1)(ba). New paragraph 152A(2)(b) provides that, in calculating the notional deduction in relation to a benefit covered by a recurring fringe benefit declaration, it should be assumed that the proportion of employment-related use of the benefit is the same as the proportion of employment-related use specified in the recurring fringe benefit declaration.
7.30 The notional deduction will be calculated in the same way for property fringe benefits and residual fringe benefits covered by a recurring fringe benefit declaration. [New paragraphs 152A(3)(b) and 152A(4)(b)]
7.31
Example - calculation of notional deduction:
An employer reimburses an employee for the total cost of her home telephone bill of $200. The reimbursement is an expense payment fringe benefit. The employee gives the employer a recurring fringe benefit declaration in respect of the benefit specifying that the proportion of employment-related use of the phone is 25%. The value of the benefit of $200 is reduced by $50, the amount of the notional deduction. The taxable value of the benefit is therefore $150.
7.32The employer reimburses the employee for the next phone bill of $160 (which is another expense payment fringe benefit covered by the declaration). The actual employment-related use of the phone for this period is 30%. However, for the purpose of calculating the taxable value of this benefit, the notional deduction is calculated on the basis of 25% employment-related use because that is the proportion of employment-related use specified in the declaration and no other declaration has been made. Hence the value of the benefit is reduced from $160 to $120 by a notional deduction of $40.
What form must the declaration be made in?
7.33 The declaration must be made in a form approved by the Commissioner by the declaration date of the FBT year in which the first benefit covered by the declaration is provided. [New subsection 152A(5)]
Statutory evidentiary document
7.34 A recurring fringe benefit declaration will be a statutory evidentiary document under new paragraph (d) of the definition of 'statutory evidentiary document' in subsection 136(1) [Item 6] . Statutory evidentiary documents are documents required by the substantiation rules to show the proportion of employment related use of a fringe benefit.
7.35 New subparagraphs 24(1)(e)(ia), 44(1)(c)(ia) and 52(1)(c)(ia) are consequential amendments to ensure that a declaration will not be required for a benefit if the benefit is covered by a recurring benefit declaration. [Items 2, 3 and 5]
When may an employer make a no-private-use declaration?
7.36 Where an employer pays or reimburses only employment-related expenses, the employer will be able to make a declaration (a ' no-private-use declaration ') stating that the expense payment fringe benefits were provided only for employment-related purposes. [Item 1; new section 20A]
7.37 Similarly, an employer will also be able to make a no-private-use declaration for residual fringe benefits where the employer enforces a policy that benefits be used only for employment-related purposes. [Item 4; new section 47A]
7.38 Benefits covered by a no-private-use declaration will be exempt benefits [new subsections 20A(1) and 47A(1)] . An employer will not be required to obtain declarations from employees for benefits covered by a no-private-use declaration.
7.39 A no-private-use declaration may be made in relation to expense payment fringe benefits or residual fringe benefits.
What form must declaration be made in?
7.40 The declaration must be made in a form approved by the Commissioner by the declaration date. [New subsections 20A(3) and 47A(3)]
7.41
Example - no-private-use declaration:
An employer has a policy of reimbursing the component of employees' telephone bills that relate to business calls. The employer may make a no-private-use declaration in respect of the reimbursement of employees' telephone bills for the FBT year. The reimbursements of employees' telephone bills will be exempt fringe benefits.
Statutory evidentiary document
7.42 A no-private-use declaration will be a statutory evidentiary document under new paragraph (d) of the definition of 'statutory evidentiary document' in subsection 136(1). [Item 6]
Chapter 8 - Car benefits - statutory formula method
Overview
8.1 Schedule 6 of this Bill will amend the Fringe Benefits Tax Assessment Act 1986 (FBTAA) to increase the taxable value of car benefits calculated under the statutory formula method. This will be done by increasing the statutory fractions used in the statutory formula method for determining the taxable value of a car benefit.
Summary of the amendments
8.2 These amendments will amend subsection 9(2) of the FBTAA to increase the statutory fractions used in the statutory formula method for determining the taxable value of a car benefit.
8.3 This amendment will apply to assessments for the FBT year commencing on 1 April 1995 and later years. [Item 74]
Background to the legislation
8.4 An employer is entitled to choose one of two methods for calculating the value of a car benefit: the 'statutory formula method' or the 'operating cost method'. Under the operating cost method, the taxable value of a car fringe benefit is calculated by applying the business proportion to the total costs of operating the car. To use this method, the employer must comply with the substantiation rules. This involves keeping log books and other records.
8.5 Under the statutory formula method an arbitrary taxable value is determined. The base value of the car is reduced by a statutory fraction to give the value of the car for the year. Different statutory fractions may apply depending on the number of kilometres travelled during the year. The greater the statutory fraction, the higher is the taxable value of the car benefit and the more tax is payable. An employer is not required to comply with the substantiation rules to use this method.
8.6 The statutory formula method is set out in section 9 of the FBTAA.
Explanation of the amendments
8.7 Items 2, 3, 4 and 5 in Schedule 6 will amend subparagraph 9(2)(c)(ii) to increase the statutory fractions. The new fractions are set out in the table below.
| Kilometres travelled during the year | Existing percentage | New percentage |
|---|---|---|
| less than 15,000 km | 0.24 | 0.26 |
| 15,000 km to 24,999 km | 0.18 | 0.20 |
| 25,000 km to 40,000 km | 0.10 | 0.11 |
| greater than 40,000 | 0.06 | 0.07 |
Chapter 9 - Substantiation rules and period for retention of records
Overview
9.1 The amendments in Schedule 6 of this Bill will make the substantiation rules in the Fringe Benefits Tax Assessment Act 1986 (FBTAA) consistent with the new income tax substantiation rules. These amendments are explained in Section 1 of this chapter.
9.2 Also, the retention period for fringe benefits tax (FBT) records will be reduced from 7 years to 5 years. This amendment is explained in Section 2 of this chapter.
Section 1 - Changes to the substantiation rules
Summary of the amendments
9.3 The amendments will ensure that the requirements of the substantiation provisions for income tax and fringe benefits tax continue to be similar for taxpayers and employers.
9.4 These amendments will apply to assessments for the FBT year commencing on 1 April 1995 and later years. [Item 74]
Background to the legislation
9.5 The taxable value of a fringe benefit can be reduced in accordance with the proportion of employment related use of the fringe benefit. Some supporting documentation is normally required for this reduction and the general calculation of taxable values.
9.6 The documentation required under the FBT substantiation rules depends on the type of fringe benefit and the method used for calculating the value of the fringe benefit. In many cases, an employee declaration is sufficient. Where an employer has paid for an employee's private expenses, or reimbursed an employee for private expenses, invoices and/or receipts must be retained. A petty cash book may be kept for small expenses. Where a fringe benefit is provided in respect of certain travel, a travel diary must kept by the employee.
9.7 Where a car fringe benefit is provided (i.e. the employer has made a car available for the private use of an employee), or a fringe benefit is provided in relation to an employee's car, a log book and odometer records must be maintained together with other documentation, e.g. receipts of car expenses.
Changes to the income tax substantiation rules
9.8 The FBT substantiation rules are similar to the income tax substantiation rules for the deduction of employment-related expenses. The Tax Law Improvement (Substantiation) Act 1995 made a number of changes to the substantiation provisions of the Income Tax Assessment Act 1936. The purpose of the changes was to make the evidential rules less cumbersome.
9.9 This Bill will amend the FBTAA to bring the FBT substantiation rules into line with the new income tax rules.
Explanation of the amendments
How is the business use percentage of a car calculated?
9.10 The proportion of business use of a car must be estimated for the purpose of calculating the taxable value of a car fringe benefit under the operating cost method. The ' business use percentage ' must also be estimated under one of the methods for reducing the taxable value of a fringe benefit provided in relation to an employee's car under the otherwise deductible rule.
9.11 Under the existing rules, different methods for determining the percentage of business use of a car apply in different circumstances. The percentage of business use that applies in some circumstances may differ from the actual percentage of business use.
9.12 Under the new rules, the business use percentage will be based on the number of business kilometres travelled during the tax year in all cases [item 33; new definition of 'business use percentage' in section 136(1)] . Section 10, which sets out the method for calculating the value of a car fringe benefit under the operating cost method, will be amended accordingly [items 6, 7 and 8] .
9.13 Each year an employer must make a reasonable estimate of the number of business kilometres travelled in the car. This estimate must take all relevant matters into account. [Item 57; new definition of 'reasonable estimate of number of business kilometres' in section 162F]
Log book records, etc, will still be required
9.14 The employer will still be required to keep a log book and odometer records, which may be used to support the estimate of business kilometres together with any other relevant records.
9.15 The Commissioner's discretion to permit an employer not to keep a log book or odometer records if the requirement to do so is unreasonable will be removed. Circumstances rarely, if ever, arise where the Commissioner is called upon to exercise this discretion.
9.16 Sections 10A [item 9] ,10B [item 10] , 65E [item 18] and 65F [item 19] will be amended accordingly.
9.17 The existing penalty for over-estimating the business percentage applicable to a car will be replaced with a similar penalty for over-estimating the number of business kilometres travelled by a car. [Item 22; new section 115A]
Rules that are no longer required
9.18 These rules will not be retained as part of the new rules because they are unnecessary:
- •
- Excessive estimates: Under the existing rules, the business use percentage specified by the employee determined the amount by which the taxable value was reduced. Accordingly, special rules set out in sections 10C and 65H were necessary to reduce an excessive or unreasonable estimate of the business percentage. It was also necessary to deem a business use percentage to have been specified if an employer had failed to specify a percentage.
- These rules will no longer be required because the calculation of the business use percentage will be determined by reference to a reasonable estimate of business kilometres rather than the percentage specified by the employer. Sections 10C [item 11] and 65H [item 21] will be repealed.
- •
- Unsigned or fraudulent entries in log books: Because the calculation of the business use percentage will be determined by reference to a reasonable estimate of business kilometres rather than the log book percentage, the rule disregarding unsigned or fraudulent entries in log books will no longer be required. Section 162E will be repealed. [Item 56]
- •
- Failure to record in car records: An employer is deemed under section 162D to have recorded these matters in car records if he or she inadvertently fails to record them. This rule will not be required under the new rules. Section 162D will be repealed. [Item 56]
- •
- Log book anti-avoidance rule: The rule set out in section 162M will be removed because it is no longer necessary under the new log book rules. Section 162M requires that a car that has been re-acquired must be treated as a different car for the periods before disposal of the car and after the re-acquisition of the car to ensure that a different pattern of use after re-acquisition would be taken into account. Under the new log book rules, the business use percentage will always be calculated using a reasonable estimate of business kilometres for the relevant period. [Item 73]
9.19 Under the new rules, the following terms and concepts are redundant and will be removed:
- •
- 'business percentage established during log book period' in section 162J [item 68] .
- •
- 'car deduction percentage' in section 65G [item 20] . The value of fringe benefits provided in respect of employees' cars will be reduced under the otherwise deductible rule by the business use percentage in all cases.
- •
- 'car records' in subsection 136(1) [item 35] .
- •
- 'low business kilometre car' in subsection 136(1) [item 44] . The business use percentage will be calculated in the same way for all cars regardless of the number of business kilometres travelled.
- •
- 'nominated business percentage' in subsection 136(1) [item 45] . An employer will be required to record an estimate of business kilometres and the business use percentage.
- •
- 'reasonable estimate of underlying business percentage' in section 162F [item 57] . This concept has been replaced by the concept of 'reasonable estimate of underlying business kilometres'.
- •
- 'underlying business percentage' in subsection 136(1) [item 55] . This concept has been replaced by 'business use percentage'.
9.20 Under the new rules, an employer will generally be required to keep a log book for the first year and then every five years [items 58 and 61; new paragraphs 162G(1)(a) and 162G(2)(a)] . This rule will replace a number of circumstances under which a new log book must be kept under the existing law [items 59, 60, 62 and 63] . It will no longer be necessary for an employer to advise the Commissioner of Taxation of an election to treat a year as a log book year [item 64] .
What period must a log book be kept for?
9.21 A log book must be kept for 12 weeks. Under existing section 162H, a log book period must begin and end in the same tax year. This restriction will be removed [item 66] . It will be possible to keep a log book that overlaps 2 tax years.
9.22 Matters required to be recorded in what are currently referred to as 'car records' will be recorded in the log book or simply in writing. Section 162H will be amended so that the log book period must be recorded in the log book. [Item 65 and 67]
9.23 The employer's estimate of business kilometres and the business use percentage must be recorded in writing before the declaration date. [Item 28, new section 123A]
9.24 The nomination of replacement cars must be recorded in writing before the declaration date. [Items 69, 70, 71 and 72; new subsections 162K(2A) and 162L(2A)]
9.25 The records of these matters will continue to be 'statutory evidentiary documents' under the new rules. [Items 50, 51, 52 and 53; new paragraphs (aa) and (ab) in the definition of 'statutory evidentiary document' in subsection 136(1)]
9.26 The definition of 'car' in subsection 136(1) will be amended to clarify that a panel van or utility truck designed to carry loads of 1 tonne or more is not a car for FBT purposes. [Item 34]
9.27 A similar amendment will be made to subparagraph 8(2)(a)(i), which sets out the rules for exempt car benefits. [Item 1]
Entries in log book and odometer records, petty cash books and travel diaries
9.28 The requirements for making these entries will be simplified:
- •
- Log book: the definition of 'log book records' in subsection 136(1) will be amended so that an entry in a log book will not have to include the driver's name, the entry maker's name or the date on which the entry was made [items 41 and 42] . Nor will the entry have to be signed by the entry maker [item 43] .
- •
- Odometer records: the definition of 'odometer records' in subsection 136(1) will be amended so that an entry in odometer records will not have to include the entry maker's name or the date on which the entry was made [items 46 and 47] . Nor will the entry have to be signed by the entry maker [item 48] .
- •
- Petty cash book: under new subsection 24(4) , an entry in a petty cash book will not have to be signed by or on behalf of the provider of a benefit [item 15] .
- •
- Travel diary: the definition of 'travel diary' in subsection 136(1) will be amended so that an entry in a travel diary will not have to include the date on which the entry was made [item 54] .
Travel diaries not to be required for short-term overseas travel
9.29 A travel diary will no longer be required for travel outside Australia for trips of 5 nights or less. The definitions of 'extended travel airline transport benefit' [item 36] , 'extended travel expense payment benefit' [item 37] , 'extended travel property benefit' [item 38] and 'extended travel residual benefit' [item 39] in subsection 136(1) will be amended accordingly.
Retention period for documentation
9.34 Statutory evidentiary documents are, in general terms, documents required by the substantiation rules apart from documentary evidence of expenses. These documents include declarations, valuers' reports, car records, log book records and odometer records.
9.35 The period for keeping statutory evidentiary documents is to be reduced from 6 years to 5 years. Item 49 amends the definition of 'retention period' in subsection 136(1) accordingly.
What if documentation is lost or destroyed?
9.36 The general rule is that the value of a fringe benefit cannot be reduced to reflect employment related use in the absence of supporting documentation. However, an employer may still reduce the value of a fringe benefit where the necessary documentation has been lost or destroyed.
9.37 Section 123 will be amended to simplify the rules relating to lost or destroyed documents. It will be irrelevant whether the original documentation was lost because of circumstances beyond the employer's control. Nor will it matter whether it is reasonably practicable for an employer to obtain a copy of a document. [Items 23, 24, 25, 26 and 27]
9.38 If a document is lost or destroyed, an employer will be protected if the employer has a complete copy of the document or, if a complete copy is not available, all reasonable precautions were taken.
9.39 An employer will also be protected if a document is lost or destroyed before it is given to the employer by the employee and a complete copy is not available but the employee had taken all reasonable precautions.
Commissioner's discretion to review failure to substantiate
9.40 Under the existing law, the substantiation rules do not apply if the Commissioner is satisfied that a benefit has been provided and it would be unreasonable for the substantiation rules to apply. The Commissioner must consider the nature and quality of the employer's evidence and any other special circumstances, including the extent to which the employer attempted to follow the rules and whether any failure was deliberate.
9.41 Section 123B will be amended so that the Commissioner will need to consider only the nature and quality of the employer's evidence. [Item 29]
Time limit for obtaining written evidence
9.42 The existing law requires that documentary evidence of expenditure must be obtained by the employee and given to the employer before the declaration date. The declaration date is the date of lodgment of the FBT return or a later date allowed by the Commissioner.
9.43 The time for obtaining documentary evidence of expenditure will be extended [item 32; new section 132A] . An employer will be able to take an expense into account in preparing his or her return even though evidence of the expense has not been given to the employer by the declaration date if the employer has a good reason to expect that the evidence will be provided within a reasonable time.
9.44 However, an employer will be required to notify the Commissioner if the evidence is not obtained within a reasonable time. [New paragraph 132A(2)(c)]
Section 2 - Retention period for keeping records
Summary of the amendments
9.45 These amendments will reduce the retention period under section 132 from seven years to five years for records that are relevant for ascertaining an employer's FBT liability.
9.46 This amendment will apply to assessments for the FBT year commencing on 1 April 1995. [Item 74 in Schedule 6]
Background to the legislation
9.47 An employer is required under section 132 of the FBTAA to keep records that identify and explain all transactions and acts relevant for the purpose of ascertaining the employer's FBT liability. The records must be retained for a period of 7 years after the completion of the transactions or acts to which they relate.
Explanation of the amendments
9.48 Section 132 will be amended to reduce the retention period for FBT records from 7 years to 5 years. [Items 30 and 31 in Schedule 6]