House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

General outline and financial impact

Indexation of thresholds and rebates

This Bill amends the Income Tax Assessment Act 1936, the Fringe Benefits Tax Assessment Act 1986 (FBTAA) and the Sales Tax Assessment Act 1992 to ensure that the threshold and rebate levels that are indexed under the tax laws will not fall as a result of a decrease in the Consumer Price Index (CPI). The Bill also makes two minor technical amendments to the FBTAA.

Date of effect: The indexation amendments will apply from the 1998-1999 income tax, sales tax, and fringe benefits tax years and later years. The amendments to correct the minor technical errors will apply from the 1995-96 fringe benefits tax year and later years.

Proposal announced: The amendments to the threshold provisions were announced in the 1998-99 Budget.

Financial impact: The measure will not have a significant impact on the revenue.

Compliance cost impact: Compliance costs will be negligible.

Chapter 1 - Indexation of certain thresholds and rebates

Overview

1.1 The amendments to the taxation law ensure that the various indexed threshold and rebate amounts in the tax law will not fall as a result of a decrease in the Consumer Price Index (CPI). The amendments also make minor technical corrections to the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

Summary of the amendments

Purpose of the amendments

1.2 The purpose of the amendments is to:

•

ensure that the various thresholds and rebate amounts that are indexed in the taxation laws do not fall as a result of a decrease in the CPI; and

•

make minor technical corrections to the FBTAA.

Date of effect

1.3 The amendments to the indexed thresholds and rebate amounts will apply from the 1998-99 income tax, sales tax and fringe benefits tax years and later years. The minor technical amendments apply from the 1995-96 and later fringe benefits tax years.

Background to the legislation

1.4 As a result of a fall in the CPI of approximately 0.1 per cent for the four quarters to 31 March 1998, compared to the preceding four quarters, certain indexed amounts in the tax laws would automatically decrease for the 1998-99 year. In the 1998-99 Budget the Treasurer announced that these amounts would be held constant at the 1997-98 levels rather than reduced in line with the fall in CPI.

1.5 The affected provisions are:

•

section 39A of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) car parking benefits threshold amount;

•

section 159HA of the Income Tax Assessment Act 1936 (ITAA 1936) dependant rebate amounts.

•

section 62 of the Sales Tax Assessment Act 1992 (STAA) wholesale sales tax quarterly remitter threshold; and

Current law

Car parking benefits threshold

1.6 Fringe benefits tax (FBT) is payable if car parking facilities are provided to employees by an employer within one kilometre of a commercial parking station which ordinarily charges more than the CPI-indexed threshold amount for all day parking at the start of the FBT year. The threshold is indexed annually by paragraph 39A(2)(b) of the FBTAA.

Dependant rebate amounts

1.7 A number of concessional rebates are automatically indexed by section 159HA of the ITAA 1936 in line with CPI movements. The rebates to which indexation applies are: the dependent spouse rebate (without child); the child housekeeper rebate; the invalid relative rebate; the parent of the taxpayer or of the taxpayers spouse rebate; the sole parent rebate and the housekeeper rebate: sections 159J, 159K and 159L of the ITAA 1936.

Wholesale sales tax quarterly remitter threshold

1.8 The frequency with which taxpayers lodge sales tax returns with the Commissioner of Taxation depends on the level of their sales tax liability for the previous financial year. Sales tax must be paid when a return is lodged. If a taxpayers liability is less than the quarterly remitter threshold determined in accordance with subsection 62(3) of the STAA, the taxpayer can lodge returns and remit sales tax on a quarterly basis. Where the annual liability exceeds this threshold, sales tax must be remitted monthly. The threshold is designed to reduce compliance costs for payers of small amounts of sales tax.

Explanation of the amendments

Car Parking Benefits Threshold

Indexation

1.9 Schedule 1 amends the indexing provision of the car parking benefits threshold in section 39A of the FBTAA. This is achieved by new subsection 39A(2A) which ensures that the threshold amount will remain unchanged if the movement in the CPI in the 12 months before the start of the FBT year is lower than the CPI for the preceding 12 months. [Item 1, Schedule 1]

1.10 The threshold amount for the 1998-99 FBT year will remain at the 1997-98 level of $5.25 per day. Without the amendment, a lower threshold amount would apply in the 1998-99 FBT year which would increase the FBT liability for affected employers.

Application

1.11 The indexation amendments apply to FBT years beginning on or after 1 April 1998. [Item 2, Schedule 1]

FBT Technical amendments

1.12 Items 3 and 4 of Schedule 1 are minor amendments to correct references to other provisions in sections 39AA and 39DA of the FBTAA that were inserted by the Taxation Laws Amendment (FBT Cost of Compliance) Act 1995. The amendments ensure that the FBTAA applies as intended.

Application

1.13 The minor technical corrections apply to the FBT years beginning on or after 1 April 1995. [Item 5, Schedule 1]

Dependant rebates

1.14 Schedule 2 modifies the way in which dependant rebates are indexed under the ITAA 1936. This is achieved by inserting new subsection 159HA(6A). [Item 1, Schedule 2] The effect is that the maximum rebate amount for each of the rebates referred to at paragraph 1.16 will not fall when there is a decrease in the CPI.

1.15 The amendment is beneficial for taxpayers who are eligible for indexed dependant rebates. Without the amendment a reduction in the maximum rebate amounts for the 1998-99 year of income would have occurred because of the decline in the CPI in the 12 month period to 31March 1998.

1.16 The effect of the amendments is that the rebate levels for the 1998-99 year of income will be the same as the rebate levels for the 1997-98 year of income. The rebate levels are set out in the following table:

Application

1.17 The indexation amendments apply to the income tax years beginning on or after 1 July 1998. [Item 2, Schedule 2]

Wholesale Sales Tax Quarterly Remitter Threshold

1.18 Schedule 3 amends the indexation provision in the STAA by inserting new subsection 62(5A). [Item 2, Schedule 3] . Without the amendment there would be a small increase in the number of taxpayers who exceed the reduced threshold that would otherwise have applied in 1998-99. These taxpayers would therefore have been required to remit their sales tax on a monthly basis.

1.19 The effect of the amendments is that the quarterly remitter threshold for 1998-99 will be held at the 1997-98 level of $57,570.

1.20 Item 1 of Schedule 3 ensures that the term quarterly remitter threshold referred to in subsection 62(2) of the STAA is determined under the whole of section 62 rather than just subsection 62(3), following the insertion of new subsection 62(5A).

Application 1.21 The indexation amendments apply to the 1998-99 financial year and later years. [Item 3, Schedule 3]