House of Representatives

Explanatory Memorandum PART B

(Circulated by authority of the Treasurer, the Hon. P.J. Keating, M.P.)

FOREWORD

Part A of the Explanatory Memorandum, which contains an outline and broad explanation of each of the measures of the Bill, was circulated on the introduction of the Bill into the House of Representatives.

This Part - Part B - contains a clause by clause explanation of the Bill.

Notes on Clauses

PART I - PRELIMINARY

Clause 1: Short title

This clause provides for the amending Act to be cited as the Taxation Laws Amendment (Fringe Benefits and Substantiation) Act 1987.

Clause 2: Commencement

By this clause, the amending Act is to come into operation on the day on which it receives the Royal Assent. But for clause 2, the amending Act would, by reason of subsection 5(1A) of the Acts Interpretation Act 1901, come into operation on the twenty-eighth day after the day on which it receives the Royal Assent.

PART II - AMENDMENT OF THE FRINGE BENEFITS TAX ASSESSMENT ACT 1986

Clause 3: Principal Act

This clause facilitates references to the Fringe Benefits Tax Assessment Act 1986 in Part II of the Bill. In that Part, the Act is referred to as the "Principal Act".

Clause 4: Exempt car benefits

Clause 4 amends section 8 of the Principal Act which exempts certain car benefits from fringe benefits tax.

Paragraph (a) of clause 4 liberalises the exemption contained in subsection 8(2).

The existing subsection 8(2) exempts car benefits relating to taxis, panel vans, utilities and other commercial vehicles if an employee's private use of such a vehicle during the year of tax consists solely of "work-related travel". The term "work-related travel" is defined in subsection 136(1) of the Principal Act to mean travel to and from work or use that is incidental to travel in the course of the employee's duties of employment.

The proposed amendment will extend the exemption so that it will now also apply where private use of the car consists solely of non-work-related private use by the employee (or an associate) that is minor, infrequent and irregular. In addition, the exemption will now apply where private use of the car consists solely of work-related travel by the employee plus other private use of the car by the employee (or an associate) that is minor, infrequent and irregular. By way of example, the exemption will now apply where the only private use by an employee of a utility consists of work-related travel and occasional use of the vehicle to remove domestic rubbish.

Paragraph (b) of clause 4 inserts a new subsection - subsection (3) - in section 8. New subsection 8(3) exempts car benefits if the car is unregistered throughout the period it is held by the employer during the year of tax and is used during that period wholly or principally in connection with the business operations of the employer (or a related company).

For the purpose of this exemption, new section 162N specifies that a car that may be driven on a public road without contravening any law shall be taken as being registered.

Clause 5: Taxable value of car fringe benefits - statutory formula

Clause 5 will amend section 9 of the Principal Act which specifies how the taxable value of car fringe benefits are calculated using the statutory formula method.

Paragraph (a) of clause 5 is a drafting measure consequential upon the proposed insertion of new sections 65B and 65C.

Paragraphs (b), (c) and (d) of clause 5 amend paragraph 9(2)(e) of the Principal Act which specifies the basis for determining the amount to be deducted in calculating the taxable value of car fringe benefits using the statutory formula method to take account of any payments by the employee in respect of the benefit. This amount is referred to in section 9 as the "recipient's payment".

By virtue of existing subparagraph 9(2)(e)(ii), the recipient's payment includes any car expenses incurred by the employee provided the employer is provided with "documentary evidence" (e.g., receipts, invoices, etc.) of the expenditure.

The effect of paragraphs (b), (c) and (d) of clause 5 is that, in the case of fuel or oil expenses, the evidence required to be provided to the employer can now take the form either of a declaration from the employee in respect of those expenses or, as at present, receipts, etc. The declaration is to be in a form approved by the Commissioner of Taxation. The Commissioner has provided employers examples of formats that would be acceptable for this purpose should the proposed amendment be enacted.

Clause 6: Taxable value of car fringe benefits - cost basis

Clause 6 will amend section 10 of the Principal Act which specifies how the taxable value of car fringe benefits are calculated using the operating cost method.

Paragraphs (a) to (c) and (e) to (g), new subsections 10(3B) and 10(3C) being inserted by paragraph (m) and paragraph (n), give effect to the revised car log book rules explained earlier in the main features part of these notes.

Paragraphs (a) and (b) and (e) to (g) are technical drafting changes. Paragraph (c) replaces the formula in subsection 10(2) by which the taxable value of a car fringe benefit under the operating cost method is derived. The new formula reflects the revised log book rules contained in new sections 10A, 10B and 10C.

The effect of the new formula - as with the old - is to reduce the operating cost of the relevant car by the business percentage applicable to the car and deduct from that reduced value (which represents the private proportion of the operating costs) any amount paid by an employee for the operating cost of the car or as consideration for the use of the car.

The business percentage is now to be determined having regard to the rules in new sections 10A and 10B. If under those rules the employer is not entitled to a reduction on account of business use of the car, the business percentage for the purposes of the formula is nil. Where a percentage has been specified in the employer's return in accordance with section 10A or 10B - generally on a basis established by log book records kept in the year of tax or in a previous year - that percentage is reflected in the calculation of the taxable value of the car fringe benefit.

If the year is a "log book year of tax" (e.g., because it is the first year of tax in which fringe benefits are provided in respect of the car - see the notes on new section 162G), the business percentage applicable to the formula is a reasonable estimate of the actual business percentage of kilometres travelled (the "underlying business percentage" being inserted in subsection 136(1) by clause 48) during the period in the year when the car was held by the employer for use in providing fringe benefits.

If the year is not a log book year of tax, and there has not been a substantial reduction (i.e., by more than 10 percentage points) in the business percentage from that established by log book records in a log book year, the appropriate business percentage is that established by the log book records.

If the particular year is the first in which there has been a reduction of more than 10 percentage points in the business percentage from that established by log book records in an earlier year, the business percentage to be utilised in the formula is a reasonable estimate of the "underlying business percentage". Log books would need to be maintained in the following year of tax if the employer wished to continue to use the operating cost method (i.e., the following year would be a "log book year of tax ").

Where the car is one with a business usage of 5,000 or fewer kilometres per annum (a "low business kilometre car" being inserted in subsection 136(1) by clause 48), the business percentage for the purposes of the formula is the lesser of the business percentage established in the relevant log book year and a reasonable estimate of the "underlying business percentage" for that year. In the event that the difference exceeds 10 percentage points the following year would become a "log book year of tax".

Paragraph (d) of clause 6 excludes from the operating cost of a car "insured repair expenses". The term "insured repair expense" is being defined by new subsection 10(3A) (see notes on paragraph (m) of clause 6). Broadly, the effect of paragraph (d) of clause 6 is that a car repair expense incurred as a result of a car accident will not be included in the employer's cost of operating the car where the expense is met by the employer's insurer or by the person who was legally responsible for the damage to the car.

Paragraphs (h), (j) and (k) of clause 6 will amend paragraph 10(3)(c) of the Principal Act which specifies the basis for determining the amount to be deducted in calculating the taxable value of car fringe benefits using the operating cost method to take account of any payments by the employee in respect of the benefit. This amount is referred to in section 10 of the Principal Act as the "recipient's payment".

By virtue of existing subparagraph 10(3)(c)(ii), the recipient's payment includes any car expenses incurred by the employee provided the employer is provided with "documentary evidence" (e.g., receipts, invoices, etc.) of the expenditure.

The effect of paragraphs (h), (j) and (k) of clause 6 is that, in the case of fuel or oil expenses, the evidence required to be provided to the employer can now take the form either of a declaration from the employee in respect of those expenses or, as at present, receipts, etc.

Paragraph (m) of clause 6 inserts new subsections - subsections (3A), (3B), (3C) and (3D) - in section 10 of the Principal Act. Proposed subsection (3A) defines the term "insured repair expense" for the purpose of the proposed exclusion of such expenses from the operating cost of a car.

By new subsection (3A), a car repair expense will be treated as an "insured repair expense" to the extent that:

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the employer incurs the repair expense but receives an amount by way of insurance in respect of the repairs (subparagraph (a)(i));

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the employer incurs the repair expense but the expense is paid by the insurer (subparagraph (a)(ii));

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the employer incurs the repair expense but receives an amount by way of compensation from the person legally responsible for the damage to the car (subparagraph (a)(iii));

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the employer incurs the repair expense but the expense is paid by the person legally responsible for the damage to the car (subparagraph (a)(iv)); or

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the repair expense is incurred by the employer's insurer or by the person legally responsible for the damage to the car (paragraph (b)).

New subsection (3B) applies where, in accordance with new subsection 162K(2) - see later notes - an employer nominates a car as a replacement for an existing car to enable the taxable value of car fringe benefits relating to the new car to be calculated on the basis of the business percentage established by log book records of the replaced car. If the replaced car is not disposed of, the effect of section 162K is that it is treated as a different car (except for the purposes of calculating depreciation and interest costs) from the time of replacement.

Subsection (3B) enables the operating cost of the replaced car during a year when there is a replacement to be properly apportioned between the periods up to and after the changeover.

New subsection (3C) applies in a similar way in relation to any recipient's payment made in respect of the car in a changeover year.

New subsection (3D) ensures that registration, car insurance and car leasing expenses may be properly attributed to a period before and after a replacement nomination is made under subsection 162K(2), and also where a car that is re-acquired after having been disposed of is treated as a different car by the operation of section 162M - see later notes on that section.

Paragraph (n) of clause 6 inserts new subsections 10(5) and 10(6) in place of the existing subsections.

These subsections operate so that the statutory formula basis of calculating the taxable value of a car fringe benefit will apply where it results in a lower taxable value than under the operating cost method under section 10. The subsections will be of particular relevance where, as the result of an audit undertaken by the Australian Taxation Office, the operating cost calculation is adjusted such that the taxable value under that method would otherwise exceed what would apply under the statutory formula method.

Clause 7: New sections 10A to 10C

Clause 7 proposes to insert new sections 10A to 10C in the Principal Act to specify the basis for reducing the operating cost of a car under the formula in section 10 on the basis of a business percentage established by log book and odometer records maintained by or on behalf of an employer. Section 10A details the basis for reduction in a log book year of tax, and section 10B in a non-log book year. Section 10C contains rules for reducing the relevant business percentage where an employer nominates an excessive percentage or maintains reliance on an established log book percentage despite a reduction in the actual business percentage.

Section 10A : No reduction of operating cost in a log book year of tax unless log book records and odometer records are maintained

This section specifies the requirements to be satisfied for a reduction to be made in the operating cost of a car under the formula in section 10 where a car fringe benefit is provided in a "log book year of tax" (see later notes on new section 162G).

Under paragraph 10A(a), reduction in the operating cost is conditional on the employer specifying in his or her return an estimate of the actual business percentage of the use of the car during the year when it was held for use in providing fringe benefits (see the definition of "nominated business percentage" being inserted in subsection 136(1) of the Principal Act by clause 48). Paragraph 10A(a) applies where the employer commenced to hold the car during the last 12 weeks of the year of tax or the Commissioner is satisfied that it would be unreasonable to expect log book and odometer records to have been maintained. Log books need not be kept in these cases, but because the next year would become a log book year, log books would generally be required in that subsequent year.

If neither of those conditions applies, paragraph 10A(b) requires that "log book records" and "odometer records" be maintained for the "applicable log book period" (see the notes on new section 162H being inserted by clause 60), usually a minimum of 12 consecutive weeks. The terms "log book records" and "odometer records", which are being inserted in subsection 136(1) by clause 48, collectively serve the same purpose as the former definition of "relevant car documents" being deleted by that clause.

The log book records and odometer records must be given to the employer, who must nominate in his or her fringe benefits tax return an estimate of the actual business percentage of the use of the car in the year during the period when it was used to provide fringe benefits. That nominated percentage must not exceed the business percentage established in the log book period, as explained in the notes on new section 162J.

Section 10B : No reduction of operating cost in a non-log book year of tax unless log book records and odometer records are maintained in a log book year of tax

This section specifies the requirements to be satisfied for a reduction to be made in the operating cost of a car under the formula in section 10 where a car fringe benefit is provided in a non-log book year of tax.

Paragraph 10B(a) contains the general condition that odometer records must be maintained which, broadly, must record the odometer readings at the beginning and end of the year of tax (or, if the car was not held for the purpose of providing fringe benefits for the whole year, at the beginning and end of the period it was so held).

Under paragraph 10B(b), it is a further condition that the employer specify in his or her fringe benefits tax return the relevant business percentage. That will normally be the business percentage established in the last log book year and specified in the return for that year.

However, if the car is a "low business kilometre car" (as explained in the notes on the amendments to section 10 being made by clause 6) or there has been a reduction by more than 10 percentage points from the business percentage established and specified in the last log book year, the employer is required to specify a percentage that represents an estimate of the actual business percentage during the year when the car was held for the purpose of providing fringe benefits.

Section 10C : Nominated business percentage to be reduced if it exceeds business percentage established during applicable log book period or if it is unreasonable

New subsection 10C(1) complements the operation of sections 10A and 10B in circumstances where an employer has specified a business percentage in respect of a car that is greater than the maximum permissible in a log book year and has carried that nominated percentage through to later years.

In a log book year of tax, if the nominated percentage is more than the lesser of a reasonable estimate of the actual business percentage and the business percentage established in the log book period, the employer will be deemed to have specified that correct lesser percentage. This ensures that the reduction in operating costs for the purposes of calculating the taxable value of a car fringe benefit under section 10 is based on the applicable maximum percentage. Similarly, in a subsequent non-log book year, the employer will be deemed to have specified the lower percentage if the excessive percentage specified in the log book year has been specified again.

Subsection 10C(2) ensures that, in a case where an employer knowingly fails to specify a reduced percentage where there has been a substantial reduction (i.e., by more than 10 percentage points) in the percentage of business use in a year subsequent to the establishment of a nominated business percentage, the employer is deemed to have made such a specification. In the absence of subsection 10C(2), the employer would be treated as not having satisfied the relevant requirements of section 10B and, accordingly, would not be entitled to any reduction in operating costs in determining the taxable value of the car fringe benefit.

Clause 8: Calculation of depreciation and interest

Section 11 of the Principal Act specifies the basis for calculating amounts of depreciation and interest deemed to have been incurred in a year of tax for the purpose of ascertaining the operating cost of a car.

New subsections ll(1A) and ll(1B) will enable those amounts to be appropriately apportioned to relate to a period during a year of tax when the car was held for use in providing fringe benefits. The subsections interact with the special meaning assigned to the holding of a car by new subsections 162(2) being inserted in the Principal Act by clause 59.

Clause 9: Taxable value of debt waiver fringe benefits

Clause 9 is a drafting measure consequential upon the proposed insertion of new sections 65B and 65C.

Clause 10: Exempt loan benefits

Clause 10 amends section 17 of the Principal Act which exempts certain loan benefits from fringe benefits tax.

Paragraph (a) of clause 10 makes a minor drafting correction to subsection 17(3) to make it clear that the exemption authorised by that subsection of short-term advances to meet employment-related expenses does not apply unless the expenses in question relate to the employee's employment with the employer who makes the advance.

Paragraph (b) of clause 10 inserts a new subsection - subsection (4) - in section 17.

In broad terms, proposed subsection 17(4) will exempt an advance made by an employer to an employee who is relocated if the advance is made solely for the purpose of enabling the employee to pay a security deposit in connection with temporary accommodation paid for by the employer.

In more detail, an advance will be exempt where the conditions specified in paragraphs (a) to (e) are satisfied. These are:

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the advance is made by the employer to the employee (paragraph (a));

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the sole purpose of the advance is to enable the employee to pay one or more security deposits in respect of accommodation, including a rental bond or a deposit required for the connection of an electricity, gas or telephone service (paragraph (b));

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the employee is required to repay the advance within a maximum of 12 months of the advance being made (paragraph (c));

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a benefit relating to a lease or licence in respect of the accommodation (e.g., reimbursement of rent) is provided to the employee (paragraph (d)); and

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that accommodation benefit is exempt by reason that the employee is living away from his or her usual place of residence in order to perform employment duties (subparagraph (e)(i)) or the taxable value of the benefit is reduced by reason that the employee is required to change his or her usual place of residence in order to perform employment duties (subparagraph (e)(ii)).

Clause 11: Taxable value of loan fringe benefits

Clause 11 omits subsection 18(2) of the Principal Act consequential upon the proposed insertion in subsection 136(1) of the two definitions presently contained in subsection 18(2).

Clause 12: Reduction of taxable value - "otherwise deductible" rule

Clause 12 proposes a number of amendments to section 19 of the Principal Act which applies, broadly, to reduce the taxable value of a loan fringe benefit to the extent to which interest that would otherwise have been payable on the loan would have been allowable as an income tax deduction to the employee.

The proposed amendments will:

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modify the "otherwise deductible" rule for loan fringe benefits to ensure that the amount of the reduction in taxable value is equal to the additional deduction that would have been allowable to the employee if he or she had incurred additional interest equal to the net value of the loan fringe benefit (i.e., the taxable value of the loan fringe benefit after reduction for interest actually accrued on the loan). This measure parallels similar amendments being made to the "otherwise deductible" rules that apply to a number of other categories of fringe benefits. A detailed explanation of this package of measures is provided in the "Main Features" section of Part A of this memorandum;

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provide that an existing rule which denies a reduction in taxable value where any interest expense would otherwise be subject to the income tax "negative gearing" rules will now not apply in relation to the fringe benefits tax year commencing on 1 April 1987 or subsequent years;

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dispense with the requirement to obtain loan declarations in specified circumstances; and

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modify the operation of section 19 in relation to loans applied to purchase a car or pay car expenses to reflect revised car substantiation rules.

Paragraph (a) of clause 12 proposes the omission of existing paragraph 19(1)(b) and the substitution of two new paragraphs - paragraphs 19(1)(b) and (ba).

Existing paragraph 19(1)(b) establishes the general pre-condition for application of the "otherwise deductible" rule. That condition is that a deduction would have been allowable for income tax purposes if the employee had incurred interest (of an unspecified amount) in respect of the loan.

The re-drafted paragraph 19(1)(b) makes it a condition that a deduction (referred to in the legislation as the "gross deduction") would have been allowable for income tax purposes if the employee had incurred interest of an amount equal to the notional amount of interest (i.e., the amount of interest that would have accrued on the loan if the interest were calculated on the daily balance of the loan at the statutory rate). For this purpose the exclusion of expenses that would otherwise be subject to the income tax negative gearing rules that is contained in the former paragraph (b) is removed with effect from the fringe benefits tax year which commenced on 1 April 1987.

New paragraph 19(1)(ba) makes it a further condition that the gross deduction exceeds the deduction allowable to the employee in respect of the interest (if any) that actually accrued on the loan. In cases where the interest that actually accrued on the loan was intended to cover the private element of the benefit, the deduction allowable to the employee in respect of that interest will be determined after applying the provisions of proposed section 51AJ of the Income Tax Assessment Act 1936 (see notes on clause 66).

The amount by which the gross deduction exceeds the deduction allowable to the employee is called the "notional deduction" and represents the additional deduction that the employee would have been entitled to had he or she paid interest at the statutory rate. By virtue of the amendment proposed by paragraph (e) of clause 12, the taxable value of a loan fringe benefit will generally be reduced by the notional deduction.

Paragraph (b) of clause 12 proposes the omission of paragraph 19(1)(c) of the Principal Act and the substitution of two new paragraphs - paragraphs 19(1)(c) and (ca).

The existing paragraph 19(1)(c) makes it a condition for application of the "otherwise deductible" rule that the employee gives to the employer a declaration setting out particulars of the use to which the loan was put.

The re-drafted paragraph 19(1)(c) provides that the general requirement for the employee to give a declaration to the employer is not to apply in two cases. These are where:

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the loan benefit is an "employee credit loan benefit" (a defined term proposed to be inserted in subsection 136(1) of the Principal Act by clause 48). Broadly, a loan will qualify as an "employee credit loan benefit" if the loan consists of the provision of credit by the employer in relation to a sale of goods or services to the employee and the goods or services are for use exclusively in the course of the employee's employment with the employer (e.g., where an employer sells tools of trade to an employee on interest-free credit terms); or

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the loan benefit is an "employee share loan benefit" (a defined term also proposed to be inserted in subsection 136(1) of the Principal Act by clause 48). Broadly, a loan will be treated as an "employee share loan benefit" where the loan was made for the sole purpose of enabling the employee to acquire shares in the employer (or an associated company) and the shares were beneficially owned by the employee throughout the period in the fringe benefits tax year that the loan was outstanding.

New paragraph 19(1)(ca) applies in the case of a car loan benefit and contains the requirement that the revised car log book rules in new Division 15 being inserted by clause 42 have been complied with, that the employee has given the employer a "car substantiation declaration" and, where those revised rules require log book records and odometer records to be maintained, that the declaration is accompanied by a copy of those documents. (A "car substantiation declaration" - which is being inserted in subsection 136(1) of the Principal Act by clause 48 - is one approved by the Commissioner of Taxation for the purposes of paragraph 19(1)(ca)).

Paragraph (c) of clause 12 amends existing paragraph 19(1)(d) which contains requirements that employees lodge one of two declarations with an employer where the loan has been used to purchase a car that is used by the employee for income-producing purposes. The amendment will have the effect of extending those requirements to cases where a loan is used, instead of purchasing a car, to pay a car expense (e.g., lease charges), i.e., where the loan fringe benefit is a "car loan benefit" in terms of the definition being inserted in subsection 136(1) of the Principal Act by clause 48.

Paragraph (d) of clause 12 is a minor drafting measure.

Paragraph (e) of clause 12 modifies the rules for calculating the amount of the reduction of taxable value where all the requirements for application of the "otherwise deductible" rule have been satisfied.

Under the revised rules, the taxable value of a loan fringe benefit (other than a car loan benefit) is reduced by the notional deduction.

In the case of a car loan benefit to which new paragraph 19(1)(ca) applies - i.e., where the revised car log book rules have been complied with - the taxable value of the loan fringe benefit is reduced by the appropriate car deduction percentage established under those rules (subparagraph (f)(i)). Where, however, the employer has made an adjustment in the interest charged on the loan to allow for expected business use of the car, the amount of the reduction is the car deduction percentage multiplied by the notional amount of interest, i.e., the business percentage of the taxable value of the benefit before making any reduction for interest paid by the employee (subparagraph (f)(ii)).

In the case of a car loan benefit where the revised car log book rules have not been complied with, the taxable value is reduced by the lesser of the notional deduction (as explained above) and the amount by which the taxable value would be reduced under new paragraph (1)(f) if the car deduction percentage was 33 1/3 per cent (new paragraph 19(1)(g)).

However, if in such a case the employee's declaration shows that the average number of business kilometres travelled by the car during the year while it was in use in income producing activities exceeded 96 kilometres per week, the amount of the reduction is calculated as if the car deduction percentage was 33 1/3 per cent (new paragraph 19(1)(h)).

The substitute subsection 19(2) being inserted by paragraph (f) of clause 12 is a technical one consequential upon the change being implemented by paragraph (c).

New subsection 19(3), also being inserted by paragraph (f), applies so that the amount to be deducted under section 19 in relation to a car loan benefit where the revised log book rules have been complied with is never less than would be deducted under alternative declaration arrangements reflected in paragraphs 19(1)(g) and 19(1)(h).

Clause 13: Exempt accommodation expense payment benefits

Clause 13 makes a number of drafting amendments to existing section 21 of the Principal Act so that the provisions being amended will be consistent with similar provisions being inserted by the Bill.

Clause 14: Exempt car expense payment benefits

Under section 22 of the Principal Act, where an employer reimburses an employee on a cents per kilometre basis for expenses of operating a car that is owned by, or leased to, the employee, the reimbursement is generally exempt from fringe benefits tax. A complementary provision in the income tax law - paragraph 26(eaa) of the Income Tax Assessment Act 1936 - ensures that reimbursements exempt under section 22 of the Principal Act are treated as assessable income of the employee. Relevant deductions for expenses incurred by the employee are available under the income tax law to the extent that they are incurred in gaining or producing the employee's income.

These rules do not, however, apply to reimbursements in respect of remote area holiday transport. By virtue of existing paragraph 22(c), such reimbursements are excluded from the exemption from fringe benefits tax.

Clause 14 proposes the omission of existing paragraph 22(c) and the substitution of four new paragraphs - paragraphs 22(c), (ca), (cb) and (cc).

The effect of the new paragraphs is that a reimbursement on a cents per kilometre basis will not be exempt under section 22 (and consequently will not be treated as assessable income of the employee) if the reimbursement relates to:

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relocation transport (this kind of transport is defined in proposed section 143A);

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transport for the purpose of attending an employment interview or selection test (this kind of transport is defined in proposed section 143D);

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transport for the purpose of attending a work-related medical examination, work-related medical screening, work-related preventative health care, work-related counselling or migrant language training (this kind of transport is defined in proposed section 143E);

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holiday transport (whether or not from a remote area); or

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transport undertaken after the employee has ceased employment with the employer who paid the reimbursement.

Such reimbursements will be treated as taxable fringe benefits but, in the case of a reimbursement relating to relocation transport, an employment interview, a work-related medical examination, etc., remote area holiday transport or overseas employment holiday transport, the taxable value of the fringe benefit may be reduced under existing section 61 or proposed sections 60A, 61A, 61B, 61E or 61F, as appropriate.

Clause 15: Taxable value of in-house expense payment fringe benefits

Clause 15 proposes the insertion of a new section - section 22A - in Subdivision B of Division 5 of Part III of the Principal Act which establishes the valuation rules for expense payment fringe benefits.

Broadly, an expense payment fringe benefit arises where expenditure incurred by an employee is paid or reimbursed by the employer. All expense payment fringe benefits are presently valued in accordance with section 23 of the Principal Act which provides that the taxable value of an expense payment fringe benefit is the amount of the payment or reimbursement. By clauses 15 and 16, different valuation rules will now apply according to whether an expense payment fringe benefit is "in-house" or "external".

Proposed section 22A will establish concessional valuation rules for what are termed "in-house expense payment fringe benefits". An "in-house expense payment fringe benefit" is being defined to mean an "in-house property expense payment fringe benefit" or an "in-house residual expense payment fringe benefit". Definitions of these terms are being inserted in subsection 136(1) of the Principal Act by clause 48.

Subsection 22A(1) will prescribe the valuation rules that are to apply to an "in-house property expense payment fringe benefit".

Broadly, that term refers to an expense payment fringe benefit where the expenditure incurred by the employee (or an associate) was in respect of the purchase of goods of a kind sold by the employer (or an associate) in the ordinary course of business. For example, where an employer is a manufacturer who markets his or her products through independent retailers and the employees of that employer purchase those products from retailers at full retail price but subsequently receive a reimbursement from the employer of part of the purchase price, that reimbursement will constitute an "in-house property expense payment fringe benefit" which will be valued under subsection 22A(1).

The taxable value of an in-house property expense payment fringe benefit is to be equal to the amount that would have been the taxable value under section 42 of the Principal Act if the sale of the goods to the employee (or associate) by the vendor had constituted the provision of an in-house property fringe benefit and the purchase price had been equal to the expenditure incurred by the employee (or associate) reduced by the amount of the reimbursement or payment from the employer. The effect of this valuation rule is that the taxable value is calculated as though the staff discount had been provided directly as a property fringe benefit (i.e., the sale of goods at a discount) rather than indirectly as an expense payment fringe benefit.

Subsection 22A(2) will prescribe the valuation rules that are to apply to an "in-house residual expense payment fringe benefit".

By virtue of the proposed definition of that term, subsection 22A(2) will apply to an expense payment fringe benefit where the expenditure incurred by the employee (or associate) was in respect of the purchase of a service or other residual benefit of a kind supplied by the employer (or an associate) to members of the public in the ordinary course of business.

In these cases, the taxable value is to be equal to the amount that would have been the taxable value under section 48 or 49 of the Principal Act if the provision of the service, etc., to the employee (or an associate) by the provider of that service, etc., had constituted the provision of an in-house residual fringe benefit and the consideration paid for the service had been equal to the expenditure incurred by the employee (or associate) reduced by the amount of the reimbursement or payment from the employer.

The effect of these rules will be that irrespective of whether a staff discount is provided directly as a property or residual fringe benefit or indirectly as an expense payment fringe benefit, the taxable value will be the same.

Subsection 22A(3) is a technical drafting measure that is relevant to new subsection 22A(2).

Subsection 22A(4) is a safeguard which ensures that where the amount of an employee's expenditure is reimbursed by an employer in instalments, the aggregate of the reimbursements will be taken into account in applying the "in-house" valuation rules.

Proposed subsection 22A(5) authorises an amendment at any time for the purpose of giving effect to new subsection 22A(4).

Clause 16: Taxable value of external expense payment fringe benefits

Section 23 of the Principal Act provides that the taxable value of an expense payment fringe benefit is the amount of the payment or reimbursement. By clause 16, this valuation rule will now apply only to what are termed "external expense payment fringe benefits". These are expense payment fringe benefits that do not qualify as in-house expense payment fringe benefits.

Clause 17: Reduction of taxable value - "otherwise deductible" rule

Clause 17 proposes a number of amendments to section 24 of the Principal Act which applies, broadly, to reduce the taxable value of an expense payment fringe benefit to the extent to which the expenditure incurred by the employee would have been deductible to the employee for income tax purposes if it had not been paid or reimbursed by the employer.

The proposed amendments will:

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modify the "otherwise deductible" rule for expense payment fringe benefits to ensure that the amount of the reduction in taxable value is equal to the additional deduction that would have been allowable to the employee if he or she had paid additional expenditure equal to the net value of the expense payment fringe benefit (i.e., in the case of an external expense payment fringe benefit, so much of the expenditure incurred as was paid or reimbursed by the employer). This measure parallels similar amendments being made to the "otherwise deductible" rules that apply to a number of other categories of fringe benefits. A detailed explanation of this package of measures is provided in the "Main Features" section of Part A of this memorandum;

•

provide that an existing rule which denies a reduction in taxable value where any expenditure paid by the employee would otherwise be subject to the income tax "negative gearing" rules will now not apply in relation to the fringe benefits tax year commencing on 1 April 1987 or subsequent years;

•

permit "undocumentable expenses" to be evidenced by petty cash entries;

•

permit fuel or oil expenses to be evidenced by a declaration from the employee; and

•

modify the operation of section 24 in relation to expense payment fringe benefits where the expenses are car expenses relating to the operation of the employee's car to reflect revised car substantiation rules.

Paragraph (a) of clause 17 proposes the omission of existing paragraph 24(1)(b) and the substitution of two new paragraphs - paragraphs 24(1)(b) and (ba).

Existing paragraph 24(1)(b) establishes the general pre-condition for application of the "otherwise deductible" rule. That condition is that a deduction would have been allowable for income tax purposes if the employee had paid the whole of the expenditure incurred by the employee and had not been reimbursed for any part of it.

The re-drafted paragraph 24(1)(b) specifies that different conditions are to apply according to whether the expense payment fringe benefit is "in-house" or "external".

In the case of an in-house expense payment fringe benefit, the condition is that a deduction (referred to in the legislation as the "gross deduction") would have been allowable for income tax purposes if the employee had purchased the relevant goods or services for an amount equal to the gross taxable value of those goods or services (i.e., the gross value of the goods or services, before deducting any employee contribution, calculated in accordance with the relevant in-house valuation rule embodied in sections 42, 48 or 49, as the case requires, of the Principal Act).

In the case of an external expense payment fringe benefit, the condition is that a deduction (also called the "gross deduction") would have been allowable for income tax purposes if the employee had paid the whole of the expenditure incurred by the employee and had not been reimbursed for any part of it.

In each case, the exclusion of expenses that would otherwise be subject to the income tax negative gearing rules that is contained in the former paragraph (b) is removed with effect from the fringe benefits tax year which commenced on 1 April 1987.

New paragraph 24(1)(ba) makes it a further condition that the gross deduction exceeds the deduction (if any) allowable to the employee in respect of the expenditure incurred by the employee. It is noted that the amount of the deduction allowable to the employee in respect of the expenditure that he or she incurred will be determined after applying the provisions of section 51AH of the Income Tax Assessment Act 1936 which operates, broadly, to reduce the deduction otherwise allowable to the employee to reflect the fact that the whole or a part of the expenditure incurred was paid or reimbursed by the employer.

The amount by which the gross deduction exceeds the deduction allowable to the employee is called the "notional deduction" and, in the case of external expense fringe benefits, represents the additional deduction that the employee would have been entitled to had he or she paid the whole of the expenditure incurred and not been reimbursed for any part of it. By virtue of the amendment proposed by paragraph (m) of clause 17, the taxable value of the expense payment fringe benefit will generally be reduced by the notional deduction.

Paragraphs (b), (c), (d) and (e) of clause 17 propose a number of amendments to paragraph 24(1)(c) of the Principal Act which prescribes the general substantiation rules that are to apply if the reduction rule embodied in section 24 is to apply.

The proposed amendments will enable appropriate petty cash entries to be accepted as proof of what are termed "undocumentable expenses". By virtue of proposed subsection 24(3A), the term "undocumentable expense" means, broadly, an expense that, by its nature, is not capable of being readily evidenced by receipts (e.g., train fares).

In addition, expenditure on fuel or oil for a motor vehicle owned by or leased to an employee will now be able to be evidenced by a declaration, in an approved form, by the employee in lieu of receipts, etc., or petty cash entries.

Paragraphs (f) to (k) of clause 17 will make amendments that, broadly, reflect revised car log book rules being implemented by the Bill. Paragraph (g) inserts a substantive new provision, paragraph 24(1)(ea) which sets out the conditions for reducing the taxable value of an expense payment fringe benefit in respect of car expenses incurred by an employee in operating his or her own car where the revised car log book rules in new Division 15 (being inserted by clause 42) have been complied with. They are that the employee has given the employer a car substantiation declaration (see notes on new paragraph 19(1)(ca) being inserted by clause 12) and, where the revised rules require log book records and odometer records to be maintained, the declaration is accompanied by a copy of those documents.

Paragraph (m) of clause 17 modifies the rules for calculating the amount of the reduction of taxable value. Under the revised rule, the taxable value of the relevant expense payment fringe benefit is generally reduced by the amount of the notional deduction. However, special rules apply in the case of car expenses.

In the case of a car expense payment benefit to which new paragraph 24(1)(ea) applies - i.e., where the revised car log book rules have been complied with - the taxable value of the benefit is reduced by the appropriate car deduction percentage established under those rules (subparagraph (h)(i)). Where, however, the payment or reimbursement made by the employer reflects a business element of the employee's expense, the amount of the reduction is the car deduction percentage of the employee's expense i.e., the business percentage of the unreimbursed amount expended by the employee. If, in such a case, the benefit is an in-house expense payment fringe benefit, the amount of the reduction is the car deduction percentage of the amount that would have been its taxable value but for any contribution by the employee (subparagraph (h)(ii)).

In the case of a car expense payment benefit where the revised car log book rules have not been complied with, the taxable value is reduced by the lesser of the notional deduction and the amount by which the taxable value would be reduced under new paragraph (1)(h) if the car deduction percentage was 33 1/3 per cent (new paragraph 24(1)(j)).

However, if in such a case the employee's declaration shows that the average number of business kilometres travelled by the car during the year while it was in use in income producing activities exceeded 96 kilometres per week, the amount of the reduction is calculated as if the car deduction percentage was 33 1/3 per cent (new paragraph 24(1)(k)).

Paragraph (n) of clause 17 proposes the insertion of a new subsection - subsection (3A) - in section 24. New subsection 24(3A) defines the circumstances in which an expense payment fringe benefit will be treated as an "undocumentable expense payment fringe benefit" for the purpose of the substantiation rules embodied in paragraph 24(1)(c). That term is explained in the earlier notes on the amendments proposed by paragraphs (b), (c), (d) and (e) of clause 17.

Paragraph (p) of clause 17 proposes the insertion of 3 new subsections - subsections (6), (7) and (8) - in section 24.

New subsection 24(6) is a drafting measure that is relevant to new paragraph 24(1)(b) (see earlier notes).

New subsection 24(7) applies so that the amount to be deducted under section 24 in relation to a car expense payment benefit where the revised log book rules have been complied with is never less than would be deducted under alternative declaration arrangements reflected in paragraphs 24(1)(f) and 24(1)(j).

New subsection 24(8) ensures that an amendement may be made at anytime to give effect to new subsection (7).

Clause 18: Taxable value of non-remote housing fringe benefits

Clause 18 proposes a number of amendments to section 26 of the Principal Act which establishes the rules for valuing housing fringe benefits other than those that qualify for the concessional remote area valuation rules provided in section 29.

Paragraph (a) of clause 18 is a drafting measure consequential upon the proposed insertion of new "reduction of taxable value" provisions in new Division 14 of Part III of the Principal Act.

Paragraph (b) of clause 18 is a minor drafting correction which amends paragraph 26(1)(b) to make it clear that the valuation rules embodied in that paragraph apply where a housing fringe benefit consists of accommodation in a caravan or mobile home. The effect of the amendment is that where accommodation is provided in a caravan or mobile home, the taxable value of the housing fringe benefit will generally be equal to the market value of the right to occupy the accommodation less any rent paid. If, apart from being a housing fringe benefit, such a benefit would be an "in-house residual fringe benefit" - broadly, services supplied by an employer whose business is to provide similar or identical services to the public - the taxable value is reduced to 75% of the market value, less the employee's rent.

Paragraph (c) of clause 18 proposes the insertion of new paragraph 26(3)(aa) which specifies the circumstances in which a year of tax is to be treated as a base year of tax. The general rules embodied in section 26 are that, in the case of a base year of tax, the statutory annual value of a housing fringe benefit is the market value of the right to occupy the accommodation for the year and that indexation arrangements apply in the following 9 years.

Under proposed new paragraph 26(3)(aa), an employer may elect to treat any year of tax as a new base year of tax. Where such an election is made, the taxable value of the housing fringe benefit for that year will be based on the current market value of the unit of accommodation in lieu of its indexed value and the indexation arrangements for the following years will be based on the new base year.

Paragraph (d) of clause 18 specifies that an election to adopt a new base year of tax is to be lodged in writing with the employer's annual fringe benefits tax return or such later date as the Commissioner of Taxation approves (see definition of "declaration date" in subsection 136(1) of the Principal Act).

Clause 19: Indexation factor for valuation purposes - non-remote housing

Clause 19 proposes a technical amendment to section 28 of the Principal Act which establishes the indexation factor that is to apply to a particular year of tax for the purposes of the indexation arrangements that apply where the taxable value of a housing fringe benefit is determined in accordance with paragraph 26(1)(c).

The amendment proposed by clause 19 will make it clear that the indexation rules embodied in section 28 apply only for the purposes of section 26. The amendment is made necessary by the proposed introduction of new indexation arrangements that are to apply for the purposes of valuing housing fringe benefits under paragraph 29(1)(a).

Clause 20: Taxable value of remote area accommodation

Clause 20 proposes to amend section 29 of the Principal Act which specifies the valuation rules that are to apply to accommodation that is located in a designated remote area and that satisfies certain other eligibility criteria.

Paragraph (a) of clause 20 will omit existing subsections 29(1), (2) and (3) and insert 4 new subsections - subsections 29(1), (2), (3) and (3A).

The subsections being omitted operate, broadly, to:

•

discount by 40% the value of accommodation determined on a market rental value basis;

•

give an employer the right to elect to value remote area housing fringe benefits using a statutory formula instead of a market rental value basis; and

•

restrict the right of election to a once-only across-the-board election for all remote area housing of a particular employer.

The new subsections will apply to:

•

increase the existing remote area discount from 40% to 50%;

•

replace the present statutory formula by a statutory amount (after applying the new 50% discount) of $60 per week per unit of accommodation or $15 per week for single person's quarters, those values to be indexed annually in line with movements in the rent sub-group of the national Consumer Price Index; and

•

permit the election to use the statutory values to be made annually for each unit of accommodation.

New subsection 29(1) specifies the alternative methods of calculating the taxable value of remote area accommodation.

Paragraph 29(1)(a) will apply where an employer elects to value a remote area housing fringe benefit in accordance with a statutory amount.

Under this method, the calculation of the taxable value of a remote area housing fringe benefit involves the following 3 steps.

First, the relevant annual statutory amount is determined. The legislation defines two annual statutory amounts according to the nature of the accommodation.

The "single quarters statutory amount" applies where the accommodation is:

•

shared accommodation in a house, flat or home unit if that accommodation is ordinarily shared by at least 4 employees (proposed section 142C defines the kind of accommodation which will qualify under this category);

•

accommodation in a bunkhouse, dormitory or similar living quarters; or

•

accommodation in an employees' hostel if that accommodation does not include cooking facilities or more than one bedroom (proposed section 142D defines the kind of accommodation which will qualify under this category).

For any other accommodation, the "standard statutory amount" applies.

The value of each statutory amount is specified in new subsection 24(3A). For the transitional year of tax, the single quarters statutory amount is $780 ($15 per week) and the standard statutory amount is $3,120 ($60 per week). For subsequent years, these values will be indexed in line with movements in the rent sub-group of the national Consumer Price Index.

Second, the relevant annual statutory amount is apportioned according to the number of days in the year of tax in which the employee's housing right existed - because the transitional year of tax is a period of 9 months only, an apportionment will be required in all cases for that year.

Third, the amount of rent paid by the employee is then deducted to arrive at the taxable value of the benefit.

Paragraph 29(1)(b) will apply where the accommodation is provided in a hotel, motel, hostel, guesthouse, caravan or mobile home by a person carrying on a business of providing such accommodation to the public and the employer does not elect to adopt the statutory amount method of valuation. In these circumstances, the taxable value is 50% of the market value of the right to occupy the accommodation, less any rent paid.

Paragraph 29(1)(c) will apply to the provision of other accommodation that the employer has not elected to value using the statutory amount. In these cases, the taxable value is 50% of the amount determined under the market rental value basis specified in paragraph 26(1)(c) for non-remote accommodation, less any rent paid.

New subsection 29(2) gives employers the right to elect to adopt the statutory amount method. The election must be made in relation to all housing fringe benefits provided in a particular year of tax in relation to a particular unit of accommodation. Thus, if a particular unit of accommodation is occupied successively by a number of employees in a year of tax, the accommodation benefits provided to those employees in that year must either all be valued under the statutory amount method or all be valued under the 50% of market rental value method. The employer can, however, choose different methods for different units of accommodation, and in relation to a particular unit of accommodation, alter the method each year.

New subsection 29(3) provides that an election must be made in writing by the "declaration date" (a defined term in subsection 136(1) of the Principal Act - see also subclause 61(8)) for transitional measures relating to the commencement of amendments proposed by this Bill.

New subsection 29(3A) specifies the value of each statutory amount (see earlier notes).

Paragraph (b) of clause 20 is a drafting simplification measure.

Clause 21: Indexation factor for valuation purposes - remote area accommodation

Clause 21 establishes the indexation factor that is to apply in relation to a particular year of tax for the purposes of the indexation arrangements that are to apply under new subsection 29(3A) in relation to the statutory annual amounts for remote area accommodation.

Clause 22: Living-away-from-home allowance benefits

Clause 22 makes a minor drafting correction similar to that proposed under paragraph (a) of clause 10.

Clause 23: Taxable value of living-away-from-home allowance fringe benefits

This clause is a drafting measure consequential upon the proposed insertion of new "reduction of taxable value" provisions in new Division 14 of Part III of the Principal Act.

Clause 24: Reduction of taxable value - "otherwise deductible" rule

Clause 24 proposes amendments to section 34 of the Principal Act which applies, broadly, to reduce the taxable value of an airline transport fringe benefit to the extent to which any expenditure that would otherwise have been incurred by the employee on the transport would have been deductible for income tax purposes.

Paragraphs (a) and (c) of clause 24 modify the "otherwise deductible" rule for airline transport fringe benefits to ensure that the amount of the reduction of taxable value is equal to the additional deduction that would have been allowable to the employee if he or she had incurred additional expenditure equal to the net value of the airline transport fringe benefit (i.e., the taxable value of the airline transport fringe benefit after reduction for the fare paid by the employee). This measure parallels similar amendments being made to the "otherwise deductible" rules that apply to a number of other categories of fringe benefits. A detailed explanation of this package of measures is provided in the "Main Features" section of Part A of this memorandum.

Paragraph (b) of clause 24 is a minor drafting measure.

Clause 25: Reduction of taxable value - "otherwise deductible" rule

Clause 25 proposes amendments to section 37 of the Principal Act which applies, broadly, to reduce the taxable value of a board fringe benefit to the extent to which any expenditure that would otherwise have been incurred by the employee in obtaining the meal would have been deductible for income tax purposes.

Paragraphs (a), (b) and (d) of clause 25 modify the "otherwise deductible" rule for board fringe benefits to ensure that the amount of the reduction of taxable value is equal to the additional deduction that would have been allowable to the employee if he or she had incurred additional expenditure equal to the net value of the board fringe benefit (i.e., the taxable value of the board fringe benefit after reduction for any amount paid by the employee to obtain the meal). This measure parallels similar amendments being made to the "otherwise deductible" rules that apply to a number of other categories of fringe benefits. A detailed explanation of this package of measures is provided in the "Main Features" section of Part A of this memorandum.

Paragraph (c) of clause 25 is a minor drafting measure.

Clause 26: Taxable value of tax-exempt body entertainment fringe benefits

This clause is a minor drafting measure.

Clause 27: Reduction of taxable value - "otherwise deductible" rule

Clause 27 proposes amendments to section 44 of the Principal Act which applies, broadly, to reduce the taxable value of a property fringe benefit to the extent to which any expenditure that would otherwise have been incurred by the employee in acquiring the relevant property would have been immediately deductible for income tax purposes.

The proposed amendments will:

•

modify the "otherwise deductible" rule for property fringe benefits to ensure that the amount of the reduction of taxable value is equal to the additional deduction that would have been allowable to the employee if he or she had incurred additional expenditure equal to the net value of the property fringe benefit (i.e., the taxable value of the property fringe benefit after reduction for any consideration paid by the employee). This measure parallels similar amendments being made to the "otherwise deductible" rules that apply to a number of other categories of fringe benefits. A detailed explanation of this package of measures is provided in the "Main Features" section of Part A of this memorandum;

•

provide that an existing rule which denies a reduction in taxable value where any expenditure incurred by the employee would otherwise be subject to the income tax "negative gearing" rules will not now apply in relation to the fringe benefits tax year commencing on 1 April 1987 or subsequent years;

•

modify the operation of section 44 in relation to property provided in respect of an employee's car to reflect revised car substantiation rules in a similar way to the modifications explained in the notes on clause 12.

Clause 28: Exempt residual benefits

Clause 28 makes a number of amendments to section 47 of the Principal Act which exempts certain residual benefits from fringe benefits tax.

Paragraph (a) of clause 28 makes a minor drafting correction of the kind explained in the notes on paragraph (a) of clause 10.

Paragraphs (b) and (c) of clause 28 liberalise the exemption contained in existing subsection 47(3).

Under existing subsection 47(3), the use by an employee on a working day of property that is located on business premises of the employer (or a related company) and is used wholly or principally in the business operations of the employer (or a related company) is exempt from fringe benefits tax. For this purpose, employee amenities are, by virtue of existing subsection 47(4), treated as being used in the business operations of the employer.

The amendment proposed by paragraph (b) of clause 28 will extend the exemption to include the use of the employer's property on non-working days. The exemption is also being extended to include an employee's use of property (other than motor vehicles) away from the employer's business premises provided the equipment, etc., is ordinarily located on the business premises.

Paragraph (c) of clause 28 proposes the insertion of a new subsection - subsection (4A) - in section 47. By virtue of new subsection 47(4A), a building site, construction site or any similar place where an employer carries on business operations will, for the purposes of the exemption contained in subsection 47(3), be treated as business premises of the employer.

Paragraph (d) of clause 28 makes a minor drafting correction of the kind explained in the notes on paragraph (a) of clause 10.

Paragraph (e) of clause 28 modifies the exemption contained in existing subsection 47(5).

By existing subsection 47(5), a residual benefit that 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 fringe benefits tax. A requirement for exemption under subsection 47(5) is that the employee gives to 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 that usual place of residence.

The effect of the proposed amendment is that the requirement to obtain a declaration from the employee is not to apply where the accommodation is provided under what is commonly known as a "fly-in fly-out" arrangement. For this purpose, it is provided that a declaration is not required where the employee is provided with transport between his or her usual place of residence and the work site and the provision of that transport is, by virtue of existing subsection 47(7), exempt from fringe benefits tax. Existing subsection 47(7) applies to exempt the provision of transport for employees who work in a remote area or on an oil rig or other installation at sea and are provided with residential accommodation at or near the work site on working days and are returned to their usual place of residence on days off.

Paragraphs (f), (g) and (h) of clause 28 will amend existing subsection 47(6).

The existing subsection 47(6) exempts residual benefits consisting of the provision or use of a motor vehicle of a kind that is not subject to the valuation arrangements for car benefits if the employee's private use of the vehicle during the year of tax consists solely of "work-related travel". The term "work-related travel" is defined in subsection 136(1) to mean travel to and from work or use that is incidental to travel in the course of the employee's duties of employment.

Because taxis and other short-term hire cars let on hire to an employer are, by virtue of existing subsection 7(7), excluded from the car rules, a benefit consisting of the provision or use of such a car is a residual benefit which may qualify for exemption under existing subsection 47(6). Such an application of the exemption to an ordinary passenger cars is inconsistent with the corresponding exemption in subsection 8(2) which is restricted to commercial vehicles.

The amendments proposed by paragraphs (f) and (g) of clause 28 will make the two exemptions consistent by providing that taxis let on hire to the employer and cars designed principally to carry passengers are not eligible for the exemption under subsection 47(6). This amendment will not apply to the transitional year of tax or, by virtue of subclause 61(7), to a benefit provided in the first standard year of tax on or before 29 October 1987, the date of introduction of the amending Bill.

The amendment proposed by paragraph (h) of clause 28 will, consistent with the proposed amendment to subsection 8(2), liberalise the exemption contained in subsection 47(6) so that the exemption will now also apply where private use of the motor vehicle consists solely of:

•

non-work-related private use by the employee (or an associate) that is minor, infrequent and irregular; or

•

work-related travel by the employee plus other private use of the vehicle by the employee (or an associate) that is minor, infrequent and irregular.

Paragraph (j) of clause 28 inserts 2 new subsections - subsections (6A) and (6B) - in section 47. New subsection 47(6A) exempts a residual benefit consisting of the provision or use of a motor vehicle if the vehicle is unregistered throughout the period it is held by the employer during the year of tax and is used during that period wholly or principally in connection with the business operations of the employer (or a related company). For this purpose, new subsection 47(6B) provides that a motor vehicle will be treated as being held by an employer if it is owned by, leased to, or otherwise made available to, the employer.

Clause 29: Reduction of taxable value - "otherwise deductible" rule

Clause 29 proposes amendments to section 52 of the Principal Act which applies, broadly, to reduce the taxable value of a residual fringe benefit to the extent to which any expenditure that would otherwise have been incurred by the employee in acquiring the relevant benefit would have been immediately deductible for income tax purposes.

The proposed amendments will:

•

modify the "otherwise deductible" rule for residual fringe benefits to ensure that the amount of the reduction of taxable value is equal to the additional deduction that would have been allowable to the employee if he or she had incurred additional expenditure equal to the net value of the residual fringe benefit (i.e., the taxable value of the residual fringe benefit after reduction for any consideration paid by the employee). This measure parallels similar amendments being made to the "otherwise deductible" rules that apply to a number of other categories of fringe benefits. A detailed explanation of this package of measures is provided in the "Main Features" section of Part A of this memorandum;

•

provide that an existing rule which denies a reduction in taxable value where any expenditure incurred by the employee would otherwise be subject to the income tax "negative gearing" rules will not now apply in relation to the fringe benefits tax year commencing on 1 April 1987 or subsequent years;

•

modify the operation of section 52 in relation to residual benefits provided in respect of an employee's car to reflect revised car substantiation rules in a similar way to the modifications explained in the notes on clause 12.

Clause 30: Heading to Division 13 of Part III

This clause changes the heading to Division 13 of Part III of the Principal Act.

Clause 31: Exempt benefits - employees of religious institutions

This clause amends section 57 of the Principal Act which exempts benefits provided by a religious institution to certain employees in respect of their religious duties. The categories of employees in respect of whom the exemption presently applies are:

•

a minister of religion;

•

a full-time member of a religious order; and

•

a student at a college conducted solely for training persons to become members of religious orders.

The effect of clause 57 is to extend the exemption to include an employee who is training to become a minister of religion.

Clause 32: Exempt benefits - public benevolent institutions

Clause 32 proposes the repeal of section 57A of the Principal Act and the substitution of a new section 57A.

The existing section 57A exempts benefits provided by a public benevolent institution to an employee of the institution. This provision is technically deficient in a number of respects. For example, the exemption does not presently apply if the benefit is provided to the employee by a third party by arrangement with the public benevolent institution or if the benefit is provided to a member of the employee's family. In addition, the exemption is not expressly limited to benefits provided in respect of the employee's employment with the institution.

To overcome these technical deficiencies, the exemption for public benevolent institutions has been re-drafted and is contained in proposed new subsection 57A(1).

Proposed subsection 57A(2) will apply to exempt benefits provided in respect of an employee's employment with a "government body" if the employee performs his or her employment duties exclusively in, or in connection with, a public hospital that is a public benevolent institution. Benefits provided to employees employed directly by a public hospital are presently exempt from tax. Under existing subsection 136(1), a "government body" means the Commonwealth, a State or Territory or an authority of the Commonwealth or of a State or Territory.

Clause 33: Exempt benefits - live-in residential care workers

Clause 33 proposes a number of amendments to section 58 of the Principal Act.

Existing section 58 exempts the provision of residential accommodation to employees of government bodies, religious institutions or non-profit companies who live with and care for disadvantaged persons.

The exemption is being extended so that it will also apply where elderly persons (i.e., persons aged 60 years or over) are provided with similar care.

The range of benefits that qualify for exemption is being extended to include meals on the premises for the employees (or family members who live with them) and other food or drink such as morning and afternoon tea.

Clause 34: New sections 58A to 58V

Clause 34 proposes the insertion of 20 new sections - sections 58A to 58V - in Division 13 of Part III of the Principal Act which contains a number of miscellaneous exemptions.

Section 58A : Exempt benefits - employment interviews and selection tests

Proposed section 58A will exempt from fringe benefits tax a "benefit in respect of an employment interview or selection test".

That term is defined in proposed section 143D and means, broadly, a benefit which meets travel costs incurred by an employee (including a future employee) for the purpose of attending an interview or selection test in connection with an application by the employee for employment with a new employer or a promotion or transfer in the employee's existing employment.

Where a qualifying benefit takes the form of an expense payment benefit, a condition of exemption is that the employee supplies the employer with documentary evidence of the expenditure.

The exemption does not apply to a benefit which takes the form of a reimbursement on a cents per kilometre basis of car expenses incurred by the employee (such reimbursements qualify for concessional treatment under proposed section 61E).

Section 58B : Exempt benefits - removals and storage of household effects as a result of relocation

Proposed section 58B will exempt from fringe benefits tax benefits which meet removal and storage costs incurred by an employee who moves from one locality to another in the course of employment or in order to commence employment.

Subsection 58B(1) provides that a benefit will be exempt where the conditions set out in paragraphs (a) to (f) are satisfied.

Paragraph (a) specifies the kinds of benefits eligible for exemption. These are an expense payment benefit or a residual benefit where the underlying benefit is the "removal or storage of household effects of the employee". Interpretation provisions which assist in determining whether a benefit meets this requirement are contained in subsection 58B(2).

Paragraph (b) makes it a condition that the removal or storage is required solely because the employee is required to:

•

live away from his or her usual place of residence in order to perform employment duties;

•

return to his or her usual place of residence at the end of a period during which the employee lived away from that place in order to perform employment duties; or

•

change his or her usual place of residence in order to perform employment duties.

Paragraph (c) stipulates that the removal or storage must be necessary to enable the employee to reside at the new locality. In more detail, the test applies as follows:

•

in a case where the employee is required to live away from, or change, his or her usual place of residence - the removal or storage is necessary to enable the employee (or family member) to take up residence, or to continue to reside, at the new locality. This requirement would be met where household effects are moved to the new locality at the commencement of the relocated employment or where they are removed from a temporary residence at the new locality to another residence at the new locality; or

•

in a case where the employee is required to return to his or her usual place of residence at the end of a period during which the employee lived away from that place - the removal or storage is necessary to enable the employee (or family member) to resume residence at the usual place of residence.

Paragraph (d) applies in a case where the employee changes his or her usual place of residence in order to perform employment duties. In these cases, the exemption will not apply if the benefit was provided under a non-arm's length arrangement or the removal or storage occurred more than 12 months after the employee commenced employment at the new locality.

Paragraph (e) provides that in the case of an expense payment benefit, documentary evidence of the expenditure incurred by the employee must be supplied to the employer.

Paragraph (f) stipulates that the exemption will not apply in circumstances where the employee is undertaking travel in the course of performing employment duties. The "otherwise deductible" rules may apply where benefits are provided to an employee in such circumstances.

Subsection 58B(2) contains two interpretation provisions relevant to paragraph 58B(1)(a).

Paragraph (2)(a) provides that the expression "household effects of an employee" is to mean goods (including pets) kept primarily for the personal use of the employee or his or her spouse or children.

Paragraph (2)(b) makes it clear that where household effects are removed or stored any benefits in respect of the transport, packing, unpacking or insurance of those effects in connection with the removal or storage are eligible for the exemption.

Section 58C : Exempt benefits - sale or acquisition of dwelling as a result of relocation

Proposed section 58C will exempt from fringe benefits tax benefits which meet incidental costs incurred in the sale and/or purchase of a home (e.g., stamp duties, legal fees and agents' commissions) by an employee who changes his or her usual place of residence in the course of employment or in order to commence employment. The exemption will also apply to benefits which meet the costs of re-connecting gas, electricity and telephone services to a home purchased at the new locality.

Subsection 58C(1) establishes the general pre-condition for application of both the exemption relating to costs incidental to the sale of a home (subsection 58C(2)) and the exemption relating to costs incidental to the purchase of a new home (subsection 58C(3)). Broadly, the pre-condition is that the employee owned a home at the former locality that is sold as a result of the employee's relocation. In more detail, the tests set out in paragraphs (a) to (e) must be satisfied. These are:

•

the employee or an associate owned property consisting of a prescribed interest in land or in a stratum unit or a proprietary right in respect of a flat or home unit (paragraph (a)). Subsection 141(2) of the Principal Act specifies what is a prescribed interest in land or in a stratum unit and what is a proprietary right in respect of a flat or home unit;

•

that property was sold solely because the employee changed his or her usual place of residence in order to perform employment duties (paragraph (b));

•

the employee or associate owned the property at the time that the employer notified the employee that he or she was to work at the new locality (paragraph (c));

•

at the time of such notification, the employee occupied, or proposed to occupy, the property as his or her usual place of residence (paragraph (d)); and

•

the contract for the sale of the property was entered into within 2 years of the employee commencing duty at the new locality (paragraph (e)).

Under subsection 58C(2), benefits relating to the costs of selling a property to which subsection (1) applies will be exempt where the further tests specified in paragraphs (a) to (e) are satisfied. These are:

•

the benefit is an expense payment benefit or a residual benefit that meets costs incidental to the sale of the property (paragraph (a)). Interpretation provisions which determine whether a benefit satisfies this requirement are contained in proposed section 141A;

•

in a case where the exemption would otherwise apply in relation to the sale of more than one property in respect of the employee's relocation, the employer nominates only one such property as the one to which the exemption is to apply (paragraphs (b) and (c)). This rule could apply, for example, where an employee is reimbursed the costs involved in selling both his or her current home and a block of land on which a new home was being constructed;

•

in the case of an expense payment benefit, documentary evidence of the expenditure incurred by the employee is supplied to the employer (paragraph (d)); and

•

the benefit is not provided under a non-arm's length arrangement (paragraph (e)).

Under subsection 58C(3), benefits relating to the costs of buying a property will be exempt where a property to which subsection (1) applies has been sold and the tests specified in paragraphs (a) to (h) in relation to the acquisition of the new property are satisfied. These are:

•

the employee or an associate purchases a prescribed interest in land or in a stratum unit or a proprietary right in respect of a flat or home unit (paragraph (a));

•

that property was acquired solely because the employee changed his or her usual place of residence in order to perform employment duties (paragraph (b));

•

the contract for the purchase of the property was entered into within 4 years of the employee commencing duty at the new locality (paragraph (c));

•

upon completion of the acquisition, the employee occupied the property as his or her usual place of residence (paragraph (d));

•

the benefit is an expense payment benefit or a residual benefit that:

•.

meets costs incidental to the acquisition of the property (subparagraphs (e)(i) and (ii)). Interpretation provisions which determine whether a benefit satisfies this requirement are contained in proposed section 141A;

•.

meets the cost of connecting or re-connecting a telephone service to the property (subparagraphs (e)(iii) and (iv)); or

•.

meets the cost of re-connecting a gas or electricity service to the property (subparagraphs (e)(v) and (vi));

•

in a case where the benefit relates to the connection or re-connection of a telephone service - the employee had a telephone service connected to his or her home at the former usual place of residence (paragraph (f));

•

in the case of an expense payment benefit, documentary evidence of the expenditure incurred is supplied to the employer (paragraph g)); and

•

the benefit is not provided under a non-arm's length arrangement (paragraph (h)).

Subsection 58C(4) stipulates that an election made for the purposes of paragraph 58C(2)(b) must be in writing and lodged with the Commissioner of Taxation by the "declaration date" (a defined term under existing subsection 136(1) of the Principal Act).

Section 58D: Exempt benefits - connection or re-connection of certain utilities as a result of relocation

Proposed section 58D will apply to exempt a benefit from fringe benefits tax in a case where the employee moves from one locality to another in the course of employment or in order to commence employment and the benefit meets the cost of re-connecting a telephone, gas or electricity service to the employee's accommodation at the new locality. As proposed section 58C will generally apply to exempt benefits in respect of the cost of re-connecting a telephone, gas or electricity service to a home purchased at the new locality, the main purpose of new section 58D is to exempt benefits which meet the cost of re-connecting such a service to accommodation that is leased by the employee at the new locality (whether on a temporary or long-term basis).

Under subsection 58D(1), a benefit relating to a telephone service will be exempt where the conditions specified in paragraphs (a) to (e) are satisfied. These are:

•

the benefit is in respect of the installation or re-connection of a telephone service to a unit of accommodation (paragraph (a));

•

the accommodation is for the employee or his or her spouse and children (paragraph (b));

•

the accommodation is required solely because the employee is required to live away from, or change, his or her usual place of residence in order to perform employment duties (paragraph (c));

•

in the case of an expense payment benefit, documentary evidence of the expenditure incurred by the employee is supplied to the employer (paragraph (d)); and

•

in a case where the employee changes his or her usual place of residence, the benefit is not provided under a non-arm's length arrangement, the connection or re-connection occurred within 12 months of the employee commencing duty at the new locality and the employee had a telephone service connected to his or her home at the former usual place of residence (paragraph (e)).

Under subsection 58D(2), a benefit relating to a gas or electricity service will be exempt where the conditions specified in paragraphs (a) to (e) are satisfied. These are:

•

the benefit is in respect of the re-connection of gas or electricity to a unit of accommodation (paragraph (a));

•

the accommodation is for the employee or his or her spouse and children (paragraph (b));

•

the accommodation is required solely because the employee is required to live away from, or change, his or her usual place of residence in order to perform employment duties (paragraph (c));

•

in the case of an expense payment benefit, documentary evidence of the expenditure incurred by the employee is supplied to the employer (paragraph (d)); and

•

in a case where the employee changes his or her usual place of residence, the benefit is not provided under a non-arm's length arrangement and the re-connection occurred within 12 months of the employee commencing duty at the new locality (paragraph (e)).

Section 58E : Exempt benefits - leasing of household goods while living away from home

Proposed section 58E complements the exemptions contained in existing section 21 and subsection 47(5) in respect of the provision of accommodation for an employee who is required to live away from his or her usual place of residence in order to perform employment duties.

Under new section 58E, benefits which meet the cost of leasing furniture and other household goods for use in such exempt accommodation will also be exempt.

A benefit will be exempt where the conditions specified in paragraphs (a) to (d) are satisfied. These are:

•

the benefit is an expense payment benefit or a residual benefit in respect of a lease or licence in respect of goods (paragraph (a));

•

the goods are for domestic use in accommodation for the employee and his or her spouse and children (paragraph (b));

•

an expense payment benefit or a residual benefit is provided to the employee in respect of the right to occupy that accommodation (paragraph (c)); and

•

that accommodation benefit is exempt under existing section 21 or subsection 47(5) of the Principal Act (paragraph (d)).

Section 58F : Exempt benefits - relocation transport

Proposed section 58F will exempt from fringe benefits tax "benefits in respect of relocation transport" other than benefits that take the form of a reimbursement of car expenses incurred by an employee on a cents per kilometre basis (such reimbursements qualify for concessional treatment under proposed section 61B).

The circumstances in which a benefit will be treated as a "benefit in respect of relocation transport" are specified in proposed section 143A. Broadly, such a benefit is one that is provided to an employee who moves from one locality to another in the course of employment or in order to commence new employment where the benefit meets travel costs (i.e., transport costs and accommodation and meals en route) incurred by the employee (or a family member) for the purpose of taking up residence in the locality of the new work place.

Where a benefit in respect of relocation transport takes the form of an expense payment benefit, a condition of exemption is that the employee supplies the employer with documentary evidence of the expenditure.

Section 58G : Exempt benefits - motor vehicle parking

Proposed section 58G exempts from fringe benefits tax benefits constituted by the provision of parking facilities for a motor vehicle or the payment or reimbursement of expenses incurred in respect of such facilities. The exemption does not extend to the payment of parking fines.

Section 58H : Exempt benefits - newspapers and periodicals used for business purposes

Proposed section 58H exempts from fringe benefits tax benefits which meet the cost of providing a newspaper or periodical to an employee where the newspaper or periodical is for use by the employee for work-related purposes. To ensure that the exemption does not apply where work-related use is minimal or insignificant, subsection 58(H)(2) provides that, for the purposes of the exemption, use of a newspaper or periodical for a merely incidental purpose is to be disregarded.

Section 58J : Exempt benefits - compensable work-related trauma

Proposed section 58J operates, broadly, to exempt from fringe benefits tax workers' compensation benefits. The exemption extends both to benefits provided in respect of a work-related injury actually suffered by an employee (subsection (1)) and benefits constituted by insurance cover under a workers' compensation insurance policy (subsection (2)).

Subsection 58J(1) applies to exempt a benefit where the conditions specified in paragraphs (a) and (b) are satisfied.

By paragraph (a) it is a condition that the benefit (e.g., the payment of hospital or medical costs or associated ambulance, travel and accommodation costs) is provided in respect of "compensable work-related trauma" suffered by an employee. A benefit provided in respect of compensable work-related trauma will be eligible for exemption irrespective of whether the benefit is provided by the employer or another person (e.g., the employer's insurance company) and irrespective of whether the benefit is provided to the employee or an associate of the employee.

The term "compensable work-related trauma" is being defined under amendments proposed by clause 48 to mean, broadly, an injury or disease related to the employment of the employee where the employee is entitled to receive compensation or other benefits in respect of the injury or disease under a workers' compensation law. Where an employee's employment is not covered by a workers' compensation law, a work-related injury (or disease) will be treated as compensable if it would have been compensable under any Australian workers' compensation law if such laws had extended to the employee's employment.

Under paragraph (b) it is a condition that the benefit is either:

•

provided under a "workers compensation law" (a defined term proposed to be inserted in subsection 136(1) of the Principal Act by clause 48); or

•

if the benefit is not provided under such a law, the provision of the benefit is reasonable having regard to the value of the benefit and the nature and effects of the injury.

Subsection 58J(2) applies to exempt a benefit constituted by a contingent right, under a contract of insurance, to receive benefits in respect of compensable work-related injuries. For this exemption to apply, it is a requirement that the only benefits payable under the insurance contract relate to compensable work-related injuries of the employee (or other employees). This test would not be met, for example, in the case of a general health insurance policy that may, coincidentally, provide for benefits in respect of work-related injuries.

Section 58K : Exempt benefits - in-house health care facilities

Proposed section 58K will exempt from fringe benefits tax the provision of medical services and other "health care" benefits to an employee (or an associate) where they are provided in an "in-house health care facility" of the employer. The exemption also applies where health care is provided away from the in-house health care facility by a member of the facility's staff (e.g., a home visit by a company doctor).

For these purposes, the term "health care" is being defined by amendments proposed by clause 48 to mean, broadly, any test or form of care related to a person's health. The exemption will thus extend to a wide range of health-related services including -

•

the services of medical practitioners, dentists, nurses, optometrists, physiotherapists, first-aid attendants, speech therapists, dieticians, chiropodists, psychologists, etc.;

•

the provision of diagnostic services and facilities;

•

accommodation and care in the in-house health care facility (e.g., a mini-hospital); and

•

counselling and advisory services.

The provision of drugs, first-aid items and other property in connection with the test or care will also be exempt.

The term "in-house health care facility" is also being defined by amendments proposed by clause 48 and will mean, broadly, a clinic or other medical facility that is operated wholly or principally for providing health care in respect of compensable work-related injuries suffered by employees of the employer (or a related company) and which is located on premises of the employer (or a related company) or at or adjacent to, a site (e.g., a construction site) at which employees of the employer perform duties of their employment.

It is noted that while the facility must be operated principally for the treatment of compensable work-related injuries suffered by employees, the exemption will extend to the incidental use of the facility for the treatment of injuries suffered by the employee that are not related to work or for the treatment of injuries suffered by an associate of the employee.

Section 58L : Exempt benefits - certain travel to obtain medical treatment

Proposed section 58L will exempt from fringe benefits tax benefits which meet travel costs incurred where an employee working in a prescribed foreign country is required to travel away from the work place in order to obtain suitable medical treatment. The exemption will also apply where the spouse or a child of the employee who lives with the employee at the overseas work place is required to travel away from that place in order to obtain suitable medical treatment. In addition, where it is necessary for the employee (or family member) receiving treatment to be accompanied or visited by a family member or to be escorted by another person, the travel costs of the escort or visitor fall within the scope of the exemption.

Under subsection 58L(1), a benefit provided in respect of the employment of an employee will be exempt where the conditions set out in paragraphs (a) to (k) are satisfied.

By paragraphs (a) and (b), it is a condition that the benefit relates to the provision of transport, accommodation or meals for a person ("the traveller") who undertakes travel.

Paragraph (c) stipulates that the traveller must undertake the travel solely because either the traveller or another person (e.g., a family member) requires medical treatment.

Under paragraph (d), that medical treatment must be provided at a time when the employee's usual place of employment is in a prescribed foreign country. It is proposed that the foreign countries to be prescribed for the purposes of this exemption will be developing countries.

Paragraph (e) specifies that the travel must be between the overseas work place and the place at which the medical treatment is provided.

Paragraph (f) requires that the person receiving the medical treatment is either the employee or the spouse or a child of the employee who lives with the employee at the overseas work place.

Paragraph (g) applies in a case where the traveller is not the person receiving the medical treatment. In these circumstances, it is a condition that -

•

the traveller escorts the patient for medical reasons or because the patient is a child; or

•

the traveller is a member of the patient's family and accompanies or visits the patient in circumstances where the nature of the patient's condition is such that visits by family members are customary.

Paragraph (h) applies where the benefit relates to meals or accommodation. Such benefits will be eligible for exemption where the meals or accommodation are provided to the traveller en route. They will also be eligible for exemption if the meals or accommodation are provided during any period that it is necessary for the traveller to stay at the treatment place for purposes related to the medical treatment. However, accommodation and meals provided to the patient as part of hospital care are not eligible for exemption.

Paragraph (j) makes it a condition that the place at which the medical treatment is provided is either the place nearest to the overseas work place at which medical treatment suitable for the patient could be provided or is the place at which such treatment could be obtained at the least cost.

Finally, paragraph (k) provides that in the case of an expense payment benefit, documentary evidence of the expenditure incurred by the employee must be supplied to the employer.

Subsection 58L(2) provides that the term "medical treatment" is to mean any act or thing where a payment for that act or thing would constitute a medical expense under the medical expense rebate provisions of the income tax law.

Section 58M : Exempt benefits - work-related medical examinations, work-related medical screening, work-related preventative health care, work-related counselling, migrant language training.

Under subsection 58M(1) the following kinds of benefits will be exempt from fringe benefits tax:

•

Work-related medical examinations

An expense payment benefit or a residual benefit will be exempt from tax where the underlying benefit is the provision of a "work-related medical examination" of the employee. For this purpose, the term "work-related medical examination" is being defined under amendments proposed by clause 48 to mean, broadly, an examination or test carried out by a medical practitioner, nurse, dentist, optometrist or audiometrist where the employee is required to undergo the examination or test in order to commence new employment, to transfer to a different job with the same employer or to gain entry to a superannuation fund.

•

Work-related medical screening

An expense payment benefit or a residual benefit will be exempt from tax where the underlying benefit is the "work-related medical screening" of the employee. For this purpose, the term "work-related medical screening" is being defined under amendments proposed by clause 48 to mean, broadly, an examination or test carried out by a medical practitioner, nurse, dentist, optometrist or audiometrist for the purpose of determining whether the employee is suffering from an injury or illness related to the employee's employment. It is also a requirement for exemption that the examination or test is carried out as part of a screening program which applies generally to employees with similar work-related risks.

•

Work-related preventative health care

An expense payment benefit or a residual benefit will be exempt from tax where the underlying benefit is the provision of "work-related preventative health care" of the employee. For this purpose, the term "work-related preventative health care" is being defined under amendments proposed by clause 48 to mean, broadly, any form of care provided by a medical practitioner, nurse, dentist or optometrist for the purpose of preventing the employee from suffering from an injury or illness related to the employee's employment. It is also a requirement for exemption that the care is provided as part of a screening program which applies generally to employees with similar work-related risks. The provision of drugs, vaccines or other medical preparations in connection with the preventative health care will also be exempt.

•

Work-related counselling

Benefits in respect of the "work-related counselling" of an employee will be exempt. For this purpose, the term "work-related counselling" is being defined under amendments proposed by clause 48 to mean, broadly, individual or group counselling (e.g., a seminar) related to matters such as safe work practices, stress management, fitness, drug or alcohol abuse or retirement problems. It is also necessary that the benefit is provided by the employer in order to improve or maintain the efficiency of employees or to prepare them for retirement and not as a form of remuneration.

•

Migrant language training

Benefits in respect of the "migrant language training" of an employee will be exempt from tax. For this purpose, the term "migrant language training" is being defined to mean, broadly, an English language course provided to a person who is an immigrant or intending immigrant to Australia.

Subsection 58M(2) ensures that certain benefits which meet travel costs incurred in attending work-related medical examinations, work-related medical screening, work-related preventative health care, work-related counselling and migrant language training will be exempt. The benefits which qualify for this exemption are defined in proposed section 143E.

The exemption does not apply to a benefit which takes the form of a reimbursement of car expenses on a cents per kilometre basis (such reimbursements qualify for concessional treatment under proposed section 61F).

Section 58N : Exempt benefits - emergency assistance

Proposed section 58N will exempt from fringe benefits tax benefits provided to an employee (or an associate) by way of "emergency assistance".

The term "emergency assistance" is being defined in amendments by clause 48 to mean, broadly, assistance granted to a victim of an emergency solely in order to provide immediate relief. For this purpose, an "emergency" is being defined by amendments proposed by clause 48 to mean an emergency involving a natural disaster, an armed conflict, a civil disturbance, an accident, a serious illness or any similar matter.

Reflecting the requirement that the assistance be by way of immediate relief, the definition of emergency assistance specifies that the assistance must be in respect of:

•

first aid or other emergency health care;

•

emergency meals, food supplies, clothing, transport, accommodation or use of household goods;

•

temporary repairs; or

•

any similar matter.

This test would not be met by long-term benefits such as the provision of a new house or car to replace one destroyed as a result of an emergency.

Where emergency assistance takes the form of medical treatment or other kinds of "health care" (a defined term), the exemption is limited to treatment provided:

•

by an employee of the employer (or a related company); or

•

on premises of the employer (or a related company) or at, or adjacent to, a site at which employees of the employer perform duties of their employment.

This means, for example, that the exemption will not apply if the employer pays for an accident victim's hospital costs. However, if the victim is given emergency treatment by a company doctor at the accident site and emergency transport is provided to the hospital, the provision of that treatment and transport will be eligible for exemption.

Section 58P : Exempt benefits - minor benefits

New section 58P exempts benefits that can, by the tests specified therein, be characterised as minor.

The exemption will not extend to airline transport benefits or other in-house fringe benefits the taxable values of which are in any case reducible by $500 per annum under the rules contained in section 62. Nor will it apply to minor entertainment benefits provided to employees etc. of tax-exempt organisations unless they are incidental to the provision of entertainment to persons who are neither employees of the employer nor associates of employees but, in any case, will not apply to meals or benefits provided in connection with meals.

This latter exclusion would not prevent minor entertainment benefits provided by a tax exempt organisation to recognise a special achievement of an employee from being exempt under section 58P as long as they were provided on the employer's premises or where the employee performs his or her employment duties. For example, a meal given to the family of a professional footballer in the club's dining room to mark a milestone such as selection in a representative team or being awarded best and fairest player, may be exempt under this rule.

Apart from those exceptions, a benefit will be treated as an exempt minor benefit if the "notional taxable value" of the benefit - broadly, the amount that would be the taxable value if the benefit were treated as a fringe benefit - is small and, having regard to various specified matters, it would be unreasonable to treat it as a fringe benefit. Those specified determinants are:

•

the infrequency and irregularity with which similar or identical benefits to the minor benefit (or to benefits given in connection with the minor benefit) are provided, i.e., the more frequently and regularly small benefits of a similar kind are provided, the less likely they are to qualify as minor benefits;

•

the amount that would be the sum of the taxable values of the minor benefit and other similar or identical benefits if they were treated as fringe benefits. As with the previous test, the greater the cumulative value of small benefits, the less likely it is they may be treated as exempt minor benefits;

•

similarly, it is necessary to assess the likely total taxable values of the minor benefit and other associated benefits i.e., those provided in conjunction with the minor benefit e.g., accommodation, board, electricity and telephone benefits provided as part of an accommodation "package";

•

the practical difficulty in determining what would be the taxable value of the benefit and any associated benefits. This would include consideration of the difficulty for the employer in keeping the necessary records in relation to the benefits; and

•

the circumstances in which the minor benefit and any associated benefits were provided. In considering this issue, regard is to be had to whether the benefit was provided as a result of a contingency (e.g., unexpected overtime) and whether or not it could be regarded principally as being in the nature of remuneration.

Some guidance as to how new section 58P would apply in practice might be obtained by reference to particular examples.

It is common practice for employers to give employees gifts at Christmas time. A single gift to each employee of, say, a bottle of whiskey or perfume would be an exempt minor benefit provided the value of each was modest. However, if some employees were given a range of gifts of which only some were of modest value, e.g., expensive art works, and food hampers and wine, it would be necessary to determine the application of section 58P by reference to the package of associated benefits rather than each individual item.

Employers may provide employees with transport to and from work on an occasional basis because of particular contingencies, e.g. taxis for employees who work back late. In those circumstances, the exemption authorised by new section 58P would apply where the transport is provided to employees required to work late on an ad hoc basis to clear backlogs or meet particular deadlines. Such cases are distinguishable from regular transport provided to shift workers or others whose duties of employment are such that they regularly work late hours in the normal course of events.

The occasional use of an employer's vehicle by an employee for a special purpose such as rubbish removal or to travel from home to work during a transport strike would be exempt benefits provided the employee in question did not have a general entitlement to use the vehicle for private purposes. However, in some cases, the benefit would be of sufficient value to override considerations of irregularity or lack of frequency. A "one-off" loan of a four-wheel drive vehicle to enable an employee to travel cross country during an extended annual holiday break may not be exempt under section 58P because the value of such a benefit is not small.

Subject to that basic condition being satisfied, section 58P is likely to apply to exempt the following kinds of benefits:

•

stationery that an employee is permitted to use for private purposes;

•

a short-term advance to help an employee pay unexpected debts;

•

the recovery of overpaid salary by instalment arrangements;

•

the use of office staff to type essays or assignments; and

•

permitting staff to have waste or left-over materials of a business such as packing cases or fabric remnants.

Section 58Q : Exempt benefits - long service awards

Section 58Q will exempt certain "long-service award benefits". To qualify for exemption, the benefit must be solely as an award to acknowledge a "recognised long service period" of the employee of not less than 15 years, but not be salary or wages, nor provided under a non-arm's length arrangement or one entered into for the purpose of enabling the employer to benefit from the exemption rather than to genuinely recognise long service.

For the purposes of the exemption, a recognised long service period will be the period by which long service leave is determined under industrial awards or specified conditions of employment or service or, if there are no such conditions, the actual employment period or any longer period by which long service leave entitlement might reasonably be determined.

Section 58Q applies so that, if the long service period being awarded is 15 years or more and there has not been an award granted to the employee for a shorter long service period, the benefit will be exempt provided the "notional taxable value" of the benefit - as explained in the notes on new section 58P - is not more than $500 plus $50 for each year more than 15 that is being recognised.

For example, if the award is for 20 years' service and there has not been an award for a shorter period, it will be exempt if it does not exceed $750 i.e.,

$500 + ($50 * (20-15))


.

If there has been an award for a shorter period, the notional taxable value of the award must not exceed $50 per annum for each year of service in excess of 15 that is being recognised by the additional award.

Section 58R : Exempt benefits - safety awards

This section will exempt fringe benefits in the form of a safety award benefit where the "notional taxable value" of the benefit - as explained in the notes on new section 58P - is not more than $200 in a year of tax. To qualify for exemption, a "safety award benefit" must be provided solely as an award to recognise special achievements of an employee in occupational health or occupational safety matters, but not be salary or wages, or provided under a non-arm's length arrangement or one entered into for the purpose of enabling the employer to benefit from the exemption rather than to genuinely recognise safety achievements.

Section 58S : Exempt benefits - trainees engaged under Australian Traineeship System

New section 58S has the effect of exempting certain benefits that are provided to an employee who is a trainee under the Australian Traineeship System. Benefits in the form of accommodation, food or drink will be exempt under this section whether provided as housing, board, reimbursement of expenses, meals etc. A condition of exemption is that the benefit be provided under an industrial agreement or established industry custom.

Section 58T : Exempt benefits - live-in domestic workers employed by religious institutions or by religious practitioners

The exemption to be provided by new section 58T is complementary to the existing exemption (in section 57) of benefits provided by a religious institution to ministers of religion, members of religious orders and persons training for religious orders. The kinds of employees to whom section 58T will apply are employees of a religious institution or "religious practitioner" i.e., a minister of religion, a member of a religious order or a person training to become a minister or a member of a religious order. Benefits provided to such employees will be exempt if their employment duties are principally to provide domestic or personal services to a religious practitioner (or practitioners) and any relatives who normally reside with the religious practitioner, the employee lives in the house of the religious practitioner or in accommodation located within the same grounds, and lives in that particular accommodation through having to provide those services. (By virtue of amendments proposed by clause 48, "domestic services" would include child care, gardening, home renovations, repairs or maintenance, house cleaning, nursing care and the preparation of meals. "Personal services" would include services as a chauffeur or secretary.)

If those conditions are satisfied, benefits in the form of accommodation, household fuel (including electricity), meals and other food and drink provided to the employee and his or her family who also live in the accommodation will be exempt benefits.

Section 58U : Exempt benefits - live-in help for elderly and disadvantaged persons

A similar kind of exemption to that provided by section 58T will be authorised by the operation of proposed new section 58U in circumstances where a person's employment duties consist principally of care for one or more "elderly persons" (i.e., persons of 60 or more years) or "disadvantaged persons" (i.e., intellectually, psychiatrically, or physically handicapped persons, or persons in necessitous circumstances), or for children of such persons who live with them. The exemption will apply where the employee lives in the same unit of accommodation as the person being cared for and does so through having to perform the particular duties of employment.

Section 58V : Exempt benefits - food and drink for non-live-in domestic employees.

New section 58V will exempt benefits in the form of food and drink provided to non-live-in domestic employees e.g., a baby sitter caring for children in their home who shares lunch with them.

The conditions of exemption are that the employer is a natural person or religious institution, the employee is not provided with residential accommodation, and the duties of employment consist principally of rendering "domestic services" - as explained in the notes on section 58T - for the employer, or relatives who live with the employer, or one or more "religious practitioners" - also explained in the notes on section 58T - or relatives who live with the religious practitioner(s).

Clause 35: Reduction of taxable value - remote area residential fuel

Clause 35 amends section 59 of the Principal Act which confers concessional treatment on the supply of electricity and other fuels to certain remote area residential accommodation.

Under existing subsections 59(1) and (2), the taxable value of any fringe benefit arising from the supply of electricity or other fuel to a unit of accommodation is discounted by 40% if the employer has provided either a housing fringe benefit in respect of the accommodation or a fringe benefit relating to a loan used by the employee to acquire the accommodation and that fringe benefit qualifies for such a discount. Subsections 59(1) and (2) are being amended by clause 35 to increase the discount for residential fuel fringe benefits to 50%.

Clause 35 will also insert a new subsection - subsection (3) - in section 59. Proposed subsection 59(3) will apply where the employer has provided assistance by way of rent reimbursement or actual payment of rent incurred by the employee in respect of a unit of remote area accommodation. Consistent with the proposed 50% discount for such rent assistance, the taxable value of any fringe benefit arising from the supply of electricity or other fuel to such accommodation will also be discounted by 50%.

Clause 36: Reduction of taxable value - remote area housing

Clause 36 amends section 60 of the Principal Act which applies, broadly, to discount by 40% the taxable value of a fringe benefit relating to the provision of assistance to enable an employee to acquire a unit of remote area accommodation.

The existing 40% discount is being increased by clause 36 to 50%.

Clause 36 will also insert a new subsection - subsection (2A - in section 60. Proposed subsection 60(2A) will apply where the employer has provided assistance by way of rent reimbursement or actual payment of rent incurred by the employee in respect of a unit of remote area accommodation. By new subsection (2A), the taxable value of such an expense payment fringe benefit will be reduced by an amount equal to 50% of the gross rent incurred by the employee in respect of the accommodation.

Clause 37: Reduction of taxable value - remote area holiday transport fringe benefits subject to ceiling

Clause 37 proposes the insertion of a new section - section 60A - in the Principal Act.

Proposed section 60A will apply to reduce the taxable value of certain "remote area holiday transport fringe benefits". The term "remote area holiday transport fringe benefit" is defined in section 143 (as proposed to be amended). Broadly, it refers to a benefit that meets the costs of holiday transport (or meals and accommodation en route) and is provided, in accordance with an award or industry custom, to an employee who works in a remote area.

Where remote area holiday transport fringe benefits are provided to an employee, new section 60A will apply to those fringe benefits if they do not relate to travel between the work locality and either the city from which the employee was engaged to work or the capital city of the State in which the work place is located. (Such travel is subject to discount under section 61 of the Principal Act, as proposed to be amended by this Bill.)

By subsection 60A(1), the aggregate taxable value of remote area holiday transport fringe benefits that relate to a particular holiday by the employee (or a family member) at a place other than the pre-engagement place or the relevant capital city is reduced by 50%, subject to a specified ceiling. This ceiling limits the reduction to an amount equal to 50% of the "benchmark travel amount".

The term "benchmark travel amount" is defined for these purposes in proposed new subsection 143(3). Broadly, it means the usual cost of return travel between the work locality and the capital city of the State in which the work place is located (i.e., normally the return economy air fare). This cost is determined at the commencement of the employee's holiday.

Under subsection 60A(2), an expense payment fringe benefit will not qualify for the concession unless either documentary evidence of the expenditure incurred by the employee or a declaration by the employee in respect of the expenditure is supplied to the employer.

Subsection 60A(3) applies where qualifying fringe benefits in respect of a particular holiday are provided in more than one fringe benefits tax year. In these circumstances, the benchmark travel amount applicable to the holiday is apportioned between the years in which the fringe benefits were provided according to the taxable values of those fringe benefits.

The effect of subsection 60A(4) is that where a reimbursement of car expenses on a cents per kilometre basis exceeds the prescribed rate, the full amount of the excess is taxable (i.e., the excess does not qualify for the 50% discount).

Clause 38: Reduction of taxable value - remote area holiday transport fringe benefits not subject to ceiling

Clause 38 amends section 61 of the Principal Act which applies to reduce by 50% the taxable value of certain fringe benefits in respect of remote area holiday transport.

Paragraph (a) of clause 38 proposes the insertion of a new subsection - subsection (1A) - in section 61. New subsection 61(1A) specifies that the existing 50% discount available under section 61 is to apply only in cases where the fringe benefits in respect of remote area holiday transport relate to travel between the work locality and either the city from which the employee was engaged to work or the capital city of the State in which the work place is located. This amendment is consequential upon proposed amendments to section 143 which will extend the meaning of remote area holiday transport to include travel from the work locality to any other destination. Fringe benefits related to such other travel are dealt with in proposed section 60A.

Paragraphs (b), (c) and (d) of clause 38 provide that, in the case of an expense payment fringe benefit, the expenditure incurred by the employee may now be evidenced by a declaration from the employee rather than receipts, etc.

Paragraph (e) of clause 38 permits a higher cents per kilometre rate to be prescribed in respect of car transport where more than one family member travels in the car. The prescribed rate is used to determine the extent to which a reimbursement of holiday car expenses on a cents per kilometre basis will qualify for the 50% discount.

Paragraph (f) of clause 38 extends the 50% discount to property fringe benefits which, by virtue of the proposed amendments to section 143, now qualify for the concession.

Clause 39: New sections 61A to 61D

Section 61A : Reduction of taxable value - overseas employment holiday transport

Proposed new section 61A applies to reduce by 50% the taxable value of "fringe benefits in respect of overseas employment holiday transport", subject to an annual ceiling on the total reduction allowable in respect of such benefits.

The term "fringe benefit in respect of overseas employment holiday transport" is defined in proposed section 143C. In broad terms, it refers to a fringe benefit that meets the costs of holiday transport (or meals and accommodation en route) where the benefit is provided under an award or industry custom to an employee who is working for an extended period in a country outside the country where he or she usually resides.

By subsection 61A(1), the aggregate taxable value of all qualifying holiday travel fringe benefits provided to the employee in the fringe benefits tax year is reduced by 50%, subject to a specified ceiling. This ceiling limits the total reduction to an amount equal to 50% of the "benchmark travel amount".

The "benchmark travel amount" is defined for these purposes in proposed new section 143C. Broadly, it means the usual cost of return travel between the overseas employment place and the employee's usual place of residence (i.e., normally the return economy air fare). This cost is determined at the commencement of each qualifying holiday trip undertaken by the employee. If the employee undertakes more than one qualifying holiday trip during the fringe benefits tax year, a separate benchmark travel amount will be determined for each of these trips and the highest one will be the ceiling that is to apply for that year.

Subsection 61A(3) provides that, in specified circumstances, a benchmark travel amount higher than that determined in accordance with proposed section 143C will apply. The effect of subsection 61A(3) is that where the employee actually travels to his or her home country for a holiday, the benchmark travel amount will be equal to the actual cost of travel (i.e., the "home country holiday amount" as defined in subsection 61A(4)) if this exceeds the benchmark travel amount determined in accordance with proposed section 143C. Typically, this would occur where the employee travels to the home country on a first class flight.

The effect of these rules is that if an employee undertakes only one holiday trip during a fringe benefits tax year and that trip is to his or her home country, the taxable value of qualifying fringe benefits will be reduced by 50% and this reduction will not be limited by the ceiling.

The rules described above also apply where qualifying holiday travel fringe benefits are provided to the spouse or a child of the employee.

Under subsection 61A(2), an expense payment fringe benefit will not qualify for the concession unless documentary evidence of the expenditure incurred by the employee is supplied to the employer. If the fringe benefit takes the form of a reimbursement of car expenses on a cents per kilometre basis, the employee must supply a declaration containing details of the type of vehicle and the number of kilometres travelled.

The effect of subsections 61A(3) and (4) is explained in the notes on subsection 61A(1).

The effect of subsection 61A(5) is that where a reimbursement of car expenses on a cents per kilometre basis exceeds the prescribed rate, the full amount of the excess is taxable (i.e., the excess does not qualify for the 50% discount).

Section 61B : Reduction of taxable value of certain expense payment fringe benefits in respect of relocation transport

Proposed section 61B applies to reduce the taxable value of an expense payment fringe benefit in respect of relocation transport where the benefit takes the form of a reimbursement on a cents per kilometre basis of car expenses incurred by the employee (or an associate).

The circumstances in which a fringe benefit will be treated as a "benefit in respect of relocation transport" are specified in proposed section 143A. Broadly, a reimbursement on a cents per kilometre basis of car expenses incurred by an employee will qualify as a benefit in respect of relocation transport where the employee moved from one locality to another in the course of employment or in order to commence new employment and the car expenses were incurred for the purpose of taking up residence in the locality of the new work place.

Under new section 61B, the taxable value of a qualifying car expenses reimbursement will be reduced by so much of the reimbursement as does not exceed a statutory amount. The statutory amount is the reimbursement that would have been paid if it had been calculated at the rate per kilometre that would apply to the car if income tax deductions were being claimed on a cents per kilometre basis for the number of kilometres travelled, increased, in a case where more than one family member travels in the car, by such additional rate as is prescribed.

Section 61C : Reduction of taxable value - temporary accommodation relating to relocation

Proposed section 61C applies to reduce the taxable value of fringe benefits which meet costs of temporary accommodation (including costs of hiring furniture) for an employee who changes his or her usual place of residence in the course of employment or in order to commence employment.

Subsection 61C(1) sets out the conditions that must be satisfied for application of either the reduction rule relating to temporary accommodation at the former locality (subsection 61C(2)) or the reduction rule relating to temporary accommodation at the new locality (subsection 61C(3)). These conditions are set out in paragraphs (a) to (e).

Paragraph (a) specifies the kinds of fringe benefits which are eligible for application of the reduction rule. These are:

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an expense payment benefit, a housing benefit or a residual benefit that relates to a lease or licence in respect of a unit of accommodation that is used for the temporary accommodation of the employee (or family members); or

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an expense payment benefit or a residual benefit that relates to a lease or licence in respect of household goods for use in a unit of accommodation that is used for the temporary accommodation of the employee (or family members).

Paragraph (b) makes it a condition that the temporary accommodation is required solely because the employee is required to change his or her usual place of residence in order to perform employment duties.

Paragraph (c) applies where the temporary accommodation is provided at the employee's former usual place of residence. In these circumstances, it is a condition that the temporary accommodation is necessary because the employee's home at the former locality becomes unavailable or unsuitable for residential use due to furniture removal or other arrangements relating to the employee's relocation.

Paragraph (d) applies where the temporary accommodation is provided at the new locality. In these cases, it is a condition that, as soon as reasonably practicable after commencing duty at the new locality, the employee begins to make sustained and reasonable efforts to purchase or lease a unit of accommodation that the employee intends to use as a long-term place of residence.

By paragraph (e), the reduction rule is not to apply to a benefit provided under a non-arm's length arrangement.

Under subsection 61C(2), the taxable value of a qualifying fringe benefit in respect of temporary accommodation (or furniture hire) at the former locality will be reduced to the extent that the taxable value is attributable to the subsistence of the lease or licence during the period of 21 days ending on the day on which the employee commences work at the new locality.

By subsection 61C(3), the taxable value of a qualifying fringe benefit in respect of temporary accommodation (or furniture hire) at the new locality will be reduced to the extent that the taxable value is attributable to the subsistence of the lease or licence during a specified qualifying period.

In the normal case where the employee's sustained efforts to find a long-term home result in the employee entering into a contract to purchase or lease such a home, the qualifying period begins 7 days prior to the day on which the employee commenced work at the new locality and ends on the date on which the employee could reasonably be expected to have commenced to occupy the home purchased or leased. The qualifying period is however, subject to a specified maximum period which ends either 6 months or 12 months after the employee commenced work at the new locality. The 12 months maximum will apply only where the employee owned his or her home at the former locality, sold that home within 6 months of commencing work at the new locality and, during that period, attempted to purchase a home at the new locality. In any other case, the 6 months maximum will apply.

If an employee ceases to make sustained and reasonable efforts to find a long term home before entering into a contract to purchase or lease such a home, the qualifying period will, subject to the abovementioned maximum periods, end on the day on which the employee ceased those efforts.

For the second standard year of tax and subsequent years, the reduction rule embodied in subsection 61C(3) will not apply unless the employee either commences to occupy a long-term home within 4 months of commencing work at the new locality or, in the event that the period extends beyond 4 months, gives a declaration relating to his or her efforts to find such a home to the employer before the "declaration date" (as defined in subsection 136(1) of the Principal Act).

Subsections 61C(4) and (5) are provisions which assist in the interpretation of section 61C.

Section 61D : Reduction of taxable value of temporary accommodation meal fringe benefits

Proposed section 61D will apply in circumstances where temporary accommodation in a hotel, motel, hostel or guesthouse is provided to an employee who is required to change his or her usual place of residence in order to perform employment duties and that temporary accommodation is, in effect, exempt by virtue of proposed section 61C. In these circumstances, new section 61D will operate to reduce the taxable value of meals provided to the employee (or family member) while staying at the hotel, etc., to the extent that the otherwise determined value of the meal exceeds $2.00 ($1.00 if the recipient is under 12).

The conditions for application of the reduction in taxable value are specified in paragraphs (a) to (e) of subsection 61D(1). These are:

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an expense payment benefit or a residual benefit is provided in respect of a meal (paragraph (a));

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the meal was provided to the employee or the spouse or a child of the employee at a time when the person was accommodated in a hotel, motel, hostel or guesthouse (paragraph (b));

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an expense payment benefit, a housing benefit or a residual benefit is provided to the employee in respect of the right to occupy that accommodation (paragraph (c));

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the taxable value of that accommodation benefit is reduced under new section 61C in relation to a particular period and the meal is provided during that qualifying period (paragraph (d)); and

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the value of the meal benefit otherwise determined exceeds $2.00 or, if the meal is for a child younger than 12, $1.00 (paragraph (e)).

Section 61E : Reduction of taxable value of certain expense payment fringe benefits in respect of employment interviews or selection tests

Proposed section 61E applies to reduce the taxable value of an expense payment fringe benefit in respect of an employment interview or selection test where the benefit takes the form of a reimbursement on a cents per kilometre basis of car expenses incurred by the employee.

The circumstances in which a fringe benefit will be treated as a "benefit in respect of an employment interview or selection test" are specified in proposed section 143D. Broadly, a reimbursement on a cents per kilometre basis of car expenses incurred by an employee will qualify as such a benefit where the car expenses were incurred by the employee for the purpose of attending an interview or selection test in connection with an application by the employee for employment with a new employer or a promotion or transfer in the employee's existing employment.

Under new section 61E, the taxable value of a qualifying car expenses reimbursement will be reduced by so much of the reimbursement as does not exceed a statutory amount. The statutory amount is the reimbursement that would have been paid if it had been calculated at the rate per kilometre that would apply to the car if income tax deductions were being claimed on a cents per kilometre basis for the number of kilometres travelled.

Section 61F : Reduction of taxable value of certain expense payment fringe benefits associated with work-related medical examinations, work-related medical screening, work-related preventative health care, work-related counselling or migrant language training

Proposed section 61F applies to reduce the taxable value of various kinds of expense payment fringe benefits where the benefit takes the form of a reimbursement of car expenses on a cents per kilometre basis.

The circumstances in which a fringe benefit will be eligible for this concession are specified in proposed section 143E. Broadly, a reimbursement on a cents per kilometre basis of car expenses incurred by an employee (or, in appropriate cases, by an associate) will qualify for the concession where the car expenses were incurred for the purpose of attending a work-related medical examination, work-related medical screening, work-related preventative health care, work-related counselling or migrant language training.

Under new section 61F, the taxable value of a qualifying car expenses reimbursement will be reduced by so much of the reimbursement as does not exceed a statutory amount. The statutory amount is the reimbursement that would have been paid if it had been calculated at the rate per kilometre that would apply to the car if income tax deductions were being claimed on a cents per kilometre basis for the number of kilometres travelled, increased, in a case where more than one family member travels in the car for the purpose of attending work-related counselling or migrant language training, by such additional rate as is prescribed.

Clause 40: Reduction of aggregate taxable value of certain fringe benefits

Clause 40 amends section 62 of the Principal Act which provides that the first $200 of the aggregate taxable value of in-house fringe benefits (including airline transport fringe benefits) given to an employee in a standard year of tax is exempt from fringe benefits tax. For the transitional year of tax, the amount of the exemption is $150.

By clause 40 the amount of the annual exemption is being increased to $500 ($375 for the transitional year of tax).

Clause 41: Reduction of taxable value of living-away-from-home food fringe benefits

Clause 41 proposes technical amendments to section 63 of the Principal Act consequential upon the proposed insertion of new sections 65B and 65C and the proposed measures relating to in-house expense payment fringe benefits.

Clause 42: New sections 65A to 65H

Section 65A : Reduction of taxable value - education of children of overseas employees

Proposed section 65A applies to reduce the taxable value of certain fringe benefits which meet the costs of the education of children of overseas employees.

The term "overseas employee" is being defined in proposed section 143B and means, broadly, an employee who is required to live away from his or her home country in order to perform the duties of his or her employment at an overseas employment place.

To qualify for exemption, the benefit must be provided in accordance with an award or industry custom and relate to the full-time education of the child at a school, college or university or from a tutor. In the case of an expense payment fringe benefit, documentary evidence of the expenditure incurred by the employee must be supplied to the employer.

The taxable value of a qualifying fringe benefit will be reduced to the extent that it is attributable to the education of the child during a specified qualifying period. In general, the qualifying period begins at the commencement of the school term during which the employee commenced his or her posting and ends on the last day of the school term during which the employee ceased his or her posting.

Section 65B : Reduction of taxable value of certain fringe benefits - section 23AF of the Income Tax Assessment Act 1936

Proposed section 65B applies to reduce the taxable value of a fringe benefit provided in respect of overseas employment where the employee's salary from that employment is partially exempt from income tax under section 23AF of the Income Tax Assessment Act 1936.

Section 23AF exempts from Australian income tax income derived by an Australian resident from the performance by that person of personal services outside Australia on an approved project, for a continuous period of 12 months or more, where the income is not taxed in the country where the services are performed. Where the services are performed over a period of between 3 and 12 months, a proportionate exemption is allowed. For example, if an employee is located overseas for 9 months 75% of his or her salary or wages from that overseas employment is exempt income.

The effect of subsection 65B(1) is that the taxable value of a fringe benefit (not being a car fringe benefit) provided exclusively in respect of an employee's period of employment on an approved project will be reduced if the employee's salary or wages from that employment is partially exempt from income tax by virtue of section 23AF. In these circumstances, the taxable value will be proportionally reduced by the percentage of the employee's salary or wages that is exempt from income tax.

Subsection 65B(2) provides that the taxable value of car fringe benefits are to be reduced on a similar basis. Reflecting the fact that the taxable value of car fringe benefits are defined on a per car basis rather than per employee basis, subsection (2) allocates the aggregate taxable value of car fringe benefits for a particular car between the employees who were provided with those fringe benefits. The amount allocated to each employee is then proportionally reduced by the percentage of the employee's salary or wages that is exempt from income tax.

By virtue of proposed subsection 124A(1), where an employee is still engaged on overseas service at the time the employer lodges his or her fringe benefits tax return, the employee's prospective service can be anticipated for the purpose of determining the taxable value of fringe benefits for the year concerned.

Section 65C : Reduction of taxable value of certain fringe benefits - section 23AG of the Income Tax Assessment Act 1936

Proposed section 65C applies to reduce the taxable value of a fringe benefit provided in respect of overseas employment where the employee's salary from that employment is partially exempt from income tax under section 23AG of the Income Tax Assessment Act 1936.

Section 23AG provides an exemption from Australian income tax for salary or wages earned overseas by an Australian resident during a continuous period of service of at least 12 months provided the salary or wages is subject to tax in the country of source. A proportionate exemption applies where the period of service is from 3 to 12 months. These exemptions apply to salary or wages derived on or after 1 July 1987.

The effect of subsection 65C(1) is that the taxable value of a fringe benefit (not being a car fringe benefit) provided on or after 1 July 1987 exclusively in respect of overseas employment in circumstances where the employee's salary or wages from that employment is partially exempt from income tax by virtue of section 23AG will be proportionally reduced by the percentage of the employee's salary or wages that is exempt from income tax.

Subsection 65C(2) provides that the taxable value of car fringe benefits are to be reduced on a similar basis. (See notes on proposed subsection 65B(2).)

By virtue of proposed subsection 124A(1), where an employee is still engaged on foreign service at the time the employer lodges his or her fringe benefits tax return, the employee's prospective services can be anticipated for the purpose of determining the taxable value of fringe benefits for the year concerned.

Division 15 - Car Substantiation Rules for Otherwise Deductible Provisions

This Division, which comprises new sections 65D to 65H, contains the rules that need to be complied with before the taxable value of a loan fringe benefit, expense payment fringe benefit, property fringe benefit or residual fringe benefit provided in relation to an employee's own car may be reduced to reflect the percentage of business use of the car. They thus apply, for example, where an employer pays the expenses of an employee operating his or her own car to determine the reduction under the "otherwise deductible" rule (e.g., under section 24 of the Principal Act as proposed to be amended by clause 17) for the business use component of the expenses.

The rules are similar to those relating to car fringe benefits contained in new sections 10A to 10C being inserted by Clause 7, which are explained in the notes on those sections and are summarised in the notes on the main features of the Bill.

Scheme of operation of new log book rules for fringe benefits other than cars

As with the new log book rules relating to car fringe benefits, it is first necessary to determine whether or not the particular year of tax is a log book year for the car (e.g., because no fringe benefits were provided in relation to the car in a previous year). The circumstances in which a year will be treated as a log book year of tax are detailed in proposed new section 162G.

The conditions that need to be satisfied if the taxable value of the relevant fringe benefit (loan, expense payment, etc.) is to be reduced in a log book year to take account of the business percentage of the use of the car are detailed in proposed new section 65E. Where one of those conditions is that log books and odometer records be kept for a minimum period, the period during which those records must be maintained is detailed in the definition of applicable log book period which is contained in proposed new section 126H being inserted by clause 60.

Proposed new section 65F specifies the requirements that must be satisfied before the taxable value of a fringe benefit may be reduced in a non-log book year to take account of the business percentage of the use of the car by reference to log book records kept in an earlier year.

The relevant business percentage for these purposes - called the "car deduction percentage" - is determined in accordance with the rules in proposed new section 65G.

Section 65D : Car substantiation rules

This section sets out the object of Division 15.

Section 65E : No compliance with substantiation rules in log book year of tax unless log book records and odometer records are maintained.

This section, which corresponds with section 10A in relation to car fringe benefits, specifies the circumstances in which the substantiation rules will be taken to be complied with in relation to a car owned or leased by an employee during a log book year of tax or that part of such a year when it was for use in the course of producing assessable income of the employee.

By paragraph 65E(a), those rules will be complied with if the employer specifies, in his or her fringe benefits tax return for the relevant year, a percentage estimated to be the actual business percentage of the use of the car by the employee during that period. Such an estimated percentage may be specified either if the employee began to hold the car for income producing purposes during the last 12 weeks of the year of tax or the Commissioner is satisfied it would be unreasonable to expect log book and odometer records to have been maintained. Log books need not be kept in these cases, but because the next year would become a log book year log books would generally be required in that subsequent year.

If these conditions do not apply, paragraph 65E(b) requires that "log book records" and "odometer records" be maintained for the "applicable log book period" (see the notes on new section 162H being inserted by clause 60, usually a minimum of 12 consecutive weeks) and the employer must nominate in his or her fringe benefits tax return an estimate of the actual business percentage of the employee's use of the car in the year during the period when it was for use in the course of producing assessable income. That percentage must not exceed the business percentage established in the "log book period", as explained in the notes on new section 162J.

Section 65F : No compliance with substantiation rules in non-log book year of tax unless log book records kept in previous log book year of tax

This section, which corresponds with section 10B in relation to car fringe benefits, specifies the circumstances in which the substantiation rules will be taken to be complied with in relation to a car owned or leased by an employee during a non-log book year of tax or that part of such a year when it was for use in the course of producing assessable income.

Paragraph 65F(a) contains the general condition that odometer records must be maintained which, broadly, must record the odometer readings at the beginning and end of the year of tax (or, if the car was not held for use in the course of producing assessable income for the whole year, at the beginning and end of the period it was so held).

Under paragraph 65F(b), it is a further condition that the employer specify in his or her fringe benefits tax return the relevant business percentage. That will normally be the business percentage established in the last log book year and specified in the return for that year. However, if the car is a "low business kilometre car" (as explained in the notes on the amendments to section 10 being made by clause 6) or there has been a reduction by more than 10 percentage points from the business percentage established and specified in the last log book year, the employer is required to specify a percentage that represents an estimate of the actual business percentage during the year when the car was for use by the employee for the purpose of producing assessable income.

Note that in the latter case log books would need to be maintained in the following year of tax (i.e., the following year of tax would be a "log book year of tax") unless reductions in taxable value were taken in the following year under one of the alternative methods provided in, for example, proposed new paragraph 24(1)(k). In the case of a "low business kilometre car", the following year would become a "log book year of tax" if the estimated actual business kilometres were less by more than 10 percentage points than those established in the preceding log book year.

Section 65G : Car deduction percentage

This section specifies the percentage - called the car deduction percentage - that applies for the purposes of reducing the taxable value of a loan fringe benefit, expense payment fringe benefit, property fringe benefit or residual fringe benefit to reflect the percentage of business use of an employee's car where the benefit has been provided in relation to that car. The car deduction percentage is applied under amendments being made to sections 19, 24, 44, and 52 of the Principal Act by clauses 12, 17, 27, and 29.

Generally, that percentage is as specified in the employer's return in accordance with the rules contained in sections 65E or 65F, whichever is applicable. However, section 65G applies to ensure that the correct deductible percentage applies in the event that an incorrect percentage is specified by the employer.

Accordingly, in a log book year or in any year in which the car is a low business kilometre car, the appropriate percentage is a reasonable estimate of the actual percentage of business use of the car while it was held by the employee for use in deriving assessable income. For other than low business kilometre cars in a non-log book year, the car deduction percentage for the purpose of section 19, 24, 44 or 52 is the percentage specified on the basis of the log book records unless the estimate of the actual percentage of business use in the year is less by more than 10 percentage points. In this case the deduction percentage is based on the actual business use estimate.

Section 65H : Nominated business percentage to be reduced if it exceeds business percentage established during applicable log book period or if it is unreasonable

This section, which corresponds with section 10C in relation to car fringe benefits, complements the operation of sections 65E and 65F in circumstances where an employer has specified a business percentage in respect of an employee's car that is greater than the maximum permissible in a log book year and has carried that nominated percentage through to later years.

In a log book year of tax, if the nominated percentage is more than the lesser of a reasonable estimate of the actual business percentage and the business percentage established in the log book period, the employer will be deemed to have specified that correct lesser percentage. This ensures that the reduction in the taxable value of the fringe benefit on account of the employee's business use of the car under sections 19, 24, 44 or 52 is based on the applicable maximum percentage. Similarly, in a subsequent non-log book year, the employer will be deemed to have specified the lower percentage if the excessive percentage specified in the log book year has been specified again.

Subsection 65H(2) ensures that, in a case where an employer knowingly fails to specify a reduced percentage where there has been a substantial reduction (i.e. by more than 10 percentage points) in the percentage of business use of an employee's car in a year subsequent to the establishment of a nominated business percentage, the employer is deemed to have made such a specification. In the absence of subsection 65H(2), the employer would be treated as not having satisfied the relevant requirements of section 65F and, accordingly, would not be entitled to a reduction in the taxable value of the fringe benefit on account of the car deduction percentage in accordance with sections 19, 24, 44, or 52.

Clause 43: Application of payments of instalments of tax

This clause makes a technical amendment to section 104 of the Principal Act, which requires the Commissioner of Taxation to successively credit payments of instalments of tax against the tax assessed for the tax year and any other liability of the employer to the Commonwealth, and to refund the balance.

The effect of the amendment will be that an employer's entitlement to a credit or refund in respect of an instalment paid is reduced to the extent that the employer has received a payment that is in the nature of a refund of the instalment e.g. in anticipation of a reduction in the employer's liability to pay an instalment arising out of Government announcements of 26 August 1986 and 29 October 1986 of proposed changes to the law.

Clause 44: Notional tax amount

This clause amends section 106 of the Principal Act which contains the rules for calculating the 2 instalments of tax that were payable in the transitional year of tax that ended on 31 March 1987. Under that section, the general rule is that the amount payable as a quarterly instalment is equal to the tax that would be payable in respect of the transitional year if the quarter were itself the transitional year.

Paragraph (a) of clause 44 makes an exception to that general rule in relation to revised car log book rules being inserted by various clauses of the Bill.

Paragraph (b) specifies how section 106 applies for the purposes of those rules. The effect is that:

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the first quarter is treated as if it were the transitional year and therefore as a log book year of tax as specified in new section 162G;

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the second quarter is treated as if it were the following year so that, if log book records were kept in the first quarter, it is not a log book year;

•

special applications of revised car log book rules for low business kilometre cars do not apply in calculating quarterly instalments;

•

matters required to be specified or nominated in a fringe benefits tax return - the nominated business percentage, the applicable log book period etc. - in relation to the car log book rules may be included in a later document. For example, if log book records were kept in the first transitional quarter and hence that quarter was treated as a log book year of tax, the employer may specify the applicable log book period (as required by new section 162H) and the nominated business percentage (as required by new section 10A) for that quarter in a return of a later year of tax;

•

both quarters are treated as one continuous period in ascertaining a 12 week period during which log book records may be kept;

•

the requirements under new sections 10B and 65F that odometer records be maintained in a non-log book year do not apply;

•

matters required to be done by the date of lodgment of a fringe benefits tax return e.g. giving log book and odometer records to the employer, may be done by 28 days after the Bill comes into operation or such further time as the Commissioner allows.

Paragraph (c) of clause 44 ensures that substantiation documents required to be obtained under the "otherwise deductible" principle to reduce the taxable value of a fringe benefit in a transitional quarter do not include documents relating to the revised car log book rules. That is, documents such as odometer records relevant to a log book year of tax need not be provided to an employer in relation to a transitional quarter. They would need to be provided in relation to the relevant year of tax, however.

The effect of paragraph (d) of clause 44 is that a declaration given to an employer, e.g. under the "otherwise deductible" rules or in relation to a living-away-from-home allowance, in the first transitional quarter may be treated as a valid declaration in relation to the same, or substantially the same, benefit provided in the second transitional quarter.

Paragraph (e) is a technical drafting change that reflects amendments to section 29 of the Principal Act being inserted by clause 20.

Paragraph (g) relates to the $200 per annum exemption for safety award benefits being provided by new section 58R. In relation to the first and second transitional quarters, the exemption will apply as long as the combined notional taxable values of any such benefits provided in those quarters does not exceed $200.

Paragraph (h) of clause 44 deletes subsection 106(2) which is made redundant by other provisions of the Bill.

The "car substantiation rules" - broadly, new provisions being inserted by the Bill to give effect to revised car log book rules - are defined in new sub-section 106(5) being inserted by paragraph (j). They relate to the operation of paragraph (b) as outlined above.

Clause 45: Penalty tax for over-estimating business percentage applicable to car

Clause 45 inserts new section 115A into the Principal Act which will impose penalty tax where an employer specifies an excessive business percentage in relation to a car under the proposed new car log book rules described in the notes on new sections 10A and 10B being inserted by clause 7 and on new sections 65D to 65H being inserted by clause 42.

Subsection 115A(1) applies where an employer specifies in his or her return for a year of tax a percentage as required by proposed new section 10A or 10B (see earlier notes clause 7) that purports to be the business percentage applicable to a car held by the employer during the year. If the percentage so specified is more than the percentage on which the taxable value of the relevant car fringe benefit is correctly calculable, the employer may be liable to penalty tax.

In these cases, if the tax properly payable by the employer exceeds the tax that would be payable if the taxable value were calculated on the basis of the incorrect business percentage specified by the employer, the employer will be liable to the usual rate of penalty tax of double the excess. The normal remission powers conferred by section 117 of the Principal Act will apply.

Subsection 115A(2) will apply in a similar manner to subsection (1) in a case where an employer specifies an excessive percentage in relation to an employee's car under the rules specified in section 65E and 65F.

Clause 46: Retention of statutory evidentiary documents

Clause 46 of the Bill amends section 123 of the Principal Act which deals with the consequences of a failure to retain statutory evidentiary documents e.g.car log books and other documentary evidence relevant for the purpose of determining the taxable value of a fringe benefit, or whether a fringe benefit is exempt from tax. The amendments reflect changes made elsewhere in the Bill to implement revised car log book rules and alternative declaration arrangements to verify car fuel and oil expenses.

Clause 47: Assessment on assumption

Clause 47 inserts a new section - section 124A - in the Principal Act.

Proposed section 124A is set against the background that, under a number of exemption and reduction of taxable value provisions, the question whether a benefit will be exempt from fringe benefits tax or whether the taxable value of a fringe benefit will be reduced by a particular amount will, in some cases, depend on whether certain circumstances occur after the time when the employer lodges his or her return for the year of tax concerned.

The effect of subsections 124A(1), (2) and (3) is to enable the employer to anticipate certain circumstances when the employer self-assesses his or her tax liability by lodging a fringe benefits tax return. Similarly, the Commissioner of Taxation can anticipate those circumstances at the time of making an assessment. Examples of situations where section 124A might apply are given in the notes on proposed sections 65B and 65C.

Subsection 124A(4) authorises the amendment of an assessment at any time if an anticipated circumstance does not eventuate.

Clause 48: Interpretation

Clause 48 amends section 136 of the Principal Act which defines various terms used in the legislation. The amendments made by clause 48 will amend or omit a number of existing definitions as well as inserting a number of definitions of new terms that are used in the operative provisions of the Bill. Explanations of significant new terms are contained in the notes on the relevant operative clause.

By paragraph (j) of clause 48, the existing exclusion of benefits provided under an employee share acquisition scheme to which section 26AAC of the Income Tax Assessment Act applies is being extended to include share acquisitions by a relative of an employee, consistent with the operation of section 26AAC.

Clause 49: New sections 138A to 138C

Clause 49 inserts 3 new sections - sections 138A, 138B and 138C - in the Principal Act. The new sections are technical interpretation provisions to facilitate drafting of the operative clauses of the Bill.

Clause 50: Housing loans, prescribed interests in land or stratum units and proprietary rights in respect of dwellings

Clause 50 is a drafting measure consequential upon the proposed insertion of new section 58C.

Clause 51: Benefits incidental to acquisition or sale of prescribed interests in land or stratum units and proprietary rights in respect of dwellings

Clause 51 inserts a new section - section 141A - in the Principal Act.

Proposed section 58C will operate to exempt an expense payment benefit or a residual benefit in respect of costs incidental to the sale and/or purchase of a home by an employee who is relocated.

Proposed section 141A specifies the circumstances in which either of these kinds of benefit will be treated as being in respect of incidental costs.

In broad terms, an expense payment benefit will qualify where the expenditure incurred by the employee is in respect of stamp duty, advertising, legal fees, agent's commission, discharge of a mortgage, expenses of borrowing or any similar matter and is expenditure of a capital nature that is incidental to the acquisition or sale of the property. A residual benefit which meets such costs will also qualify.

Clause 52: Remote area housing

Clause 52 proposes to insert a new subsection - subsection (1A) - in section 142 of the Principal Act which contains interpretation provisions relevant to certain remote area concessions.

New subsection 142(1A) will define what is meant by "remote area housing rent connected with a unit of accommodation" for the purpose of applying the 50% discount authorised by proposed subsection 60(2A).

Remote area housing rent connected with a unit of accommodation is rent or other consideration payable in respect of a lease or licence in respect of a "unit of accommodation" (a defined term under subsection 136(1) of the Principal Act) where certain conditions are satisfied. These conditions are, broadly, the same as those that apply to other forms of housing assistance eligible for a 50% discount.

Clause 53: New sections 142A to 142D

Section 142A : Benefits relating to transport

Proposed section 142A contains interpretation provisions relevant to a number of exemptions and other concessions relating to transport costs.

Subsection 142A(1) has the effect that an exemption or other concession relating to transport costs will extend to incidental costs including accident insurance, departure tax, a passport, a visa or a vaccination relating to the transport.

Subsection 142A(2) is a technical drafting measure which makes it clear that where travel between two places is undertaken in consecutive stages, a benefit provided in respect of one stage will be taken to be provided in respect of travel between the starting place of the trip and the final destination. This measure is relevant to the concessions for remote area holiday transport and overseas employment holiday transport.

Section 142B : Employee's new place of employment

Proposed section 142B is a drafting measure that is relevant to a number of provisions relating to relocation costs. Those provisions contain a number of references to an employee's "new place of employment". New section 142B makes it clear that such a reference does not imply that the employee was employed at his or her former usual place of residence.

Section 142C : Eligible shared accommodation in a house, flat or home unit

Proposed section 142C will define what is meant by "eligible shared accommodation in a house, flat or home unit". Under the proposed valuation rules for remote area housing fringe benefits, an employee is entitled to value such accommodation using the "single quarters statutory amount" and an explanation of the effect of section 142C is contained in the notes on clause 20.

Section 142D: Eligible accommodation in an employees hostel

Proposed section 142D defines what is meant by "eligible accommodation in an employees hostel". Where such accommodation qualifies as a remote area housing fringe benefit, it can be valued using the "single quarters statutory amount". The effect of proposed section 142D is explained in the notes on clause 20.

Clause 54: Remote area holiday transport

Clause 54 will amend section 143 of the Principal Act which specifies the circumstances in which a fringe benefit will be treated as being in respect of remote area holiday transport for the purpose of applying the 50% discount authorised by existing section 61 to the taxable value of the fringe benefit. Section 143, as proposed to be amended is relevant for determining the taxable value of such transport under both section 61 and proposed new section 60A (see notes on clauses 37 and 38).

The amendments proposed by paragraph (a) to (f) of clause 54 will liberalise the rules for determining whether a fringe benefit qualifies as being in respect of remote area holiday transport.

Under the existing section 143, it is a requirement that the transport is between the employee's place of employment and either the place where the employee lived before moving to the work locality or the capital city of the State or Territory in which the workplace is located. This requirement is being relaxed in two ways. First, travel to any other destination will now be treated as qualifying travel. Secondly, in a case where the spouse or a child of the employee does not live with the employee at the work locality, (e.g., where the child is attending boarding school), travel by the spouse or child for the purpose of meeting the employee will now qualify (e.g., where the child travels directly from the locality of the boarding school to the holiday destination).

It is also a requirement under the existing section 143 that holiday travel by an employee's spouse and children must be undertaken while the employee is on recreation leave. This requirement is being removed. It will now be sufficient if the travel by the spouse or child is for the purpose of having a holiday for a period of not less than 3 days. However, travel by the spouse or child will not qualify in circumstances where the spouse or child accompanies the employee while the employee is undertaking travel in the course of performing the duties of his or her employment.

The kinds of benefits eligible for the concession are also being extended to include a property fringe benefit in respect of meals en route and a residual fringe benefit in respect of accommodation en route.

Paragraph (g) of clause 54 proposes the insertion of three new subsections - subsections (2), (3) and (4) - in section 143.

Proposed subsection 143(2) is a measure to facilitate drafting.

New subsection 143(3) applies where a qualifying fringe benefit relates to travel undertaken by the employee (or family member) that did not consist wholly of transport by the most direct practicable route between the employee's place of employment and either the place where the employee lived before moving to the work locality or the capital city of the State in which the work place is located. In these cases, new subsection 143(3) specifies the rules for calculating the 'benchmark travel amount' in relation to the fringe benefit. The benchmark travel amount is the basis for calculating the ceiling that will apply to the reduction in taxable value available under proposed section 60A (see notes on clause 37).

In broad terms, the benchmark travel amount is the usual cost of travel between the employment place and the capital city of the State in which the work place is located. That cost is determined at the time that the particular trip by the employee (or family member) commenced.

In more detail, the rules for calculating the benchmark travel amount applicable to a fringe benefit provided in respect of a particular qualifying trip by the employee (or family member) are set out in the subparagraphs (i) to (iv) of paragraph 143(3)(c). Under these rules, the benchmark travel amount will be:

•

in the common case where, under the award or industry custom pursuant to which the travel assistance is provided, the employee could have received assistance for travel to the capital city of the State in which the work place is located - the cost of a return economy air fare for a flight of the kind ordinarily provided to that destination under the terms of the award or industry custom plus any incidental costs ordinarily met by the employer under the terms of the award or industry custom in connection with such air travel (subparagraph (i));

•

if that is not the case, but a return scheduled passenger air service is operated between the employment place and the capital city of the State in which the work place is located - the lowest return economy air fare charged by any carrier that operates such a service (subparagraph (ii));

•

if neither of the above applies, but a combination of scheduled services operated by any carrier or carriers would enable the employee to fly to the capital city of the State in which the work place is located - the lowest return economy air fares charged for air services that would in combination enable such travel; and

•

should none of the above apply - the lowest return fares for any mode of transport that would enable the employee to travel to the capital city of the State in which the work place is located.

New subsection 143(4) provides that, for the purposes of the remote area holiday transport concession, Adelaide is to be treated as the capital city of the Northern Territory and Perth is to be treated as the capital city of the Territory of Christmas Island.

Clause 55: Insertion of new sections 143A to 143E

Section 143A : Relocation transport

Proposed section 58F (see notes on clause 34) operates to exempt from fringe benefits tax certain benefits relating to transport assistance where the benefit is provided to an employee who is relocated in the course of employment or in order to commence new employment. Where the benefit takes the form of a reimbursement of car expenses on a cents per kilometre basis, proposed section 61B (see notes on clause 39) operates to reduce the taxable value of the benefit.

Benefits that qualify for these concessions are referred to in the Bill as "benefits in respect of relocation transport". The circumstances in which a benefit will be treated as a "benefit in respect of relocation transport" are set out in paragraphs (a) to (g) of proposed section 143A.

Paragraph (a) sets out the initial condition that the benefit must be in respect of the provision of transport or accommodation or meals en route.

By paragraph (b), the transport, accommodation or meals must be for the employee or his or her spouse or children.

Paragraph (c) makes it a condition that the transport is required solely because the employee is required:

•

to live away from his or her usual place of residence in order to perform employment duties;

•

to return to his or her usual place of residence at the end of a period during which the employee lived away from that place in order to perform employment duties; or

•

to change his or her usual place of residence in order to perform employment duties.

Paragraph (d) stipulates that the transport must be provided to enable the employee to take up residence at the new locality. In more detail, the test applies as follows:

•

in a case where the employee is required to live away from, or change, his or her usual place of residence - the transport is necessary to enable the employee (or family member) to take up residence at the new locality. This test ensures that the exemption does not apply, for example, to transport costs incurred in respect of visits to the former locality (e.g., for family reunions or medical treatment) or to transport costs incurred at the new locality after residence has been taken up; or

•

in a case where the employee is required to return to his or her usual place of residence at the end of a period during which the employee lived away from that place - the transport is necessary to enable the employee (or family member) to resume residence at the usual place of residence.

Paragraph (e) applies where the transport is for the spouse or a child of the employee. In such a case, it is a condition that the transport is not provided to enable the spouse or child to accompany the employee while the employee is undertaking travel in the course of performing the duties of his or her employment. This test is designed to ensure that employers who are exempt from income tax are not entitled to an exemption from fringe benefits tax in circumstances where a taxable employer would, by virtue of section 51AG of the Income Tax Assessment Act 1936, be denied an income tax deduction for the travel costs.

Paragraph (f) provides that where the transport is for the employee, it must not be provided while the employee is undertaking travel in the course of performing employment duties. In such cases, the "otherwise deductible" rules will generally apply to reduce the taxable value of the benefit provided any applicable substantiation requirements are satisfied.

Paragraph (g) applies in a case where the employee is required to change his or her usual place of residence. In these cases, a benefit provided under a non-arm's length arrangement will not qualify for concessional treatment.

Section 143B : Overseas employees

Proposed section 143B defines the terms "overseas employee", "overseas posting period" and "overseas employment place". These terms are relevant for the purposes of the proposed concessions relating to the holiday travel costs (new section 61A) and education costs (new section 65A) of overseas employees.

For the purposes of these concessions, an employee is to be treated as an "overseas employee" where:

•

the employee's usual place of residence is in a particular country (the "home country");

•

the employee performs his or her employment duties at a place outside the home country; and

•

the employee is required to live outside the home country in order to perform those duties at the overseas employment place.

The "overseas posting period" will be the period that begins when the employee first commences work at an overseas post and ends when he or she ceases working at such a post. The overseas posting period can thus encompass a number of consecutive overseas postings.

Section 143C: Overseas employment holiday transport

By virtue of proposed section 61A (see notes on clause 39), the taxable value of fringe benefits in the form of holiday transport assistance provided to employees posted overseas will be reduced by 50%, subject to a specified ceiling on the total reduction permitted in any particular fringe benefits tax year.

Fringe benefits that qualify for this discount are referred to in the legislation as "fringe benefits in respect of overseas employment holiday transport".

Proposed section 143C specifies the circumstances in which a fringe benefit will be treated as being in respect of overseas employment holiday transport. It also defines the terms "benchmark travel amount" and "home country fringe benefit" which are relevant to the calculation of the ceiling on the reduction in taxable value.

The circumstances in which a fringe benefit will be taken to be in respect of overseas holiday transport are set out in paragraphs (a) to (m) of subsection 143C(1). These are:

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the fringe benefit is in respect of the provision of transport or accommodation and meals en route (paragraph (a));

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the transport, accommodation or meals is for the employee or the spouse or a child of the employee (paragraph (b));

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the transport is provided for the purpose of enabling the employee or family member to have a holiday of not less than 3 days (paragraph (c));

•

when the travel commenced, the employee was an "overseas employee" (a defined term - see new section 143B) and had been serving overseas for at least 28 days (paragraph (d));

•

in the case of transport provided to the employee, it is provided during a period of recreation leave of not less than 3 days and, on completion of that leave, the employee resumes duty at the overseas post (paragraph (e));

•

the transport is to or from the overseas employment place (i.e., there is no restriction on the holiday destination) or, in the case of transport for a spouse or a child who does not reside at the overseas employment place (e.g., where the child is attending boarding school in the home country), the transport is to or from a place where the spouse or child meets the employee (e.g., at the holiday destination) (paragraph (f));

•

the fringe benefit does not qualify for the remote area holiday transport concession (paragraphs (g), (h) and (j));

•

in the case of transport provided to the spouse or a child of the employee, the transport is not provided to enable the spouse or child to accompany the employee while he or she is undertaking travel in the course of performing employment duties (paragraph (k)). This test is designed to ensure that employers exempt from income tax do not enjoy the benefit of a 50% concession in circumstances where a taxable employer would, by virtue of section 51AG of the Income Tax Assessment Act 1936, be denied a deduction for the travel costs; and

•

the benefit is provided under an industrial instrument or in accordance with industry custom (paragraph (m)).

Paragraph (n) provides that where the conditions specified in paragraphs (a) to (m) are satisfied, the fringe benefit is to be treated as being in respect of overseas employment holiday transport.

Paragraph (p) specifies the rules for calculating the "benchmark travel amount" in relation to the particular fringe benefit. The benchmark travel amount is the basis for calculating the ceiling that will apply to the total reduction in taxable value available under proposed section 61A.

In broad terms, the benchmark travel amount is the usual cost of travel between the overseas employment place and the employee's usual place of residence. That cost is determined at the time that the particular trip by the employee (or family member) commenced. If the employee (or family member) is provided with fringe benefits in respect of more than one qualifying holiday trip during the fringe benefits tax year, a separate benchmark travel amount will be determined in respect of the fringe benefits provided in respect of each trip. In such cases, section 61A provides that the highest of the various benchmark travel amounts is to be the basis for calculating the ceiling.

In more detail, the rules for calculating the benchmark travel amount applicable to a fringe benefit provided in respect of a particular qualifying trip by the employee (or family member) are set out in subparagraphs (i) to (iv) of paragraph 143C(1)(p). Under these rules, the benchmark travel amount will be:

•

in the common case where, under the award or industry custom pursuant to which the travel assistance is provided, the employee could have received assistance for travel to his or her usual place of residence - the cost of a return economy air fare for a flight of the kind ordinarily provided to that destination under the terms of the award or industry custom plus any incidental costs ordinarily met by the employer under those terms in connection with such air travel (subparagraph (i));

•

if that is not the case, but a return scheduled passenger air service is operated between the overseas employment place and the employee's usual place of residence - the lowest return economy air fare charged by any carrier that operates such a service (subparagraph (ii));

•

if neither of the above applies, but a combination of scheduled services operated by any carrier or carriers would enable the employee to fly back to his or her usual place of residence - the lowest return economy air fares charged for air services that would in combination enable such travel (subparagraph (iii)); and

•

should none of the above apply - the lowest return fares for any mode of transport that would enable the employee to travel to his or her usual place of residence (subparagraph (iv)).

Paragraph (q) of subsection 143C(1) specifies the circumstances in which a fringe benefit in respect of overseas employment holiday transport will be treated as a "home country holiday fringe benefit". By virtue of proposed subsection 61A(3), the benchmark travel amount will, in certain cases, be increased where home country fringe benefits are provided to an employee (e.g., to the cost of first class travel where this is the class of travel actually undertaken).

A fringe benefit which qualifies as a fringe benefit in respect of overseas employment holiday transport will be treated as a home country holiday fringe benefit if the travel undertaken by the employee (or family member) was travel by the most direct practicable route between the overseas employment place and a place in the employee's home country.

Subsection 143C(2) contains provisions to assist in interpretation.

Section 143D : Employment interviews and selection tests

Proposed section 58A (see notes on clause 34) will exempt from fringe benefits tax benefits which meet travel costs incurred by an employee for the purpose of attending a job interview or selection test. Where the benefit takes the form of a reimbursement of car expenses on a cents per kilometre basis, proposed section 61E (see notes on clause 39) operates to reduce the taxable value of the benefit.

A benefit which qualifies for either of these concessions is referred to in the Bill as a "benefit in respect of an employment interview or selection test". The circumstances in which a benefit will be treated as a "benefit in respect of an employment interview or selection test" are specified in paragraphs (a) to (d) of proposed section 143D. These are:

•

the benefit is in respect of transport or accommodation and meals en route (paragraph (a));

•

the transport, accommodation or meal is provided to the employee (paragraph (b)). Travel costs of an associate are not eligible for the concessions;

•

the travel is undertaken solely for the purpose of enabling the employee to attend an interview or selection test in connection with an application by the employee for new employment or a promotion or transfer in his or her existing employment (paragraph (c)). In the case of an application for new employment, the exemption will apply irrespective of whether the benefit is provided by the future employer (as will usually be the case) or by a former employer (as may occur where the employee becomes redundant); and

•

the benefit is not provided under a non-arm's length arrangement (paragraph (d)).

Section 143E : Work-related medical examinations, work-related medical screening, work-related preventative health care, work-related counselling, migrant language training

Proposed subsection 58M(2) (see notes on clause 34) will exempt from fringe benefits tax benefits which meet travel costs incurred by an employee for the purpose of attending a work-related medical examination, work-related medical screening, work-related preventative health car, work-related counselling or migrant language training. Where the benefit takes the form of a reimbursement of car expenses on a cents per kilometre basis, proposed section 61F (see notes on clause 39) operates to reduce the taxable value of the benefit.

Proposed section 143E specifies the circumstances in which a benefit will be eligible for concessional treatment under subsection 58M(2) or section 61F. These are:

•

the benefit is in respect of transport or accommodation and meals en route (paragraph (a));

•

the transport is required solely because the employee attends a work-related medical examination, work-related medical screening, work-related preventative health care, work-related counselling or migrant language training or an associate of the employee attends work-related counselling or migrant language training (paragraph (b)); and

•

the transport, accommodation or meals is for the employee or the associate, as the case requires (paragraphs (c) and (d)).

Clause 56: Residual benefits to include provision of property in certain circumstances

This clause amends section 153 of the Principal Act which provides that, in specified circumstances, a benefit that consists of both goods and services will be treated as a residual benefit only. By clause 56, this rule will not apply in a case where the goods concerned are food or drink. The effect of this modification is that the food or drink component of a combined benefit will be dealt with as a property benefit. This change facilitates the drafting of certain provisions contained in the Bill, such as new section 61D, which authorise concessional treatment of certain benefits relating to meals.

Clause 57: Associates and relatives

The effect of clause 57 is to extend the meaning of "relative" (as defined by the proposed definition being inserted in subsection 136(1) of the Principal Act) to include a de facto spouse.

Clause 58: Business journeys in car

This clause omits subsections 161(2) and (3) of the Principal Act which ensured that if an entry in a log book was not properly made in relation to a particular journey or the entry was not signed as required, the journey would not be treated as a business journey. Those subsections are made redundant by other provisions of the Bill whereby a car's business percentage may be established by reference to log book entries made during a minimum continuous 12 week period and by the operation of new section 162E in relation to those provisions.

Clause 59: Holding of car

Existing section 162 of the Principal Act facilitates the use of the shorthand expression "car held by a person" to embrace situations where the car is owned, leased or otherwise made available to the person by another person.

The amendments to section 162 by clause 59 will modify the meaning of that expression in its application to car fringe benefits calculated under the section 10 operating costs method, and to loan fringe benefits, expense payment fringe benefits, property fringe benefits and residual fringe benefits where such benefits relate to an employee's own car.

In the former application, the car will be "held" only if it is for use in providing car fringe benefits and, in the latter, if it is owned or leased by the employee in the course of producing assessable income. The effect is that if a car is not used by an employer throughout the year to provide fringe benefits or, in a relevant case, by an employee throughout the year for income producing purposes, the operating costs of the car for calculating the taxable value of a section 10 car fringe benefit will be those applicable to the period when it was so used, and the relevant business percentage of the employee's car will be based on business use during that lesser period.

Clause 60: New sections 162B to 162N

Section 162B : When car used for the purpose of producing assessable income

This section is a technical provision which ensures than any consideration of whether a car is used by an employee for the purpose of producing assessable income is to be determined as it would for the purposes of the income tax law. The measure relates to amendments being made to sections 19, 24, 44 and 52 (e.g. new paragraphs 19(1)(f), (g) and (h)) by clauses 12, 17, 27 and 29.

Section 162C : Holding period of car

New section 162C makes clear that any reference in the Principal Act to a period in a year during which a person held a car is a reference to the total period during the year when it was so held.

Section 162D : Deemed specification of matters in employer's return

The effect of new section 162D is that an employer who inadvertently fails to specify matters in his or her fringe benefits tax return that are required to be specified as a condition for the application of the revised car log book rules in section 10A, 10B, 65E or 65F - the nominated business percentage, applicable log period, details of a replacement car, etc. - will be treated as having fulfilled that condition if the matters are specified at a later date in a document lodged with and accepted by the Commissioner of Taxation. In relation to the transitional year of tax, failure to comply need not have been inadvertent for section 162D to apply.

Section 162E : Unsigned or fraudulent entries in log book records

The effect of section 162E is that entries in a log book which are either not signed as required by the definition of log book records or are false or misleading in a material way (e.g. if ordinary journeys to and from work are misdescribed as business journeys) will not be usable for determining the pattern of use of the car. Any journeys relating to such unsigned or false or misleading entries may not be treated as business journeys.

Section 162F : Reasonable estimate of underlying business percentage

This section specifies that a reasonable estimate of the "underlying business percentage" of a car (i.e. the percentage calculated by dividing the number of business kilometres travelled by the car in a particular period by the total number of kilometres travelled by the car in the same period) must take into account all relevant matters, including log book, odometer and other records maintained, and any variations in the pattern of use. The section is relevant, for example, to section 10B where in a non-log book year, a determination needs to be made as to whether a business percentage specified in relation to a car in an earlier year is more than 10 percentage points more than a reasonable estimate of the underlying business percentage of the car for the current year. The term "underlying business percentage" is being inserted in subsection 136(1 of the Principal Act by clause 48.

Section 162G : Log book year of tax

New section 162G sets out the circumstances in which a year of tax will be a log book year of tax in relation to a car that is used to provide car fringe benefits to employees etc., or in relation to an employee's car where fringe benefits (loans, expense payments etc.) are provided in relation to the car. The meaning is relevant for the application of the revised car log book rules contained in new sections 10A to 10C and 65D to 65H which enable the business use percentage of a car established by log book records maintained for a continuous 12 week period in a log book year to apply in future years provided there is no substantial fall in the business use of the car.

Subsection 162G(1) specifies the various conditions in which a year of tax (referred to as the "current year of tax") will be a log book year of tax in relation to car fringe benefits; they are that:

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the current year is the transitional year of tax (paragraph (a));

•

the employer elects to treat the current year as a log book year (paragraph (b));

•

the statutory formula basis under section 9 was used to calculate the taxable value of fringe benefits relating to the car in the preceding year (paragraph (c));

•

the car was not held in the preceding year (paragraph (d));

•

the car was held, but not used to provide fringe benefits in the preceding year (paragraph (e));

•

the preceding year was a log book year but the circumstances were such that either there was no requirement to keep log books (e.g. the car was first held in the 12 weeks of the year) or relevant conditions were not satisfied (e.g. log book and odometer records were not maintained) (paragraph (f));

•

the preceding year was not a log book year but the employer failed to keep odometer records in that year, or did not specify the appropriate business percentage applicable to the car for that year, or in that year there was a substantial fall in the business use of the car from that established by log book records in an earlier year (paragraph (g));

•

the Commissioner of Taxation, by causing written notice to be served on the employer, requires the employer to treat the current year as a log book year (paragraph (h)).

Subsection 162G(2) applies in a broadly similar way to subsection (1) in relation to an employee's car in relation to which fringe benefits other than car benefits are provided.

Section 162H : Applicable log book period

Section 162H in effect defines the period during a year of tax when log book records will need to be kept in relation to a car in order to satisfy conditions necessary to reduce the operating cost of a car under the formula in section 10, or before the taxable value of a loan fringe benefit, expense payment fringe benefit, property fringe benefit or residual fringe benefit provided in relation to an employee's own car may be reduced to reflect the percentage of business use of the car.

If the car is held for less than 12 weeks (see the notes on new subsections 162(2) and (3) concerning what is meant by the holding of a car) during the year of tax, the applicable log book period is the holding period. If it is held for 12 weeks or more, the applicable log book period is 12 weeks during the holding period.

Section 162J : Business percentage established during log book period

Section 162J is a technical provision that defines the business percentage established during a 12 week period when log book and odometer records are kept in relation to a car. That percentage is equal to what would be the underlying business percentage (see the notes on new section 162F) for the year of tax (or lesser period if the car was not held throughout the year) did not vary from the pattern of use shown by the log book and odometer records. The determination of this percentage is relevant to determining the maximum business percentage that may be adopted in relation to a car in a log book year of tax, e.g., under paragraph 10A(b) or 65E(b).

Section 162K : Replacement cars - car fringe benefits

This section enables an employer to treat one car as a replacement for another without having to re-establish a nominated business percentage by keeping new log book records etc., e.g., if a car is sold and replaced by a new car or if a car that is used to provide fringe benefits ceases to be used for that purpose and another car commences to be so used.

To treat a car as a replacement car, the employer must nominate in his or her fringe benefits tax return for the relevant year both the original and replacement cars by reference to their make, model and registration numbers, and specify the replacement date. In that case, the original car is treated from that date as a different car for the purposes of the revised log book rules contained in sections 10A to 10C, whereas the replacement car is treated for those purposes as if it were the original car. This artificial change of identity of a car does not apply for the purposes of calculating the operating cost of a car in ascertaining the taxable value of a car fringe benefit under section 10 of the Principal Act.

Section 162L : Replacement cars - otherwise deductible provisions

New section 162L applies in a similar way to section 162K where an employee's car in respect of which fringe benefits are provided is replaced by the employee. The section is relevant to cases where the taxable value of the fringe benefit may be reduced to reflect the business use of the car by the employee as established by log book records kept under the rules contained in new sections 65D to 65H being inserted by clause 42. In such a case, the business percentage established by log book records kept in relation to a car may be transferred to a replacement car without the need to keep fresh log book records as long as there is not a substantial fall in business use from that established for the original car.

Section 162M : Re-acquisition etc. of cars

Section 162M prevents an employer from relying on car log book records kept in an earlier period as the basis for calculating the taxable value of a car fringe benefit under the section 10 operating costs method where a car previously owned or leased has been re-acquired. Where that occurs, the car is treated as a different car. It applies similarly if a car used for providing car fringe benefits ceases to be held for that purpose but is at a later time again used for that purpose. Section 162M also applies in a case where an employee's car which has previously been owned or leased is re-acquired or where, for a time, it ceases to be used in the production of the employee's income but at a later time commences to be used for that purpose. These rules will not affect the calculation of the depreciation and interest components of the operating costs of a car for the purposes of section 10 if it has not been disposed of.

Section 162N : Registration of motor vehicle

Section 162N relates to new subsection 8(3) being inserted in the Principal Act by clause 4 to exempt car benefits where the car is unregistered. For the purposes of that exemption a car that may be driven on a public road without contravening any law is treated as being registered.

Clause 61: Application of Amendments

This clause, which will not amend the Principal Act, contains application provisions relating to the operation of various amendments contained in the Bill. For reference purposes, the Principal Act as amended by the Bill is called the "amended Act" (subclause (1)). The general application rule expressed in subclause 61(2) is that the amendments apply with effect from the commencement of the Principal Act. As such, the various exemptions and concessions being introduced by the amending Bill will apply from the date of introduction of the fringe benefits tax law.

The remaining provisions of clause 61 vary the general application arrangements in specific circumstances.

Subclause 61(3) has the effect that new section 115A (see notes on clause 45), which imposes penalty tax where an employer specifies an excessive business percentage in relation to a car under revised car log book rules, applies only to fringe benefits tax returns furnished after the date on which the Bill was introduced.

New subsection 17(4) being inserted in the Principal Act by clause 10 exempts a loan benefit by way of an advance made solely to enable an employee to pay a security deposit in connection with temporary accommodation that is exempt under section 21 or subsection 47(5) because the employee is living away from home. The effect of subclause 61(4) is that such an advance will be exempt notwithstanding that the related accommodation benefit may have ceased to be provided before the Principal Act came into operation.

By the operation of subclause 61(5) declarations that were approved for the purposes of paragraph 19(1)(c) for loan fringe benefits or paragraph 47(5)(d) for residual fringe benefits by way of accommodation provided to an employee living away from his or her usual residence remain in effect for the purposes of those paragraphs as amended by the Bill.

Subclause 61(6) will enable forms approved by the Commissioner for other purposes of the amended Act to be treated as though they were approved at the commencement of the Principal Act.

Subclause 61(7) prevents new paragraph 47(6)(aa) - which removes an exemption for the use of hire cars and taxis for travel to and from work - from operating retrospectively to the detriment of an employer by having it apply in these circumstances from the date of introduction of the amending Bill.

The "declaration date" in relation to the transitional year of tax i.e. the date of lodgment of the fringe benefits tax return of that year or such later date as the Commissioner of Taxation allows, is being generally extended by subclause 61(8) where a return for that year has been lodged prior to 28 days after the Bill receives Royal Assent. The extension will apply where provisions in the Bill require matters relating to the transitional year to be done by the declaration date.

Subclause 61(9) is a transitional measure that will apply to an employer who has not satisfied the requirements of new section 10A or 10B of keeping a record of opening and closing odometer readings for the periods specified in those sections in relation to the transitional year of tax or the first standard year of tax. It will enable the employer to make a record that sets out reasonable estimates of those readings as at the required dates and times. If another car has been nominated as a replacement for the car in accordance with new paragraph 162K(2)(b), estimated readings relating to the replacement and the end of the year (or earlier time when the car ceased to be used for providing fringe benefits) should also be included. If the employer declares in the document that, to the best of his or her knowledge and belief, the estimates are reasonable, it will be treated as the relevant odometer records.

Subclause 61(10) applies in a similar way to subclause (9) in relation to odometer records of the transitional year of tax and first standard year where such records have not been kept of an employee's car in accordance with the requirements of new section 65E or 65F.

Subclause 61(11) operates to ensure that an approved declaration given by an employee to an employer in respect of the employee's car in accordance with the "otherwise deductible" provisions of the Principal Act on or before the date of introduction of the Bill will be treated as a car substantiation declaration for the purposes of those provisions as amended.

Subclause 61(12) is a non-detriment provision that ensures that various amendments to the Principal Act to correct drafting deficiencies - having effect in general from 1 July 1986 - do not apply to benefits provided on or before the date of introduction of the Bill if that application would increase the liability of the employer to fringe benefits tax in respect of the benefit e.g., the insertion of new paragraph 60(2)(d) by clause 36 to ensure that the 50% reduction of taxable value of certain fringe benefits related to remote area housing is available only where the benefit is provided under arm's length arrangements not entered into for the purpose of obtaining the benefit of the reduction. Subclause 61(13) will prevent amendments made by the Bill that create an obligation for documentary evidence of an expense to be obtained and given to an employer from applying to benefits provided on or before the date of introduction of the Bill e.g. documentary evidence of a relocation transport expense required by new sub-paragraph 58F(c)(ii).

Clause 62: Amendment of assessments

Clause 62 will give the Commissioner of Taxation authority to amend a fringe benefits tax assessment made before the Bill becomes law should this be necessary for the purpose of giving effect to the amendments proposed by the Bill.

PART III - AMENDMENT OF THE INCOME TAX ASSESSMENT ACT 1936

Clause 63: Principal Act

This clause facilitates references to the Income Tax Assessment Act 1936 which, in this part of the Bill is referred to as the 'Principal Act'.

Clause 64: Deductions not allowable for entertainment expenses

Clause 64 will amend section 51AE of the Principal Act which provides that, subject to a number of exceptions, entertainment expenses incurred after 19 September 1985 are not deductible for income tax purposes.

By virtue of existing subsection 51AE(5A), the general prohibition does not apply to certain expenses incurred by employers in respect of meals or other food or drink provided to employees (and their families) under board or living-away-from-home arrangements. The food or drink to which this provision applies is either subject to the fringe benefits tax on a concessional basis or specifically exempted from the fringe benefits tax.

The amendments proposed by paragraphs (a), (b) and (c) of clause 64 will extend the classes of losses and outgoings which, under subsection 51AE(5A), are excluded from the general prohibition. The broad effect of the amendments is that the disallowance measure will not apply to the cost of providing meals or other food or drink to an employee (or family member) where the provision of that meal, etc. constitutes an exempt benefit or is otherwise given concessional treatment under the proposed amendments to the Fringe Benefits Tax Assessment Act 1986.

Paragraph (d) of clause 64 will insert a new sub-section - subsection (5C) - in section 51AE.

The main effect of new subsection 51A(5C) is that where the provision of food or drink would constitute an exempt benefit under the fringe benefits tax legislation by reason of both a specific exempting provision and the general exemption for minor benefits under proposed new section 58P (see notes on clause 34), section 58P is to be disregarded. This means that, for the purposes of subsection 51AE(5A), the benefit will be treated as exempt solely by reason of the specific exempting provision and thus qualify for the exclusion from the prohibition on deductions for entertainment expenses. It is noted that the exclusion from the general prohibition will not apply to the cost of providing a benefit that is exempt solely by reason of section 58P unless the benefit is either a board benefit or a living-away-from-home food benefit that is presently excluded by virtue of paragraph 51AE(5A)(a) or (c).

Clause 65: Deductions not allowable where expenses incurred by employee are reimbursed

Clause 65 will amend section 51AH of the Principal Act which operates to reduce any deduction to which an employee would otherwise be entitled in respect of an outgoing incurred by the employee by so much of that outgoing as is paid or reimbursed by the employee's employer. In effect, the payment or reimbursement by the employer is applied against the business component of the expense.

The rule embodied in existing section 51AH complements existing section 24 of the Fringe Benefits Tax Assessment Act 1986. Under existing section 24, the taxable value of the fringe benefit constituted by the payment or reimbursement by the employer is reduced by the business component of the expenditure incurred by the employee.

While the above rules are appropriate where the employer's reimbursement in fact relates to the business component of the expense, they are not appropriate where the reimbursement relates to the gross expenditure incurred by the employee (i.e., where the reimbursement would have been the same even if there had been no business component of the expenditure). To remedy such inappropriate treatment, the Bill proposes to amend both section 51AH of the Principal Act and section 24 of the Fringe Benefits Tax Assessment Act 1986. These amendments are part of a package of measures which are explained in detail in the 'main features' section of Part A of this memorandum.

The effect of the proposed amendments to section 51AH is that where the reimbursement by the employer would have been the same even if the employee's expense had not been incurred in producing assessable income of the employee (i.e., where the component borne by the employer is not directly related to the business component), the amount of the deduction allowable to the employee is to be calculated on the basis that he or she had incurred expenditure equal to the net amount incurred (i.e., the expenditure actually incurred reduced by the amount of the reimbursement by the employer). The existing operation of section 51AH will not be disturbed in cases where the reimbursement by the employer relates to the business component of the expense.

Clause 66: Deductions not allowable for private component of contributions for fringe benefits etc.

Clause 66 will insert a new section - section 51AJ - in the Principal Act.

Proposed section 51AJ will ensure that an employee is not entitled to an income tax deduction for a contribution to a fringe benefit to the extent that the contribution is, in effect, a payment for the private element of the benefit. In this, it complements the operation of section 51AH, as proposed to be amended by clause 65.

Subsection 51AJ(1) is the operative provision and applies where the circumstances set out in paragraphs (a) to (f) exist. These are:

•

one of the following categories of fringe benefit is provided to an employee of an employer - an airline transport benefit, a board benefit, a loan benefit, a property benefit or a residual benefit (paragraphs (a) and (b));

•

the employee made a contribution for the benefit, i.e. he or she incurred consideration for the benefit or, in the case of a loan benefit, incurred interest on the loan (paragraphs (c) and (d));

•

it would be concluded that, in calculating the amount of the employee's contribution, the employer made an allowance for the fact that the benefit would be used by the employee for work-related purposes (paragraph (e)); and

•

because the employer made that allowance, the employee's contribution was less than it would otherwise have been (paragraph (f)).

Where the above circumstances apply, the employee's entitlement to a deduction for his or her contribution is governed by paragraphs (g) and (h).

Paragraph (g) applies where the actual business use of the benefit turns out to be less than the level allowed for by the employer in calculating the amount of the employee's contribution. In these cases, paragraph (g) ensures that the employee is not entitled to any deduction in respect of his or contribution.

Paragraph (h) applies where the actual business use of the benefit turns out to be more than the level allowed for by the employer in calculating the amount of the employee's contribution. In these circumstances, paragraph (h) ensures that the deduction otherwise allowable to the employee in respect of his or her contribution is limited to so much of that contribution as relates to the amount by which the actual business use of the benefit exceeds the business use allowed for by the employer. This ceiling on the deduction allowable to the employee is determined in accordance with the formula

D-A


, where:

D is the deduction that would have been allowable to the employee had he or she incurred consideration for the benefit equal to the amount of consideration that would have been payable but for the allowance made by the employer for business use of the benefit; and

A is the amount of the allowance for business use.

Clauses 67 to 73 : Substantiation of certain expenses

Introductory note

Clauses 67 to 73 will amend the provisions of Subdivision F of Division 3 of Part III of the Principal Act. That Subdivision specifies rules requiring substantiation of employment-related expenses of employees and car and travel expense claims by employees and self-employed persons.

Subject to a number of specific exclusions, those rules make it a requirement for deduction that appropriate documentary evidence be maintained to substantiate relevant employment-related, car and travel expense claims. For car expense claims, it is also a requirement that a log book recording business journeys be kept for a minimum continuous period of 12 weeks, although alternative arbitrary deduction rules are also available.

The amendments proposed by the Bill provide that claims within the limits of certain transport allowances (or reimbursements of car expenses on a cents per kilometre basis) are to be excluded from the substantiation requirements. Under the new exclusion, substantiation will not apply to claims within the limits of allowances paid to employees for fares, car expenses and other transport costs incurred in the course of performing their employment duties where the allowances are payable pursuant to an award or other industrial instrument and are not higher in amount than was payable pursuant to the award, etc., as at 29 October 1986.

In addition, relief from the substantiation requirements will also be provided in circumstances where a taxpayer does not obtain or keep documentary evidence of an expense because he or she expects a specified exclusion from the substantiation requirements to apply but, because of an unforeseen special circumstance, the exclusion does not apply.

Clause 67: Interpretation

Clause 67 proposes a number of amendments to section 82KT of the Principal Act which contains definitions of certain expressions used in Subdivision F of Division 3 of Part III of the Act and a number of other measures to assist in its interpretation.

Paragraphs (a) and (b) of clause 67 will insert a new paragraph - paragraph (c) - in the definition of "eligible expense" in subsection 82KT(1).

By virtue of new paragraph (c) of that definition, an "eligible expense", in relation to an "eligible transport payment", will mean a transport expense (as defined - see below) to the extent that it is related to the eligible transport payment. Proposed section 82KTAA specifies how much of a transport expense is to be treated as relating to an eligible transport payment in cases where the expense does not relate exclusively to the eligible transport payment.

By the operation of proposed section 82KZBA, the substantiation provisions will not apply to deductions claimed for eligible expenses, in relation to eligible transport payments, where the total amount claimed does not exceed the total of the eligible transport payments.

Paragraph (c) of clause 67 will insert 5 new definitions in sub-section 82KT(1).

"Car expense reimbursement payment" is being defined to mean a payment made by an employer to an employee to compensate the employee on a cents per kilometre basis for expenses of operating a car that is owned by, or leased to, the employee in respect of travel undertaken by the employee while performing duties as an employee of the employer. This definition is relevant to the following definition of "eligible transport payment".

"Eligible transport payment" is a term used in the Bill to identify the kind of transport allowances, etc., in respect of which the exclusion from substantiation under proposed section 82KZBA is to apply.

A payment will qualify as an eligible transport payment if the conditions set out in paragraphs (a) to (d) of the definition are satisfied.

By paragraph (a) of the definition, the payment must be a "transport allowance payment" or a "car expense reimbursement payment".

Paragraph (b) of the definition stipulates that the transport allowance payment or the car expense reimbursement payment was paid to the employee pursuant to an award or other industrial instrument that was in force on 29 October 1986.

Paragraph (c) of the definition makes it a condition that the total amount paid (whether in a single sum or otherwise) in respect of the travel to which the allowance or reimbursement relates does not exceed the amount that would have been payable in respect of the travel if the industrial instrument as it existed on 29 October 1986 had not been altered. This means that if the industrial instrument is altered after 29 October 1986 to increase the amount of the allowance, the allowance payable at the higher rate will not qualify as an "eligible transport payment". The operation of paragraph (c) is, however, subject to proposed subsection 82KT(1A) which provides that where an industrial instrument is altered after 29 October 1986 pursuant to an application for variation of the instrument made on or before that date, the alteration is to be treated as having been made on 29 October 1986.

Paragraph (d) of the definition applies where the total amount paid in respect of the travel exceeds the amount that would have been payable if the allowance or reimbursement had been calculated at the rate applicable on 29 October 1986. In these circumstances, if the allowance is to be treated as an eligible transport payment, it is a requirement that the excess is attributable to increases that were specified in the industrial instrument on 29 October 1986. This requirement would be met where the industrial instrument as it was in place on 29 October 1986 contained clauses which provided for an increase in the allowance from a specified future date and the precise amount of the increase was specified in those clauses. On the other hand, the requirement would not be met where an award as it was in place on 29 October 1986 contained clauses which provided for future variations determined by reference to matters external to the award (e.g., changes in the Consumer Price Index).

The definition of "substantiation sections" lists those sections in Subdivision F which contain substantiation requirements. These sections will not apply in respect of a claim by a taxpayer for a deduction for eligible expenses where the requirements of proposed section 82KZBA are satisfied.

A "transport allowance payment" is defined to mean either:

•

an allowance paid by an employer to an employee for the sole purpose of enabling the employee to incur, in respect of travel undertaken in the course of performing duties as an employee of the employer, outgoings in respect of fares, car expenses or other transport costs; or

•

if an allowance is not paid for the sole purpose of incurring such costs but is paid principally for that purpose - so much of the allowance as is paid for that purpose. For example, if an employer provided an employee with an allowance, 90 percent of which was to cover the cost of car expenses while travelling in the course of employment duties and the balance was expected to cover out of pocket expenses of the employee while undertaking this travel e.g., telephone calls, extra meal costs, only 90 percent of the allowance payment would be treated as a transport allowance payment.

A "transport expense" is defined as an expense incurred in connection with transport (e.g., train fares, car expenses, etc.,) and includes depreciation in respect of property used in connection with transport (e.g., depreciation of a car). To ensure that the term "transport expense" is restricted to the costs of providing transport, the definition specifically excludes expenses incurred on accommodation, food or drink or incidentals.

Paragraph (d) of clause 67 proposes the insertion of a new subsection - subsection (1A) - in section 82KT.

New subsection 82KT(1A) contains a number of interpretation provisions that are relevant to the proposed definition of "eligible transport payment".

By paragraph (a) of subsection 82KT(1A), an industrial instrument which comes into force in substitution for another industrial instrument is treated as a continuation of that instrument. But for paragraph (a), a payment made under a substituted instrument that comes into force after 29 October 1986 would not satisfy the test in paragraph (b) of the definition of "eligible transport payment" which requires that the payment be made under an industrial instrument that was in force on 29 October 1986. Paragraph (a) ensures that allowances made under a substituted award will continue to be excluded from the substantiation requirements provided that the substituted award does not increase the amount of the allowance.

Under paragraph (b) of subsection 82KT(1A), where an industrial instrument is altered after 29 October 1986 pursuant to an application made on or before that date that sought increases in transport allowance payments or car expense reimbursement payments, that alteration will be treated as having been made on 29 October 1986. This rule will not apply, however, if the application was revised after 29 October 1986 and, as a result, increases greater than those originally sought were achieved.

The effect of new paragraph 82KT(1A)(b) is that where an application for an increase in the amount of a transport allowance or car expense reimbursement was made prior to 29 October 1986 but the decision by the relevant tribunal was not made until after that date, the employees concerned will continue to be entitled to relief from the substantiation requirements in respect of claims within the limits of the increased allowance or reimbursement.

Paragraph (c) of subsection 82KT(1A) applies where the amount of a transport allowance or car expense reimbursement is retrospectively increased as a result of an alteration to the award, etc., made after 29 October 1986 (other than an alteration which, by virtue of paragraph (b), is treated as having been made on that date). In these circumstances, payments paid at the old rate in respect of travel undertaken prior to the date on which the award was varied will continue to be treated as eligible transport payments if they would have so qualified but for the retrospective adjustment (i.e., the payment made to compensate for the difference between the old rate and the new rate for the retrospective period is not to be added to the original payment at the old rate for the purposes of determining whether the condition in paragraph (c) of the definition of "eligible transport payment" is satisfied for that period).

The effect of new paragraph 82KT(1A)(c) is that if the employees concerned were entitled to relief from the substantiation requirements prior to the retrospective award variation, they will continue to be entitled to such relief in respect of claims related to travel undertaken prior to the date of the retrospective award variation provided those claims are within the limits of the allowance or reimbursement payable at the old rate.

Paragraph (e) of clause 67 inserts a reference to "transport expense" in subsection 82KT(3). This means that where a transport expense is depreciation in respect of a year of income, the depreciation expense will be deemed to have been incurred on the last day of that year.

Paragraph (f) of clause 67 inserts a new subsection - subsection (5A) - in section 82KT. The new subsection is a technical drafting measure.

Clause 68: Definition of 'eligible expense' - extent to which transport expenses relate to eligible transport payments

Clause 68 will insert a new section - section 82KTAA - in Subdivision F of Division 3 of Part III of the Principal Act.

New section 82KTAA applies where a taxpayer incurs a transport expense that relates partly to travel to which an eligible transport payment relates and partly to other travel. This situation will usually arise where the transport expense is a car expense. In these cases, the transport expense will be treated as being related to the eligible transport payment to the extent that it would have been allowed as a deduction under the general deduction provisions of the law if none of the other travel had been in the course of producing assessable income of the taxpayer.

Clause 69: Log book year of income

Clause 69 will insert a new paragraph - paragraph (j) - in section 82KTG of the Principal Act which sets out the circumstances in which a year of income will be a log book year of income in relation to a car that is used by a taxpayer for the purpose of producing assessable income.

New paragraph 82KTG(j) extends the circumstances in which a year of income will be a log book year of income consequential on the introduction of the new transport payment provisions.

Under new paragraph 82KTG(j), the current year of income will be treated as a log book year of income if in the preceding year car expenses in relation to eligible transport payments were claimed, free of substantiation requirements under proposed section 82KZBA and the taxpayer did not use the log book method to claim deductions for car expenses in respect of business travel that was not related to eligible transport payments. The general effect is that the taxpayer would be required to keep log books (for a minimum twelve week period) in the event that deductions for car expenses were being sought in that year under the log book method.

Clause 70: Deduction for car expenses where income-producing use does not exceed 5,000 kilometres - statutory formula

Clause 70 will amend section 82KX of the Principal Act which authorises an arbitrary cents per kilometre basis of deduction in relation to a car that is used by a taxpayer for the purpose of producing assessable income. The arbitrary basis is available where the number of 'business' kilometres travelled by a car in a year of income is less than 5,000.

Section 82KX presently specifies that where a rate per kilometre basis of deduction applies, no separate deduction is allowable in respect of actual car expenses. The proposed amendment will modify this rule so that it does not apply where a taxpayer claims deductions for car expenses in relation to eligible transport payments under proposed section 82KZBA. In such a case, the taxpayer will be entitled to claim a deduction for car expenses in respect of travel that is not related to the eligible transport payments on a cents per kilometre basis as well as claiming a deduction for car expenses that relate to the eligible transport payments.

Clause 71: Elections

This clause corrects a drafting error in section 82KY of the Principal Act.

Clause 72: Aggregate claims not exceeding a certain amount

Clause 72 corrects a drafting error in section 82KZB of the Principal Act by omitting a reference to section 82KV in subsection 82KZB(2) and substituting a reference to sections 82KVA, 82KUB, 82KUC and 82KUD.

Clause 73: New Sections 82KZBA and 82KZBB

Clause 73 will insert 2 new sections - sections 82KZBA and 82KZBB - in Subdivision F of Division 3 of Part III of the Principal Act.

Section 82KZBA : No substantiation required for eligible expenses relating to transport payments in certain circumstances

Proposed section 82KZBA will exclude from the substantiation requirements certain expenses incurred where eligible transport payments are paid to an employee.

By subsection 82KZBA(1), an employee is entitled to relief from substantiation where the conditions specified in paragraphs (a) and (b) are satisfied. These are:

•

eligible transport payments are paid to the employee in a year of income (paragraph (a)); and

•

the total amount of deductions claimed by the employee for transport expenses that relate to those eligible transport payments does not exceed the total of those payments (paragraph (b)).

Where the above conditions are met, the relieving provisions specified in paragraphs (c) to (f) apply unless the employee elects to claim deductions under the general substantiation requirements (such an election might be made, for example, where the employee has kept a log book recording all business journeys (including those relating to the eligible transport payments) for the necessary 12 week period and wishes to claim deductions based on the business percentage established by the log book).

Paragraph (c) provides that the substantiation requirements do not apply to the amount claimed for transport expenses that relate to those eligible transport payments.

Paragraph (d) provides that those transport expenses are not to be taken into account for the purposes of determining whether section 82KZB applies. Section 82KZB obviates the requirement to substantiate employment-related expenses, car expenses or travel expenses incurred by an employee in producing salary or wages income, where the total amount of these expenses claimed as deductions does not exceed $300. The effect of paragraph (d) is that where an employee claims transport expenses within the limits of the eligible transport payments, he or she will be entitled to claim other work expenses up to the $300 threshold without the need for detailed substantiation documents.

Paragraphs (e) and (f) apply where the transport expenses which the employee is not required to substantiate consist of or include car expenses. In such a case, the car concerned may be used by the employee not only for the travel that relates to the eligible transport payments but also for other travel in the course of producing assessable income of the employee.

In these circumstances, paragraphs (e) and (f) specify that the employee, in addition to being entitled to claim deductions, free of substantiation requirements, for car expenses to the extent that they relate to eligible transport payments, is also entitled to claim deductions for car expenses to the extent that they relate to other business travel (i.e., business travel that is not related to the eligible transport payments). However, the claim in respect of other business travel must be made under either the log book method (existing section 82KUD) or, if applicable, the cents per kilometre basis (existing section 82KX).

For the purpose of calculating the deduction allowable under either method, the travel by the car that relates to the eligible transport payments is not to be treated as travel in the course of producing assessable income of the employee. This means, for example, that if the other business travel was less than 5,000 kilometres, a deduction for that travel may be claimed on a cents per kilometre basis under section 82KX irrespective of the number of kilometres travelled in relation to the eligible transport payments.

Subsection 82KZBA(2) deals with situations where a taxpayer incurs a transport expense during a year of income but the eligible transport payments will be paid to the taxpayer in a later year of income. This could occur, for example, where the taxpayer is paid a reimbursement of car expenses on a cents per kilometre basis.

In these circumstances, the Commissioner of Taxation will be authorised to make an assessment based on the assumption that the exclusion from substantiation will apply in relation to the transport expense even though at the time of making the assessment an eligible transport payment had not been paid.

Subsection 82KZBA(3) provides that where the Commissioner has made an assessment under subsection (2) on the assumption that certain circumstances will at a later time exist and those circumstances do not eventuate, then the Commissioner may amend the assessment at any time for the purposes of ensuring that the substantiation provisions apply on the basis that the circumstances did not exist.

Section 82KZBB : Relief from certain substantiation requirements where a taxpayer had a reasonable expectation that substantiation would not be required

New section 82KZBB will provide relief from the substantiation requirements in circumstances where a taxpayer intended to rely on a specified exclusion from the substantiation requirements but, because of an unanticipated change in circumstances, the exclusion does not apply.

In broad terms, subsection 82KZBB(1) authorises relief from the substantiation requirements in the following situations:

•

where a taxpayer does not obtain or keep documentary evidence of a car expense because he or she expects to be entitled to claim a deduction for car expenses on a cents per kilometre basis under section 82KX of the Principal Act on the basis that the car will travel less than 5,000 business kilometres in the income year but, as a result of an unforeseen special circumstance (e.g., the taxpayer commences a new job which involves much greater business travel in the car), the car travels more than 5,000 business kilometres;

•

where a taxpayer does not obtain or keep documentary evidence of an employment-related expense because he or she expects to claim a deduction for employment-related expenses, free of substantiation requirements, under section 82KZB of the Principal Act on the basis that the total of such expenses for the income year will be less than $300 but, as a result of an unforeseen special circumstance, the total exceeds $300; or

•

where a taxpayer does not obtain or keep documentary evidence of a transport expense because he or she expects to claim a deduction for the expense, free of substantiation requirements, under proposed section 82KZBA but, as a result of an unforeseen special circumstance (e.g., the taxpayer subsequently commences to use the car for business travel not related to eligible transport payments), the taxpayer chooses not to claim deductions under section 82KZBA.

Subsection 82KZBB(2) will allow a taxpayer to make an estimate, rather than an actual recording, of an odometer reading at the commencement of a year of income in circumstances where the taxpayer intended to claim deductions for car expenses under a specified exclusion from the substantiation requirements but, because of an unforeseen special circumstance, the exclusion does not apply. This provision will, in appropriate cases, enable a taxpayer to prove his or her claim for petrol and oil expenses by reference to odometer records notwithstanding a failure to record the opening odometer reading.

Clause 74: Application of amendments

This clause, which does not amend the Principal Act, contains application provisions.

By subclause (1), the amendments excluding certain outgoings from the general prohibition on deductions for entertainment expenses will apply with effect from the income year in which 20 September 1985 (the commencement date of the prohibition) occurred.

Under subclause (2), the amendments relating to the deduction allowable to an employee for expenditure connected with the provision of a fringe benefit will apply with effect from the income year commencing on 1 July 1986 (the commencement date of the fringe benefits tax).

By subclause (3), the amendments relating to the substantiation requirements will apply with effect from the income year commencing on 1 July 1986 (the date of commencement of the substantiation requirements).

Clause 75: Amendment of assessments

Clause 75 will give the Commissioner of Taxation authority to re-open an income tax assessment made before the Bill becomes law should this be necessary for the purpose of giving effect to the amendments proposed by the Bill.