Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)General Outline and Financial Impact
Changes to fringe benefits tax
The A New Tax System (Fringe Benefits) Bill 2000 amends the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986) and the A New Tax System (Good and Services Tax) Act 1999 to implement the second phase of the Government's tax reform package for fringe benefits tax (FBT). These changes will enhance the fairness of the taxation system by:
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- stopping the overuse of concessional FBT treatment for public benevolent institutions (PBIs) and certain non-profit organisations. This will be done by limiting certain benefits eligible for the concessions to $17,000 of grossed-up taxable value for each employee of a hospital, and $25,000 for employees of all other PBIs and rebatable employers;
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- extending the application of the current FBT exemption for remote area housing benefits for primary producers to all employers;
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- allowing a FBT exemption to primary producers in remote areas for non-entertainment meals provided to remote area employees on a work day; and
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- introducing a new FBT gross-up formula to neutralise the tax treatment between fringe benefits and cash salary following the introduction of the goods and services tax (GST) system, and ensuring that the GST law interacts properly with the FBT law.
Date of effect : The reform measures in the FBTAA 1986 will apply from the FBT year commencing 1 April 2000. The amendments to the GST law will apply from 1 July 2000.
Proposal announced : The measures relating to the capping of FBT concessions and the new gross-up rate were originally announced on 13 August 1998 in the Government's Tax Reform Document: Tax Reform: not a new tax, a new tax system: The Howard Government's Plan for a new tax system . However, the variation to the capping measure has not been made public.
The FBT exemption for remote area housing has not been previously announced. However, this measure is an extension of the Government's original proposal to exempt remote area housing provided by employers engaged in the mining industry.
The exemption of meals for primary producers in remote areas was announced by the then Deputy Prime Minister on 18 September 1998 at the National Party Campaign Launch.
Financial impact : The total revenue expected to be raised from each of the measures is:
| Measure | 2000-2001 ($m) | 2001-2002 ($m) | 2002-2003 ($m) | 2003-2004 ($m) |
|---|---|---|---|---|
| Capping FBT concessions | 170 | 175 | 185 | 190 |
| Remote area housing exemption | (35) | (30) | (35) | (35) |
| Meals exemption - primary producers | (1) | (1) | (1) | (1) |
| New gross-up formula | 210 | 225 | 235 | 240 |
Compliance cost impact : The compliance cost impact statement for the measures is incorporated in the regulation impact statement which appears at the end of Chapter 1.
Summary of Regulation Impact Statement
Impact : Low to medium.
Main points :
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- PBIs will be liable for FBT where the total grossed-up taxable value of certain employee benefits exceeds $17,000 in the case of hospitals, or $25,000 for all other PBI employers. Hospitals, that are rebatable employers, will lose their rebate entitlements for certain fringe benefits that exceed the $17,000 limit per employee. For all other rebatable employers the limit is $25,000 per employee.
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- Removing remote area housing benefits from FBT will reduce the cost of compliance and record keeping costs borne by employers in remote areas. These employers will not need to determine the value of their housing stock or keep associated FBT records.
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- The FBT exemption of non-entertainment remote area meals will result in compliance savings to primary producers as they will not need to value the meals being provided to employees or keep the associated FBT records.
Policy objective : The measures will implement the Government's announced changes to the FBT provisions aimed at making the system fairer for all taxpayers.
Technical amendments to the A New Tax System (Medicare Levy Surcharge - Fringe Benefits) Act 1999 and the Medicare Levy Act 1986
The A New Tax System (Medicare Levy Surcharge - Fringe Benefits) Amendment Bill 2000 makes minor technical corrections to the A New Tax System (Medicare Levy Surcharge - Fringe Benefits) Act 1999 to ensure that the Medicare levy surcharge on reportable fringe benefits is consistent with the additional 1% Medicare levy on taxable income of taxpayers who do not have adequate private patient hospital insurance. Schedule 3 to the A New Tax System (Fringe Benefits) Bill 2000 corrects an anomaly in the Medicare levy surcharge provisions contained in the Medicare Levy Act 1986 . These measures are discussed in Chapter 3.
Date of effect : The amendments will apply to the Medicare levy surcharge payable on taxable income and reportable fringe benefits for the 1999-2000 year of income and later years.
Proposal announced : The decision to take fringe benefits into account when determining liability for various tax surcharges and obligations was announced on 13 August 1998 in the Government's Tax Reform Document: Tax Reform: not a new tax, a new tax system: The Howard Government's Plan for a new tax system .
Financial impact : The amendments will not have an effect on the revenue.
Compliance cost impact : There will be no compliance costs resulting from the amendments.