House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Minister for Small Business and Assistant Treasurer, the Hon Kelly O'Dwyer MP)

General outline and financial impact

Modernising work-related car expenses

Schedule 1 to this Bill modernises the methods for calculating work-related car expense deductions. Currently, taxpayers have an option of using one of four methods to determine their work-related car expense deductions.

These methods, each with differing compliance obligations, are:

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12 per cent of original value method;

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one-third of actual expenses method;

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cents per kilometre; and

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logbook method.

Schedule 1 will repeal the 12 per cent of original value method and the one-third of actual expenses method.

Further, this Schedule will provide a streamlined process for calculating the cents per kilometre method by providing a single rate of deduction which more accurately reflects the actual running expenses of a vehicle.

Date of effect: This measure applies to the 2015-16 income year and later income years.

Proposal announced: This measure was announced in the 2015-16 Budget.

Financial impact: This measure has the following revenue impact:

Human rights implications: This Schedule does not raise any human rights issues. See Statement of Compatibility with Human Rights, Chapter 1, paragraphs 1.41 to 1.44.

Compliance cost impact: The annual compliance burden has been costed at around $750,000 (total impact on individuals).

Better targeting of the Zone Tax Offset

Schedule 2 to this Bill amends the Income Tax Assessment Act 1936 to ensure that the Zone Tax Offset (ZTO) is appropriately targeted to people genuinely living in the designated geographical Zones by limiting access to the ZTO to those people whose usual place of residence is within a Zone.

This ensures that the ZTO is appropriately targeted to those people genuinely living in the designated Zones. It excludes those people who work in the Zones but fly or drive into those Zones from their usual place of residence that is located outside of the Zone. Those people are assessed as residing at their usual place of residence and not their residence while working.

Date of effect: This change applies to the 2015-16 year of income and later years of income.

Proposal announced: This measure was announced in the 2015-16 Budget.

Financial impact: This measure has the following financial impact.

Human rights implications: This Schedule does not any human rights issues. See Statement of Compatibility with Human Rights - Chapter 2, paragraphs 2.15 to 2.18.

Compliance cost impact: Nil.

Limiting fringe benefits tax concessions on salary packaged entertainment benefits

Schedule 3 to this Bill amends the Fringe Benefits Tax Assessment Act 1986 to limit the concessional treatment of salary packaged entertainment benefits by:

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removing the reporting exclusion in respect of salary packaged entertainment benefits;

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removing access to elective valuation rules when valuing salary packaged entertainment benefits to prevent unintended and excessively concessional values being applied to those benefits; and

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introducing a cap on the total amount of salary packaged entertainment benefits that certain employees can be provided that are exempt from or subject to fringe benefits tax at concessional rates.

Date of effect: This measure applies to the 2016-17 fringe benefits tax year and all later fringe benefits tax years.

Proposal announced: This measure was announced in the 2015-16 Budget.

Financial impact: This measure has the following financial impact:

Human rights implications: This Schedule does not raise any human rights issues. See Statement of Compatibility with Human Rights, Chapter 3, paragraphs 3.94 to 3.97.

Compliance cost impact: This measure has a small compliance cost impact of $0.69 million each year on the community sector. This cost has been fully offset within the portfolio.

Summary of regulation impact statement

Regulation impact on business

Impact: This measure will impact employees of organisations who salary package meal entertainment and entertainment facility leasing expenses benefits ('entertainment benefits') and the salary packaging industry.

Main points:

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Currently, most salary packaged fringe benefits provided to certain employees of not-for-profit (NFP) employers are reportable and fringe benefits tax exempt, or rebatable, only up to a set cap. However, all entertainment benefits are specifically excluded from this requirement.

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Salary packaging has facilitated this uncapped benefit, including through 'meal entertainment cards'.

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Entertainment benefits were originally excluded from reporting and the fringe benefits tax caps on compliance costs grounds because, at the time, many of the benefits were not easily attributable to individuals. However, this rationale is no longer appropriate for salary packaging arrangements.

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Non-salary packaged entertainment benefits, such as in-house canteens, are not be affected by this measure.

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There are around 5,700 NFP employers entitled to the exemption and around 3,400 NFP employers entitled to the rebate. Around 20 per cent of exempt employers and around 16 per cent of rebatable employers did not have any reportable fringe benefits in 2012-13. Based on Australian Taxation Office data for 2012-13, the proposed cap is expected to affect around 7,400 employers. For affected NFP employers, there will be regulatory start-up costs associated with education, notifying their employees of the proposed change, and implementing any changes.

The introduction of a separate $5,000 cap on entertainment benefits strikes a balance between the Government's objectives to improve fairness in the tax system and repairing the budget. By not completely eliminating the uncapped benefits, the preferred option retains concessional treatment and reduces the potential adverse effects on the not-for-profit sector.

Third party reporting

Schedule 4 to this Bill amends Schedule 1 to the Taxation Administration Act 1953 to improve taxpayer compliance by increasing the information reported to the Commissioner of Taxation by a range of third parties. The Schedule creates a new reporting regime requiring third parties to report on the following transactions:

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payments of government grants;

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consideration provided for services to government entities;

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transfers of real property;

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transfers of shares;

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transfers of units in unit trusts; and

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business transactions made through payment systems.

Date of effect: This measure applies to some transactions that happen on or after 1 July 2016 and other transactions that happen on or after 1 July 2017. Several minor amendments apply from Royal Assent.

Proposal announced: The Government announced that it would proceed with these amendments in a Media Release titled, 'Restoring integrity in the Australian tax system' on 6 November 2013.

The Government extended the start date of this measure to 1 July 2016 in a Media Release titled 'More progress in restoring integrity in the tax system' on 13 May 2014.

This measure was first announced by the previous Government in the 2013-14 Budget as 'Tax compliance - Improving compliance through third party reporting and data matching'.

Financial impact: This measure has the following financial impact:

Human rights implications: This Schedule raises human rights issues. See Statement of Compatibility with Human Rights - Chapter 4, paragraphs 4.87 to 4.97.

Compliance cost impact: Medium. This measure requires companies, trusts, administrators of payment systems, government related entities at the Commonwealth, state, territory and local levels, and other entities to make changes to their record collection and reporting practices. Ongoing obligations are placed on these entities to report information to the Commissioner of Taxation.