House of Representatives

Explanatory Memorandum

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

FRINGE BENEFITS TAX ASSESSMENT BILL 1986

Introductory note: General scheme of the Bill in determining a liability to fringe benefits tax

An employer is liable to tax on the aggregate taxable value of fringe benefits provided to his or her employees during a year of tax. The essential requirements for determining that liability are to be found in the definition of "fringe benefit" in sub-clause 136(1). These are -

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that a benefit be provided during a year of tax to an employee or an associate of the employee (or another person at the direction of the employee or an associate - see sub-clause 148(2));

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that the benefit be provided by the employer of the employee, an associate of the employer or another person under an arrangement between the employer or associate and that other person or another person (an example of this last category would be where an employer enters into an arrangement with a non-associated company for an associate of that company to provide benefits to the employer's employees); and

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that the benefit be provided in respect of the employment of the employee.

For these purposes "associate" is, subject to certain modifications in proposed section 159, given the same broad meaning as in the Income Tax Assessment Act, and references to an employer and employee include future, current and past employers and employees, respectively.

The requirement that the benefit be provided "in respect of" the employment of an employee is also given a wide meaning under the definition of that expression in sub-clause 136(1) to include any benefits provided by reason of, by virtue of, or for or in relation directly or indirectly to, that employment. For convenience, the term "in respect of" is used in this memorandum as embracing all of those terms.

By virtue of the meaning given to "employment" in its definition in proposed sub-section 136(1), only benefits that arise in relation to a position of employment or employment activity that gives rise to salary or wages that are assessable to income tax in Australia will be subject to fringe benefits tax. Clause 137 ensures, however, that benefits provided in lieu of assessable salary or wages are also subject to tax.

The expression "benefit" is also given a wide meaning by virtue of its definition in sub-clause 136(1) and the meaning given to the expression "provision of benefits" in sub-clause 148(1). In addition, proposed Part III specifically treats certain items as benefits (e.g., employer-provided cars, loans, etc., as specified in the introductory notes) and specifies valuation rules for these benefits and any other benefits that are brought within the scope of the Act by the general meaning of benefit, i.e., "residual benefits".

Consistent with the intended application of the Act - which is to apply, broadly, to non-cash fringe benefits provided to employees - the definition of fringe benefit excludes from the scope of the Act salary and wages (whether assessable or exempt for income tax purposes). It also excludes contributions to superannuation funds (and any payments out of such funds), benefits arising from employee share acquisitions and payments made in consequence of termination of employment, each of which fall for specific treatment under express terms of the income tax law.

The wide meaning given to "benefit" and the specific valuation rules has the broad result that the full amount of any expenses paid or reimbursed or the market value of any property, services or other benefits provided will, subject to certain concessions and exemptions specified in the proposed law, be subject to fringe benefits tax. This is the result irrespective of whether the particular expenditure reimbursed, services provided, etc., may be directly related to the employee's employment or other income-producing activities.

Against that background two general reduction factors apply. Under the first of these, any amount paid by the employee to acquire any property, etc., operates to reduce the taxable value of the particular benefit.

The second applies, broadly, to reduce the taxable value of a benefit provided to an employee to the extent to which the expenditure incurred by the employee (in the case of expense payment or expense reimbursement benefits) or any expenditure that would otherwise have been incurred by the employee in obtaining the relevant benefit and would have been deductible for income tax purposes. As explained in the introductory notes on the main features of the Bill, this reduction is limited to expenditure that would be 'immediately' deductible and substantiation requirements broadly consistent with those now embodied in the income tax law for employment expenses apply.

NOTES ON CLAUSES

PART I - PRELIMINARY

Clause 1: Short title, & c.

By this clause the Act is to be cited as the Fringe Benefits Tax Assessment Act 1986.

Clause 2: Commencement

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

As the fringe benefits tax will apply to benefits provided on or after 1 July 1986 it is most desirable that the legislative base for the tax be put in place promptly for the information of employers and others affected by it.

PART II - ADMINISTRATION

Clause 3: General administration of Act

Under this clause, the Commissioner of Taxation is to be responsible for the general administration of the laws relating to fringe benefits tax.

Clause 4: Annual report

This clause will, as is customary in Australian taxation laws, require the Commissioner to furnish an annual report on the working of the Act to the Minister responsible for taxation matters for presentation to the Parliament. In the report the Commissioner will be required to draw attention to any breaches or evasions of the Act that have come under notice.

Clause 5: Secrecy

This clause contains secrecy provisions consistent with those in other Commonwealth taxation Acts. It will impose an obligation of secrecy on officers or former officers who, in the course of their duties related to the administration of the Act, have acquired information with respect to the affairs of another person. For that purpose, an "officer" includes a person who, although not actually appointed or employed by the Commonwealth, performs services for the Commonwealth. Officers will be obliged not to make a record of or divulge or communicate such information to any other person except in the course of their duties and will not be compellable to give to any court information relating to the affairs of a person except when it is necessary to do so for the purpose of giving effect to the provisions of the Act. An officer may also communicate information to a person performing duties as an officer under another taxation Act administered by the Commissioner for the purpose of enabling that person to perform those duties.

An officer may be required to make an oath or declaration to maintain secrecy in conformity with the secrecy provisions.

The maximum penalty for an offence against the section is a fine of $5,000, or imprisonment for one year, or both.

PART III - FRINGE BENEFITS

DIVISION 1 - PRELIMINARY

Clause 6: Part not to limit generality of "benefit"

This clause is a drafting measure to ensure that nothing in the specific fringe benefit valuation rules contained in this Part can have the effect of limiting the general meaning of the word "benefit" where it is used in the Bill.

DIVISION 2 - CAR FRINGE BENEFITS

An outline of the operation of the Bill in relation to car fringe benefits is given in the introductory section of this memorandum. The main features are -

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a taxable fringe benefit is to arise on any day on which an employer's car is used by an employee for private purposes or is available for such use;

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for these purposes a car is defined as a motor vehicle (including a 4-wheel drive) that is a motor car, station wagon, panel van, utility truck or similar vehicle or any other road vehicle designed to carry a load of less than 1 tonne or fewer than 9 passengers;

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unless the alternative method is elected, the taxable value of a car fringe benefit is to be determined, broadly, according to a percentage (which will vary according to the total kilometres travelled in the year) of the original cost of the car;

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under the alternative method, the taxable value is to be measured by reference to the private usage proportion of the actual cost of operating the car during the year;

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taxis, panel vans and certain other commercial cars are to be exempt from tax if private use is restricted to home to work travel and other use that is incidental to work travel.

Subdivision A - Car Benefits

Clause 7: Car benefits

Sub-clause 7(1) specifies the circumstances in which a car benefit will be taken to arise for fringe benefits tax purposes. The rules apply to establish car benefits on a daily basis.

Under this sub-clause a car benefit will arise on any day on which a car (as defined) that is held by an employer (or associate or third party arranger) is applied to a private use by an employee (or associate) or is available for the private use of the employee (or associate).

For these purposes, a car is taken to be held by a person where it is owned, leased or otherwise held by the person (see clause 162). An example of a car "otherwise held" by a person would be where a car owned by a parent company is loaned to one of its subsidiaries, which in turn make the car available to its employee's for private use.

"Private use" of a car is, by virtue of the definition of that term in sub-clause 136(1), any use that is not exclusively in the course of producing assessable income of the employee.

Sub-clauses 7(2) and (3) specify the circumstances in which a car will be taken to be "available" for the private use of an employee (or associate).

Under sub-clause 7(2), when a car is garaged or kept at or near a place of residence of the employee or an associate it will be taken to be available at that time for the employee's private use.

By sub-clause 7(3), a car that is not at the business premises of an employer (or associate, etc.) will be taken to be available for the private use of an employee (or associate) if the employee is entitled to use the car for a private purpose, if the employee has custody or control of the car at a time when he or she is not performing duties as an employee, or if an associate is entitled to use or has custody or control of the car. For these purposes "business premises" of a person are defined in sub-clause 136(1) to mean premises that are used in the business operations of the person, but exclude any part of those premises that are used as an employee's place of residence.

Sub-clause 7(4) ensures that any prohibition on the use of a car for private purposes will be disregarded if the prohibition is not one that is consistently enforced.

Sub-clause 7(5) ensures that a car that is used in accordance with the directions or wishes of a person is taken, for the purposes of the preceding rules, to have been used by that person.

Sub-clause 7(6) applies to treat a car that is held by a person under a hire-purchase agreement as having been purchased and owned by that person. By this sub-clause, the valuation arrangements outlined in Subdivision B will apply to a car held under hire-purchase as if the car were owned by the employer.

Sub-clause 7(7) applies to exclude from the car benefit valuation rules the use by an employee of a taxi or other car let on short-term hire to the employer, etc. Such benefits will, as necessary, be subject to valuation under the residual benefit rules outlined in the notes on Division 12.

Clause 8: Exempt car benefits

Sub-clause 8(1) ensures that the rules outlined in clause 7 are an exclusive code for the determination of the value of any car benefits and, as such, ensures that they will not fall for valuation under any of the remaining valuation rules.

By sub-clause 8(2) fringe benefits tax will not apply to taxis, panel vans, utilities and other commercial vehicles (i.e., those not designed principally to carry passengers) if an employee's private use of such a vehicle is solely work related. "Work related" is defined for those purposes in sub-clause 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.

Subdivision B - Taxable Value of Car Fringe Benefits

Clause 9: Taxable value of car fringe benefits - statutory formula

Sub-clause 9(1) specifies a statutory formula that is to apply in determining the taxable value of any car fringe benefits provided to employees. As explained in the introductory note, this basis of valuation is to apply in the absence of an election by the employer to adopt the alternative operating cost method of valuation provided in clause 10.

The formula operates on a per car basis by applying a statutory percentage of the base value of the car - broadly its cost price in the case of an owned car or its initial market value in the case of a leased car - that varies according to the total number of kilometres travelled in the year of tax. That value is reduced according to the number of any days during the year of tax on which the car was not used or available for private use by an employee or associate, and further reduced by the amount of any expense (referred to as the "recipient's payment") incurred by the employee in operating the car or as consideration to the employer for having supplied the car.

The statutory formula is expressed in sub-clause 9(1) as -

(A*B*C)/(D) - E


For this purpose -

A is the base value of the car;

B is the relevant statutory fraction;

C is the number of days during the relevant year of tax in which the car was not privately used or available for the private use of an employee (or associate), i.e., the number of days on which a car benefit as determined in accordance with the preceding Subdivision did not arise in relation to the car;

D is the number of days in the year of tax;

E is the amount (if any) of the recipient's payment.

The meaning of these components of the statutory formula are explained in the following notes on sub-clause (2) and a practical example is given of the operation of the formula at the end of the notes on this clause.

Paragraph 2(a) specifies the amount that is the base value of a car for the purposes of the statutory formula.

Sub-paragraph 2(a)(i) applies in circumstances where the car is owned by the person providing it (i.e., the employer, associate or the third party arranger). The general rule for this purpose is that the base value of the car is its cost price. "Cost price" is defined in sub-clause 136(1) and is, generally, the amount of the expenditure incurred in acquiring the car (including any delivery costs). The cost of accessories fitted at that time are also included in the base value unless they are accessories that are required to meet the special needs of any business operations in which the car is used (e.g., a 2-way radio fitted to a salesman's car). Accessories which fall for inclusion in the cost price of a car are defined in sub-clause 136(1) as "non-business accessories".

Where the person providing the car manufactured it, the cost price is its wholesale value increased by the amount of sales tax payable by virtue of the car being applied to the manufacturer's own use.

If any sales tax or customs duty concessions are obtained on the purchase of the car (e.g., by an employer who is a hospital or government authority), the base value is the amount that the person could reasonably have expected to pay for the car if those concessions did not apply.

Sub-paragraph 2(a)(ii) applies where the car is leased or otherwise held by the person providing it for the employee's use. In these circumstances the base value is the cost price (as outlined above) of the car to the lessor or, if the car is otherwise held by the person providing it, the amount that the person could reasonably be expected to have paid to purchase the car under an arm's length transaction (see the definition of "leased car value" in sub-clause 136(1)).

In applying the preceding sub-paragraphs, the base value of the car is determined at the earliest time at which the car was held by the person providing it (or by an associate of that person). This is a safeguard that will ensure that the base value of a car is not reduced by such techniques as sale and lease-back or buy-back arrangements. It will also ensure that the base value is not reduced where the car is acquired by a lessee on termination of a lease.

The base value of a car determined under the preceding rules is, however, reduced by one-third with effect from the beginning of the first year of tax following the fourth anniversary of the date on which the car was first owned by the provider (or associate) - see sub-paragraph (A) in each of paragraphs 9(2)(a)(i) and (ii).

Under sub-paragraph 9(1)(iii), the base value of a car is increased by the cost price of any non-business accessories fitted to the car after it was originally acquired. The resulting increased base value applies in relation to the whole year of tax in which the accessories were fitted. The cost price of any non-business accessory is determined on the same base as that outlined broadly above in relation to the cost price of a car (see definition of "cost price" in sub-clause 136(1)).

Paragraph 9(2)(b) is a drafting measure that defines the "earliest holding time" which determines, as outlined in the preceding notes, the date on which the base value of a car is established.

Paragraph 9(2)(c) specifies the statutory fractions that are to apply to the base value of the car in determining the taxable value of any fringe benefit in relation to the car (i.e., component B in the statutory formula). The fractions vary according to the number of kilometres travelled by the car during the year of tax.

Sub-paragraph (2)(c)(i) specifies the statutory fractions for the transitional year of tax, as follows:

The statutory fractions for a standard year of tax are specified in sub-paragraph (2)(c)(ii) as follows:

As explained above, the relevant statutory fraction is determined according to the total number of kilometres travelled by the car during the whole of the year of tax. Paragraph 9(2)(d) applies in a case where the car is held by the person providing it to the employee during a part only of the year of tax. The effect of the paragraph is to annualise the number of kilometres travelled during that part of the year. This annualised figure forms the basis for determining the relevant statutory fraction.

Paragraph 9(2)(e) specifies the basis for determining component E in the statutory formula, i.e., the amount of any recipient's payment.

By virtue of paragraph (e), the amount of any consideration paid to the employer (or, if the car is provided by another person, to the employer or that other person) as consideration for use of the car (sub-paragraph (1)) and any car expense paid by the employee (sub-paragraph (2)) apply to reduce the taxable value of the car fringe benefit. To qualify for this purpose, the relevant expenses must be incurred during the period when the car was provided for the employee's (or associate's) use.

As a safeguard, the amount of the reduction does not extend to any expenses incurred by the employee that are reimbursed. In addition, any reduction in respect of car expenses incurred by the employee is conditional upon the employer being provided with documentary evidence of the expenditure by the time of the lodgment of the employer's annual fringe benefits tax return. "Documentary evidence" for this purpose has the same meaning as in the recently introduced substantiation requirements of the income tax law for employment-related expenses, e.g., receipts, invoices, etc.

The following is an illustration of the operation of the statutory formula -

Assume that -

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a car is purchased by an employer for $20,000 on 1 January 1987;

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for the whole period 1 January to 31 March 1987 (i.e. 90 days) the car is available for private use by an employee and travels 7,000 kilometres (i.e., projected "annual" kilometres for the nine months of the transitional year would be 21,000);

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no sales tax or customs duty concessions were obtained on the purchase of the car;

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there are no "non-business" accessories to add to the cost base;

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the employee paid for the fuel used in the car during the period 1 January to 31 March, amounting to $300, and substantiated the expense.

The taxable value of the car fringe benefit for the transitional year of tax would be -

((20,000 * .12 * 90)/(274)) - $300 = $488


Clause 10: Taxable value of car fringe benefits - cost basis

Under sub-clause 10(1) an employer may elect that the operating cost method of valuing a car fringe benefit apply in relation to a particular car or cars. As explained in the notes on sub-clause 10(4) the election must be made by the time of lodgment of the fringe benefits tax return of the first year in which a taxable fringe benefit arises in relation to the car. Once adopted, the operating cost basis must continue to be used for that vehicle.

Sub-clause 10(2) specifies the basis for calculating the taxable value of a car fringe benefit where the operating cost method applies. By this sub-clause the taxable value is calculated by ascertaining the total operating costs of the car during the year of tax and reducing the total in the proportion of private kilometres travelled during the year to total kilometres travelled. From that amount, any payment of operating costs or consideration for use of the car by an employee (i.e., the recipient's payment) is deducted to arrive at the taxable value of the car fringe benefit.

Where the particular car is held for part of the year by the person providing it to an employee for private use (e.g., where the car is acquired by the employer part way through a year of tax) the operating costs are calculated by reference to that period. The period during a year in which the car is held is referred to in the legislation as the "holding period".

The means for determining the value of a car fringe benefit under the operating cost method is expressed by a formula as follows -

((A*B)/(C)) - D


For this purpose -

A is the operating costs of the car during the holding period;

B is the number of private kilometres travelled by the car in the holding period;

C is the total number of kilometres travelled by the car in the holding period; and

D is the amount of the recipient's payment.

Details for ascertaining the amount to be included under each of these components are contained in sub-clause 10(3).

Paragraph (3)(a) details the amounts that are to be taken to constitute the operating costs of a particular car during a holding period. These are -

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expenditure incurred during the holding period on fuel, repairs and maintenance, irrespective of who incurs them. The only exception to this general rule is that costs borne by a lessor under the relevant lease agreement will not be taken into account;

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so much of any registration or insurance charges that are attributable to the holding period. For this purpose such expenses incurred by a previous owner are not taken into account when a car is purchased second-hand (sub-paragraph (3)(a)(ii));

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where the car is owned by the person providing the fringe benefit (i.e., the employer, associate or third party arranger), the amount of depreciation and interest deemed to have been incurred during the holding period in respect of the car and any subsequently fitted non-business accessories (sub-paragraphs (3)(a)(iii) and (iv)). The method for calculating deemed depreciation and interest charges is explained in the notes on clause 11;

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where the car is leased by the person providing the fringe benefit, the amount of any lease charges that are attributable to the holding period. In the event that the lessor obtained the benefit of any sales tax or customs privilege or exemption in connection with the lease, the lease charges taken into account for these purposes is the amount that could reasonably be expected to have been payable if the privilege or exemption had not been available (sub-paragraph (3)(a)(i));

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where the car is neither owned nor leased by the provider of the fringe benefit, deemed depreciation and interest charges calculated as if the person were the owner are included as operating costs (sub-paragraph (3)(a)(vi)).

Paragraph (3)(b) specifies the method for determining the number of private kilometres travelled by the car during the holding period. For this purpose the number is calculated by deducting from the total number of kilometres travelled by the car the number of kilometres travelled by the car on "business journeys" (see the definition of that term in sub-clause 136(1)). A log book or similar document is required to be maintained to substantiate the number of kilometres travelled on business journeys (see the definition of "relevant car documents" in sub-clause 136(1) and clause 161).

The amount of the "recipient's payment" is defined in paragraph (3)(c) and has the same meaning as in paragraph 9(1)(e) - see notes on the paragraph for further explanation.

Sub-clause 10(4) specifies that an election to adopt the operating cost basis of deduction is to be lodged in writing with the employer's annual fringe benefits tax return, although the Commissioner of Taxation is to be empowered to extend the date for lodgment of the election (see definition of "declaration date" in sub-clause 136(1)).

Sub-clauses 10(5) and (6) give effect to the policy expressed in the notes on sub-clause 10(1) that an election by an employer to adopt this method of valuation is to be made in the first year of tax in which a taxable fringe benefit arises in relation to the car and, once made, is to be irrevocable.

By sub-section 10(5) if an employer does not make an election in the first year of tax in which a fringe benefit arises in relation to the car, the employer is prevented from making such an election in a subsequent year. Similarly an employer will not be entitled to make such an election if an associate was entitled in a prior year of tax to adopt the operating cost method of valuation and did not do so.

Under sub-section 10(6) an employer who makes a valid election to adopt the operating cost method in a year of tax is deemed to have made such an election in relation to any subsequent year of tax in which he or she is liable to fringe benefits tax in respect of the use of the particular car.

As explained in the notes on sub-clause 10(1), the operating costs of a car owned by a provider of fringe benefits in relation to the car includes the amount of depreciation and interest deemed to have been incurred during the period during the year of tax in which the car was owned by that person. Clause 11 specifies the basis for calculation of these amounts.

Clause 11:

Under sub-clause 11(1), the amount of depreciation incurred in relation to a car is to be determined on a diminishing value basis by reference to a standard depreciation rate of 22.5%. Thus, the amount of depreciation is calculated by multiplying the depreciated value of the car as arrived at under this rule at the start of the year (see notes on clause 12) of tax (or its cost price if the car was acquired during the year) by 22.5%. The resultant figure is reduced proportionately where the number of days during the year of tax in which the car is owned by the person is less than 365. It follows from this that there will inevitably be a proportionate reduction in the transitional year of tax, i.e., if the car is owned during the whole of the 9 months' transitional year, the amount of depreciation in that year will be three-quarters of the full year depreciation amount.

By virtue of sub-clause 11(2), the amount of interest deemed to have been incurred in a year of tax is determined by multiplying the depreciated value of the car at the start of the year (see notes on clause 12) by the "statutory interest rate". This rate is defined in sub-clause 136(1) and is, broadly, the lowest rate charged by the Commonwealth Savings Bank for housing loans immediately before the start of the year. This rate is also used in determining the value of free or low interest loans (see notes on Division 4) and will be published annually. As with the calculation of deemed depreciation, the amount determined on this basis is reduced proportionately where the number of days during the year of tax in which the car is owned by the person is less than 365.

Clause 12:

Clause 12 defines "depreciated value" of a car for the purpose of determining the amount of any deemed depreciation and interest in accordance with the rules outlined in clause 11.

Under paragraph 12(a), the depreciated value of a car at the beginning of the transitional year of tax is the cost of the car to the owner less depreciation calculated on a diminishing value basis at the 22.5% per annum rate by reference to financial years (i.e., years ending on 30 June).

By paragraph 12(b), the depreciated value of a car at the commencement of a subsequent year of tax is determined by deducting from its cost (where the car was acquired after 1 July 1986) or its depreciated value at 1 July 1986 (as determined in accordance with paragraph 12(a)) the amount of depreciation allowable in respect of each fringe benefits tax year.

Clause 13:

Clause 13 applies to ensure that the taxable value of a car fringe benefit is, broadly, determined by reference to expenditure under arm's length transactions. For this purpose, sub-clause 13(2) ensures that where expenditure is incurred in acquiring a car or on any operating expenses of a car under the transaction where the parties are not operating at arm's length, the amount of the expenditure will, where necessary, be increased to the amount that could reasonably be expected to be incurred under an arm's length transaction. This rule would apply, for example, where a car is sold by a person to an associate at less than its true market value. Sub-clause 13(4) applies similarly to situations where no expenditure is incurred (e.g., where a car is donated to a charity) to deem expenditure to have been incurred of an amount equal to the amount that could reasonably be expected to have been incurred in acquiring the car, etc., on the open market.

DIVISION 3 - DEBT WAIVER FRINGE BENEFITS

As explained in the introductory section of this memorandum, a taxable fringe benefit will arise where an employer releases an employee from an obligation to pay an amount owing to the employer. Commonly these type of benefits will arise where an employer makes a free or low interest loan to an employee which, in the event, is not required to be repaid. The free or low interest loan rules detailed in the notes on Division 4 will ensure that the interest benefit is subject to tax for as long as the obligation to repay the loan remains outstanding; while Division 3 will ensure that the amount of the outstanding debt is subject to tax in the year in which it is waived.

Subdivision A - Debt Waiver Fringe Benefits

Clause 14: Debt waiver benefits

By clause 14, a debt waiver benefit will be taken to arise at a time when a person waives the obligation of another person to pay or repay an amount owed by that other person.

As explained in the notes on the general scheme of the Bill, a debt waiver benefit will be subject to tax as a fringe benefit where the relevant debt is one that is owed by an employee (or associate) to the employer (or associate or third party arranger) and the benefit arises in respect of the employee's employment with the employer.

Subdivision B - Taxable Value of Debt Waiver Fringe Benefits

Clause 15: Taxable value of debt waiver fringe benefits

By clause 15 the taxable value of a debt waiver fringe benefit (as defined above) is the amount released from payment.

DIVISION 4 - LOAN FRINGE BENEFITS

An outline of the operation of the Bill in relation to the provision of free or low interest loans is contained in the introductory section of this memorandum. The main features are

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a free or low interest loan made to an employee (or associate) will constitute a benefit;

•

"loans" for this purpose is given a wide meaning so as to include any advance, provision of credit, etc., and also includes any interest accruing on a loan that does not become payable for an extended period;

•

loans made to employees by persons engaged in a business that includes lending will not be subject to fringe benefits tax where the employee-loans are made on no more favourable terms than those made to the public in the course of the employer's business;

•

the taxable value of free or low interest loans made to employees will be the difference between the amount of interest notionally calculated as accruing over the relevant year of tax by applying a specified benchmark interest rate to the daily balance of the loan and the interest that actually accrued on the loan during the year of tax;

•

the benchmark interest rate may vary according to whether the loan was a fixed interest loan made before 1 July 1986, a housing loan made before 3 April 1986 or any other loan;

•

the value of the benefit is generally reduced to the extent to which any interest payable on the loan is, or would have been, deductible to the employee for income tax purposes.

Subdivision A - Loan Benefits

Clause 16: Loan benefits

Sub-clause 16(1) establishes the prima facie rule that the making of a loan to a person is taken to constitute a benefit. The sub-section also ensures that the benefit is taken to have been provided in each year of tax in which the obligation to repay any part of the loan exists. This is a drafting measure that ensures that the value of the benefit of the concessional rate of interest is brought to account in each year in which the loan remains outstanding.

Sub-clause 16(1) does not require that the loan be made at a concessional rate of interest in determining whether there is, in the first instance, a benefit. However, as explained in the notes on clause 17, loans made to employees by an employer whose business includes lending to the public will be excluded from liability for fringe benefits tax where they are made on the same terms as loans made to members of the public in the ordinary course of that business. In addition, as explained in the notes on Subdivision B, a taxable fringe benefit will not arise unless the interest rate charged to the employee is less than the specified benchmark rate.

As explained in the notes on the general scheme of the Bill, a "loan benefit" as defined by clause 16 will be subject to fringe benefits tax only where the loan is made by an employer (or associate or third party arranger) to an employee (or associate) and the loan is made in respect of the employee's employment.

By virtue of its definition in sub-clause 136(1) "loan" is given a wide meaning so as to include any advance of money, any credit or financial accommodation and any transaction which in substance effects a loan of money. The remaining sub-clauses of clause 16 further extend the meaning of the expression in specified circumstances.

By sub-clause 16(2), the loan fringe benefits rules will apply in any case where an amount which a person is under an obligation to pay or repay to another person is not paid on the date on which it falls due for payment. Where these circumstances occur and the amount originally payable would not otherwise be a loan, the amount will, with effect from the date when it fell due for payment, be treated as a loan.

Sub-clauses 16(3) and (4) apply in circumstances where interest accrues on a loan but does not fall due for payment for an extended period.

Sub-clause 16(4) brings within the scope of the Division what are termed "deferred interest loans". These are loans where interest is payable on a loan but at intervals exceeding 6 months.

Where sub-clause 16(4) applies, sub-clause 16(3) treats the amount of any unpaid interest that accrues during each 6 month period after the making of the principal loan to have been separately and additionally loaned to the borrower, free of interest. The period of the additional loan extends from the end of the 6 month period until the interest is paid or becomes payable.

Sub-clause 16(5) is a drafting measure that ensures that where no interest is payable on a loan, a nil rate of interest is taken to be payable.

Clause 17: Exempt loan benefit

Clause 17 exempts certain loans from the operation of fringe benefits tax.

By virtue of sub-clause 17(1), a fixed interest loan made to an employee (or associate) by a person who carries on a business that includes making loans to the public will be exempt from fringe benefits tax if the rate of interest is at least equal to the fixed interest rate applicable under a comparable loan made to a member of the public in the ordinary course of business at or about the time when the loan was made to the employee.

Sub-clause 17(2) confers a similar exemption on a variable interest loan made to an employee where the rate of interest varies in line with interest charged under a comparable arm's length business loan made at about the same time.

Under sub-clause 17(3), an advance made by an employer to an employee solely for the purpose of meeting expenses to be incurred, within a maximum of 6 months of the advance being made, in carrying out duties of employment, is taken outside the scope of the fringe benefits tax rules.

Subdivision B - Taxable Value of Loan Fringe Benefits

Clause 18: Taxable value of loan fringe benefits

Sub-clause 18(1) is the operative provision that establishes the taxable value of a loan fringe benefit in respect of a year of tax. By this sub-clause, the taxable value is the amount by which the notional interest calculated on the loan for the year of tax exceeds the amount of interest that has actually accrued on the loan during the year.

Sub-clause 18(2) specifies the basis for calculating the notional interest on a loan. Notional interest is calculated by reference to the amount of interest that would have accrued on the loan during the year if the interest were calculated on the daily balance of the loan at a prescribed rate. The prescribed rate for this purpose is, generally, the lowest rate charged by the Commonwealth Savings Bank for housing loans immediately prior to the commencement of the year of tax (see paragraph (a) of the definition of "statutory interest rate" in sub-clause 136(1)).

For housing loans made to employees (or associates) prior to 3 April 1986, the notional rate of interest is subject to a ceiling of 13.5%. For this purpose a "housing loan" is defined in clause 141 (see notes on that clause) and has the same general meaning as in the housing loan interest rebate provisions of the income tax law.

The prescribed interest rate may also vary in the case of fixed interest loans made prior to 1 July 1986. In these cases the notional interest on the loan is to be calculated by reference to the Commonwealth Savings Bank housing loan rate prevailing when the loan was made if this would produce a lower taxable value. For this purpose, the prevailing Commonwealth Savings Bank housing loan rates of interest up to 2 April 1986 are specified in a schedule to the Fringe Benefits Tax Assessment Bill.

Clause 19: Reduction of taxable value

Clause 19 applies, broadly, to reduce the taxable value of a loan fringe benefit to the extent to which interest payable on the loan is, or would be, allowable as an income tax deduction to the employee. For example, if an employee were to use a loan wholly to finance the purchase of interest-bearing investments, the loan would not produce a taxable value for fringe benefits because interest paid on the loan, even if not provided by the employer at a concessional rate, would be wholly deductible for income tax purposes.

Paragraph 19(1)(a) applies to limit the operation of the reduction rule to loans made to an employee.

Sub-paragraph 19(1)(b)(i) establishes the general pre-condition for application of the reduction rule that the whole or a part (the "deductible percentage") of any interest payable on the loan would have been deductible when incurred for income tax purposes. The recently introduced income tax substantiation requirements are disregarded for this purpose. As necessary, specific substantiation requirements are established for fringe benefits tax purposes.

By sub-paragraph 19(1)(b)(ii), any interest expense that would otherwise be subject to the proposed new "negative gearing" rules for income tax purposes in relation to property investments made after 17 July 1985 (see clause 11 of the Taxation Laws Amendment Bill 1986) will not reduce the taxable value of a loan fringe benefit.

In order to establish the income tax deductibility of interest on a loan, paragraph 19(1)(c) requires that the employee give to the employer a declaration setting out particulars of the use to which the loan was put. The declaration must be made in a form approved by the Commissioner of Taxation and given to the employer before the date of lodgment of the employer's fringe benefits tax return of the particular year (see definition of "declaration date" in sub-clause 136(1)).

Where these requirements are satisfied the taxable value of the loan fringe benefit is reduced in line with the proportion of any interest payable on the loan that would have been deductible for income tax purposes (e.g., if half of any interest payable on the loan would have been deductible for income tax purposes, the taxable value of the loan fringe benefit would be reduced by half).

Specific rules apply if the loan was used by an employee to purchase a car that is used for income-producing purposes. In this case, paragraph 19(1)(d) requires that the employee lodge with the employer before the date of lodgment of the annual fringe benefits tax return, one of two declarations.

The first of these requires that the employee specify -

•

the period of the year in which the car was owned by the employee;

•

the total number of business kilometres travelled in the car during the year; and

•

the total number of kilometres (business and private) travelled in the car during the year.

Where this declaration also includes a statement that a log book or similar document (see the definition of "relevant car documents" in sub-clause 136(1) and clause 161) have been maintained and a copy has been supplied to the employer, the deductible percentage will generally be determined by reference to the details of kilometres shown in the declaration.

If log books, etc., have not been maintained, the deductible percentage will similarly be determined by reference to the details shown in the declaration, but in this case there will be a maximum deductible percentage of 33 1/3.

The alternative declaration available under sub-paragraph 19(1)(d)(ii) requires that the employee -

•

specify the period of the year in which the car was owned by the employee; and

•

declare that the average number of business kilometres per week travelled by the car during that period exceeded 96 kilometres per week.

Where this alternative declaration is lodged, the deductible percentage is treated as being 33 1/3.

"Business kilometres" is defined for the purposes of these rules in sub-clause 136(1) as, broadly, kilometres forming a journey undertaken in the car in the course of producing assessable income of the employee.

In general, the various substantiation documents will, as explained in the notes on Part X, need to be retained by an employer for a period of 6 years from when the relevant fringe benefits tax return is lodged.

In addition, technical compliance with the substantiation requirements and retention of substantiation documents by the employer, although a necessary pre-condition, will not be conclusive that an income tax deduction would have been allowable to an employee in respect of interest on the loan. Whether or not a deduction would have been allowable will turn on the application of the income tax law to the facts of each particular employee's case.

Sub-clause 19(2) is a drafting measure that ensures that the specific arrangements relating to loans used to purchase cars have their intended effect in cases where a part only of the loan is used to purchase a car.

DIVISION 5 - EXPENSE PAYMENT FRINGE BENEFIT

An outline of the operation of the Bill in relation to expense payment fringe benefits is given in the introductory section of this memorandum. The main features are -

•

the payment or reimbursement by an employer of any expenses incurred by an employee will constitute a fringe benefit of an amount equal to the amount paid or reimbursed;

•

"reimbursement" of an employee's expenses in operating his or her own car will be outside the scope of fringe benefits tax, such reimbursements being treated as assessable income of the employee for income tax purposes; and

•

the taxable value is to be reduced to the extent to which the employee's expenditure would otherwise have been deductible for income tax purposes.

Subdivision A - Expense Payment Benefits

Clause 20: Expense payment benefits

Clause 20 establishes the rule that the payment of an amount of expenditure incurred by another person (paragraph 20(a)), or the reimbursement of an amount of expenditure incurred by another person (paragraph 20(b)), constitutes a benefit provided to that other person.

As explained in the notes on the general scheme of the Bill, an expense payment benefit will be subject to fringe benefits tax where the payment or reimbursement is made by an employer (or associate or third party arranger) and where the benefit is provided in respect of the employee's employment.

Clause 21: Exempt accommodation expense payment benefits

Clause 21 complements the rules embodied in Division 7 for the treatment of living-away-from-home allowances. By clause 21, where an expense payment benefit relates to the payment or reimbursement of expenditure incurred by an employee on accommodation in circumstances where the employee is required to live away from his or her usual place of residence in order to perform employment duties, it is exempt from fringe benefits tax. A requirement for exemption under clause 21 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 declaration is to be lodged with the employer prior to lodgment of the employer's annual fringe benefits tax return.

Clause 22: Exempt car expense payment benefits

By clause 22, where an employer compensates an employee on a cents per kilometre basis for expenses of operating a car that is owned or leased by the employee, the compensation will not be subject to fringe benefits tax.

As explained in the notes on the Fringe Benefits Tax (Miscellaneous Provisions) Bill, amendments proposed by that Bill will ensure that such payments are treated as assessable income of the employee. To obtain offsetting income tax deductions, employees will need to satisfy the substantiation rules applicable to car expenses under the income tax law.

This general rule that cents per kilometre reimbursements are to be outside the scope of the fringe benefits tax law will not, however, apply in the case of reimbursements that relate to remote area holiday transport. These benefits are subject to special valuation arrangements outlined in the notes on clause 61.

Subdivision B - Taxable Value of Expense Payment Fringe Benefits

Clause 23: Taxable value of expense payment fringe benefits

By clause 23, the taxable value of an expense payment fringe benefit is the amount of the expenditure paid or reimbursed. If, as may occur where an employer pays the full amount of expenditure incurred by an employee (e.g., an employee's telephone account) and the employee reimburses the employer for a part of the employer's payment, the taxable value is reduced by the amount of the employee's contribution.

Clause 24: Reduction of taxable value

Clause 24 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.

Paragraph 24(1)(a) applies to limit the operation of the reduction rule to payment or reimbursement of expenditure incurred by an employee.

Sub-paragraph 24(1)(b)(i) establishes the general pre-condition for application of the reduction rule that the whole or a part (the "deductible percentage") of the expenditure incurred by the employee would have been immediately deductible when incurred for income tax purposes. The recently introduced income tax substantiation requirements for employment-related expense claims are disregarded for this purpose. As necessary, specific substantiation requirements are established for fringe benefits tax purposes. In addition, the $250 threshold on the deductibility under section 51 of the Income Tax Assessment Act for self-education expenses is similarly disregarded.

By sub-paragraph 24(1)(b)(ii), any expenditure that would otherwise be subject to the proposed new "negative gearing" rules for income tax purposes in relation to rental property investments made after 17 July 1985 (see clause 11 of the Taxation Laws Amendment Bill 1986) will not apply to reduce the taxable value of expense payment fringe benefits.

Paragraphs 24(1)(c) to (f) prescribe the substantiation requirements that are to be satisfied if the reduction rule embodied in clause 24 is to apply.

By paragraph 24(1)(c), documentary evidence of expenditure is required. As a general rule, that documentary evidence is to be of a kind that would be required if the employee sought to obtain an income tax deduction for the expenses, i.e., receipts, invoices, etc. (see definition of "documentary evidence" in sub-clause 136(1)).

Sub-paragraph 24(1)(c)(i) applies in conjunction with sub-clauses 24(3) and (4) to enable entries in a petty cash book, which provide details of the amount and nature of the employee's expenditure, to substitute for receipts, etc., in the case of individual items of expenditure of less than $10. The maximum amount per employee for which entries can be made in substitution for actual receipts is $200.

The requirement to obtain documentary evidence of expenditure does not apply in two cases. These are, broadly -

•

the reasonable costs of accommodation, meals or other incidentals of travel within Australia which would not require substantiation under the income tax law when met out of a reasonable travel allowance (see the definition of "eligible incidental travel expense benefit" in sub-clause 136(1)); and

•

overtime meal expenses that would not require substantiation when met out of a reasonable overtime meal allowance (see the definition of "eligible overtime meal expense benefit" in sub-clause 136(1)).

Paragraph 24(1)(d) applies in circumstances where the employee's expenditure was incurred in respect of travel outside Australia or in respect of travel in Australia in circumstances where the travel was not undertaken exclusively in the course of the employee's employment with the employer and involved the employee being away from home for more than 5 nights.

In these circumstances a further pre-condition for the application of the reduction rule is that the employee keep a diary of a kind required to substantiate under the income tax law deductions for overseas or extended domestic travel (see the definition of "travel diary" in sub-clause 136(1)). A further requirement is that the diary (or a copy) be supplied to the employer by the time of lodgment of the employer's annual fringe benefits tax return.

By paragraph 24(1)(e) the employee is also required to lodge with the employer a declaration, in an approved form, setting out details of the expenditure. This provides the details necessary to establish the connection between the expenditure and the income-producing activities of the employee.

This requirement does not, however, apply in relation to expenses that are incurred by the employee exclusively in the course of his or her employment duties with the employer (i.e., "exclusive employee expense payment benefit" as defined in sub-clause 136(1)). Nor does the requirement for a declaration apply to overtime meal expenses that are excluded from the operation of paragraph 24(1)(c) ("eligible overtime meal expense payment benefits"), travel expenses to which paragraph 24(1)(d) applies ("eligible incidental travel expense payment benefits") or car expenses which are subject to the rules in paragraph 24(1)(f) ("car expense payment benefits").

Paragraph 24(1)(f) establishes rules for application of the "otherwise deductible" reduction rule where the expenses met or reimbursed by an employer or expenses incurred by an employee are in operating a car he or she owns or leases. Car expenses for this purpose is given a wide meaning, consistent with the meaning given for purposes of the income tax substantiation requirements (see the definition of "car expense payment benefit" in sub-clause 136(1)). The requirements imposed by paragraph 24(1)(f), and the resultant rules for ascertaining the "otherwise deductible" percentage are consistent with those outlined in the notes on paragraph 19(1)(d).

Where the substantiation requirements referred to above are satisfied, the taxable value of the relevant expense payment benefit determined in accordance with the rule established in clause 23 is reduced by the amount of the employee's expenditure that would otherwise have been deductible to the employee for income tax purposes.

Sub-clause 24(2) ensures that, where expenditure is incurred on travel in respect of which an employee is required by paragraph 24(1)(d) to maintain a travel diary, any expenditure on an activity that is not duly entered in the diary will be disregarded in determining the extent to which the travel expenses is to be taken as "otherwise deductible" to the employee.

The operation of sub-sections 24(3) and (4) is as explained in the notes on paragraph 24(1)(c).

Sub-clause 24(5) is a safeguard which ensures that where an amount of an employee's expenditure is reimbursed by an employer in instalments, the "otherwise deductible" reduction rule applies only to the aggregate of the reimbursements.

The various substantiation documents required by clause 24 will, as explained in the notes on Part X, generally need to be retained by an employer for a period of 6 years from when the relevant fringe benefits tax return is lodged. In addition, as mentioned in the notes on sub-clause 19(1) relating to loan fringe benefits, technical compliance with the substantiation requirements will not of itself be conclusive that an employee would have been entitled to an income tax deduction.

DIVISION 6 - HOUSING FRINGE BENEFITS

An outline of the operation of the Bill in relation to free or subsidised residential accommodation is contained in the introductory section of this memorandum. The main features are -

•

a taxable benefit arises where an employee is granted a right to occupy a unit of accommodation as the employees usual place of residence;

•

the value of the benefit is ascertained in the first year in which a taxable benefit is granted in relation to the unit, generally by reference to the market value of the right to occupy the unit;

•

in subsequent years the taxable value is generally to be ascertained by indexing the prior year's taxable value according to movements in the rent sub-group of the Consumer Price Index; although a fresh market valuation is required each tenth year;

•

the taxable value of accommodation located in a remote area that qualifies for existing concessional treatment under the income tax law (with some extension) is to qualify for a 40% reduction in the value determined under the preceding rules;

•

there is to be an alternative statutory method for valuing remote area accommodation that qualifies for the preceding concession;

•

in each case the taxable value is to be reduced by the amount of any rent paid by the employee for the right to occupy the unit.

Subdivision A - Housing Benefits

Clause 25: Housing benefits

Clause 25 establishes the basic rule that the existence of a housing right granted to a person during a year of tax is to constitute a benefit provided to that person.

For this purpose a "housing right" is defined in sub-clause 136(1) to mean the granting of a lease or licence to occupy or use a unit of accommodation as the person's usual place of residence.

By this latter requirement, the valuation rules embodied in Division 6 will not extend to accommodation provided to an employee who is required to live away from his or her usual place of employment in the course of employment duties. Such accommodation benefits will be dealt with under the residual benefits rules contained in Division 12 and will, where the specific requirements of sub-clause 47(5) are met, be exempt from fringe benefits tax.

Nor will Division 6 apply to accommodation provided to an employee where the employee is undertaking travel. Such benefits will similarly fall for valuation under the residual benefits rules. Where the travel is undertaken for income-producing purposes of the employee, the taxable value will be subject to reduction under the "otherwise deductible" reduction rules embodied in sub-clause 52(1).

A "unit of accommodation" is defined widely in sub-clause 136(1) to include a house, flat or home unit; accommodation in a hotel, hostel, motel or guesthouse; accommodation in a bunkhouse or other living quarters; accommodation in a ship, vessel or floating structure, and a caravan or mobile home.

As explained in the notes on the general scheme of the Bill, a housing right benefit as defined in this Subdivision will be subject to fringe benefits tax where the right is granted by the employer (or associate or third party arranger) to an employee or associate and where the benefit is provided in respect of the employee's employment.

Subdivision B - Taxable value of housing fringe benefits

Clause 26: Taxable value of non-remote housing fringe benefits

Clause 26 establishes the rules for valuing housing fringe benefits other than those that qualify for the concessional remote area valuation rules provided in clause 29. Broadly, these latter rules apply to accommodation that qualifies for existing concessional treatment under section 26AAAB of the Income Tax Assessment Act.

By paragraph 26(1)(a), the taxable value of the right to occupy a unit of accommodation that is not located in a State or internal Territory is the market value of that right, reduced by the amount of rent paid by the employee (or associate).

Paragraph 26(1)(b) applies where the accommodation is provided in a hotel, motel, hostel or guesthouse within Australia. In this case the taxable value is similarly the market value of the right to occupy the accommodation less any rent paid. If, apart from being a housing benefit, such a benefit would be an "in-house" residual fringe benefit - broadly, services supplied by an employer whose business it 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. That will be the case, for example, if a hotel employee is provided with residential accommodation in the employer's hotel similar to that provided to paying guests.

Paragraph 26(1)(c) applies to the provision of other accommodation located within Australia. Accommodation benefits falling within this wide category will initially be valued by reference to the market value of the right to occupy the accommodation, but indexation adjustments will apply. The taxable value will be found by -

•

obtaining the "statutory annual value" of the right to occupy the accommodation;

•

multiplying the statutory annual value by the proportion of the number of days in the year of tax when the housing right existed over the total number of days in that year (this is expressed in paragraph 26(1)(c) by the formula

(A*B)/(C)


); and

•

deducting the amount of rent paid.

Note that while it is necessary to determine a full-year rental value of a housing right so as to facilitate the indexation arrangements described below, the practical result of the operation of this formula in relation to the transitional year of tax is that accommodation rights will be valued in that year by reference to the market value of the right, less the amount of rent paid.

The statutory annual value of a right to occupy a unit of accommodation is determined in accordance with the rules embodied in sub-clause 26(2).

Paragraph 26(2)(a) prescribes the rules for ascertaining the statutory annual value of a housing right in what is termed a "base year of tax". Put broadly, the statutory annual value is the market value of the right to occupy the accommodation for the year. Where the employee's housing right exists for part only of the year the market value of that right is annualised to determine the statutory annual value.

Whether a year of tax is a base year of tax is determined under the rules established in sub-clauses 26(3) and (4). By virtue of these sub-clauses, the transitional year of tax will be a base year, and so will any other year where the unit of accommodation was not, in the preceding year, used to provide a housing fringe benefit to an employee or associate. A year will also be a base year if the unit of accommodation has been used to provide housing benefits to an employee or employees in each of the 9 preceding years, none of which was a base year. (This will allow the indexed value to be aligned with market rental value every 10 years.)

Paragraph 26(2)(b) establishes the indexation arrangements for valuing a right to occupy a unit of accommodation in a year other than a base year.

By virtue of this paragraph, the statutory annual value of a right to occupy a unit of accommodation in a year immediately succeeding a base year is determined by applying the relevant index number derived from movements in the rent sub-group of the Consumer Price Index - see notes on clause 28 - to the statutory annual value determined in relation to the base year under paragraph 26(2)(b) (broadly, the annualised market value of the employee's right to occupy the unit for the full base year).

In circumstances where the unit of accommodation has been occupied during different periods in the year by different employees, the statutory annual value of the base year for purposes of the indexation arrangement, is determined by reference to the weighted average of the respective annualised values determined in relation to each employee.

Having established the indexed statutory annual value of a right to occupy a unit of accommodation in relation to the year of tax immediately succeeding a base year, the current indexation factor is then applied to that value in determining the statutory annual value for the succeeding year. That process of annual indexing continues until there is another base year in relation to the unit.

Sub-clause 26(5) applies where there has been a material alteration to a unit of accommodation that has the effect of substantially altering (i.e. by at least 10%) the market value of the right to occupy the unit. Where this occurs the sub-clause requires the unit to be treated as a "new" unit of accommodation, with the result that the value of the right to occupy the unit is, from the date of the change, re-established by reference to the market value of that right.

Sub-clause 26(6) defines, for the purposes of sub-clause 26(5), a "material alteration" to a unit of accommodation as additions or improvements or other work carried out on the unit, any damage to the unit, or any addition of facilities to the unit or removal of facilities from the unit.

Clause 27: Determination of market value of housing right

Clause 27 specifies certain factors that are to be disregarded in determining the market value of a right to occupy a unit of accommodation.

Under sub-clause 27(1), any rights of the occupant of the unit to have any associated expenses (e.g., for electricity) incurred by the occupant paid or reimbursed by another person are disregarded. Such benefits will be subject to valuation under the expense payment rules explained in the notes on Division 5.

By sub-clause 27(2), any onerous conditions attached to the housing right that relate to the employee's occupancy are similarly to be disregarded. For example, the fact that the employee is provided with accommodation under arrangements where the employee is "on-call" will not affect the market value of the housing right.

Clause 28: Indexation factor for valuation purposes

Clause 28 establishes the indexation factor that is to apply in relation to a particular year of tax for the purposes of the indexation arrangements detailed in paragraph 26(2)(b). Separate indexation numbers are to apply for each State and internal Territory.

By sub-clause 28(1), the factor is to be ascertained as at the date on which the index number is first published for the December quarter immediately preceding the year of tax. The factor is to be ascertained by dividing the sum of the rent sub-group numbers of the Consumer Price Index for each quarter of the twelve months ending 31 December that immediately precedes the relevant year of tax by the sum of the corresponding numbers for each quarter of the twelve months ending on the previous 31 December.

Under sub-clause 28(2) the index number first published for each quarter of any year is to be used in the calculation in sub-clause (2). Any index number published in substitution for a previously published index number is to be disregarded.

Sub-clause 28(3) requires that if, at any time, the Australian Statistician changes the reference base for the rent sub-group of the Consumer Price Index, the indexation factor calculated after that time will be determined by reference only to index numbers published in terms of the new base.

Sub-clause 28(4) specifies the basis for rounding to three decimal places the factor calculated in accordance with sub-clause (1).

By paragraph 28(5)(a), the Jervis Bay Territory is treated as part of New South Wales, with the result that the indexation factor for that State is to be used in indexing the statutory annual value of accommodation provided in that Territory. Paragraph 28(5)(b) applies similarly to index accommodation in the Territory of Christmas Island as for the Northern Territory.

Clause 29: Taxable value of remote area accommodation

Clause 29 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 (see notes on sub-clause 29(4)).

Paragraph 29(1)(a) prescribes a statutory formula for determining the value of a housing right that qualifies as a remote area housing right within the terms of sub-clause 29(4). This basis of valuation will apply only where an employer makes an election under sub-clause 29(2) (see notes on that sub-clause).

Calculation of the taxable value of each remote area housing right granted by an employer in a year of tax in accordance with this formula involves the following steps -

•

the statutory annual rent amount - which as explained in the notes below is a standard figure determined in relation to a year of tax - is discounted by 40%;

•

this discounted annual figure is apportionable 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;

•

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

The "statutory annual rent amount" is defined for these purposes in sub-clause 136(1). This amount is calculated in relation to a particular year of tax as follows -

•

the amount of the average weekly earnings (including overtime) of adult male full-time employees in the mining industry published by the Australian Statistician in respect of the November pay period immediately preceding the beginning of the year of tax is multiplied by 52 to give an annual figure;

•

this figure is then apportioned by the fraction obtained by dividing the sum of the dwelling rent components of the total private final consumption expenditure figures published in respect of the quarters in the calender year immediately preceding the year of tax by the sum of the total private consumption expenditure figures published in respect of each of those quarters.

For the transitional year of tax the average weekly earnings figure mentioned above is the figure as published by the Australian Statistician in the publication "Average Earnings and Hours of Employees, Australia". For subsequent years the figures are to be published in the official publication "Average Weekly Earnings, States and Australia".

The dwelling rent components and total private consumption expenditure amounts are amounts, expressed at current prices and without seasonal adjustments, as published by the Australian Statistician in the document published in respect of the December quarter of the relevant calender year titled "Quarterly Estimate of National Income and Expenditure".

If an employer does not elect to adopt the statutory formula method of valuation, the taxable value of qualifying remote area housing rights is the amount determined in accordance with clause 26 as reduced by 40%.

Any rent paid by the employee is deducted from this discounted amount. A housing right that qualifies for this 40% discount will not also qualify for the general 25% "in-house" fringe benefits reduction described in the notes on paragraph 26(1)(b).

The basis for making an election to adopt the statutory formula valuation method is contained in sub-clauses 29(2) and (3). By virtue of these sub-clauses, where an employer has made an election, all remote area accommodation benefits provided by that employer will be valued by the formula method. An election must be made by the time of lodgment by the employer of the annual fringe benefit tax return for the year of tax. Once the election is made it is irrevocable and applies to the year of tax and all subsequent years.

Sub-clause 25(4) specifies the conditions, each of which must be satisfied before the valuation rules embodied in this clause can apply.

These conditions, which are similar to conditions that have applied for purposes of valuing employees' remote area housing benefits under the income tax law, are that -

•

the unit of accommodation is located in a State or internal Territory and is in a remote area (paragraph (a));

•

the unit of accommodation is occupied by an employee whose annual place of employment is in a remote area (paragraph (b));

•

it is customary in the particular industry for employers to provide free or subsidised residential accommodation to employees (paragraph (c)); and

•

it is necessary for the employer to provide free or subsidised accommodation for employees for any of the following reasons (paragraph (d)):

-

the nature of the employer's business is such that employees are liable to frequent movement from one residential location to another;

-

in the area in which the employee is employed there is not sufficient suitable residential accommodation otherwise available; or

-

because it is customary in the employer's industry to provide free or subsidised housing to employees.

Paragraph 29(4)(e) mirrors safeguards designed to prevent non-arm's length and other arrangements being employed to obtain the unintended benefit of the remote area valuation concession.

For the purposes of the concessional rules to apply in remote localities, a unit of accommodation will be treated as being in a remote area if it is not at a location in, or adjacent to an eligible urban area. By virtue of clause 140, an eligible urban area is a town or city with a 1981 Census population of 14,000 (or 28,000 if the town or city is located in zone A or zone B for income tax purposes). A location will be treated as being adjacent to an eligible urban area (i.e., not remote) if it is less than 40 kilometres by the shortest practicable surface route from the centre point of an eligible urban area with a 1981 Census population of less than 130,000 or is less than 100 kilometres from an eligible urban area with a population of 130,000 or more.

Sub-clause 29(5) mirrors a similar provision in the income tax law and gives the Commissioner of Taxation the power where circumstances warrant it, to treat a person who resides or works in an area adjacent to an eligible urban area, as residing or working outside that area if persons who live or work near to that person, are outside that area. This power is to meet situations where near neighbours would otherwise be treated differently as to whether they qualify for the concession under the "remoteness" tests because they live or work just on opposite sides of the dividing mark.

DIVISION 7 - LIVING-AWAY-FROM-HOME ALLOWANCE FRINGE BENEFITS

An outline of the operation of the Bill in relation to expense payment fringe benefits is contained in the introductory section of the memorandum. The main features are -

•

an allowance paid by an employer to an employee to compensate for additional expenses or disadvantages suffered through having to live away from home to perform employment duties is to be treated as a fringe benefit;

•

the taxable value is the amount of the allowance less so much of the allowance as is reasonable compensation for the cost of accommodation away from home and increased expenditure on food.

Subdivision A - Living-away-from-home Allowance Benefits

Clause 30: Living-away-from-home allowance benefit

Clause 30 specifies the circumstances in which an allowance paid by an employer to an employee will be treated as a living-away-from-home allowance benefit. These are where the allowance paid to an employee is in the nature of compensation for additional expenses incurred, or additional expenses incurred and other disadvantages suffered, because the employee is required to live away from home to perform his or her duties of employment. Additional expenses for this purpose do not include expenses for which the employee would be entitled to a deduction under the income tax law.

Subdivision B - Taxable Value of Living-away-from-home Allowance Fringe Benefits

Clause 31: Taxable value of living-away-from-home allowance fringe benefits

Under clause 31, the taxable value of a living-away-from-home allowance is the amount of the allowance reduced by either or both of two components. These components are termed the "exempt accommodation component" and the "exempt food component". Both are defined in sub-clause 136(1).

The amount of an exempt accommodation component is so much of the allowance as is reasonable compensation for the cost of accommodation of the employee.

The second component that may be deducted from the allowance in calculating the taxable value - the exempt food component - is, broadly, so much of the allowance as is reasonable compensation for increased expenditure on food.

In determining what is reasonable compensation for increased expenditure on food, the law specifies (see the definition of "statutory food amount" in sub-clause 136(1)) the amount that an employee could reasonably be expected to have incurred on food at his or her home. Only so much of the food component of the allowance (see the definition of "food component" in sub-clause 136(1)) as exceeds that statutory amount for home food costs is treated as an exempt food component.

To illustrate the operation of these arrangements, if, as part of a living-away-from-home allowance an employee is paid $80 per week to cover the gross cost of food while living away from home, the taxable value of the allowance would be reduced by $38. In this case $38 represents the excess of the food component over the home food cost (the "statutory food amount") which for an adult is set at $42 per week.

If the amount of the food component of the allowance has been determined after allowing an estimate for the normal cost of food at the employee's home and the estimated home food cost for this purpose is at least equal to the $42 statutory amount, the taxable value of the living-away-from-home allowance will be reduced by the full amount of the food component of the allowance.

In the event that the estimated home food cost adopted in paying the allowance was less than the $42 statutory amount, so much of the food component as exceeds the difference between the estimated home food cost and the $42 statutory amount will apply to reduce the taxable value of the living-away-from-home allowance. To take an example, if the food component of an allowance paid to an employee was set at $60 per week after allowing for estimated home food costs of $20, the taxable value of the allowance would be reduced by $38 (i.e., $60 reduced by the difference between $42 and $20).

In the event that the food component of the allowance is paid to compensate for the cost of food purchased for the employee and a spouse or child who moves with the employee from their usual place of residence (see the definition of "eligible family member" in sub-clause 136(1)) the preceding rules apply on an equivalent basis by reference to the aggregate of the statutory food amounts applicable to the employee and family members who moved with him or her.

As already mentioned the statutory food amount for an adult is set at $42 per week. The comparable figure for a child who is less than 12 years of age at the beginning of the relevant year of tax is $21. It is intended that these amounts be regularly reviewed by reference to movements in the Consumer Price Index.

Before the taxable value of a living-away-from-home allowance can be reduced by either or both of the exempt accommodation component or exempt food component, the employee is required to give to the employer a declaration, in an approved form, that sets out the particulars of the employee's "usual place of residence" and "actual place of residence" during the period of absence from home (see the definitions of those terms in sub-clause 136(1)).

DIVISION 8 - AIRLINE TRANSPORT FRINGE BENEFITS

The operation of the Bill in relation to discounted airline transport provided to employees in the airline and travel industries is contained in the introductory section of this memorandum. The main features are -

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the special valuation arrangements embodied in this Division are to apply to free or discounted airline transport provided within the travel industry on an employee stand-by basis (other discounted travel will be subject to tax under the residual benefits rules contained in Division 12);

•

the taxable value of domestic travel will be 37.5% of the standard economy fare charged by the carrier (where the travel is on a domestic leg of an international flight, the taxable value will generally be 37.5% of the equivalent TAA fare);

•

the taxable value of international travel will generally be 37.5% of the lowest fare published in Australia that is charged by the carrier for travel over that route in the 12 month period preceding the end of the relevant year of tax.

Subdivision A - Airline Transport Benefits

Clause 32: Airline transport benefits

Clause 32 specifies the circumstances in which the provision of airline transport will be subject to valuation under Division 8.

Paragraph 32(a) establishes, firstly, that the transport must be provided to an employee (or associate) in a passenger aircraft which, by virtue of sub-paragraph 32(b)(i), must be operated by an "airline operator". This term is defined in sub-clause 136(1), broadly, to mean a person who carries on a business of providing transport to the public on passenger aircraft.

A further condition for the application of Division 8 is that the employer (or an associate of the employer) is an airline operator or, alternatively, that the employer is a travel agent (sub-paragraph 32(b)(ii)). It should be noted that it is not necessary in the case of employees of an airline operator that the transport be provided on a flight of that operator. As is the general rule, fringe benefits tax will extend to discounted travel provided on flights operated by another carrier under an arrangement with the employer. As is explained in the notes on sub-clause 136(1), "arrangement" has a wide meaning and includes all agreements, understandings, undertakings, etc., formal or otherwise.

The final requirement for the application of Division 8 is embodied in paragraph 32(c). This is that the transport is provided under the employee stand-by restrictions that are customary in the airline industry. Under these, the stand-by travel rights of an employee come behind those of members of the general public (including, where applicable, members of the public who fly on a stand-by basis).

Subdivision B - Taxable Value of Airline Transport Fringe Benefits

Clause 33: Taxable value of airline transport fringe benefits

Clause 33 establishes the taxable value of a benefit subject to the operation of Division 8 as the stand-by value of the transport, reduced by the fare paid by the employee (or associate).

"Stand-by value" is defined for these purposes in sub-clause 136(1) and different rules apply according to whether the benefit relates to domestic or international air travel.

For domestic travel on a scheduled service of a domestic carrier, the stand-by value is the amount equal to 37.5% of the standard economy fare charged by the carrier for travel on that flight.

Where an employee is provided with transport within Australia on the domestic leg of an international flight, the stand-by value will, generally, be 37.5% of the standard economy fare charged by TAA for an equivalent flight.

The stand-by value of travel provided over an international route will be determined, broadly, as 37.5% of the lowest fare published in Australia and charged by the carrier for travel over that route in the 12 month period preceding the end of the relevant year of tax.

The relevant published fare for this purpose is that charged on an individual booking basis. Reduced fares applicable for return travel or advance purchase will apply in determining the relevant stand-by value (see the definition of "providers published air fare" in sub-clause 136(1)).

As explained in the notes on the definition of "qualifying air fare" in sub-clause 136(1), a published air fare of a carrier who has premises in Australia is a fare offered as being available to all members of the public and specified in a publication authorised by the carrier and available at those premises.

Where the carrier does not have premises in Australia, the equivalent fare is one that is offered as being available to all members of the public and specified in a tariff manual authorised by the provider and available at an agent's premises in Australia.

Clause 34: Reduction of taxable value

Clause 34 applies, broadly, to reduce the taxable value of an airline transport fringe benefit to the extent to which any expenditure that has been, or would otherwise have been, incurred on the transport would be deductible for income tax purposes (e.g., because the travel was undertaken in the course of the employee's employment).

Paragraph 34(1)(a) applies to limit the operation of the reduction rule to travel undertaken by an employee.

Paragraph 34(1)(b) establishes the general pre-condition for application of the reduction rule that the whole or a part (the "deductible percentage") of any expenditure that the employee might have incurred on the transport would have been deductible for income tax purposes. The recently introduced income tax substantiation requirements for employment-related expense claims are disregarded for this purpose. As detailed below, specific substantiation requirements are established for fringe benefits tax purposes.

By paragraph 34(1)(c) the employee is required to lodge with the employer a declaration, in an approved form, setting out details of the transport so as to establish its connection with the income-producing activities of the employee. This requirement does not need to be satisfied where the travel is undertaken exclusively in the course of the employee's employment duties with the employer (sub-paragraph 34(1)(c)(i) - see the definition of "exclusive employee airline transport benefit" in sub-clause 136(1)); nor does it apply in relation to overseas or extended domestic travel to which paragraph 34(1)(d) applies (sub-paragraph 34(1)(c)(ii) - see definition of "extended travel airline transport benefit").

Paragraph 34(1)(d) applies in circumstances where the benefit relates to travel outside Australia or to travel in Australia where it was not undertaken exclusively in the course of the employee's employment and involved the employee being away from home for more than 5 nights.

In these circumstances a further pre-condition for the application of the reduction rule is that the employee keep a diary of a kind required to substantiate under the income tax law deductions for overseas or extended domestic travel (see the definition of "travel diary" in sub-clause 136(1)). A further requirement is that the diary (or a copy) be supplied to the employer by the time of lodgment of the employer's annual fringe benefits tax return.

Where these requirements are satisfied the taxable value is reduced in line with the proportion of any expenditure on the transport that would have been deductible for income tax purposes (e.g., if half of any expenditure would have been deductible for income tax purposes, the taxable value of the airline transport fringe benefit would be reduced by half).

Sub-clause 34(2) ensures that, where the travel is of a kind for which a travel diary is required to be maintained by paragraph 34(1)(d), any activity that is not duly entered in the diary will be disregarded in determining the extent to which travel expenses would be "otherwise deductible" to the employee.

The various substantiation documents required by clause 34 will, as explained in the notes on Part X, generally need to be retained by an employer for a period of 6 years from when the relevant fringe benefits tax return is lodged. In addition, as mentioned in the notes on sub-clause 19(1) relating to loan fringe benefits, technical compliance with the substantiation requirements will not of itself be conclusive that an employee would have been entitled to an income tax deduction.

DIVISION 9 - BOARD FRINGE BENEFITS

An outline of the operation of the Bill in relation to board fringe benefits is contained in the introductory section of this memorandum. The main features are -

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an employee will be treated as being provided with board during a period when he or she is entitled to the provision of accommodation and, broadly, there is an entitlement to the provision of at least 2 meals a day;

•

where these meals are provided by the employee on the employer's premises or at a work site, special valuation rules apply;

•

under these valuation rules, the taxable value of the benefit is set at $2 per meal ($1 per meal for a person under 12 years), less any amount paid for the meal.

Subdivision A - Board Benefits

Clause 35: Board benefits

Clause 35 establishes the rule that the provision of a board meal to a person will constitute the provision of a benefit.

"Board meal" is defined for the purposes of this Division in sub-clause 136(1). The first requirement to be satisfied for this purpose is that the meal be provided on what is termed a "meal entitlement day" (paragraph (a) of the definition of board meal).

"Meal entitlement day" is also defined for these purposes in sub-clause 136(1). Any day on which an employee is entitled to the provision of accommodation and is also entitled, within the terms of an industrial instrument, to the provision of at least 2 meals will be such a day. "Industrial instrument" is defined in sub-clause 136(1) to mean a law of the Commonwealth or of a State or Territory or an award, order, determination or industrial agreement in force under any such law.

A day may also be treated as a meal entitlement day if it occurs during a period when the employee is entitled to the provision of accommodation and, under an arrangement that is in force during that period, the employee is entitled to be supplied with at least 2 meals per day. This requirement will be satisfied only where the meal entitlement extends both to working days and non-working days during the period and only where meals are, in fact, ordinarily provided on the working days.

Where these conditions are satisfied, the remaining paragraphs of the definition of board meal specify the circumstances in which a meal provided on a meal entitlement day will be subject to the specific valuation rules embodied in Subdivision B.

The first condition - paragraph (b) of the definition of board meal - is that the meal be provided by the employer; although a meal provided by a related company (see clause 158) will, in a case where the employer is a company, satisfy this requirement.

The second requirement - paragraph (c) of the definition - may be satisfied on one of two alternative basis. The first of these is that the meal be cooked or otherwise prepared on the employer's (or, as appropriate, a related company's) premises and be provided to the employee on such premises. Meals prepared and provided at or adjacent to a work site would also satisfy this requirement (see the definition of "eligible premises" in sub-clause 136(1)). The requirements of paragraph (c) would not, however, be satisfied if the meal is provided in a public restaurant.

The other basis for satisfying the requirements of paragraph (c) relate to meals supplied to employees who work in a restaurant or other public dining facility (see the definition of "eligible dining facility in sub-clause 136(1)) or in an associated accommodation or recreational facility (e.g., employees in a hotel or motel). In these cases the requirements of paragraph (c) will be satisfied if the meal is prepared and provided to the employee in that facility.

Reference should also be made to clause 151, the broad effect of which is to ensure that where a person contracts out the services of his or her employees to another person, the board meal requirements apply as if meals provided by that other person on his or her premises were supplied by the employer on the employer's premises.

By virtue of paragraph (d) of the definition of board meal, the special board valuation rules will not apply to meals prepared in a facility that is principally used to prepare meals for a particular employee. By this paragraph, the valuation rules will not apply where a house provided to an employee and immediate family also has a cook on the domestic staff. Such benefits will either be subject to the recently introduced entertainment provisions of the income tax law or be dealt with under other Divisions of this Bill.

By paragraph (e) of the definition of board meal, a meal provided at a party, reception or other social function will also be excluded from the scope of this Division.

Meals provided to an employee's family will be subject to the special valuation rules where the conditions outlined above are satisfied.

Subdivision B - Taxable Value of Board Meals

Clause 36: Taxable value of board meals

By clause 36, the taxable value of a meal that is treated as a board meal by virtue of Subdivision A is set at $2, less any amount paid by the employee to obtain the meal. In the event that the person receiving the meal is less than 12 years old at the beginning of the relevant year of tax, the taxable value is $1, again reduced by any charge.

It is intended that these values be regularly reviewed having regard to movements in the Consumer Price Index.

Clause 37: Reduction of taxable value

Consistent with similar provisions in other Divisions, clause 37 applies to reduce the taxable value of a board fringe benefit to the extent to which any expenditure incurred by an employee in obtaining the meal would have been deductible for income tax purposes.

Paragraph 37(1)(a) applies to limit the operation of the reduction rule to meals provided to an employee.

Paragraph 37(1)(b) establishes the general pre-condition for application of the reduction rule that the whole or a part (the "deductible percentage") of any expenditure that the employee might otherwise have incurred on the meals would have been deductible for income tax purposes. The recently introduced income tax substantiation requirements for employment-related expense claims are disregarded for this purpose.

DIVISION 10 - TAX EXEMPT BODY ENTERTAINMENT FRINGE BENEFITS

As noted in the introductory section of this memorandum, a taxable fringe benefit will arise where entertainment to the benefit of an employee is provided by an employer who is either wholly exempt from income tax or does not derive assessable income from the activities to which the entertainment relates.

A taxable fringe benefit will arise both where employees participate in official or business entertainment or where employees are entertained at, e.g., a staff Christmas party funded by the employer. Division 10 gives effect to this rule.

Reference should also be made to the notes on sub-clause 64(2), which address the treatment of entertainment that is purely personal to the employee, e.g., a private dinner party, the cost of which is borne by the employer.

As such the benefit could be provided -

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by a tax-exempt employer, e.g., a charity or statutory authority;

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by a taxable employer who provides entertainment to employees employed in an activity (e.g., gold mining) which is not subject to income tax; or

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by an employer for employees whose employment is unconnected with the production of assessable income (e.g., employees of mutual associations).

Subdivision A - Tax-exempt Body Entertainment Benefits

Clause 38: Tax-exempt body entertainment benefits

Clause 38 specifies the circumstances in which a benefit to which Division 10 applies will be taken to arise. Broadly, these are where a person incurs what is termed non-deductible exempt entertainment expenditure that is wholly or partly in respect of the provision of entertainment to an employee (or associate). A further requirement of clause 38 is that the provision of that entertainment be in connection with the employee's employment.

"Non-deductible exempt entertainment expenses" is defined for these purposes in sub-clause 136(1) as expenditure that is not incurred in producing assessable income - that is, the person incurring the expenditure is exempt from income tax or the particular activities to which the expenditure relate do not result in the production of assessable income - but which if it were so incurred would be denied a deduction by the operation of section 51AE(4) of the Income Tax Assessment Act 1936.

Where the person who incurs the relevant expenditure is the employer (or associate or third party arranger), the benefit will be a fringe benefit to which the valuation rules embodied in Subdivision B will apply.

Subdivision B - Taxable Value of Tax-exempt Body Entertainment Fringe Benefits

Clause 39: Taxable value of tax-exempt body entertainment fringe benefits

By clause 39, the taxable value of a benefit to which this Division applies is so much of the expenditure incurred in respect of the provision of entertainment as is attributable to the provision of entertainment to an employee of the employer or to an associate of the employee.

DIVISION 11 - PROPERTY FRINGE BENEFITS

An outline of the operation of the Bill in relation to the provision of property, free or at a discount, to employees is contained in the introductory section to this memorandum. The main features are -

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the provision of property to employees will give rise to a taxable fringe benefit;

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different valuation rules will apply according to whether the property provided to the employee was:

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goods normally manufactured or produced as part of an employer's business;

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goods purchased by the employer and normally sold as part of the employer's business; or

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goods not normally sold as part of the employer's business, or other property, e.g., choses in action;

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the valuation rules relating to goods normally sold as part of an employer's business will also apply where goods are provided to the employer's employees by an associate of the employer, provided they are goods of a kind normally sold as part of the associate's business;

•

the taxable value of benefits falling within the first two categories are subject to the general exemption for up to $200 as explained in the notes on clause 62;

•

those rules will not, however, apply to goods provided by a third party under an arrangement with the employer or associate; nor will they apply to goods purchased by an employee using an employer's credit card or similar authority;

•

goods supplied to employees on a working day and consumed at the employer's premises will not attract tax;

•

a benefit that consists of a combined supply of goods and services (e.g., repairs) will be subject to valuation under the residual benefit rules embodied in Division 13; and

•

the taxable value of a property benefit is to be reduced to the extent to which any expenditure that might otherwise have been incurred by the employee in acquiring the property would have been deductible for income tax purposes.

Subdivision A - Property Benefits

Clause 40: Property benefits

Clause 40 establishes the prima facie rule that the provision of property to a person is taken to constitute a benefit provided to the person.

Clause 40 does not require that the property be provided free or at a discount. However, as explained in the notes on Subdivision B, a taxable value will only arise where the amount of any consideration paid to obtain the property is less than the value of the property as set by the various rules embodied in that Subdivision.

As explained in the notes on the general scheme of the Bill, a "property benefit" as defined by sub-clause 136(1) will be subject to fringe benefits tax only where the property is provided by the employer (or associate or third party arranger) to an employee (or associate) and the benefit is provided in respect of the employment of the employee.

By virtue of the definition of "provide" in sub-clause 136(1), property will be taken to have been provided at the time when the beneficial interest in the property is disposed of. This is to be the case whether the disposal is by means of sale, gift, declaration of trust or otherwise.

In addition, clause 155 ensures that property will be taken to have been provided to a person when that person obtains the use of the property under an arrangement whereby title to the property is to pass to the person at a later date. This will apply to property provided under a hire-purchase arrangement or other instalment purchase arrangement under which equitable (and legal) title in the property does not pass until the final instalment is paid.

Clause 41: Exempt property benefits

By virtue of clause 41, property that is provided by an employer to an employee on a working day will be exempt from tax if it is consumed on the business premises of the employee. "Business premises" is defined in sub-clause 136(1) as premises used for the purposes of business operations of the employer, but does not include premises used for the provision of accommodation to employees. Property consumed on the premises of a "related company" - see the definition of that term in sub-clause 136(1) - will also be exempt.

Subdivision B - Taxable Value of Property Fringe Benefits

Clause 42: Taxable value of in-house property fringe benefits

Clause 42 establishes the valuation rules for what are termed "in-house property fringe benefits". This term is defined in sub-clause 136(1). The definitions of "tangible property" and "outsiders" in that sub-clause are relevant for this purpose, as is clause 156.

By virtue of the operation of those definitions, the valuation rules embodied in clause 42 will apply to goods (including for this purpose non-reticulated electricity and gas, animals and fish) provided to employees where those goods are identical or similar to goods which the employer sells in the ordinary course of business. Clause 42 also extends to goods provided to employees by an associate of the employer where the associate sells identical or similar goods in the ordinary course of business.

Paragraph 42(1)(a) applies where the goods provided to employees were manufactured, produced, processed or treated by the employer (or associate). Sub-paragraphs 42(1)(a)(i) and (ii) apply where the particular goods provided to employees are "identical" (see definition in sub-clause 136(1)), or practically so, to those sold in the ordinary course of business and prescribe alternative valuation rules according to whether the goods are ordinarily sold by retail or not. Sub-paragraph 42(1)(a)(iii) applies where the goods are similar but not identical to goods sold in the course of business (e.g., because manufacturing defects make them unsuitable for general sale).

By sub-paragraph 42(1)(a)(i), the taxable value of manufactured, etc., goods provided to employees that are identical to goods normally sold by the employer (or associate) to manufacturers, wholesalers or retailers is the amount by which the lowest arm's length selling price of such goods sold at that time (see the definition of "provision time") exceeds the price paid by the employee (or associate).

If sales tax is not normally payable by the employer on sales to customers, the price must be adjusted to include sales tax that would be payable by the employer on disposal of the goods to the employee. If, for example, the employer is a manufacturer normally selling to wholesalers (at which point there is no sales tax payable), an appropriate amount of sales tax is to be added to reflect, in terms of the sales tax law, the application of the goods to the employer's own use.

If the manufactured, etc., goods provided to employees are identical to goods normally sold by the employer (or associate) to the public by retail, the taxable value is, by virtue of sub-paragraph 42(1)(a)(ii), the amount by which 75% of the lowest arm's length price charged at that time for goods sold in similar circumstances to members of the public exceeds the amount paid by the employee (or associate).

In establishing a taxable value under either of the preceding rules, regard is to be had only to sales made in the ordinary course of the employer's business. In addition, where an employer (or associate) ordinarily sells both by wholesale, etc., and by retail, the valuation rule established by sub-paragraph 42(1)(a)(i) will apply.

Sub-paragraph 42(1)(a)(iii) - which applies for manufactured etc., goods provided to employees that are similar, but not identical, to goods sold in the ordinary course of business - establishes the taxable value as 75% of the amount by which the price that the employee (or associate) could be expected to pay to acquire the goods under an arm's length transaction (see the definition of "notional value" in sub-clause 136(1)) exceeds the price actually paid.

Paragraph 42(1)(b) applies where the goods provided to employees were purchased by the employer (or associate) for sale in the ordinary course of business. In these cases the taxable value is the amount by which the "arm's length purchase price" (see notes on sub-clause 42(2)) paid by the employer (or associate) exceeds the amount paid by the employee (sub-paragraph 42(1)(b)(i)).

In the event that such goods have lost value by the time they are provided to the employee (e.g., because of obsolescence or deterioration) the taxable value is measured by reference to the amount for which the employee could be expected to purchase the goods in an arm's length dealing if that amount is less than the cost to the employer (sub-paragraph 42(1)(b)(ii)).

Paragraph 42(1)(c) is a residual valuation rule that will apply in the event that paragraphs 42(1)(a) or (b) are inapplicable. By this paragraph the taxable value of goods provided to employees is the amount by which 75% of the price for which the employee could be expected to purchase the goods under an arm's length transaction (see the definition of "notional value" in sub-clause 136(1)) exceeds the price actually paid.

Sub-clause 42(2) defines, for the purposes of paragraph 42(1)(b), the amount that is to be accepted as the arm's length purchase price of goods acquired by an employer (or associate) for sale in the ordinary course of business.

By paragraph 42(2)(a), if the goods were in fact acquired by the employer (or associate) in the ordinary course of business under an arm's length transaction, the amount paid to acquire the goods will be treated as the arm's length purchase price.

If the goods were not so acquired, the arm's length purchase price will be the amount that the employer (or associate) could be expected to have been required to pay to purchase the goods under an arm's length transaction in the ordinary course of business.

Clause 43: Taxable value of external property fringe benefits

Clause 43 prescribes the valuation rules for what are termed "external property fringe benefits".

This term is defined in sub-clause 136(1) and, by virtue of this, clause 43 will apply to goods provided to employees other than by an employer or associate who sells identical or similar goods in the ordinary course of business. It will also apply to property other than goods. By virtue of the definition of "intangible property" in sub-clause 136(1), this latter category does not include a right arising under a contract of insurance or a lease or licence in respect of property. Benefits relating to insurance and leases will fall for valuation under the residual benefits rules embodied in Division 12.

By paragraph 43(a), the taxable value of the provision of such property to employees (or associates) in a case where the property has been acquired under an arm's length transaction by the employer (or associate or third-party arranger) is the cost price of the property, reduced by the amount paid by the employee (or associate). This rule applies where the property is provided to the employee around the time when it was acquired by the employer (or associate, etc.) - see notes on paragraph 43(c).

Paragraph 43(b) applies where the property is obtained from a third party under an arrangement whereby the expenditure in acquiring the property is incurred by the employer (or an associate). Where that expenditure is incurred under an arm's length transaction, the taxable value will be the amount of that expenditure reduced by any amount actually paid by the employee (or associate).

Paragraph 43(b) would apply, for example, where goods are purchased by an employee using an employer's credit card - see the notes on clause 150.

Paragraph 43(c) is a residual rule that will apply wherever the rules in the proceeding two paragraphs do not apply. Under this rule, the taxable value is the excess of the amount that the employee (or associate) could reasonably be expected to have paid to acquire the property over the amount actually paid by the employee (or associate).

Paragraph 43(c) would apply where the property was not purchased by the employer (or associate, etc.) or where a material time has elapsed since it was purchased. In practical terms, material time will have elapsed only if it is such that the value of the goods has altered appreciably.

Clause 44: Reduction of taxable value

Consistent with similar provisions in other Divisions, clause 44 applies to reduce the taxable value of a property fringe benefit to the extent to which any expenditure that has been, or would otherwise have been, incurred in acquiring the relevant property would have been immediately deductible to the employee for income tax purposes.

Paragraph 44(1)(a) applies to limit the operation of the reduction rule to property benefits provided to employees.

Sub-paragraph 44(b)(i) establishes the general pre-condition for application of the reduction rule that the whole or a part (the "deductible percentage") of any expenditure that might have been incurred by the employee would have been immediately deductible when incurred for income tax purposes (i.e., the reduction rule will not apply in relation to the provision of plant in respect of which depreciation allowance deductions might otherwise have been allowable). The recently introduced income tax substantiation requirements for employment related expenses are disregarded for this purpose. As detailed below, specific substantiation requirements are established for fringe benefits tax purposes.

By sub-paragraph 44(1)(b)(ii) any expenditure that might have been incurred by the employee that would otherwise be subject to the proposed new "negative gearing" rules for income tax purposes (see clause 11 of the Taxation Laws Amendment Bill 1986) will not apply to reduce the taxable value of property fringe benefits.

By paragraph 44(1)(c) the employee is required to lodge with the employer a declaration, in an approved form, setting out details sufficient to establish the connection between the property provided and the income-producing activities of the employee.

This requirement does not need to be satisfied where any expenditure that the employee might have incurred in acquiring the property would have been expenditure incurred exclusively in the course of the employee's employment duties with the employer (sub-paragraph 44(1)(c)(i) - see the definition of "exclusive employee property benefit" in sub-clause 136(1)); nor does it apply where that expenditure would have been expenditure incurred on overseas or extended domestic travel to which paragraph 44(1)(d) applies (sub-paragraph 44(1)(c)(ii) - see the definition of "extended travel property benefit" in sub-clause 136(1)) or on car expenses to which paragraph 44(1)(e) applies - see the definition of "car property benefit" in sub-clause 136(1). These last two situations could arise where, for example, the employee uses an employer's credit card in connection with travel or car expenditures.

Paragraph 44(1)(d) applies in circumstances where the benefit relates to travel outside Australia or to travel in Australia where it was not undertaken exclusively in the course of the employee's duties and involved the employee being away from home for more than 5 nights.

In these circumstances a further pre-condition for the application of the reduction rule is that the employee keep a diary of a kind required to substantiate under the income tax law deductions for overseas or extended domestic travel (see the definition of "travel diary" in sub-clause 136(1)). That diary (or a copy) is to be supplied to the employer by the time of lodgement of the employer's annual fringe benefits tax return.

Paragraph 44(1)(e) establishes the rules for application of the "otherwise deductible" reduction rule where the property benefit consists of goods that relate to the operation of a car owned or leased by the employee and used for business or employment-related purposes (e.g., where an employer-provided credit card is used to purchase petrol). The requirements imposed by paragraph 44(1)(e), and the resultant rules for ascertaining the "otherwise deductible" percentage, are consistent with those outlined in the notes on paragraph 19(1)(b) in relation to loan fringe benefits.

Where these requirements are satisfied the taxable value is reduced in line with the proportion of any expenditure on the transport that would have been deductible for income tax purposes (e.g., if half of any expenditure would have been deductible for income tax purposes, the taxable value of the fringe benefit would the reduced by half).

Sub-clause 44(2) ensures that, where the benefit relates to travel of a kind for which a travel diary is required to be maintained by paragraph 44(1)(d), any activity that is not duly entered in the diary will be disregarded in determining the extent to which travel expenses would be "otherwise deductible".

The various substantiation documents required by clause 44 will, as explained in the notes on Part X, generally need to be retained by an employer for a period of 6 years from when the relevant fringe benefits tax return is lodged. In addition, as mentioned in the notes on sub-clause 19(1) relating to loan fringe benefits, technical compliance with the substantiation requirements will not of itself be conclusive that an employee would have been entitled to an income tax deduction.

DIVISION 12 - RESIDUAL FRINGE BENEFITS

This Division deals with benefits provided to employees that are not subject to the specific identification and valuation arrangements contained in the preceding Divisions. These are termed "residual benefits".

An outline of the operation of the Bill in relation to these benefits is contained - under the heading "Other fringe benefits" - in the introductory section to this memorandum. The main features are -

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this Division applies to the provision of services (e.g., travel or the performance of professional or manual work), rights relating to the use of property, insurance coverage and to any other benefits - "benefits" is for this purpose given a wide meaning;

•

as a general rule benefits falling for valuation under this Division are treated as having been received at the time when, or over the period during which, the particular services, etc., were provided;

•

different valuation rules apply according to whether the benefits are of a kind that the employer supplies in the ordinary course of business or not;

•

the valuation rules relating to benefits from services, etc., of a kind normally supplied as part of the employer's business will also apply where the services, etc., are provided to the employer's employees by an associate of the employer, provided they are services, etc., of a kind normally sold as part of the associate's business;

•

those rules will not, however, apply to benefits provided by a third party under an arrangement with the employer or associate, nor will they apply to benefits acquired by an employee using an employer-provided credit card;

•

the taxable value of benefits normally sold as part of the employer's (or associate's) business are subject to the general exemption for up to $200 per employee as explained in the notes on clause 62;

•

a benefit that consists of a combined supply of goods and services (e.g., parts with repairs) will be subject to valuation under this Division;

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there is to be a range of benefits that are specifically exempt from tax;

•

in addition, the taxable value of a residual benefit is to be reduced to the extent to which any expenditure that might otherwise have been incurred by an employee in acquiring the benefit would have been deductible for income tax purposes.

Subdivision A - Residual Benefits

Clause 45: Residual benefits

Clause 45 establishes the scope of Division 12 as being a benefit that is not a benefit within the meaning of any of the preceding Divisions of Part III. Clause 45 has the effect of precluding the operation of Division 12 to benefits that are taxable fringe benefits or exempt benefits within the meaning of any of the preceding Divisions.

As explained in the introductory note on the general scheme of the Bill in determining a liability to fringe benefits tax, "benefits" is given a wide meaning and reference should be made to the definition of that term in sub-clause 136(1) and to clause 148, which directs that certain factors be disregarded. These include that the benefit is provided or required in connection with the employee's employment or is something surplus to the employee's needs.

As also explained in that introductory note, a benefit that comes within the meaning of Division 12 will be taxable only where the benefit is provided by the employer (or an associate or third party arranger) to an employee (or associate) and is provided in respect of the employment of the employee.

Clause 46: Year in which residual benefits taxed

Sub-clause 46(1) specifies the general rule that a benefit that is provided during a period is to be treated as having been provided in each year of tax during which any part of that period occurred. By virtue of this rule, a benefit, e.g., services, that is provided over a period that extends over two or more years will be subject to tax in each of those years. The taxable value in any year will be determined according to the extent to which the services, etc., are provided in that year.

Sub-clause 46(2) modifies the general rule stated in sub-clause 46(1) in circumstances where the services, etc., are provided in return for payments made on a regular basis, generally on receipt of a periodic account. Sub-clause 46(2) applies where discounted services, etc., are provided to an employee (or associate) on the basis of that kind of regular billing (paragraph 46(2)(a)) and identical services, etc., are provided to members of the public in the ordinary course of business of the person providing the benefit (paragraph 46(2)(b)). Where these requirements are satisfied the services, etc., supplied in each billing period will be treated as separate benefits (paragraph 46(2)(c)), provided at the time when payment of the account falls due (paragraph 46(2)(d)).

Sub-clause (2) would apply for example, if electricity is supplied at a concessional rate on the basis of, say, quarterly billings and will obviate the need for an apportionment of the benefit where a billing period straddles two years of tax.

Clause 47: Exempt residual benefits

By clause 47, certain types of benefits that would otherwise be subject to fringe benefits tax under the rules established by Division 12 are exempted from tax.

By virtue of sub-clause 47(1), where an employer operates a business of providing transport to members of the public, the provision of free or discounted travel to an employee engaged in that business for the purpose of travelling to and from work is exempt from fringe benefits tax. Free or discounted travel on a scheduled metropolitan service of the employer to employees living in the metropolitan area will be similarly exempt from tax.

Where the free or discounted transport is provided by an associate of the employer, the exemption will also apply if both the employer and associate are engaged in businesses of providing transport to the public and the employee is employed in such a business.

The exemption does not extend to transport provided in an aircraft; nor does it extend to retired employees.

By sub-clause 47(2) the provision of recreational or child care facilities on an employer's premises for the benefit of employees will not give rise to a taxable fringe benefit.

For these purposes "child" is defined in sub-clause 36(1) to include an adopted child, step-child or ex-nuptial child of the employee. "Child care facility" is also defined in that sub-clause and, broadly, means a facility where children under the age of 6 are provided with care or education, but not with residential care. "Recreational facility" is defined in that sub-clause to exclude facilities for accommodation or for drinking or dining.

Where the employer is a company, recreational or child minding facilities provided on a "related" company's premises - see notes on clause 158 but meaning, broadly, another company within a wholly owned company group - for the benefit of the employer's employees will be similarly exempt from tax.

Again, the exemption provided under this sub-clause does not extend to benefits provided to former employees.

Under sub-clause 47(3), the use by an employee on a working day of property that is located on business premises of the employer (or related company - see notes on previous sub-clause) and is used wholly or principally in the business operations of the employer (or related company) will be exempt from fringe benefits tax. By virtue of sub-clause 47(4), employee amenities such as toilet facilities and tea making facilities are treated as being used in the business operations of the employer.

The need for the exemptions granted by sub-clauses 47(3) and (4) follows from the wide meaning of benefit which, as previously mentioned covers benefits - including the right to use property - which relate to the employee's duties. Sub-clauses (3) and (4) will ensure that the use of property on the employer's premises in the course of his or her employment and any incidental private use (e.g., private telephone calls) are both exempt from fringe benefits tax.

This exemption is, as for those under the preceding sub-clauses, limited to benefits provided to current employees.

Sub-clause 47(4) is a corollary of the rules embodied in Division 7 for the treatment of living-away-from-home allowances. By this sub-clause, 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 this sub-clause 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 declaration is to be lodged with the employer prior to lodgment of the employer's annual fringe benefits tax return.

The private use by an employee of an employer's motor vehicle will give rise to a fringe benefit in accordance with Division 13 where the motor vehicle is of a kind that is not subject to the valuation arrangements for car benefits as embodied in Division 2 (e.g., private use of a vehicle designed to carry a load of more than 1 tonne would be subject to tax under this Division). Sub-clause 47(5), ensures that, consistent with the exemption for car benefits embodied in clause 8, no fringe benefits tax liability will arise where any private use of such a vehicle during a year of tax is limited to travel by an employee to and from work or any use that is incidental to the use of the vehicle on business - see the definition of "work-related travel" in sub-clause 136(1). For the reason mentioned in the preceding paragraph, exclusive business use of such a vehicle is also specifically exempted from tax by this sub-clause.

Sub-clause 47(7) exempts from fringe benefits tax what are commonly known as "fly-in fly-out" arrangements.

The concession extends to employees who work in a "remote area" - see the notes on paragraph 29(4)(e) for an explanation of this term - or on an oil rig or other installation at sea who are provided with residential accommodation at or near the work site on working days and are returned to their usual residence on days off.

By sub-clause 47(7), the provision of transport on this basis is to be exempt from tax if, having regard to the respective locations of the work site and the employee's place of residence, it would be unreasonable to expect the employee to travel to and from work on a daily basis.

Subdivision B - Taxable Value of Residual Fringe Benefits

Clause 48: Taxable value of in-house non-period residual fringe benefits

Clause 48 establishes the valuation rules for what are termed "in-house non-period residual fringe benefits". This term is defined in sub-clause 136(1), with the definitions of "in-house residual fringe benefits", "outsiders" and "contract of investment insurance" and clause 149 also being relevant for this purpose.

By virtue of the operation of those definitions, the valuation rules embodied in clause 48 will apply to benefits consisting of services, etc., provided to employees (or associates) by an employer (or an associate) who supplies identical or similar services to the general public in the ordinary course of his or her business. The operation of clause 48 is further restricted to circumstances where the particular services, etc., are of a kind that are provided at a particular point in time or on a particular day only.

Neither clause 48 nor clause 49, which applies to "in-house benefits" that are provided over a period, apply in relation to term life insurance coverage - see the definition of "contract of investment insurance" in sub-clause 136(1). Benefits of this kind are subject to the valuation of "external fringe benefits", as discussed below.

Paragraph 48(a) prescribes the taxable value of benefits provided to employees (or associates) that are identical to services, etc., supplied around that time in the ordinary course of the employer's (or associates) business to members of the public under arm's length transactions and, with the exception of the price charged, subject to identical terms and conditions. Where these requirements are satisfied, the taxable value of the benefit is the amount by which 75% of the lowest price charged under such sales exceeds the price paid by the employee (or associate).

Paragraph 48(b) applies in circumstances where the requirements for the application of paragraph 48(a) are not met - e.g., where the benefit supplied to an employee is similar but not identical to services, etc., supplied to the public. It sets the value of the benefit at the excess of the amount that the employee (or associate) could reasonably be expected to have paid to acquire the benefit under an arm's length transaction over the amount actually paid.

Clause 49: Taxable value of in-house period residual fringe benefits

Clause 49 also applies in circumstances where the particular services, etc., provided to employees (or associates) by an employer (or associate) are identical or similar to services, etc., supplied to members of the public in the ordinary course of business. The distinction in its field of operation is that clause 49 applies where the particular services, etc., are of a kind provided over a period.

The valuation rules embodied in clause 49 are the same as those under clause 48. However, because a benefit being valued under clause 49 is one that is supplied over a period, it operates where that period extends over two or more years of tax to subject to tax in each of those years only so much of the overall value of the benefit as relates to the period in the year over which the benefit was supplied.

Clause 50: Taxable value of external non-period residual fringe benefits

Clause 50 prescribes the valuation rules that are to apply to what are termed "external non-period residual fringe benefits".

By virtue of the definition of that term and related definitions in sub-clause 136(1), clause 50 will apply to benefits consisting of services, etc., provided to employees (or associates) otherwise than by an employer (or associate) who sells identical or similar services, etc., to the public in the ordinary course of business.

The operation of clause 50 is limited to circumstances where the particular services, etc., are of a kind that are provided at a particular point in time or on a particular day.

By paragraph 50(a), the taxable value of such benefits to employees (or associates) in a case where the benefit was acquired by the employer (or associate or third party arranger) under an arm's length transaction is its cost price, reduced by the amount paid by the employee (or associate).

Paragraph 50(b) applies where the benefit is obtained from a third party under an arrangement whereby the expenditure in acquiring the benefit is incurred by the employer (or an associate). Where the expenditure is incurred under an arm's length transaction, the taxable value will be the amount of the expenditure reduced by any amount actually paid by the employee (or associate).

Paragraph 43(b) would apply, for example, where the particular services, etc., are acquired by an employee using an employer's credit card. In this regard reference should be made to the notes on clause 150.

Paragraph 50(c) is a residual rule that will apply wherever the rules in the preceding two paragraphs do not apply. Under this rule, the taxable value is the excess of the amount that the employee (or associate) could reasonably be expected to have paid to acquire the property over the amount actually paid by the employee (or associate).

Clause 51: Taxable value of external period residual benefits

Clause 51 also applies to benefits provided to employees (or associates) otherwise than by an employer (or associate) who sells identical or similar services, etc., to the public in the ordinary course of business. Unlike clause 50, clause 51 operates in circumstances where the particular services, etc, are of a kind provided over a period.

The valuation rules embodied in clause 51 are the same as those embodied in clause 50. However, because a benefit being valued under clause 51 is one that is supplied over a period, it operates where that period extends over two or more years to subject to tax in each of those years only so much of the overall value of the benefit as relates to each year.

Clause 52: Reduction of taxable value

Consistent with similar provisions in other Divisions, clause 52 applies to reduce the taxable value of a residual fringe benefit to the extent to which any expenditure that has been, or would otherwise have been, incurred by the employee in acquiring the relevant benefit would have been immediately deductible for income tax purposes.

Paragraph 52(1)(a) applies to limit the operation of the reduction rule to residual benefits provided to employees.

Sub-paragraph 52(1)(b)(i) establishes the general pre-condition for application of the reduction rule that the whole or a part (the "deductible percentage") of any expenditure that might have been incurred by the employee in obtaining the benefit would have been immediately deductible when incurred for income tax purposes. As detailed below, specific substantiation requirements are established for fringe benefits tax purposes.

By paragraph 52(1)(b)(ii) any expenditure that might have been incurred by the employee that would otherwise be subject to the proposed new "negative gearing" rules for income tax purposes (see clause 11 of the Taxation Laws Amendment Bill 1986) will not apply to reduce the taxable value of property fringe benefits.

By paragraph 52(1)(c) the employee is required to lodge with the employer a declaration, in an approved form, setting out details sufficient to establish the connection between the benefit provided and the income producing activities of the employee.

This requirement does not need to be satisfied where any expenditure the employee might have incurred in acquiring the property would have been expenditure incurred exclusively in the course of the employee's employment duties with the employer (sub-paragraph 52(1)(c)(i) - see the definition of "exclusive employee residual benefit" in sub-clause 136(1)). Nor does it apply where that expenditure would have been incurred on overseas or extended domestic travel to which paragraph 52(1)(d) applies (sub-paragraph 52(1)(c)(ii) - see the definition of "extended travel residual benefit" in sub-clause 136(1) or on car expenses to which sub-paragraph 52(1)(e) applies - see the definition of "car residual benefit" in sub-clause 136(1)). These last two situations could arise where, for example, the employee uses an employer's credit card in connection with travel or car expenditures.

Paragraph 52(1)(d) applies in circumstances where the benefit relates to travel outside Australia or to travel in Australia not undertaken exclusively in the course of the employee's employment which involved the employee being away from home for more than 5 nights. The requirements of paragraph 52(1)(d) would apply, for example, where an employer-provided credit card is used to obtain transport or accommodation in connection with such travel.

In these circumstances a further pre-condition for the application of the reduction rule is that the employee keep a diary of a kind required to substantiate under the income tax law deductions for overseas or extended domestic travel (see the definition of "travel diary" in sub-clause 136(1)). That diary (or a copy) is to be supplied to the employer by the time of lodgment of the employer's annual fringe benefits tax return.

Paragraph 52(1)(e) establishes the rules for application of the "otherwise deductible" reduction rule where the residual benefit relates to the operation of a car owned or leased by the employee and used for business or employment-related purposes (e.g., where an employer-provided credit card is used to pay for servicing of the car). The requirements imposed by paragraph 52(1)(e), and the resultant rules for ascertaining the "otherwise deductible" percentage are consistent with those outlined in the notes on paragraph 19(1)(b) in relation to loan fringe benefits.

Where these requirements are satisfied the taxable value is reduced in line with the proportion of any expenditure on the benefit that would have been deductible for income tax purposes.

Sub-clause 52(2) ensures that, where the benefit relates to travel of a kind for which a travel diary is required to be maintained by paragraph 52(1)(d), any activity that is not duly entered in the diary will be disregarded in determining the extent to which travel expenses would be "otherwise deductible".

The various substantiation documents required by clause 52 will, as explained in the notes on Part X, generally need to be retained by an employer for a period of 6 years from when the relevant fringe benefits tax return is lodged. In addition, as mentioned in the notes on sub-clause 19(1) relating to loan fringe benefits, technical compliance with the substantiation requirements will not of itself be conclusive that an employee would have been entitled to an income tax deduction.

DIVISION 13 - MISCELLANEOUS

Division 13 contains a range of provisions that will either exempt, or reduce the taxable value of, certain benefits.

Clause 53: Motor vehicle fringe benefit fuel, etc to be exempt in certain circumstances

Sub-clause 53(1) operates to ensure that the supply of petrol, etc., for an employer-provided car does not give rise to a taxable benefit additional to that under Division 2 in relation to the use or availability for use of the car for private purposes.

Sub-clause 53(2) performs a similar function to sub-clause 53(1) in a case where the use of a motor vehicle (other than a car) is exempted by virtue of the operation of sub-clause 47(6), i.e., where the private use is restricted to "work-related travel".

Sub-clause 53(3) defines the car expense benefits in respect of which the preceding exemptions will apply.

Clause 54: Provision of food or drink to be exempt in certain cases

Clause 54 ensures that where the board valuation rules embodied in Division 9 apply in relation to the provision of meals to an employee or an associate, other food or drink provided (i.e., broadly, where the food or drink is provided and consumed on the employer's premises or at a work site) will be exempt from tax. Clause 54 will apply for example, where morning or afternoon teas are provided in addition to "board" meals. Clause 54 will not, however, exempt food or drink supplied at a party, reception or other social function.

Clause 55: Benefits provided by certain international organisations to be exempt

By clause 55, international organisations that are exempt from income tax and other taxes by virtue of the International Organisations (Privileges and Immunities Act) 1983 are exempt from fringe benefits tax in respect of benefits provided to their employees. Organisations established under agreements to which Australia is a party and which oblige Australia to grant the organisation a general tax exemption are also exempt.

Clause 56: Preservation of diplomatic and consular immunities

Clause 56 performs a similar function to clause 55 in respect of persons who are exempt from taxes by virtue of the Consular Privileges and Immunities Act 1972 or the Diplomatic Privileges and Immunities Act 1967.

Clause 57: Provision of benefits to employees of religious institutions to be exempt in certain cases

By clause 57, the provision of benefits by a religious institution to a minister of religion or a full-time member of a religious order are generally to be exempt from tax. The exemption does not, however, extend to benefits provided in respect of duties that are not religious in nature.

The exemption conferred by clause 57 also applies to benefits provided to a person who is training to be a member of a religious order and to benefits provided to a spouse or child of the minister or member of the religious order (e.g., where board and quarters are provided to a minister and the minister's family)

Clause 58: Provision of live-in residential accommodation, or residential fuel, to live-in residential care workers to be exempt benefits

By sub-clause 58(1) the provision of residential accommodation to live-in residential care workers will be exempt from tax.

The exemption applies to employees of a government body, a religious institution or a non-profit company who are engaged in caring for disadvantaged persons (see the notes on clause (2) below) and who, in the course of those duties, reside with those persons in a house or hostel of the employer to provide such care.

The exemption extends to any benefit that might otherwise arise in relation to electricity and other fuel supplied to the house and also to situations where an employee's spouse or children also reside in the premises.

Sub-clause 58(2) defines a disadvantaged person to mean a person who is intellectually, psychiatrically or physically handicapped or who is in necessitous circumstances.

By this sub-clause, it is a requirement for the exemption that the particular house or hostel be used exclusively for the provision of residential accommodation to disadvantaged persons and the live-in care workers (and their families).

Clause 59: Taxable value of certain fringe benefits in respect of remote area residential fuel

Clause 59 confers concessional treatment on the supply of electricity and other fuels to certain remote area residential accommodation.

By virtue of sub-clause 59(1), the concessional treatment applies where the provision of accommodation is subject to valuation under the remote area valuation arrangements embodied in clause 29 - see notes on that clause.

Where the value of that benefit is determined on the statutory formula basis provided in paragraph 29(1)(a) - broadly, as a specified percentage of average earnings in the mining industry - any benefit relating to the supply of electricity or other fuel to the unit of accommodation will not separately be subject to tax.

If, alternatively, the value of a remote area housing benefit is determined by applying the 40% discount to the (indexed) market value of the benefit, any benefit arising from the supply of electricity or other fuel to the unit of residential accommodation will be treated as a separate taxable benefit and similarly discounted by 40%.

Sub-clause 59(2) applies where, perhaps instead of providing remote area accommodation which would qualify for the concessional valuation arrangements embodied in clause 29, an employer assists the employee in acquiring a unit of accommodation. These types of assistance are outlined in the notes on the following clause.

By virtue of sub-clause 59(2), the taxable value of any benefit arising from the supply of electricity or other fuel to such a unit will also be discounted by 40%.

Clause 60: Reduction of taxable value of certain fringe benefits related to remote area housing

Clause 60 applies, broadly, to discount by 40% a benefit relating to the provision of housing assistance to employees in remote areas, for example, assistance provided in lieu of supplying the employee with residential accommodation that would have qualified for the 40% remote area housing discount embodied in clause 29.

The forms of assistance to which the 40% discount is to apply are detailed in the three sub-clauses of clause 60.

By sub-clause 60(1), the 40% discount will apply to the taxable value - as determined under Division 4 - of a benefit consisting of an interest free or low interest housing loan provided to an employee by an employer. A common example of this type of arrangement is where a house is sold by an employer to an employee on interest-free or low-interest instalment terms.

Sub-clause 60(2) applies where the housing assistance takes the form of a reimbursement by an employer of the whole or a part of the interest incurred by an employee on a housing loan. By this sub-clause, the taxable value of this kind of benefit - as determined under Division 5 - will also be reduced by 40%.

The discount provided by this clause applies only if the relevant unit of accommodation is located in a designated remote area as described in the notes on sub-clause 29(4) and certain additional conditions described in the notes on clause 142 are satisfied. These are, broadly, that -

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the employee works in a remote area;

•

it is customary for employers in the particular industry to provide employees with housing assistance; and

•

it is necessary for the employer to provide such assistance.

Clause 61: Reduction of taxable value of certain fringe benefits in respect of remote area holiday transport

Clause 61 applies to reduce by 50% the taxable value of certain benefits relating to remote area holiday transport.

"Remote area holiday transport" is defined for these purposes in clause 143 and reference should be made to the notes on that clause. Broadly, however, it refers to arrangements whereby employees working in remote areas are, under the terms of an award, reimbursed for the costs of, or provided with, transport in connection with extended recreation leave from the work locality to the city from which they were engaged to work or to the capital city of the State or Territory in which the work place is located.

Sub-clause 61(1) applies where such qualifying transport costs are reimbursed by an employer to reduce by 50% the taxable value of the benefit as determined under Division 5.

To qualify for this reduction the employer will need to be supplied with documentary evidence of the expenditure prior to lodgment of the fringe benefits tax return for the year. If the reimbursement is for car expenses or meal and accommodation costs associated with the travel, the employer must also obtain details as to the type of vehicle and the number of kilometres travelled on the journey.

The reduction in taxable value in the case of car expenses reimbursement is limited to 50% of so much of the reimbursement as does not exceed a specified rate. This is the reimbursement that would be paid at the rate per kilometre that would apply to the vehicle used if income tax deductions were being claimed on a cents per kilometre basis for that amount of travel.

Sub-clause 61(2) applies in a case where the holiday transport is provided directly by the employer (or an associate or third party arranger) and also operates to reduce the taxable value as otherwise determined under Division 12 by 50%.

Clause 62: Reduction of aggregate of taxable value of certain fringe benefits

By sub-clause 62(1), the first $150 of the aggregate of the taxable values of three categories of benefits given to an employee in the transitional year of tax is to be exempt from fringe benefits tax. For a standard year of tax the amount of the exemption is $200.

Sub-clause 62(2) describes the benefits to which the exemption will apply. These are -

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airline transport fringe benefits (see notes on Division 8);

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"in-house" property fringe benefits which are, broadly, goods provided to employees which are of a kind sold in the ordinary course of the employer's (or an associate's) business (see notes on clause 42); and

•

"in-house" residual fringe benefits which are, broadly, services and other residual benefits provided to employees which are of a kind sold in the ordinary course of the employer's (or associate's) business (see notes on clauses 48 and 49).

Clause 63: Reduction of taxable value of living-away-from-home food fringe benefits

Clause 63 applies where, rather than pay a cash living-away-from-home allowance, an employer prefers to provide accommodation and food to an employee who is required to live away from his or her home in the performance of employment duties.

Consistent with the treatment of cash living-away-from-home allowances under Division 7, clause 21 and sub-clause 47(5) exempt from tax respectively any benefit constituted by the reimbursement of the employee's accommodation expenses or by the provision of accommodation. Clause 63 prescribes the treatment to be accorded to benefits constituted by reimbursement of an employee's food expenses or by supplying food.

Clause 63 applies in these circumstances to reduce the taxable value of the benefits otherwise determined under Division 5 (expense payment benefit) or Division 11 (property benefits) to the extent that they exceed the amount prescribed as what would have been paid for food at the employee's home. This amount - the "statutory food amount" - is $42 per week.

In the event that the benefits relate to the employee and a spouse or child who moves with the employee from the usual place of residence (see the definition of "eligible family member" in sub-clause 136(1)) the preceding rule applies on an equivalent basis by reference to the aggregate of the statutory food amounts applicable to the employee and family members. For this purpose the statutory food amount for a child who is less than 12 years of age at the beginning of the relevant year of tax is $21.

A pre-condition for the operation of clause 63 is that the employee give to the employer before the date of lodgment of the employer's annual return, a declaration, in an approved form, that sets out particulars of the employee's usual place of residence and actual place of residence during the period.

Clause 64: Reduction of taxable value in respect of entertainment component of certain fringe benefits

Clause 64 applies, broadly, to reduce the taxable value of a fringe benefit where the amount of any expenditure incurred by the employer (or associate or third-party arranger) on the benefit is expenditure in respect of the provision of "entertainment" within the meaning of that term in section 51AE of the Income Tax Assessment Act 1936.

The operation of clause 64 in this regard is twofold. Firstly, to the extent that a deduction is denied by the operation of section 51AE, a liability to fringe benefits tax is not to arise in respect of a benefit constituted by that expenditure (e.g., where the benefit is a reimbursement of non-deductible entertainment expenditure incurred by an employee). Consistent with that, clause 64 will also apply to reduce the taxable value of a property fringe benefit or residual fringe benefit by the amount of any expenditure incurred by the employer in acquiring the relevant goods or services, etc., that is denied deductibility by section 51AE. Similarly, by virtue of clause 64 a fringe benefits tax liability is not to arise where the benefit is constituted by the use of plant in relation to entertainment where that use has resulted in the denial of depreciation deductions under sub-section 51AE(14).

The second broad effect of clause 64 is that a liability to fringe benefits tax will not arise in relation to expenditure that, while being in respect of the provision of entertainment, remains eligible for income tax deductions by virtue of one of the specific exclusions provided in sub-section 51AE(5), e.g., meals provided in connection with an "exempt training seminar".

Clause 64 does not, however, operate to override the valuation rules relating to board meals or the provision of living-away-from-home food benefits. Such benefits are, by amendments proposed by the Fringe Benefits Tax (Miscellaneous Provisions) Act 1986, to be treated as not being in respect of the provision of entertainment.

Clause 64 applies as outlined above both in relation to expenditure incurred by taxable employers and to equivalent expenditure incurred by income tax-exempt employers (or by an otherwise taxable employer in respect of income tax-exempt activities). However, reference should be made to the notes on the operation of Division 10 which applies separately to subject to fringe benefits tax expenditure incurred in respect of the provision of entertainment, to the extent that it is to the benefit of employees (or their associates). Sub-clause 61(2) is also relevant.

Sub-clause 64(1) applies where a taxable fringe benefit would otherwise arise in relation to an expense payment benefit. Sub-clause 64(1) ensures that the taxable value of that benefit is reduced by so much of the amount of the expenditure incurred by the employer as is in respect of the provision of entertainment.

Sub-clause 64(2) qualifies the operation of sub-clause 64(1) to ensure that a reimbursement of an employee's expenditure on entertainment that is purely personal to the employee (e.g., a private dinner party) continues to be subject to fringe benefits tax.

For this purpose the requirements for the operation of sub-clause 64(2) are that -

•

the expenditure incurred by the provider was not incurred in the production of assessable income, i.e., it was incurred by an income-tax exempt employer, etc., (paragraph 64(2)(a)); and

•

the expenditure was incurred in the provision of entertainment and is not expenditure incurred in connection with the duties of the employee (paragraph 64(1)(b)).

Sub-clause 64(3) applies where an employer (or associate or third-party arranger) incurs expenditure in providing property or airline transport as a benefit to an employee (or associate). Sub-clause 64(3) ensures that the taxable value of the benefit is reduced by so much of the amount of the expenditure incurred by the provider as is incurred in respect of the provision of entertainment.

Sub-clause 64(4) performs a similar function to the preceding sub-paragraphs in relation to the provision of a residual fringe benefit constituted by the use of depreciable property. Sub-clause 64(4) ensures that the taxable value of that benefit is reduced to the extent that the use is in respect of the provision of entertainment.

Sub-clause 64(5) applies to prevent both sub-section 64(5) and section 65 - which relates to non-deductible leisure facilities - applying to reduce the taxable value of a particular benefit relating to the use of depreciable property. Sub-section 64(5) achieves this by ensuring that only section 65 applies where there would otherwise be an overlap.

Sub-clause 64(6) operates where the provider of a residual fringe benefit constituted by the use of non-depreciable property incurs expenditure on leasing the property. By this sub-clause the taxable value of the benefit is reduced to the extent to which the relevant expenditure is incurred in respect of the provision of entertainment.

"Depreciable property" is defined for the purposes of sub-clauses 64(4) and (6) as "plant or articles" within the meaning of section 64 of the Income Tax Assessment Act (see sub-clause 136(1)).

Sub-clause 64(7) applies in circumstances where an employer (or associate or third-party arranger) incurs expenditure in respect of the provision of a residual fringe benefit that is not constituted by the use of property. Where this occurs sub-clause 64(7) ensures that the taxable value of the benefit is reduced by so much of the amount of the expenditure as was incurred in respect of the provision of entertainment.

Sub-clause 64(8) is designed to ensure that there can be no overlap in the operation of clause 64 and the "otherwise deductible" rules embodied in Divisions 5, 8, 11 and 12. Where this would otherwise occur the reduction afforded by clause 64 will not apply.

Clause 65: Reduction of taxable value in relation to expenditure on leisure facilities and travel with accompanying spouses

Clause 65 applies similarly to clause 64 to reduce the taxable value of a fringe benefit where the amount of any expenditure incurred by the employer (or associate or third-party arranger) on the benefit is expenditure in respect of which a deduction is denied under section 51AB (expenditure on club fees and certain leisure facilities) or 51AG (expenditure in respect of relatives who accompany an employee on a business trip) of the Income Tax Assessment Act 1936.

By sub-clause 65(1) the taxable value of a benefit is reduced by so much of the amount of any expenditure incurred by the person providing the benefit as is denied deductibility by either section 51AB or 51AG.

Sub-clause 65(2) applies where the provision of a residual fringe benefit is constituted by the use of depreciable property that is a leisure facility for the purposes of section 51AB. Consistent with the operation of sub-clause 65(1), sub-clause 65(2) applies to reduce the taxable value of the benefit to the extent that sub-section 54(3) of the Income Tax Assessment Act operates to deny depreciation allowance deductions in respect of the facility.

PART IV - LIABILITY TO TAX

Clause 66: Liability to pay tax

This clause will establish liability to pay fringe benefits tax. By sub-clause (1), tax on the fringe benefits taxable amount of a year is payable by the employer.

Sub-clause (2) ensures that prior legislation that would otherwise confer on an employer a general exemption from liability to pay taxes such as would otherwise extend to fringe benefits tax will not exempt that employer from fringe benefits tax liability.

Sub-clause (3) applies in a similar way in relation to future Commonwealth legislation enacted so that only a law that specifically exempts an employer from fringe benefits tax liability will be able to do so.

Clause 67: Arrangements to avoid or reduce fringe benefits tax

Clause 67 will import into the fringe benefits tax law a general anti-avoidance provision broadly similar in effect to Part IVA of the Income Tax Assessment Act 1936. The clause is intended to apply where, on an objective view of a particular arrangement and its surrounding circumstances, it would be concluded that the arrangement was entered into for the sole or dominant purpose of having an amount omitted from, an employer's fringe benefits taxable amount of any year of tax in respect of a benefit provided to a person.

By sub-clause 67(1), where, on an examination of the circumstances, it is concluded that a relevant person had the necessary dominant purpose of avoidance, and a tax benefit of such a kind has been or would be obtained, the Commissioner of Taxation will be authorised to, in effect, cancel the tax benefit by increasing the employer's fringe benefits taxable amount of the relevant year and making any necessary corresponding adjustments to the fringe benefits taxable amount of other years. If necessary, corresponding adjustments reducing the fringe benefits taxable amount of other employers may be made.

The net effect of the authorised adjustments will be to strike out the tax advantage sought by the arrangement and restore the situation to what it would have been if the arrangement had not been made.

By sub-clause 67(2) a reference to the obtaining by an employer of a tax benefit in relation to an arrangement under which a benefit is provided to a person - the central pre-condition for the application for sub-clause 67(1) - is a reference to an amount not being included as a fringe benefit taxable amount of an employer in a year of tax where that amount could reasonably be expected to have been so included but for the arrangement. As explained in the notes on the definition of that term in sub-clause 136(1), "arrangement" is given a wide meaning for these purposes.

It should be noted that sub-clause (2) requires that the tax benefit be obtained in relation to a particular benefit that is provided to a person. As such, clause 67 would not apply merely by virtue of a benefit being terminated (e.g., "cashed-out") or a different benefit (i.e., an alternative benefit or a diminished benefit) being provided.

Sub-clause 67(3) ensures that clause 67 will not apply merely because a taxable amount in relation to a particular benefit is reduced by virtue of the employee being required to pay consideration (or increased consideration) to obtain the benefit.

Sub-clause 67(4) confers on an employer the right to request the Commissioner in writing to make a compensating adjustment of a kind referred to in the notes on sub-clause 67(1).

By sub-clause 67(5) the Commissioner is required to consider the request and serve notice in writing of his decision.

Under sub-clause 67(6) an employer who is dissatisfied with the Commissioner's decision is entitled to lodge an objection in writing within 60 days of service of notice of that decision.

Sub-clause 67(7) ensures that the review and appeal arrangements embodied in Part VI apply in relation to a decision on that objection.

Sub-clause 67(8) authorises the amendment of an assessment to give effect to a determination of the Commissioner under sub-clause 67(1) to cancel a tax benefit. By sub-clause 67(8) that amendment can be made at any time within the period of 6 years from the date on which the original assessment was made.

Sub-clause 67(9) authorises an amendment at any time to give effect to a compensating adjustment.

Clause 67 extends to a case where a person who provides a fringe benefit is not technically an employer because of the particular arrangement, but otherwise could be expected to have been (sub-clause (10)).

Sub-clause 67(11) ensures that a reference in clause 67 to the carrying out of an arrangement by a person includes a reference to the carrying out of the arrangement by that person together with other persons.

Sub-clause 67(12) makes it clear that the operation of the general anti-avoidance safeguard embodied in clause 67 is not limited by the operation of any other provision of the Bill. In particular, sub-clause 67(12) will ensure that the mere fact that a specific safeguarding provision of the Bill is found not to apply to a particular arrangement will not prevent clause 67 from applying in relation to that matter.

PART V - RETURNS AND ASSESSMENTS

DIVISION 1 - RETURNS

Clause 68: Annual return

By this clause, an employer will be required to furnish to the Commissioner an annual return of the fringe benefits taxable amount within 28 days after the end of the year of tax, unless a return has previously been furnished in compliance with clause 69.

Clause 69: Further returns

Where the Commissioner has, by notice in writing served on a person, required the person to furnish a return in relation to a year of tax, under this clause the person, whether an employer or not, shall furnish the return as required.

Penalties for non-compliance with the requirements of clauses 68 or 69 are being prescribed in the Taxation Administration Act 1953 by amendments proposed in the Fringe Benefits Tax (Consequential Amendments) Bill 1986.

Clause 70: Requirements for returns

Returns lodged in accordance with clause 68 or 69 are, by clause 70, to be in the form provided or authorised by the Commissioner of Taxation, to be furnished in accordance with any relevant regulations, and to contain such information as is required to duly complete the authorised form. A return must specify the fringe benefits taxable amount of the year and the amount of tax payable thereon. The return is to be signed by, or by authority of, the person who furnishes it.

Clause 71: Certificate of sources of information

This clause, which will apply in a similar way to section 165 of the Income Tax Assessment Act 1936, will require a tax agent who charges any fee for preparing or assisting in the preparation of a fringe benefits tax return to sign an agent's certificate setting out the sources available for the compilation of the return. An employer not furnishing an agent's certificate with a return must also show details of relevant sources of information.

DIVISION 2 - ASSESSMENTS

Clause 72: First return deemed to be an assessment

By this clause, where an annual return is lodged by an employer in compliance with an obligation under clause 68 or 69, and no previous return of that year has been lodged and no assessment raised, the Commissioner of Taxation will be deemed to have made an assessment, at the time the return is furnished, of both the fringe benefits taxable amount and the amount of fringe benefits tax payable, both amounts being as specified in the return. The return will be deemed to be a notice of assessment under the Commissioner's hand served on the employer at the same time.

Clause 73: Default assessments

If a fringe benefits tax return of a year of tax is not lodged by the due date, the Commissioner will be authorised by clause 73 to make an assessment of the fringe benefits taxable amount and of the amount of fringe benefits tax to which, in his opinion, the employer is liable in respect of that year.

Clause 74: Amendment of assessments

Where an assessment has been made of an employer's fringe benefits tax liability, including a deemed assessment constituted by the employer's fringe benefits tax return, the Commissioner will be authorised to amend the assessment in accordance with the rules contained in clause 74.

The general rule, contained in sub-clause (1), is that an amendment may be made at any time within 3 years after the original assessment date, as defined by sub-clause (8).

By sub-clause (2), an assessment may be amended after the original assessment date in accordance with the conditions specified in sub-clauses (3) to (7).

By sub-clause (3), where an employer does not make a full and true disclosure of all the material facts necessary for an assessment of the tax payable by the employer, the Commissioner makes an assessment, and there is an avoidance of tax, the Commissioner may amend the assessment within 6 years after the original assessment date. If he is of the opinion that the avoidance of tax is due to fraud or evasion, he may amend the assessment at any time.

Sub-clause (4), which applies in a similar way to sub-section 170(5) of the Income Tax Assessment Act 1936, will allow the Commissioner, in respect of an assessment that has been amended in any particular, to make a further amendment in respect of that particular so as to effect such reduction in an employer's liability as is considered just, within 3 years of making the previous amendment.

Sub-clause (5) has the effect of extending the general 3 year period for the making of an amended assessment where an employer has applied for an amendment within the 3 years and has supplied the Commissioner with sufficient information to enable the application to be processed.

By sub-clause (6), the Commissioner may amend an assessment at any time if the circumstances set out in the sub-clause arise. They are where the amendment -

•

is to give effect to the decision of a Board of Review or a court; or

•

results from consideration of an objection against the assessment.

Sub-clause (7) authorises the Commissioner, at any time, to amend an assessment of additional tax under Part VIII of the Bill.

The original assessment date for the purposes of these rules is, by sub-clause (8), the date on which the employer furnished the return or, if no return has been furnished, the date when the Commissioner made the assessment. That date is not affected by the making of a subsequent amendment.

Clause 75: Refund of amounts overpaid

This clause, is similar to section 172 of the Income Tax Assessment Act 1936, treats a reduction in tax as a result of an amendment as never having been payable (so that there can be no penalty tax on account of its not being paid), and requires the Commissioner to refund any tax overpaid or apply it against any other Commonwealth taxation liability of the person and refund the balance.

Clause 76: Amended assessment to be an assessment

This clause is a technical measure to ensure that an amended assessment will be treated as an assessment for all purposes of the proposed legislation.

Clause 77: Notice of assessment

This clause will require the Commissioner to serve notice of an assessment on the person liable to pay the tax as soon as practicable after making the assessment. It has no application to a deemed notice of assessment taken, by clause 72, to have been served on a person.

Clause 78: Validity of assessment

Clause 78 is a customary measure in taxation laws and declares that an assessment is valid notwithstanding that a provision of the Act has not been complied with. The purpose is to ensure that in any objection or dispute relating to an assessment, the objector may challenge the correctness of the assessment but not any act or omission of the Commissioner in making the assessment.

PART VI - OBJECTIONS, REVIEWS AND APPEALS

Introductory note

Under this Part, an employer will have rights, broadly consistent with those pertaining under the income tax law, to object against a fringe benefits tax assessment, i.e., against either a deemed assessment constituted by the lodging of a fringe benefits tax return or an assessment formally made by the Commissioner of Taxation.

If dissatisfied with an assessment, the employer may object in writing within 60 days after notice of the assessment is served. In the case of a deemed assessment, that is taken to be the date on which the relevant fringe benefits tax return was lodged. The Commissioner will be required to consider the objection and either disallow it or allow it wholly or in part. The employer, if dissatisfied with that decision, may within a further 60 days, request the Commissioner either to refer the decision for review by a Board of Review or treat the objection as an appeal to a Supreme Court. Decision of the Board of Review may be appealed, on a question of law, to the Supreme Court, but an appeal will not lie from a decision of the Supreme Court except by leave of the Federal Court or High Court.

Clause 79: Interpretation

It is made clear by this clause that a reference to "Supreme Court" in Part VI means the Supreme Court of a State and the Supreme Courts of the Australian Capital Territory and the Northern Territory.

Clause 80: Objections

This clause permits an employer who is dissatisfied with an assessment to object in writing within 60 days against that assessment, setting out fully the grounds of the objection. The Commissioner of Taxation is required to consider the objection, disallow or allow it wholly or in part, and cause written notice of the decision to be served on the employer. An employer may not further object against an amended assessment except to the extent that it imposes a new liability or increases an existing one.

Clause 81: Reference to Board or Court

By clause 81, an employer, upon payment of a fee of $2, may request that the Commissioner's decision on the objection be referred to a Board of Review for review or that the objection be treated as an appeal and forwarded to a specified Supreme Court. In any such reference or appeal, the employer is to be limited to the grounds stated in the objection and the burden of proving that the assessment is excessive lies on the employer.

Clause 82: Powers of Board

This clause provides that a Board of Review is to have all the powers and functions of the Commissioner in making assessments for the purpose of reviewing decisions of the Commissioner, Second Commissioners or Deputy Commissioners that are referred to it. If the Commissioner has amended an assessment that is subject to an objection the decision on which has been referred to the Board, the amended assessment will be the one dealt with by the Board. A Board of Review will not have power to review decisions of the Commissioner relating to the remission of additional tax payable by way of penalty, except decisions relating to the remission of penalty tax assessed under Part VIII.

Clause 83: Decision of Board

Clause 83 imposes on a Board of Review an obligation to give a decision in writing and grants authority to confirm, increase, reduce or vary an assessment. If requested, the Board shall state in writing its findings of fact and its reasons in law for the decision.

Clause 84: Decision of Supreme Court

This clause authorises a single judge of a Supreme Court to hear an appeal and to make an order to confirm, reduce, increase or vary the assessment. Except in the circumstances permitted by clause 86, there is no appeal from the Court's decision. A Supreme Court may state a case for the opinion of the Federal Court of Australia upon a question of law arising on the appeal, and a Full Court of the Federal Court will determine the question and remit the case with its opinion back to the Supreme Court, including any orders as to costs that it thinks fit.

Clause 85: Appeal or reference to Supreme Court

Clause 85 allows an appeal to a Supreme Court by an employer or by the Commissioner from a decision of a Board of Review that involves a question of law. A question of law that is before a Board may also be referred, at the request of the Commissioner or the employer, to the Supreme Court. An appeal or reference will be heard by a single judge and, except as permitted by clause 86, there will be no appeal from the Court's decision.

Clause 86: Appeals from Supreme Court and Federal Court

This clause authorises an appeal to the Federal Court of Australia or the High Court from an order or decision of a Supreme Court under clause 84 or 85 only if the Federal Court of Australia grants leave to appeal or the High Court grants special leave to appeal.

Clause 87: Practice and procedure of Supreme Court

The effect of this clause is that High Court Rules in force immediately before the Bill becomes law are to govern Supreme Court proceedings until such time as specific regulations have been made relating to the practice and procedure of Supreme Court proceedings under Part VI.

Clause 88: A pending reference or appeal not to affect payment of tax

This clause specifies that tax and additional tax payable may be recovered by the Commissioner, notwithstanding that a reference to a Board of Review or an appeal to a Supreme Court is pending.

Clause 89: Adjustment of assessment after appeal

This clause applies where, as a result of a reference to a Board or an appeal, an assessment has been varied by a Board of Review or a Court. In that case, the Commissioner is required to have all necessary adjustments made to reflect the decision of the Board or Court and the employer notified in writing of the varied assessment. Where the variation reduces the amount of tax the amount of the reduction is treated as never having been payable (so that there can be no penalty tax on account of its not being paid) and the Commissioner is required to refund any tax overpaid or apply it against any other tax liability of the person and refund the balance. The amount of any underpayment as a result of the adjustment is recoverable from the employer.

PART VII - COLLECTION AND RECOVERY OF TAX

DIVISION 1 - GENERAL

Clause 90: When tax payable

Clause 90 stipulates the time for payment of tax payable under the Act. Fringe benefits tax of a year of tax is in every case to be due and payable twenty-eight days after the end of the relevant year, i.e., whether or not an assessment has been made or a fringe benefits tax return - deemed to be an assessment in terms of clause 72 - has been lodged by that time. The effect is that any penalty for unpaid tax under clause 93 begins to accrue on amounts unpaid after that time. Additional tax under Part VIII is due and payable on the date specified in the notice of assessment of such tax.

Clause 91: Taxpayer leaving Australia

This clause will apply in a similar way to section 205 of the Income Tax Assessment Act 1936 by modifying the effect of clause 90 if the Commissioner believes a person liable to pay tax is about to leave the country before the due date for payment. In such a case, the Commissioner may require the person to pay the tax by a date notified by the Commissioner.

Clause 92: Extension of time and payment by instalments

The Commissioner may, under clause 92, extend the time permitted for payment of fringe benefits tax and additional tax under the preceding two clauses and allow such tax to be paid in instalments. Each instalment is required to be paid on a date determined by the Commissioner. If an instalment is not paid by the due date, the whole of the tax owing becomes payable at that time.

Clause 93: Penalty for unpaid tax

Sub-clause (1) of clause 93 is similar in operation to other provisions of taxation laws that impose additional tax for late payment, e.g., section 207 of the Income Tax Assessment Act 1936. It will impose penalty tax at the rate of 20% per annum on any tax (whether fringe benefits tax or additional tax under proposed Part VIII) that remains unpaid after the due date for payment.

By sub-clause (2), however, where the Commissioner has amended an assessment, any penalty tax on account of the amendment will apply at the lower rate applicable under the Taxation (Interest on Overpayments) Act 1983 if the increase is not attributed to a false or misleading statement having been made, or a tax avoidance arrangement having been entered into, by the employer.

Sub-clause (3) sets the rate of interest applicable under sub-clause (2) at 14.026% unless regulations to change the rate are made under the Taxation (Interest on Overpayments) Act 1983.

Sub-clause (4) will apply, in a similar way to sub-section 207(1A) of the Income Tax Assessment Act 1936, to authorise the Commissioner to remit penalty tax in specified circumstances. They are, broadly, that the delay in payment was caused by circumstances beyond the control of the person who owed the tax and who has taken action to mitigate those circumstances. The Commissioner may also remit penalty where it seems fair and reasonable to do so.

Sub-clause (5) will ensure that penalty tax for late payment of tax continues to accrue notwithstanding that judgment for its payment has been given or entered in a Court. Where the judgment debt itself carries interest, the penalty tax otherwise payable is to be reduced by the amount of interest that relates to the unpaid tax.

Sub-clause (6) stipulates that the meaning of "tax" in clause 93 includes additional tax under proposed Part VIII.

Clause 94: Recovery of tax

This clause, which is of a kind commonly found in taxation Acts, e.g., section 34 of the Bank Account Debits Tax Administration Act 1982, gives fringe benefits tax payable the status of a debt due to the Commonwealth and requires that such tax be paid to the Commissioner. The Commissioner or a Deputy Commissioner will have authority to sue for recovery of the tax in a Court of competent jurisdiction.

Clause 95: Substituted service

This clause will enable the Commissioner, when taking any recovery action, to serve a document in a case where a person is absent from Australia or cannot be found. Service may be effected by posting the document or a sealed copy to the person's last known private or business address in Australia.

Clause 96: Liquidators, & c.

This clause follows the principles of section 215 of the Income Tax Assessment Act 1936, and applies for the purpose of determining the status of taxation debts in company liquidations and in the winding up of the assets or business of non-residents.

Broadly, it will require a liquidator, receiver, or, in the case of a non-resident, an agent, to notify the Commissioner of Taxation of his or her appointment and the Commissioner in turn to notify the liquidator, receiver or agent as soon as possible of the amount of any taxation debt that is or will become owing. The liquidator, receiver or agent must then set aside sufficient assets to pay the amount of tax notified by the Commissioner.

There will be a maximum penalty of $1,000 on conviction for a failure to comply with the requirements of clause 96.

Clause 97: Recovery of tax from trustee of deceased employer

This clause will require the trustees of a deceased employer's estate to furnish any returns or information which the Commissioner of Taxation may require in order to determine the deceased's outstanding tax liability. The Commissioner has the same powers and remedies for the assessment and recovery of tax after the date of an employer's death as existed before it.

Clause 98: Where no administration of deceased employer's estate

If probate or administration has not been granted within 6 months of the date of an employer's death, the Commissioner of Taxation is authorised by this clause to make an assessment of the deceased's fringe benefits taxable amount or amounts, and the amount of tax payable thereon. Such an assessment is subject to rights of objection, review and appeal by a person who has an interest in the deceased person's estate.

After making an assessment, the Commissioner may authorise the distress and sale of any of the deceased's property in order that the tax liability may be met.

Clause 98 is similar in operation to section 220 of the Income Tax Assessment Act 1936.

Clause 99: Commissioner may collect tax from person owing money to person liable to tax

This clause is the counterpart of "garnishee" provisions in other taxation laws notably section 218 of the Income Tax Assessment Act 1936.

It will authorise, and supply procedures for, the Commissioner to collect tax owing by an employer from any person who, broadly, owes money to the employer or has authority to pay money to the employer. The Commissioner may by written notice require such a person, at or before a time specified in the notice, to pay so much of such money as will meet the tax due. Payment may be required to be made in a lump sum or by instalments. The maximum penalty on conviction for failure to comply with a notice is $1,000, and a convicted person may also be ordered to pay the amount which he or she previously refused or failed to pay. The amount specified in the notice will become a debt due to the Commonwealth from the time it becomes payable and may be recovered in a Court of competent jurisdiction.

Money deposited with a building society, where the deposit is part of the society's share capital, will be treated in the same way as investments in other financial institutions for the purposes of this clause.

Notwithstanding that some pre-condition for the obtaining of money (such as the production of a passbook) has not been fulfilled, that money will be treated as being due to an employer or repayable on demand.

Where a notice is to be served on the Commonwealth or a State or Territory, that notice may be served on an employee who is responsible for disbursing public moneys.

Clause 100: Person in receipt or control of money of a non-resident

This clause will empower the Commissioner to collect tax due and payable by a non-resident from any person who has the control, receipt or disposal of money belonging to the non-resident. For that purpose, a person who is liable to pay money to a non-resident is deemed to be in control of that money. The clause will also apply where the Commonwealth, a State or a Territory has the receipt, control or disposal of any of a non-resident's money.

DIVISION 2 - COLLECTION BY INSTALMENTS

Subdivision A - General

Introductory note

This Subdivision contains general rules to enable fringe benefits tax to be collected by instalments, while Subdivisions B and C contain rules that are specific to instalment arrangements applicable to, respectively, the transitional year of tax and standard years of tax.

The 3 instalments payable in respect of a standard year will generally equal one-quarter of the previous year's annual fringe benefits tax liability, although variations based on the estimated liability for the current year will be permitted.

The 2 instalments payable in respect of the transitional year will be based, broadly, on the taxable value of fringe benefits provided to employees in the September and December 1986 quarters. Special valuation rules will apply for this purpose.

Clause 101: Interpretation

Sub-clause (1) of this clause makes clear that an instalment of tax will be treated as tax for the purposes of sections 92, 93, 94, 95, 100, 129, 130 and 131 - sections relating to extensions of time, penalty tax and recovery.

For those purposes, references to tax in sections 94, 95, 100, 129, 130 and 131 also include, by sub-clause (2), additional tax under sub-section 112(4), i.e., penalty tax where an instalment based on an instalment variation made by an employer has proven to be insufficient. Those sections deal with recovery of tax, services of notice, persons in control of money of non-residents, matters affecting agents and trustees and recovery of tax paid on behalf of other persons.

Sub-clause (3) is a technical measure that makes clear that the processes of ascertaining the amount of an instalment of tax, or what is called the notional tax amount (broadly, the amount of tax that is divisible into instalments), do not constitute the making of an assessment.

By sub-clause (4), all instalment amounts are to be calculated to the nearest dollar.

Clause 102: Liability to pay instalments of tax

This clause imposes an obligation on an employer to pay, in accordance with the rules set down in Subdivision 2, two instalments of tax in respect of the transitional year i.e., the 9 month period ending on 31 March 1987, and three instalments in respect of each standard year, i.e., each 12 month period thereafter ending on 31 March.

Clause 103: When instalments of tax payable

The 2 transitional year instalments mentioned in the previous clause are due and payable on 28 October 1986 and 28 January 1987, while the 3 instalments of standard years are due and payable on 28 July, 28 October and 28 January in the particular year.

Clause 104: Application of instalments of tax

Instalments of fringe benefits tax will, by this clause be offset against the amount of fringe benefits tax payable on assessment of the relevant year's fringe benefits taxable amount. If there is an excess, it will be credited against any other Commonwealth taxation liability of the employer, and any balance refunded.

Clause 105: Unpaid instalments

This clause deals with situations where instalments remain unpaid on the date when the amount of fringe benefits tax of a year of tax becomes due and payable.

Under sub-clause (1), if one instalment or part of one instalment remains unpaid there are three possible outcomes -

•

if none of the "annual" tax has been paid only so much of the unpaid instalment as does not exceed the annual tax liability will remain payable;

•

where some but not all of the "annual" tax has been paid, so much of the unpaid instalment as does not exceed the unpaid balance of the annual amount will remain payable; and

•

where all of the "annual" tax has been paid, the unpaid instalment ceases to be payable.

Under sub-clause (2), if two or more instalments remain wholly or partly unpaid, the following rules apply -

•

if any of the "annual" tax remains unpaid, the Commissioner may determine the extent to which each of the unpaid instalments is no longer payable; or

•

if all of the "annual" tax has been paid, the unpaid instalments cease to be payable.

Sub-clauses (3) and (4) require the Commissioner to have due regard to the amounts of unpaid instalments and the amount of unpaid "annual" tax in making a determination under sub-clause (2), and to notify the employer in writing of the reduced instalments.

Subdivision B: Transitional Year of Tax

Introductory note

This Subdivision contains rules for calculating the amount of each of the instalments payable in respect of the first two quarters of the fringe benefits transitional year of tax, i.e., the instalments payable on 28 October 1986 and 28 January 1987. Under the rules, the amount of each instalment is, broadly, the amount of fringe benefits tax that would be payable if those quarters were each treated as a separate year of tax, this amount being found by aggregating the taxable values of the fringe benefits provided in those quarters. The instalment payable is an amount equal to 46% of that aggregate value.

Clause 106: Notional tax amount

This clause contains the rules for calculating the two transitional year instalments. The basic rule, paragraph (1)(a), is that the "notional tax amount" (the amount payable as a quarterly instalment - see clause 107) is equal to the tax that would be payable in respect of the transitional year of tax if the quarter were itself the transitional year. That rule is supplemented by adjustments to certain of the annual fringe benefit valuation rules, explained earlier to reduce them to their quarterly equivalents. Apart from those adjustments explained below, fringe benefits provided in either quarter will be valued according to the valuation rules applicable for the transitional year.

Paragraph (1)(b) of clause 106 has the effect of reducing to a quarterly equivalent the deemed depreciation and interest components (clause 11) that are included in the operating costs of a car for the purpose of calculating the taxable value of a car fringe benefit under the actual cost method described in the notes on clause 10. In determining the amounts of the depreciation and interest components for the quarter, the amounts of depreciation and notional interest arrived at under the valuation rules for the transitional year are to be reduced to a quarterly equivalent on a time basis.

For example, if a car had a depreciated value of $15,000 at 1 July 1986, the depreciation component for the September quarter would be one-third of the depreciation for the full transitional year, as follows:

(1)/(3) * ((.225 * 15,000 * 274)/(365)) = $844


In this calculation it is assumed that the car is on hand at the end of the quarter and will continue to be at the close of the transitional year.

The taxable value of fringe benefits in the form of expenditure of an employee that is paid or reimbursed by an employer is reduced to the extent that, had the employee borne the expense it would have been deductible for income tax purposes.

In order to establish whether the expense would have been deductible, the employee is to provide the employer with a declaration setting out particulars of the expense and, in most instances, specified documentary evidence. The declaration and substantiation documents must normally be provided before the date of lodgment of the employer's fringe benefits tax return of the relevant year of tax. By paragraph (1)(c), if an employer wishes to take advantage of these reductions when calculating either of the quarterly instalments for the transitional year, the substantiation documents will need to be obtained before the date of lodgment of the relevant quarterly instalment statement required by clause 108 (see later notes).

Paragraph (1)(d) applies where a car fringe benefit is calculated according to the statutory formula described in the notes on clause 9. If the car has been owned or leased by the employer (or an associate) for more than 4 years at 1 July 1986, its "base value" will be reduced by one-third for the purpose of calculating the taxable value of the car fringe benefit for the quarter.

Where the statutory formula method is used, the quarterly taxable value will be based on a percentage of the "base value" of the car according to the annualised number of kilometres (both business and private) travelled in the quarter. In applying the formula to determine the value of a car benefit provided in the quarter, the following component figures are substituted for those applicable for the full transitional year:

EXAMPLE

Assume for the purposes of calculating the instalment of tax for the September quarter that -

•

a car was purchased by an employer for $20,000 on 1 August 1986;

•

for the whole of the period 1 August 1986 to 30 September 1986 (i.e., 61 days) the car was available for private use by an employee and travels 6,000 kilometres;

•

there was no fee for use of the car or payment of running costs by the employer.

The projected "annual" kilometres for the quarter is

(6,000 * 92)/(61) = 9,050


kilometres.

The taxable value of the car fringe benefit for the quarter would be

(20,000 * .04 * 61)/(92) = $530


.

As explained in the notes on clause 26, the value of a housing fringe benefit is generally to be determined by references to the market value of the right to use or occupy the accommodation for the period of the year during which the employee had that right. Where this basis of valuation is used in calculating a quarterly instalment, paragraph (1)(f) has the effect that the taxable value is to be determined by reference to the market value of the right to use the accommodation during the quarter. The value is, in turn, reduced by the amount of any applicable remote area discount and rent paid by the employee.

An employee may elect that the taxable value of a remote area housing benefit be calculated by reference to the "statutory annual rent amount". As explained in the notes on clause 29, the statutory annual rent amount is discounted by 40% and the discounted figure is multiplied by the number of days in the year of tax when the housing right subsisted over the number of days in the year. For that purpose, the transitional year is treated as a full year having 365 days.

To convert the value of a housing fringe benefit to a quarterly equivalent for the purpose of ascertaining the two quarterly instalments of the transitional year, the statutory annual rent amount is divided by 4 (paragraph (1)(g)) and the actual number of days in the quarter is substituted for 365 (paragraph (1)(f)).

EXAMPLE

Assume -

•

an employee has a right to occupy an employer's house in a remote area for 60 of the 92 days of the transitional quarter ending on 30 September 1986;

•

the statutory annual rent amount calculated as described in the notes on clause 29 is $6,760;

•

the employee pays monthly rent of $200.

The taxable value of the housing fringe benefit for the quarter would be -

$((6,760)/(4) * (6)/(10) * (60)/(92)) - 400 = $261


As explained in the notes on clause 62, the first $150 of the taxable value of fringe benefits provided to an employee in the transitional year that are, broadly, goods or services of kinds supplied to the public in the ordinary course of the employer's business are exempt from fringe benefits tax. By paragraph (1)(h) the first $50 in taxable value of such benefits is deducted in ascertaining the taxable value of fringe benefits on which the two quarterly instalments of the transitional year are to be based.

Sub-clause 106(2) bears on the calculation of instalments for the transitional year quarters where an employer wishes to take into account in the calculation alternative methods of valuation that require the making of an election. These are the elections to adopt the cost basis of valuing car fringe benefits (see the notes on clause 10) and the alternative statutory formula for valuing remote area housing benefits (see the notes on clause 29). If either or both of those bases are used in calculating for instalment purposes the value of a fringe benefit in respect of the first quarter of the transitional year, the basis must also be used for the second quarter's instalment. Calculation in that way, however, will not bind an employer to make an election to adopt the particular method or methods of valuation when lodging the fringe benefits tax return of the transitional year of tax.

The Commissioner of Taxation will be authorised in certain circumstances, to determine the amount of tax (the "notional tax amount") that an employer is required to pay as a quarterly instalment of the transitional year. Those circumstances, set out in sub-clause 106(3), are that the employer has not furnished information in relation to the instalment as required by clause 108, or that the Commissioner is not satisfied with the information so provided. In determining the amount of the instalment the rules set out in sub-clause (1) will be taken as the basis for the calculation. If the Commissioner makes a determination, a copy must be served on the employer as soon as practicable (sub-clause 104(4)).

Clause 107: Amount of instalment of tax

This clause is the operative provision of Subdivision B. It stipulates that the amounts payable as instalments in respect of the transitional year of tax are the notional tax amounts in respect of the quarter beginning on 1 July 1986 (the first instalment) and the quarter beginning on 1 October 1986 (the second instalment). That is, the quarterly instalments are the amounts of tax that would be payable if the fringe benefits provided in each of those quarters were valued, according to the valuation rules outlined earlier, as if the quarter was the transitional year of tax, with adjustments as required by clause 106 to reduce the values to quarterly equivalents.

Clause 108: Instalment statement

Clause 108 requires quarterly statements of the calculations in respect of the two quarters of the transitional year to be furnished to the Taxation Office by 28 October 1986 and 28 January 1987 respectively. The statements must be in a form approved by the Commissioner of Taxation and contain specified information as to how the instalment was calculated.

Subdivision C - Standard Years of Tax

Introductory Note

This Subdivision contains rules relating to the payment of fringe benefits tax by instalments in respect of standard years of tax, i.e., each 12 month period ending on 31 March, beginning with year of tax commencing on 1 April 1987. The general rule is that each instalment will equal one-quarter of the previous year's annual fringe benefits tax liability. However, for the first standard year adjustments are to be made to account for the facts that tax liability of the transitional year covers only a period of 9 months, and that the rate of fringe benefits tax is 46% in the transitional year and 49% in standard years.

Clause 109: Interpretation

This clause defines certain terms that are contained in Subdivision C.

"employer's estimate", wherever used in the Subdivision, is a reference to the amount estimated by an employer as the amount of fringe benefits tax that will be payable by the employer in respect of a year of tax. Such an estimate may be made, in terms of clause 112, for the purpose of varying the amount of an instalment that would otherwise be payable by the employer.

"estimated tax" also relates to clause 112, being the tax that is equal to the employer's estimate or a greater amount calculated by reference to an alternative estimate which the Commissioner of Taxation may make under sub-clause 112(3).

"penalty period" is a term used in clause 112 and is, broadly, the period over which additional tax may accrue where an employer has made an estimate of tax to reduce the amount payable as an instalment and that estimate proves to be less than the ultimate tax liability. The penalty period is, in effect, the time from when the instalment is due and payable to the time when the next instalment is due and payable.

"relevant fraction" is a component of the calculation of penalty tax where an employer's estimate is deficient. It reflects the requirement that, where an employer seeks to vary an instalment, cumulative instalments for a tax year must not amount to less than the corresponding proportion of the previous year's assessed tax or the eventual tax liability of the current year, whichever is the lesser. That proportion will be 1/4 for the first instalment, 1/2 for the second instalment and 3/4 for the third instalment. The relevant fraction is also used in calculating the proportion of the "notional tax amount" (see notes on clause 110) that is payable as an instalment.

Clause 110: Notional tax amount

The notional tax amount calculated in accordance with this clause will generally equal the previous year's tax liability. The notional amount will ordinarily be divided by 4 to arrive at the amount payable as a quarterly instalment of fringe benefits tax.

For the first standard year of tax commencing on 1 April 1987, paragraph 110(1)(a) prescribes the notional tax amount as the amount obtained by multiplying the tax assessed in respect of the transitional year of tax by 1.42. This recognises that the transitional year covers only 9 months and that the rate of tax is to increase for that year from 46% to 49%.

For years of tax after this first standard year, the notional tax amount will be the amount of tax that was assessed in the immediately preceding year (paragraph (1)(b)).

Sub-section (2) will permit the notional tax amount to be adjusted where the rate of fringe benefits tax for a standard year is different from the rate that applied for the previous year. The manner of effecting this adjustment is to be prescribed by regulations.

By sub-clause (3), the Commissioner of Taxation is authorised to determine the notional tax amount of an employer if there is cause to believe that the tax liability of the year of tax will be greater than that assessed for the previous year. In that case, the notional tax amount will be as estimated by the Commissioner.

If such a determination is made, the Commissioner is required by sub-clause (4) to notify the employer in writing of the estimated notional tax amount and the date on which the determination takes effect. That date must not be less than 30 days after service of the notice.

By the operation of sub-clause (5), the notional tax amount may be varied according to an estimate made by the employer if the employer has given to the Commissioner a statement (as required by sub-clause 112(1)) showing the tax amount estimated and the basis of the estimate. The estimated amount will be substituted as the notional tax amount with effect from the last day of the quarter in relation to which the employer's estimate was made.

Clause 111: Amount of instalment of tax

This clause specifies the amount, based on the notional tax amount calculated in accordance with clause 110, that is to be due and payable as an instalment on the twenty-eighth day after the end of a quarter. By sub-clause (1), the instalment is to be calculated by

(A*B) - C


, i.e., the notional tax amount as at the last day of the quarter (A), multiplied by the "relevant fraction" (B), less the sum of any instalments for the year that became due and payable at an earlier time (C). If, for example, the notional tax amount (as estimated by the employer) is $8,000, the instalment due is the second quarterly instalment and the first quarterly instalment was $2,500, the second instalment payable would be -

(8,000 * .50) - 2,500 = $1,500


.

Sub-clause (2) will extinguish an obligation to pay a quarterly instalment if the notional tax amount is based solely on the previous year's tax liability, i.e., not by reference to an estimate by the employer, and is less than $1,000. By sub-clause (3), the Commissioner may determine a higher threshold amount than $1,000 by notice in the Commonwealth Gazette.

Clause 112: Estimated tax

This clause enables an employer to vary the amount of a quarterly instalment of a year of tax by making an estimate of the annual tax liability of that year. Sub-clause (1) permits an employer to make such an estimate and, not later than the date or which the instalment is due and payable, to furnish a written statement to the Commissioner of Taxation showing the estimated amount and the basis of the estimate. Only one such estimate may be made in respect of each instalment.

Where a statement is furnished, sub-clause (2) will apply so that the amount of tax specified in the statement becomes the "employer's estimate", as defined in clause 109, and hence, by the operation of sub-clause 110(5), the new notional tax amount.

Sub-clause (3) will allow Commissioner of Taxation to substitute for the employer's estimate of the amount which, in the Commissioner's opinion, should have been the amount estimated by the employer, having regard to information in returns furnished by the employer and any other available information. In such a case, the new notional tax amount will be the lesser of the Commissioner's estimate or the notional tax amount before the employer's estimate.

Sub-clause (4) will impose penalty tax where the employer materially underestimates the annual tax liability. That will occur if the notional tax amount calculated by reference to the employer's estimate is less than 90% of the amount of the eventual assessed tax liability of the employer for the year of tax. The penalty tax will be calculated at the rate of 20% per annum over the "penalty period" (see earlier notes on clause 109) in accordance with the formula

(A*B) - C


. Component A is the lesser of the actual tax assessed and the notional tax amount ascertained by reference to the previous year's liability; component B is the relevant fraction (as explained in the notes on clause 109); and component C is the total of any instalments in respect of the year of tax that became due and payable at an earlier time.

Sub-clause (5) is a technical measure to ensure that sub-clause (4) has its intended effect where an employer would have been liable to pay an instalment but makes an estimate that no annual tax will be payable. In that case, the amount payable as the relevant instalment will be treated as a nil amount.

By sub-clause (6), the Commissioner of Taxation will be authorised to remit penalty tax imposed by sub-clause (4) if satisfied that there are special circumstances by reason of which it would be fair and reasonable to do so.

Sub-clause (7) has the effect that any extension of time granted to pay an instalment of tax is to be disregarded in determining whether or not an amount was due and payable for the purposes of applying clause 112. Thus, for example, a penalty calculated under sub-clause (4) will accrue from the 28th day after the end of the relevant quarter, regardless of whether an extension of time to pay is given.

Clause 113: Notice of alteration of amount of instalment

This clause applies where an employer has made an estimate of tax payable in respect of a year of tax but the Commissioner has substituted, in terms of sub-clause 112(3), a higher estimate. The Commissioner will be required to notify the employer in writing of the increase in the relevant tax instalment as a consequence of the substituted estimate and the due date for payment of the instalment. That date, which must not be earlier than 14 days after the notice is served, will become the due date notwithstanding the usual due dates for the payment of instalments as specified in clause 103.

PART VIII - PENALTY TAX

Clause 114: Penalty for failure to furnish return

This clause will impose a penalty of an amount equal to double the amount of tax payable by an employer in respect of a year of tax if the employer - not being a government body - refuses or fails to furnish, when required to do so under the law, a fringe benefits tax return of that year or information relevant to ascertaining the employer's tax liability. The minimum penalty will be $20.

Clause 115: Penalty for false or misleading statements

Sub-clause (1) will apply where an employer - other than a government body - makes a statement for the purposes of the proposed Act that is false or misleading in a material particular or which, by the omission of some matter, is rendered misleading. If, in such a case, the tax properly payable by the employer exceeds the tax that would be payable if the statement were correct, the employer will be liable to penalty tax equal to double the excess.

By the operation of sub-clause (2), the minimum penalty payable under this clause will be $20.

The penalty imposed by sub-clause (1) will apply to statements made to a taxation officer or other person for purposes in connection with the operation of the tax and, for that purpose, sub-clause (3) will define the term 'statement' to mean an oral or written statement, or one made on a data processing device or in any other form. In particular, the sub-clause will ensure that statements contained in an objection against an assessment will be penalisable where such statements are false or misleading. The term will include a statement whether or not furnished in accordance with provisions of the Bill, but will not include a statement in a book, document or paper furnished pursuant to paragraph 128(1)(c) of the Bill. That paragraph obliges a person, when required by the Commissioner, to attend and give evidence and to produce books, documents and other papers in his or her custody or under his or her control. But for this exclusion a person may have sought to decline to produce books, etc., required in case their production would give rise to the imposition of additional tax for false or misleading information contained in them.

A statement made to a person other than a taxation officer will, by sub-clause (4), include statements - made orally, in writing, in a data processing device or otherwise - whether in a document given to the person, any answer to a question asked by the person or any information furnished to the person.

Sub-clause (5) defines the following terms used in clause 115:

"data processing device" is any article or material (e.g., computer tapes or discs) from which information is capable of being reproduced either with or without the aid of any other article or device; and

"taxation officer" is a person exercising powers, or performing functions, under the proposed Fringe Benefits Tax Assessment Act.

Clause 116: Penalty tax where arrangement to avoid tax

This clause will impose on participants in tax avoidance arrangements struck down by clause 67 penalty tax of double the tax sought to be avoided. It will apply where -

•

in making an assessment or considering an objection, the Commissioner of Taxation has calculated the amount of a tax liability of an employer;

•

in making that calculation, the Commissioner has taken into account a tax benefit obtained by reason of a tax avoidance arrangement in terms of sub-clause 67(1); and

•

the amount of tax payable is greater than it would have been had the adjustment not been made to eliminate the tax benefit.

Where those conditions apply, clause 116 will impose on the employer a liability to pay penalty tax equal to double the difference between the tax properly payable and the tax that would have been payable if the assessment were made or the objection determined on the basis that the fringe benefits amount represented by the tax benefit were not included in the employer's fringe benefits taxable amount of the year of tax.

Clause 117: Assessment of additional tax

Sub-clauses (1) and (2) of this clause impose an obligation on the Commissioner of Taxation to make an assessment of the additional tax payable by an employer under a provision of this Part, but notice of the assessment may be incorporated in another notice of assessment that is being made in respect of the employer.

By sub-clause (3) the Commissioner may, either before or after making an assessment of additional tax, remit the whole or any part of the additional tax payable by an employer.

PART IX - TAX AGENTS

Clause 118: Interpretation

This clause defines "registered tax agent" for the purposes of this Part as a person or partnership registered as a tax agent under the income tax law.

Clause 119: Unregistered tax agents not to charge fees

This clause stipulates that a person who is not a registered tax agent must not charge a fee to prepare a fringe benefits tax return or an objection for a person or transact other fringe benefits tax business on behalf of others. The prohibition does not apply to a solicitor or counsel acting professionally in preparing an objection, or in litigation or proceedings before a Board of Review, or acting in an advisory capacity concerning the preparation of a fringe benefits tax return or objection. The maximum penalty on conviction for a breach of clause 119 is a fine of $2,000.

Clause 120: Negligence of registered tax agents

If, through the negligence of a registered tax agent, an employer becomes liable to pay a fine or other penalty or any additional tax, clause 120 renders the registered tax agent liable to pay to the employer the amount of the fine or other penalty or additional tax and allows that the amount may be sued for and recovered in a court of competent jurisdiction. The clause does not exonerate the employer from any tax liability.

Clause 121: Preparation of returns, & c., on behalf of registered tax agents

This clause prohibits a registered tax agent from allowing a person to prepare, on the registered tax agent's behalf, a fringe benefits tax return or objection, or to conduct any business related to a fringe benefits tax matter unless the person is an employee of a registered tax agent, a registered tax agent or, in the case of a partnership which is registered as a tax agent, a member of that partnership. Similarly, a partnership or company registered as a tax agent must not allow a person to act in those ways except under the supervision of a registered nominee of that partnership or company.

The maximum penalty on conviction for a breach of clause 121 is a fine of $1,000. A tax agent is not prevented by clause 121 from obtaining the professional services of a solicitor or counsel as mentioned in the notes on clause 119.

Clause 122: Advertising, & c., by persons other than registered tax agents

Clause 122 will debar any person who is not a registered tax agent from advertising that fringe benefits tax returns will be prepared by that person or that any other matter in connection with fringe benefits tax will be attended to by that person, with a maximum penalty on conviction of $1,000.

PART X - RETENTION OF STATUTORY EVIDENTIARY DOCUMENTS

Clause 123: Retention of statutory evidentiary documents

Part X of the Bill, contained in clause 123, deals with the consequences of a failure to retain "statutory evidentiary documents" (as defined in sub-clause 136(1)). Where the documents are relevant for the purpose of determining the taxable value of a fringe benefit, or whether a fringe benefit is exempt from tax, they must be retained for the "retention period" - broadly, six years from the date of assessment of an employer's fringe benefit taxable amount. If they are not so retained, the taxable value of a fringe benefit to which they relate cannot be reduced or, as the case may be, treated as exempt on account of the information they contain.

Sub-clause (1) means that, where an employer fails to retain for the retention period statutory evidentiary documents which have been given to the employer, they will be deemed never to have been received.

Sub-clause (2) will apply where an employer fails to retain "relevant car documents" (as defined in sub-clause 136(1)) maintained for the purpose of determining, on the basis of business and private kilometres travelled, the taxable value of a car fringe benefit on the cost basis under clause 10. In that case the documents will be treated as never having been maintained.

Sub-clause (3) will apply in a similar way where documentary evidence (e.g., a diary record) of small expenditures (i.e., each item not exceeding $10) of an employee provided with an expense payment fringe benefit is not retained.

Sub-clause (4) will allow a copy of a document to be treated as the original of that document if the original has been lost or destroyed. This is a relieving provision and is conditional on the loss or destruction being in circumstances beyond the employer's control. The Commissioner of Taxation must also be satisfied that all reasonable steps were taken to prevent such a loss. A copy will not be acceptable unless it was in existence when the original was destroyed and properly records all the matters required in the original.

Sub-clause (5) recognises that the original document may be lost or destroyed in circumstances such as outlined in sub-clause (4) but where there is no substitute document in existence, and it is not practicable to obtain one. In that case, sub-clause (5) overrides sub-clauses (1), (2) and (3). This means that those sub-clauses will not apply to deem the originals not to have been given to, or maintained by, the employer.

Sub-clause (6) will permit statutory evidentiary documents to be taken to have been given to and retained by an employer for the retention period, even though they were in fact lost or destroyed beforehand. This will be permitted only where no substitute document is in existence and it is not practicable to obtain one.

Sub-clause (7) authorises the amendment of an assessment to give effect to clause 123 notwithstanding the general rules contained in clause 74 as to when an amended assessment may be made.

PART XI - MISCELLANEOUS

Clause 124: Determination of fringe benefits taxable amount where insufficient information

This clause will apply in circumstances where the Commissioner does not have sufficient information to make an assessment of the fringe benefits taxable amount of an employer of a year of tax. In such a case, the amount that, in the opinion of the Commissioner, might reasonably be expected to be the fringe benefits taxable amount shall be deemed to be the fringe benefits taxable amount for the purposes of making an assessment.

Clause 125: Judicial notice of signature

This clause requires that judicial notice be taken of the signature of a person who holds or has held the office of Commissioner of Taxation, Second Commissioner of Taxation or Deputy Commissioner of Taxation where that signature is on an official document pertaining to the Bill.

Clause 126: Evidence

Sub-clauses (1) to (5) of this clause specify the evidentiary value of certain documents and copies of documents issued or given, or purporting to be issued or given, under the hand of the Commissioner, a Second Commissioner or a Deputy Commissioner, while sub-clause (6) applies similarly to a fringe benefits tax return made or signed by a person.

The rules in sub-clauses (1) to (5) are as follows:

•

the production of a notice of assessment or document purporting to be a copy of such a notice is conclusive evidence of the due making of the assessment and that the amounts and all particulars are correct - except in proceedings relating to an objection, reference or appeal concerning an assessment;

•

the production of a document is prima facie evidence of its being issued or given;

•

the production of a document purporting to be a copy of, or extract from, a return or notice of assessment is evidence of the matters in the document to the extent that the original document would be if produced;

•

the production of a signed certificate that a specified sum was due and payable at the date of the certificate as tax, an instalment of tax or penalty tax is prima facie evidence of the matter stated;

•

the production of a Gazette containing a notice is prima facie evidence that the notice was issued.

The rule in sub-clause (6) is that a fringe benefits tax return purporting to be made or signed by or on behalf of a person is prima facie evidence that the return was made by or on the authority of the person.

Clause 127: Access to premises, & c.

Sub-clause 127(1) will require that an officer duly authorised by the Commissioner be given entry, at all reasonable times, to land or premises, full and free access to all books, records and other documents held by any person, and the right to inspect, examine or make copies or extracts therefrom.

By sub-clause (2), an officer is not entitled to remain on land or premises unless a written authority signed by the Commissioner is produced on the request of the occupier.

Sub-clause (3) will require any occupier of land or premises entered or proposed to be entered by a duly authorised officer to provide that officer with all reasonable facilities and assistance to carry out official duties. The maximum penalty on conviction for failure to comply is a fine of $1,000.

Clause 128: Commissioner to obtain information and evidence

This clause, which is similar in operation to section 264 of the Income Tax Assessment Act 1936, will enable the Commissioner to require, by notice in writing, any person to furnish information, to attend before him and answer questions, on oath or otherwise, or to produce any documents in the custody or under the control of that person.

Clause 129: Agents and trustees

This clause will apply to a person who acts as an agent for an employer in providing or arranging the provision of fringe benefits, to an employer in the capacity of trustee, or to a trustee of the affairs of an employer where the trustee provides or arranges for the provision of fringe benefits.

The agent or trustee (called a representative) will be required, in that representative capacity only, to furnish returns and be liable to pay any tax in respect of fringe benefits. The representative will be required to retain moneys received as representative sufficient to pay the amount of tax and will to that extent be personally liable for the amount of tax after it becomes due and payable. Clause 129 will indemnify the representative for all payments made in its compliance.

The Commissioner of Taxation will have the same remedies against attachable property vested in, or under the control, management or possession of, the representative as would be available against the property of any other person in respect of tax payable by that person.

Clause 130: Recovery of tax paid on behalf of another person

By the operation of this clause a person who is required to pay to the Commissioner an amount of tax payable by another person may recover the amount from that other person, with costs, or retain or deduct the amount owing out of money of the other person that is on hand.

Clause 131: Right of contribution

Clause 131 will apply where two or more persons are jointly or jointly and severally, liable for tax and one of them pays the tax. In that case, the one who paid the tax may recover from the other person or persons such part of the amount as that a court of competent jurisdiction considers just and equitable.

Clause 132: Records to be kept and preserved

This clause requires an employer to keep records that identify and explain all transactions and acts relevant for the purpose of ascertaining the employer's liability under the proposed Act. An associate who provides benefits to an employer's employees is also required to maintain records in respect of those transactions. In these cases, the associate is further required to make available to the employer a copy of the records not later than 21 days after the end of the relevant year of tax.

The records must be kept in the English language or, if not in written form (e.g., in computer), be in a form which is readily accessible and convertible into English. The records are to be retained for a period of 7 years after the completion of the transactions or acts to which they relate.

The maximum penalty on conviction for failure to comply with clause 132 is a fine of $2,000.

An employer (or associate) will not offend against this clause where he or she fails to obtain information in relation to a transaction or act engaged in by another person under an arrangement with the employer (or associate) if the employer (or associate) took all reasonable steps to ascertain details of the transaction and to obtain the information. In a case where the transaction was engaged in by another person otherwise than under an arrangement with the employer, the employer will not be liable if he or she did not know, and could not reasonably be expected to have known, of the information.

Clause 133: Release of employers in cases of hardship

This clause, which will apply in the same way as section 265 of the Income Tax Assessment Act 1936, provides a mechanism for release from payment of tax where serious hardship would result.

Clause 134: Service on partnerships and associations

This clause will deem service of a notice or document on a member of a partnership or on the committee of management of an unincorporated association or other body of persons to constitute service of that notice or document on each member of the partnership, association or body.

Clause 135: Regulations

This clause will authorise the Governor-General to make regulations prescribing matters permitted to be prescribed or necessary or convenient to be prescribed for administering the proposed Act.

PART XII - INTERPRETATION

Clause 136: Interpretation

Clause 136 contains a number of definitions and interpretative provisions to facilitate drafting of the operative clauses of the Bill.

Sub-clause (1) defines the following terms, each of which is to have the given meaning unless the contrary intention appears. Apart from certain expressions that are self-explanatory, these are -

"agent" includes a person who has management or control in Australia of all or part of a business of a person out of Australia and a person declared by written notice of the Commissioner of Taxation to be an agent of a person.

"agent's certificate" is defined as a certificate under sub-clause 71(1), i.e., a certificate as to the sources of information used to prepare a return.

"airline operator" is a person who carries on a business of providing transport on passenger aircraft (principally to outsiders).

"airline transport benefit" means a benefit of the kind mentioned in clause 32.

"airline transport fringe benefit" is an airline transport benefit that constitutes a fringe benefit (as defined).

"arrangement" is given an extended meaning, common to provisions of other taxation laws, so as to include any agreement, arrangement or understanding, either expressed or implied, whether or not intended to be enforceable under law.

"assessable income" will have the same meaning as in the Income Tax Assessment Act 1936.

"assessment" is defined to mean the ascertainment of an employer's fringe benefits taxable amount (also a defined term) and the tax payable thereon, or the ascertainment of penalty tax under Part VIII.

"associate", in relation to a person, is defined to have the same meaning as that term has by reason of the definition in section 26AAB of the Income Tax Assessment Act 1936. That definition specifies who is an associate in relation to a natural person, a company, a trustee of a trust estate or a partnership and, in broad terms, refers to those persons who by reason of family or business connections might appropriately be regarded as being associated with a particular person.

"Australia", in a geographical sense, will include the external Territories.

"benchmark interest rate", which is defined in relation to loan fringe benefits and car fringe benefits, is generally the rate of interest offered anywhere in Australia immediately before the beginning of a year of tax on a Commonwealth Bank housing loan (a defined term). Between 2 April 1986 and 1 July 1986, the benchmark interest rate is the Commonwealth Bank housing loan interest rate on offer during that period.

"benefit", wherever it is used, will include any right, privilege, service or facility, including a right relating to real or personal property, whether provided under an arrangement in relation to -

•

the performance of work;

•

the provision of entertainment, recreation or instruction, or the use of facilities therefor; or

•

the conferring of rights, benefits or privileges for which remuneration is payable by way of royalty, tribute or levy, or provided under an insurance contract or a money-lending arrangement.

"board meal" is defined for the purposes of the board fringe benefit valuation rules explained in the notes on clause 36; the meaning of the term is explained in those notes.

"board benefit" means a benefit of the kind mentioned in clause 35.

"board fringe benefit" is a board benefit that constitutes a fringe benefit (as defined).

"business journey", for the purposes of the car fringe benefit rules in Division 2 of Part III, is a journey in a car otherwise than in applying the car to a private use, and for the purposes of rules that reduce the taxable value of loan fringe benefits, expense payment fringe benefits, property fringe benefits and residual fringe benefits, is a journey undertaken in the course of producing assessable income of the holder of the car.

"business kilometre" means a kilometre travelled in the course of a business journey (as defined).

"business operations" is a term defined in relation to a government body (a defined term) or non-profit company to include any operations or activities of such a body or company.

"business premises" means premises or a part of premises used wholly or partly for the purpose of business operations, but does not include any part of premises used as a residence.

"car" is defined for the purposes of the car fringe benefits valuation rules in Division 2 of Part III, and its meaning is explained in the notes on that Division.

"car benefit" means a benefit of the kind mentioned in sub-clause 7(1).

"car fringe benefit" is a car benefit that constitutes a fringe benefit.

"car property benefit" means a property fringe benefit (as explained in the notes on Division II) which, if the person receiving the benefit had borne the cost of it, that cost would have been a car expense in terms of Subdivision F of Division 3 of Part III of the Income Tax Assessment Act 1936 (the substantiation rules).

"child" includes an adopted child, step-child or ex-nuptial child.

"child care facility" is defined to mean a facility where a person may receive 2 or more children under 6 years away from their own homes to mind, care for or educate but not provide residential care.

"Commissioner" means the Commissioner of Taxation.

"Commonwealth Bank housing loan" refers to an arm's length loan made for housing purposes by the Commonwealth Savings Bank under terms whereby interest is calculated on the daily balance and added monthly to the principal.

"company" is defined to include any corporate or unincorporated body or association, but not a partnership.

"comparison time" takes its meaning according to the kind of fringe benefit it applies to. In relation to residual fringe benefits, explained in the notes on Division 12, it is generally the time when the benefit is provided. In relation to a benefit provided during regular billing periods, it is the commencement of the billing period, and in respect of benefits provided over a period, it is the time when the benefit began to be provided. In respect of an air transport fringe benefit, it is when the benefit is provided.

"contract of investment insurance" means a life assurance contract under which money is payable if the life assured is alive on a specified date.

"cost price" is defined in relation to car fringe benefit valuation rules in Division 2 and its meaning is explained in the notes on that Division.

"current employee" and "current employer" are defined to have the same meanings as those terms are given for the purposes of the PAYE provisions of the Income Tax Assessment Act 1936. A current employee includes a member of a State Parliament and a person employed by a State or State authority, and a current employer includes a State or a State authority.

"current identical benefit" is defined to modify the meaning of another defined term, "identical overall benefit": it is the identical overall benefit insofar as it was provided during the year of tax.

"customs duty" means customs duty imposed under a law of the Commonwealth or of a Territory.

"daily balance" is defined as the balance of a loan at the end of a day.

"debt waiver benefit" means a benefit of the kind mentioned in clause 14.

"debt waiver fringe benefit" is a debt waiver benefit that constitutes a fringe benefit (as defined).

"December quarter" means a quarter of any year ending on 31 December.

"declaration-date" is defined in relation to various documents that may need to be obtained or provided to substantiate the basis of valuing certain fringe benefits: they must be obtained or provided by the date of lodgment of the fringe benefits tax return of an employer of the year of tax to which they relate, or such later date as the Commissioner allows.

"deductible entertainment expenditure" means entertainment expenses within the meaning of section 51AE of the Income Tax Assessment Act 1936 that would be deductible for income tax purposes, because of the operation of sub-section 51AE(5), if incurred in producing assessable income, except food or drink provided to an employee as board or as part of a living-away-from-home arrangement.

"deductible expenses" is defined in relation to a living-away-from-home allowance benefit as expenses incurred by an employee which would be an allowable deduction under the income tax law but for section 51AE (entertainment expenses) and Subdivisions F (substantiation of expenses) and G (rental property loan interest) of the Income Tax Assessment Act 1936.

"depreciable property", wherever used, means plant or articles of the kind eligible for depreciation allowances under the income tax law.

"Deputy Commissioner" means a Deputy Commissioner of Taxation.

"documentary evidence" is defined in relation to an expense incurred by a person, and means a document that would constitute documentary evidence of that expense under the income tax law if the person who incurred the expense were a taxpayer within the meaning of that law.

"domestic route" is defined in relation to airline transport fringe benefits and means a route where the port of embarkation and the port of disembarkation are both within Australia.

"dwelling" is defined, in relation to housing fringe benefits, as a unit of accommodation constituted by or contained in a building, being a unit that consists wholly or substantially of residential accommodation.

"economy air fare" is defined in relation to airline transport fringe benefits as the standard air fare (other than a preferential fare) charged by a carrier in respect of a scheduled air service or, where a child, student or blind person is eligible for a concessional fare, the concessional air fare. In either case, there must be no special booking conditions attached.

"eligible dining facility" is defined to mean a canteen, dining room, cafe, restaurant or similar facility on the premises of an employer or, if the employer is a company, a related company.

"eligible entertainment expenditure" means deductible entertainment expenditure (as defined) or non-deductible entertainment expenditure (as defined) - broadly, entertainment expenditure that would qualify for deduction under the income tax law but for the operation of section 51AE of the Income Tax Assessment Act 1936.

"eligible family member" is an employee required to live away from home for a period in order to carry out duties of employment and the spouse and children of the employee who live with the employee during that period. The term also refers to an employee in receipt of a living-away-from-home allowance fringe benefit and the employee's spouse and children who live with the employee and in respect of whom part of the living-away-from-home allowance benefit is provided.

"eligible incidental travel expense payment benefit" is an expense payment fringe benefit in the nature of a payment or reimbursement of expenses that a person might reasonably be expected to have incurred on accommodation, food and incidentals whilst undertaking travel away from home, but within Australia, in the course of performing duties as an employee.

"eligible overtime meal expense payment benefit" is an expense payment fringe benefit in the nature of a payment or reimbursement of expenses that a person might reasonably be expected to have incurred in the purchase of food or drink in connection with overtime worked by that person.

"eligible premises" is defined in relation to a meal, or food or drink, provided in respect of the employment of an employee. It means the employer's premises and, if the employer is a company, premises of a related company. It also includes a location at or adjacent to the employee's work site.

"employee" may mean a current employee, future employee or former employee.

"employer" correspondingly means a current employer, future employer or former employer, but not the Commonwealth or an authority of the Commonwealth that cannot by Commonwealth law be made liable to taxation by the Commonwealth.

"employment" is defined in relation to a person as including the holding of an office or appointment, the performance of functions or duties, the engaging in of work or the doing of any act or thing that results in the person being treated as an employee.

"exclusive employee airline transport benefit" is an airline transport fringe benefit which, if the employee provided with the benefit had borne the cost of providing it, that cost would have been incurred exclusively in gaining or producing that person's salary or wages from the employment that is the source of the benefit.

"exclusive employee expense payment benefit" is an expense payment fringe benefit where the employee's expenditure that is paid or reimbursed is incurred exclusively in gaining or producing that employee's salary or wages from the employment that is the source of the benefit.

"exclusive employee property benefit" is a property fringe benefit which, if the employee provided with the benefit had borne the cost of providing it, that cost would have been incurred exclusively in gaining or producing that person's salary or wages from the employment that is the source of the benefit.

"exclusive employee residual benefit" is a residual fringe benefit which, if the employee provided with the benefit had borne the cost of providing it, that cost would have been incurred exclusively in gaining or producing that person's salary or wages from the employment that is the source of the benefit.

"exempt accommodation component" is defined in relation to living-away-from-home fringe benefits, and its meaning is explained in the notes on Division 7 of Part III of the Bill.

"exempt food component" is also explained in the notes on Division 7 of Part III.

"expense payment benefit" is a benefit of a kind mentioned in clause 20.

"expense payment fringe benefit" is an expense payment benefit that constitutes a fringe benefit (as defined).

"extended travel airline transport benefit" is an airline transport fringe benefit where the transport -

(i)

is over an international route; or

(ii)

is within Australia, involves the traveller being away from home for a continuous period of more than 5 nights, and is not undertaken exclusively in gaining or producing the salary or wages income from the employment that is the source of the benefit.

"extended travel board benefit" is a board fringe benefit where -

(i)

the board meal is in respect of travel outside Australia; or

(ii)

the board meal is in respect of travel within Australia requiring the traveller to be away from home for a continuous period of more than 5 nights, and the travel is not undertaken exclusively in gaining or producing the salary or wages income from the employment that is the source of the benefit.

"extended travel expense payment benefit" is an expense payment fringe benefit, other than a car expense payment benefit, where -

(i)

the employee's expenditure that is paid or reimbursed is incurred in respect of travel outside Australia; or

(ii)

the expenditure is in respect of travel within Australia requiring absence from home for a continuous period of more than 5 nights, and the travel is not undertaken exclusively in gaining or producing the salary or wages income from the employment that is the source of the benefit.

"extended travel property benefit" is a property fringe benefit, other than a car property benefit, where -

(i)

the property comprising the benefit is in respect of travel outside Australia; or

(ii)

the property is provided in respect of travel within Australia requiring absence from home for a continuous period of more than 5 nights, and the travel is not undertaken exclusively in gaining or producing the salary or wages income from the employment that is the source of the benefit.

"extended travel residual benefit" is a residual fringe benefit, other than a car residual benefit, where -

(i)

the fringe benefit is provided in respect of travel outside Australia; or

(ii)

the benefit consists of or is in respect of travel within Australia by the person receiving the benefit requiring absence from home for a continuous period of more than 5 nights, and the travel is not undertaken exclusively in gaining or producing the salary or wages income from the employment that is the source of the benefit.

"external non-period residual fringe benefit" is a non-period residual fringe benefit that is not an in-house benefit.

"external period residual fringe benefit" is a period residual fringe benefit that is not an in-house benefit.

"external property fringe benefit" is defined in relation to an employer as a property fringe benefit that is not an in-house benefit.

"fitting", as applied to a non-business accessory (a defined term), includes the acquisition of the accessory.

"food component" means so much of a living-away-from-home allowance as would be concluded is in the nature of compensation for costs of food or drink of the person provided with the allowance (and, where relevant, the person's family) whilst living away from home.

"fringe benefit" is a term central in determining a liability to fringe benefits tax and its meaning has been summarised in the introductory note on the general scheme of the Bill. It is a benefit provided in respect of an employee in a year of tax that, subject to the application of the rules in Part III relating to the various categories of taxable fringe benefits, gives rise to a fringe benefits tax liability of an employer.

A fringe benefit means a benefit provided at any time during the year of tax, or deemed (by specific clauses of the Bill) to be so provided to the employee by the employer, an associate of the employer or by another person (called the arranger) under an arrangement with the employer or an associate of the employer. Alternatively, the employer or associate may arrange for a third person to provide the benefit. In all cases, the benefit must be "in respect of" the employment of the employee. That expression is in turn defined to include by reason of, by virtue of, or for or in relation directly or indirectly to, the employee's employment.

A fringe benefit does not include the following:

•

a payment of salary or wages including salary or wages exempt from tax under the income tax law

•

an exempt benefit (as defined)

•

a benefit under an employee share acquisition scheme in accordance with section 26AAC of the Income Tax Assessment Act 1936

•

contributions to a superannuation fund

•

eligible termination payments under section 27A of the Income Tax Assessment Act 1936 or payments which would be eligible termination payments but for being, broadly, annuities, commutations of pension or payments out of superannuation funds

•

capital consideration for injury or a legally enforceable contract in restraint of trade

•

a payment deemed to be a dividend under the income tax law

•

a payment to an associated person that is not an allowable deduction by the operation of section 65 of the Income Tax Assessment Act 1936.

"fringe benefits taxable amount" or "tax", where used in the Bill, means tax imposed by the proposed Fringe Benefits Tax Act 1986.

"fringe benefits taxable amount" of a year of tax means the total of all fringe benefits provided by, or by arrangement with, an employer in respect of his or her employees during the year.

"government body" is defined to mean the Commonwealth, a State, a Territory or an authority of the Commonwealth or a State or Territory.

"housing benefit" is a benefit of the kind mentioned in clause 25.

"housing fringe benefit" is a housing benefit that constitutes a fringe benefit.

"housing right" means a lease or licence granted to a person to occupy or use a unit of accommodation, to the extent that the lease or licence is operative at a time when the accommodation is the person's usual place of residence.

"identical benefit" is a benefit the same in all respects as a residual fringe benefit provided to a person or having minor differences that do not affect the intrinsic value of the benefit.

"identical overall benefit" is a benefit the same in all respects as a residual benefit provided to a person during a period or having minor differences that do not affect the intrinsic value of the benefit.

"identical property" is property that is the same in all respects to property to which a property benefit relates or having minor differences not disturbing the value of the property.

"in-house fringe benefit" includes in-house property and in-house residual fringe benefits.

"in-house-non-period residual fringe benefit" is an in-house residual fringe benefit that is not provided during a period.

"in-house property fringe benefit" is defined, in relation to an employer, to mean a benefit where the subject property is tangible property (as defined) and where the employer (or a relevant associate) carries on a business that includes the provision of identical or similar property principally to outsiders (a defined term meaning, broadly, non-associates and non-employees).

"in house residual fringe benefit" means a benefit where the employer or associate who provided it carries on a business that includes the provision of identical or similar benefits principally to outsiders, but does not include benefits under investment insurance contracts.

"industrial instrument" is defined to mean a Commonwealth, State or Territory law or an award, order, determination or industrial agreement in force under such a law.

"intangible property" is defined in relation to property fringe benefits, and means real property, a chose in action and any other property that is not tangible property (as defined). It does not include a right arising under an insurance contract or a lease or licence of realty or tangible property.

"international route" is a route other than a domestic route.

"lease" includes a sub-lease.

"leased" means let or hired other than on hire-purchase, and includes any kind of hire described in the hire document as a lease.

"leased car value" is a term that applies to a car held at any time (as explained in the notes on clause 162) by a person but not owned by that person. It is the amount the person could reasonably have expected to buy the car for at that time under an arm's length transaction. The leased car value of a leased car at the time a person commences to lease it is the "cost price" (a defined term) to the lessor, provided the lessor purchased it at about that time.

"liability to the Commonwealth", where used in the Bill, is to be taken as meaning a liability to Commonwealth taxation, i.e., a liability arising under a law administered by the Commissioner of Taxation.

"liquidator" is defined in relation to a company, and means a person required by law to carry out the winding up of the company, whether appointed as liquidator or not.

"living-away-from-home allowance benefit" is a benefit of the kind mentioned in clause 30.

"living-away-from-home allowance fringe benefit" is a living-away-from-home allowance benefit that constitutes a fringe benefit.

"living-away-from-home food fringe benefit" can be either an expense payment fringe benefit where expense is incurred on food or drink, or a property fringe benefit where goods in the form of food or drink are provided for an employee (and family) where the employee (and family) is living away from home in order to perform duties of employment.

"loan", in relation to loan fringe benefits, has an extended meaning which includes an advance of money, the provision of credit or other forms of financial accommodation, the payment of an amount on behalf of a person that creates an obligation to repay, or any other form of transaction which is in substance a loan.

"loan benefit" is a benefit of the kind mentioned in sub-clause 16(1).

"loan fringe benefit" is a loan benefit that constitutes a fringe benefit.

"meal entitlement day" is a term used in the definition of "board meal" in relation to board fringe benefits. Its meaning is explained in the notes on Division 9.

"motor vehicle" is any motor vehicle (including a 4-wheel drive vehicle) in the following categories -

•

a motor car, station wagon, panel van, utility truck or similar vehicle;

•

a motor cycle or similar vehicle; or

•

any other road vehicle.

"natural person" does not include a natural person in the capacity of trustee.

"non-business accessory" is an item the cost of which will be added to the cost price of a car for the purpose of determining the taxable value of a car fringe benefit. It is an accessory not required for the particular needs of the business operations served by the car. An example would be an air-conditioner.

"non-deductible entertainment expenditure" means expenditure on the provision of entertainment that would be an allowable deduction under the income tax law (if it were incurred in producing assessable income), except for the general disallowance of entertainment expense deductions by section 51AE of the Income Tax Assessment Act 1936.

"non-deductible exempt entertainment expenditure" means expenditure of the kind explained in the preceding definition that is not incurred in producing assessable income.

"non-profit company" has its usual meaning of a company not carried on for the purposes of profit or gain to its members and which is, by its constituent document, prohibited from making any distribution to its members.

"notional value" is the amount a person provided with a property benefit or other benefit could reasonably be expected to have been required to pay to obtain the benefit under an arm's length transaction, i.e., on the open market.

"obligation" relates to the payment or repayment of an amount, and includes an obligation not enforceable at law.

"offence against this Act" includes, as well as offences specified in the proposed Act, offences under the Crimes Act 1914 or the Taxation Administration Act 1953 relating to the proposed Act.

"officer" is an officer or employee of the Australian Public Service.

"once-only deduction" is defined in relation to expenditure to mean a deduction allowable under the income tax law in one year of income in respect of all or a part of the expenditure where no deduction is allowable in another year in respect of any part of that expenditure.

"original assessment date" is a term used in rules, explained in the notes on Part V, that enable assessments to be amended within specified periods. It is the day on which an assessment (other than an amended assessment) was made, i.e., the day on which the first assessment in relation to a year of tax is made.

"outsider" is a term used to describe, in relation to a business operated by an employer or an associate of the employer, customers of the business who are not -

•

employees of the employer or an associate;

•

employees of another person who provides, under an arrangement made by the employer or associate, benefits to employees (or their associates) of the employer or associate; or

•

associates of any of those employees.

"period residual fringe benefit" is a residual fringe benefit provided during a period (as explained in the notes on clause 149).

"person", for the purposes of the Bill, includes a body politic, body corporate, partnership, other unincorporated association or body of persons, and a person in the capacity of trustee.

"place of residence" means a place where a person resides or has sleeping accommodation, whether permanent or temporary, and whether or not on a shared basis.

"preferential air fare" is defined as an air fare that entitles the traveller concerned to benefits that some other passengers on the flight are not entitled to e.g., a first class or business class fare.

"private use" is defined in relation to a motor vehicle used by an employee or employee's associate, and may apply in relation to car fringe benefits or residual fringe benefits. It is any use other than use exclusively in producing assessable income of the employee.

"producing assessable income", where used in the Bill, is to be given an extended meaning so as to include gaining assessable income or carrying on a business for the purpose of gaining or producing assessable income.

"property" is defined to mean both tangible and intangible property.

"property benefit" is a benefit of a kind mentioned in clause 40 but not one that would also be a benefit under Divisions 2 to 10 (inclusive) of Part III.

"property fringe benefit" is a property benefit that constitutes a fringe benefit.

"provide" is given an extended meaning in relation to benefits and property. In relation to a benefit, it includes allow, confer, give, grant or perform, while in relation to property it means dispose of the beneficial interest or the legal ownership, whether by sale, gift, declaration of trust or otherwise.

"provider's published air fare" is a term used in relation to airline transport fringe benefits as explained in the notes on Division 8 of Part III. It is either the "qualifying air fare" charged by the airline over the particular route or one half of the "qualifying air fare" charge for a return trip over that route. If the traveller is entitled to a concession on account of being a child, student or blind person, it is the relevant concessional fare.

"provision time" is the time when property is provided.

"qualifying air fare" is a component of "providers air published air fare" as explained above. It is, broadly, the air fare (other than a group concession fare) offered in an authorised publication of the airline available at its ticket offices in Australia, to the public, or the air fare so offered in an authorised tariff manual available at the ticket offices of the agent of the airline in Australia.

"quarter" is a period of 3 calendar months commencing on 1 January, 1 April, 1 July or 1 October.

"recipient", in relation to a benefit, refers to the person who is provided with the benefit.

"recipient's allowance" relates to a living-away-from-home allowance fringe benefit, and means that part of the allowance paid that constitutes the fringe benefit.

"recipient's allowance period" is the period to which the recipient's allowance relates.

"recipient's benefit" is a drafting term that facilitates reference to a residual benefit provided to a person.

"recipient's contribution" is the amount of any consideration paid by an employee or associate of an employee in return for the provision of an airline transport, property, residual or board fringe benefit, less any reimbursement of that consideration. The term also refers to any amount paid by the recipient of an expense payment fringe benefit other than a benefit by way of reimbursement of expenses.

"recipient's current benefit" is a term that applies to a period residual fringe benefit of a year of tax, and means so much of the benefit as was provided in the year.

"recipient's current housing right" applies in a similar way in relation to a housing fringe benefit. It means the housing right to the extent it was available during the year.

"recipient's expenditure" is expenditure incurred by a person but paid for or reimbursed by another person so as to constitute an expense payment fringe benefit.

"recipient's meal" applies to a residual fringe benefit provided over a period (as explained in the notes on clause 149), and is the whole of the benefit provided over the period, including any period outside the particular year of tax.

"recipient's overall housing right" in relation to a housing fringe benefit is the whole of a housing right considered from the time when the right is first received until it ceases.

"recipient's property" is the subject property of a property benefit.

"recipient's rent" is a component in the calculation of the taxable value of a housing fringe benefit of a year of tax. It is any rent or other consideration paid for the housing right during the year, less any reimbursement of that rent or consideration.

"recipient's transport" is a drafting term that facilitates reference to the transport and incidental services that constitute an airline transport fringe benefit.

"recipient's unit of accommodation" is the unit of accommodation by means of which a housing fringe benefit is provided.

"recreation" is defined in relation to "recreational facility": it includes amusement, sport or similar leisure-time pursuits, and recreation or amusement provided on, or by means of, vehicles, ships, other vessels or aircraft.

"recreational facility" means a facility for recreation (as defined), but does not includes accommodation or dining and drinking facilities.

"reimburse" includes any act that has the direct or indirect effect or result of a reimbursement.

"relevant car documents" are the two basic records which must be maintained to satisfy certain substantiation requirements as to business or employment related kilometres in a car held by a person during a year of tax. The first is a log book or similar document that records the following details of every business journey -

•

odometer readings at the start and finish of the trip;

•

the date the journey began and ended;

•

kilometres travelled;

•

purpose of the journey;

•

the identity of the driver;

•

the date of the entry; and

•

the name of the person making the entry.

The second document records -

•

the odometer reading at the start of the year of tax or, if the car was acquired during that year, the reading at that time;

•

the odometer reading at the end of the year of tax or, if the car ceased to be held during the year, the last reading;

•

the date of each entry; and

•

the name of the person who made the entries.

Both documents must be in English, and entries made either at the end of each journey or at the time of the odometer readings, or as soon as reasonably practicable thereafter. Each log book entry must be signed at the time of entry.

"remote area housing fringe benefit" refers to a housing fringe benefit where the accommodation is located in a designated remote area of Australia (as defined).

"rent index number" is a component of the rules for ascertaining the statutory annual value of a housing fringe benefit by reference to annual movements in the rent sub-group of the Consumer Price Index. It is the index number of that rent sub-group published by the Australian Statistician in respect of a quarter for the capital city of the relevant State or Territory.

"residential fuel" is any form of fuel (including electricity) for use for domestic purposes.

"residential benefit" is a benefit of a kind mentioned in clause 45, i.e., one that is not a benefit under Divisions 2 to 11 of Part III.

"residential fringe benefit" is a residential benefit that constitutes a fringe benefit.

"retention period" is the period for which a person must retain a statutory evidentiary document (a defined term). The general rule is that such a document must be retained for a period of 6 years beginning on the original date of assessment of the fringe benefits taxable amount of the year of tax to which the document relates. If, at the end of that 6 year period, there is an objection or request for amendment relevant to the document that has not been finally disposed - including where the matter has gone on review or appeal - the 6 year retention period is extended until the matter has been resolved.

"salary or wages" is defined to mean assessable income that is salary or wages for purposes of the PAYE provisions of the Income Tax Assessment Act 1936.

"sales tax" means sales tax imposed by a Commonwealth law.

"small expense payment fringe benefit" is one where the relevant expense incurred by an employee and paid or reimbursed by the employer is not more than $10.

"spouse" includes, in relation to a person, another person who, although not legally married to the person, lives with the person on a bona fide domestic basis as husband and wife.

"standard year of tax" is the 12 months period beginning on 1 April 1987 and each subsequent corresponding 12 month period.

"stand-by value" is the basis of the taxable value of an airline transport fringe benefit to which Division 8 of Part III applies. There are different rules for calculating stand-by value according to whether the relevant flight is over a domestic or international route.

If over a domestic route, stand-by value will be one of the following -

•

if the flight is on a scheduled passenger air service, the specified amount will be 37.5% of the economy air fare (as defined) charged at that time to members of the public. That is, for a flight between, say, two capital cities for which the economy air fare is $150, the stand-by value would be $56.25. In less common cases, a flight may be provided other than on a scheduled passenger air service. The specified amount in such cases will be, successively -

•

if the Australian National Airlines Commission (TAA) operates a scheduled service over the route - 37.5% of the economy fare charged by TAA;

•

if a carrier other than TAA operates a scheduled service over the route - 37.5% of the lowest economy fare charged by any carrier that operates such a service;

•

if a combination of scheduled services operated by TAA would equate with the travel undertaken by the person in question - 37.5% of the economy air fares charged by TAA for such services as in combination would enable the person to travel between the ports of embarkation and disembarkation;'

•

if a combination of scheduled services operated by any carrier or carriers would cover the lowest economy air fares charged for air services that would in combination enable the person to travel between the ports of embarkation and disembarkation - 37.5% of the lowest combination of economy air fares then currently being charged by those carriers;

•

should none of the above apply - 75% of the market value of the air transport provided.

If the air transport provided is over an international route, the stand-by value will be -

•

in the common case where the flight is on a scheduled passenger air service in respect of which there is a "providers published air fare" (see earlier notes explaining that term) - 37.5% of the lowest providers published air fare;

•

if that is not the case, but a carrier operates a scheduled service over the route -37.5% of the lowest economy fare charged by any carrier that operates such a service;

•

if neither of the above applies, but a combination of scheduled services operated by any carrier or carriers would cover the travel undertaken - 37.5% of the lowest economy air fares charged for air services that would in combination enable the person to travel between the ports of embarkation and disembarkation;

•

should none of the above apply - 75% of the market value of the air transport provided.

"statutory annual rent amount" is a component of the formula in clause 29 for determining the taxable value of a remote area housing fringe benefit, and is explained in the notes on that clause.

"statutory food amount" relates to living-away-from-home allowance benefits, and is $42 per week for a person who was aged 12 years or more before the beginning of the year of tax, and $21 for each younger person.

"statutory evidentiary document" is an all-embracing term given to declarations or other documents that are required to be given to employers under rules contained in Part III (or relevant definitions), and that are relevant for determining the taxable value of fringe benefits or whether a benefit is tax exempt. It also applies to relevant car documents maintained to verify business and private kilometres travelled for the purpose of the cost basis of valuing car fringe benefits (clause 10), and to substitute documentary evidence of small expenses that may reduce the taxable value of an expense payment fringe benefit (clause 24).

"statutory interest rate" is defined for the purpose of ascertaining the taxable value of a loan fringe benefit of a year of tax. It is, in effect, the benchmark interest rate (as defined) applicable to the particular year of tax. If there is more than one benchmark rate in a year of tax, the statutory rate will be the lower or lowest of them and, if there is no benchmark rate, the statutory rate will be a rate as prescribed. In relation to loans made before 1 July 1986, a schedule to the Bill specifies various statutory rates applicable to loans on or after 1 January 1946. For pre -1946 loans the statutory rate is generally 3.875% per annum. For loans made after 2 April and before 1 July 1986, however, the statutory interest rate is the benchmark interest rate prevailing during that period or, if there is more than one benchmark rate, the lower or lowest of them.

"stratum unit" is defined in relation to a dwelling to mean a unit on a registered unit plan under a law providing for the registration of titles known as unit or strata titles. Such a unit must comprise a part of a building containing the dwelling, being a flat or home unit, or part of a parcel of land on which the building is constructed.

"superannuation fund" is a superannuation fund for the purposes of the income tax law or a scheme constituted under a Commonwealth, State or Territory law.

"tangible property" is defined as goods and includes animals, including fish, and gas and electricity.

"tax-exempt body entertainment fringe benefit" is a tax-exempt body entertainment benefit that constitutes a fringe benefit.

"taxi" means a motor vehicle licensed as a taxi.

"tenancy period" is the part of a year of tax during which a housing right that is the basis of a housing fringe benefit exists.

"this Act" includes anything contained in regulations made pursuant to clause 135.

"transitional year of tax" is the 9 month period commencing on 1 July 1986.

"travel agent" is a term relevant to airline transport fringe benefits, and means a person who carries on a business that includes the sale to the public of airline tickets issued by airlines.

"travel diary" means a diary or similar document (or a copy thereof) in which a person has recorded particulars, as specified below, of activities undertaken whilst travelling where the traveller has been provided with an expense payment fringe benefit, an airline transport fringe benefit, a property fringe benefit or a residual fringe benefit. The diary is to establish the extent to which expenditure incurred whilst travelling would have been deductible to the traveller under the income tax law. The relevant entries, to be made at the time of the activity, or as soon as practicable thereafter, are to set out the following:

•

the date the entry was made;

•

the place of the activity;

•

the date and approximate time the activity commenced;

•

the duration of the activity;

•

the nature of the activity;

"trustee" is defined to include the following -

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a person made a trustee by consent, court order, or operation of law;

•

an executor, or administrator or other personal representative of a deceased person;

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a guardian or committee;

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a receiver or receiver and manager;

•

an official manager or liquidator of a company; or

•

any person who -

-

has taken on the administration or control of property affected by any express or implied trust;

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acts in a fiduciary capacity; or

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has the possession, control or management of property of a person under a legal disability.

"unincorporated company" is an unincorporated association or other body of persons.

"unit of accommodation" which is a term relevant to housing fringe benefits, includes -

•

a house, flat or home unit;

•

accommodation in a hotel, hostel, motel or guesthouse;

•

accommodation in a bunkhouse or any living quarters;

•

accommodation in a ship, vessel or floating structure; and

•

a caravan or other mobile home.

"waive" includes release.

"work-related travel" is travel of an employee between the employee's home and place of employment or any other place where the employee performs duties of employment. It extends to travel by the employee that is incidental to travel undertaken in the course of performing duties of employment.

"year of income" has the same meaning as it has under the income tax law.

"year of tax" is a reference to the 9 month period beginning on 1 July 1986 and ending on 31 March 1987, to the 12 month period beginning on 1 April 1987 and to each corresponding 12 month period thereafter.

Sub-clause 136(2) makes clear that "premises" as used in the definition of "business premises" is to be taken to include, as necessary, a ship, vessel, floating structure, motor vehicle, aircraft or train.

Clause 137: Salary or wages

For the general purposes of the Bill in determining whether or not a fringe benefit has been provided in respect of the employment of a person, a person will be treated as an employee of another person if in receipt of salary or wages (as defined for the purposes of the PAYE provisions of the income tax law) paid by that other person. This clause is a safeguarding measure to ensure that the Bill will apply to fringe benefits provided in circumstances where, although there is a clear employer/employee relationship of a kind contemplated by the PAYE provisions in existence, the remuneration given to the employee is in the form of a non-cash fringe benefit rather than "salary or wages" as such.

For that purpose, sub-clause 137(1) will apply where a first person provides a benefit to a second person or an associate of the second person in circumstances such that the benefit would not be regarded as being provided in respect of the employment of the second person.

In such a case, the sub-clause looks to whether if the benefit were had been provided by the first person to the second person as a cash payment, that cash payment would have constituted salary or wages. If so, the second person will be treated for the purposes of the fringe benefits tax law as an employee of the first with the results that the benefit will, as appropriate, be subject to fringe benefit tax.

Sub-clause 137(1) will apply similarly in a case where the "employer" arranges for the benefit to be provided by an associate or third-party arranger.

Sub-clause 137(2) is a technical drafting measure that specifies that the relevant definition of "salary or wages" in the income tax law applies in this Bill as if the reference therein to an employee is a reference to a current employee.

Clause 138: Double counting of fringe benefits

This clause is intended to prevent a fringe benefit from being counted more than once in ascertaining the fringe benefits taxable amount of an employer or being included in the fringe benefits taxable amount of more than one employer.

By sub-clause 138(1) a benefit provided by an employer to an employee who is also an employee of an associate of the employer will not be treated as a fringe benefit in relation to the associate employer. The same rule applies if the benefit is provided to an associate of the employee.

If a benefit provided to an employee or an associate of the employee would be a fringe benefit in relation to more than one employer (including non associated employers), the Commissioner of Taxation is authorised by sub-clause 138(2) to determine which one of those employers is to be liable to the tax (if any) in respect of that benefit.

Where a benefit is provided jointly to an employee and the employee's associates, it will be deemed by sub-clause (3) to be provided to the employee only. If a benefit is provided jointly only to associates of the employee, the Commissioner will be authorised by sub-clause (4) to determine and nominate one of those associates as the person provided with the benefit.

Clause 139: Date on which return furnished

This clause specifies that, for the purposes of the Bill, an employer who furnishes two or more returns on different dates relating to a year of tax will be taken to have furnished the return for that year on the earliest of those dates.

Clause 140: Eligible urban areas

This clause defines what is meant by an eligible urban area for the purposes of the Bill, e.g., in determining that a unit of accommodation is not at a location in, or adjacent to, an eligible urban area so as to qualify for the concessional basis of valuation applicable to remote area housing fringe benefits under clause 29.

By paragraph (1)(a), an area within Zone A or Zone B, as described in Schedule 2 to the Income Tax Assessment Act 1936, that is an urban centre with a census population of not less than 28,000, is an eligible urban area.

An area that is not within Zone A or B but is an urban centre with a census population of not less than 14,000 is also an eligible urban area.

Paragraph (1)(b) stipulates that a location is adjacent to an eligible urban (i.e., not remote) if it is less than 40 kilometres by the shortest practicable surface route from the centre point of an eligible urban area having a census population of 130,000 or more. As made clear by the definition of "census population" in sub-clause (3), the population figures to be used for these purposes are those published by the Australian Statistician as a result of the 1981 Census.

Sub-clause (2) specifies how the distance by the shortest practicable surface route from a location to the centre point of an eligible urban area is determined. If there is only one place within the urban area from which distances to other places are measured, it is the distance from that place to the location in question. If there are two or more such places within the urban area, the principal one is the distance measuring yardstick.

Definitions relevant to clause 140 are contained in sub-clause (3):

"census population" is the census count of an eligible urban area taken by the Australian Statistician on 30 June 1981;

"surface route" means a route other than by air; and

"urban centre" is an area described as such in the results of the Census taken on 30 June 1981 published by the Australian Statistician in "Persons and Dwellings in Local Government Areas and Urban Centres".

Sub-clause (4) provides against paragraph (1)(a) being held to be invalid for any reason. In any such event, in substitution for that paragraph, an eligible urban area would be taken as an urban centre (as defined) with a census population on 30 June 1981 of not less than 14,000.

Clause 141: Housing loans

This clause specifies the circumstances in which a loan will be taken to be a housing loan relating to a dwelling. It is relevant for the rules for calculating the taxable value of loan fringe benefits (as explained in the notes on clause 18) in respect of housing loans made before 3 April 1986 and, in tandem with clause 142, reducing the taxable value (as explained in the notes on clause 60) of a loan fringe benefit in respect of a remote area housing loan.

Sub-clause 141(1) describes the circumstances in which a loan will be treated as a housing loan relating to a dwelling. They are the same as those listed in sub-section 159ZD(1) of the Income Tax Assessment Act 1936 purposes of the tax rebate in respect of certain home loan interest. Under the income tax rebate scheme, however, loan moneys must be used "wholly or partly" for specified housing purposes, whereas under of sub-clause 141(1) that they must be used exclusively for those purposes.

Sub-clause 141(2) also has a parallel in the income tax home loan interest rebate provisions - sub-section 159ZB(1). That sub-section specifies what is a prescribed interest in land or in a stratum unit and what is a proprietary right in respect of a dwelling. Paragraphs (2)(a) and (b) mirror sub-section 159ZB(1) in detailing what constitutes such interests and rights which may be the subject of a housing loan.

By paragraph (2)(c), a loan that would otherwise be a housing loan relating to a dwelling will not be treated as such if the lender does not keep a separate loan account so as to clearly distinguish between the loan and any other loans made by the lender to the borrower and any other moneys deposited with the lender by the borrower that are not to repay the loan or the loan interest.

Sub-clause 141(3) stipulates that in no other circumstances than those prescribed will a loan be treated as a housing loan relating to a dwelling.

Clause 142: Remote area housing

As mentioned in the notes on clause 141, clause 142 defines what is meant by a "remote area housing loan connected with a dwelling" for the purpose of applying the 40% discount authorised by clause 60 to the taxable value of certain loan fringe benefits. It also specifies what is meant by "remote area residential property" for the purpose of applying the same rate of discount to the taxable value of a property fringe benefit constituted by the provision of residential property in a remote area.

By sub-clause 142(1), a remote area housing loan connected with a dwelling is one that satisfies the tests of clause 141 as well as certain other conditions which are broadly similar to those that have applied for valuing employees' remote area housing benefits under the income tax law. They are that -

•

the housing is in a designated remote area;

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for the part of the year when an employee occupied the housing, the employee was a current employee of the employer, the housing was the employee's usual place of residence, and the employee's usual place of employment was in a designated remote area;

•

it is customary in the particular industry for employers to provide housing assistance to employees; and

•

it is necessary for the employer to provide or arrange housing assistance for employees for the following reasons:

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the nature of the employer's business is such that employees are liable to frequent movement from one residential location to another;

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in the area in which the employee is employed there is not sufficient suitable residential accommodation otherwise available; or

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because of the custom in the employer's industry to provide housing assistance to employees.

It is also necessary that the loan be made under an arm's length arrangement, and not to secure the discounted valuation available under clause 60.

Sub-clause 142(2) defines the meaning of remote area residential property that constitutes a property fringe benefit the taxable value of which may be reduced under the rules contained in sub-clause 60(3). Broadly, such property is an estate or interest in land on which there is a dwelling occupied or used by the employee as a usual place of residence, and where the conditions outlined in sub-clause (1) are satisfied.

Sub-clause 142(3) defines the meaning of housing assistance. It is -

•

the provision of a right to occupy residential accommodation free or at a discount;

•

the making of a housing loan at an interest rate below the market rate;

•

reimbursement of interest on a housing loan; or

•

transferring ownership of residential property for no cost or for less than market value.

Clause 143: Remote area holiday transport

Clause 61 operates to reduce by 50% the taxable value of an expense payment fringe benefit or a residual fringe benefit where the underlying benefit is the supplying of remote area holiday transport. Clause 143 specifies the circumstances in which either of these kinds of benefit will be remote area holiday transport. They are -

•

the recipient of the fringe benefit is a current employee of the employer, or the employee's spouse or children;

•

the transport is provided during a period of recreation leave of not less than 3 days;

•

the transport is between the employee's usual place of employment (or nearby e.g., the closest airport) and the place where the employee lived before signing on with the employer or the capital city nearest to the workplace;

•

on completion of the leave, the employee resumes work at the same place as before;

•

that usual place of work is in a designated remote area; and

•

the benefit is provided under an industrial award or an industrial agreement in force under a law.

Clause 144: Deemed payment

This clause is a technical measure that specifies that any action of a person by which an obligation of another person to pay an amount to a third person is discharged or extinguished will be taken as a payment of that amount by the first person. This measure is relevant for the purposes of applying the fringe benefit and fringe benefit taxable value rules in Part III.

Clause 145: Consideration not in cash

Where any consideration under a transaction is satisfied by the provision of property, the money value of the consideration will by this clause, be deemed to have been paid. That rule, however, will not affect the determination of whether something constitutes the provision of a benefit under the Bill.

Clause 146: Amounts to be expressed in Australian currency

For the purposes of the Bill, all amounts and values are to be expressed in Australian currency.

Clause 147: Obligation to pay or repay an amount

This is a technical measure to deem a person who owes an amount to be under an obligation to pay or repay it whether or not it has become due for payment.

Clause 148: Provision of benefits

Clause 148 further amplifies the meaning of "in respect of" as that expression applies to fringe benefits provided in respect of the employment of an employee. As mentioned in the notes on clause 136, "in respect of" employment also includes by reason of, by virtue of, or for or in relation directly or indirectly to that employment. By sub-clause 148(1), the meaning of the term in relation to a benefit provided in respect of employment is not to be narrowed by any consideration of the following factors:

•

that a benefit may also be provided in respect of some other matter or thing;

•

whether the employment is in the present, past or future;

•

that the benefit may be surplus to the needs or wants of the recipient;

•

that the benefit may also be provided to another person;

•

that there may be some offsetting inconvenience or disadvantage;

•

whether or not the benefit has a use in connection with the employment;

•

whether or not the provision of the benefit is in the nature of income; and

•

whether or not the benefit is a reward for services rendered.

Sub-clause 148(2) has the effect that where a person other than an employee or associate of the employee is provided with a benefit under an arrangement between the provider and the employee (or an associate of the employee), that person will be treated as an associate of the employee for the purposes of the Bill.

Sub-clause 148(3) will apply in a case where a benefit would be provided in respect of a person's employment except for a prohibition on the act or thing necessary for providing the benefit. If, in such a case, the prohibition is not consistently enforced, the benefit will be taken to be provided.

Sub-clause 148(4) stipulates that a benefit received or obtained by an employee or associate in respect of the employee's employment will be taken to have been provided by the provider in respect of that employment.

Sub-clause 148(4) would operate, for example, where an employer enters into an arrangement with a storekeeper to provide goods to an employee. In the absence of that sub-clause it might be argued that, although the arrangement was entered into by the employer for the purpose of providing a benefit in respect of the employee's employment, the benefit is not a fringe benefit within the terms of the Bill because the storekeeper was not providing the property on that basis.

Sub-clause 148(5) is a drafting measure the effect of which is that any provision of the Bill which deems a benefit to be provided where particular circumstances apply will not limit the general meaning of "provide" in relation to benefits provided in other circumstances.

Clause 149: Provision of benefit during a period

This clause applies for the purpose of distinguishing between a "period" residual fringe benefit and a "non-period" residual fringe benefit. By sub-clause (1), a benefit will be taken to be provided during a period if it is provided or subsists over a period of more than one day and is not deemed by any other provision to be provided at a particular time or on a particular day.

For that purpose, sub-clause (2) specifies that a benefit constituted by a lease or licence of property, or in respect of a loan, will be taken as being provided during the period of the lease or licence, or while the person is under an obligation to repay any part of the loan.

Clause 150: Credit cards

The effect of clause 150 is to ensure, broadly, that benefits obtained by an employee or an associate through the use of a credit card issued to an employer or an associate will be treated, where appropriate, as taxable fringe benefits.

It will apply where, in respect of the employee's employment, use is made of such a credit card to obtain goods or services. The person e.g., a retailer who provides the goods or services will be taken to have provided the relevant benefit in respect of the employee's employment, under an arrangement with the employer or, if the card was issued to an associate of the employer, under an arrangement with associate.

In addition, where the employer or associate has borne the cost of the benefit by paying the issuer of the credit card, the relevant expenditure will be taken to have been incurred to the actual provider of the benefit e.g., the retailer.

Clause 151: Employee performing services for a person other than an employer

This clause, which applies in cases where a person contracts with another for work to be done by an employee of that other person, has effect in relation to rules in clause 54 that treat the provision of certain food and drink provided to recipients of board fringe benefits as exempt benefits. Its application is explained in the notes on that clause.

Clause 152: Provision of entertainment

This clause is a drafting measure that ensures that wherever in the Bill there is reference to the provision of entertainment that reference has the same meaning as in section 51AE of the Income Tax Assessment Act 1936 which, subject to certain exceptions, denies income tax deductions for expenditure incurred in the provision of entertainment.

Clause 153: Residual benefits to include provision of property in certain circumstances

Clause 153 will apply so that a benefit that consists of the provision of both goods and services will be treated as a residual benefit only. That will occur if the person providing the benefit in question is in a business of providing property and residual benefits together, e.g., undertaking repairs that entail the supply of labour and spare parts. Where such a combined benefit is provided the whole of the combined benefit will be dealt with as a residual benefit only.

Clause 154: Creation of property

This clause is a technical measure that will ensure that something done by a person that creates property in another person (e.g., the issue of shares by a company) will be treated on the basis that the property was provided to the other person when it came into existence.

Clause 155: Use of property before title passes

By sub-clause 155(1), where a person obtains the use of property under conditions where title to the property will or may pass to the person at the end of the period of use (e.g., hire purchase), the property will be treated as having been provided to the person at the time when use of it was first obtained.

However, sub-clause 155(2) makes clear that if, after the period of use, title to the property does not pass to the user, sub-clause (1) is not to apply and authorises any amendment that may be necessary as a consequence to reverse any prior application of sub-clause (1).

Clause 156: Supply of electricity or gas through reticulation system

This clause stipulates that the supply of reticulated gas or electricity is not to be treated as the provision of property. The general effect is that a fringe benefit constituted by the provision of reticulated gas or electricity will be a residual fringe benefit.

Clause 157: Christmas Island

For the purposes of the Bill, Christmas Island is to be treated as an internal territory of Australia (sub-clause (1)), and anywhere within Christmas Island is not to be treated as being in, or adjacent to, an eligible urban area i.e., locations in Christmas Island are to be treated as being in a remote area for purposes of fringe benefit valuation rules, e.g., housing fringe benefits (sub-clause (2)).

Clause 158: Related companies

Clause 158 prescribes the conditions under which one company will be treated as being related to another for the purposes of the Bill.

Sub-clause (1) specifies two tests, either of which must be satisfied if a company is to be taken to be related to another company. These are that one of the companies was a subsidiary of the other company (paragraph (a)) or both of the companies were subsidiaries of the same parent (paragraph (b)).

Sub-clause (2) specifies the circumstances in which a company is to be taken to be a subsidiary of another company (termed the "holding company"). Under sub-paragraph (2)(a)(i) this relationship is established if all the shares in the subsidiary company are beneficially owned by the holding company. Sub-paragraph (2)(a)(ii) establishes the relationship if all the shares in the subsidiary company are beneficially owned by a company that is, or two or more companies each of which is, a subsidiary of the holding company. By sub-paragraph (2)(a)(iii) the necessary relationship will also exist if all the shares in the subsidiary company are owned by the holding company and by a company that is, or two or more companies each of which is, a subsidiary of the holding company.

Paragraph (2)(b) imposes a further requirement that there was no agreement, arrangement or understanding in force by virtue of which any person was in the position to affect rights of the holding company or of another subsidiary of the holding company in relation to the particular subsidiary company.

Sub-clause (3) extends the operation of clause 158 by establishing a qualifying group relationship between companies which are part of a wholly-owned chain of subsidiaries of a holding company. Thus, in a corporate structure under which all of the shares in the subsidiary are owned by one or more wholly-owned companies that are interposed between a holding company and the end subsidiary company, the qualifying group relationship will be found between each of those companies.

Sub-clause (4) qualifies the operation of sub-clause (2). It specifies for the purposes of paragraph (b) of that sub-clause the circumstances in which a person is to be regarded as being in a position at a particular time to affect the rights of one company in relation to another company. A person will be in that position if he or she has at the particular time a right, power, or option to acquire any of the rights of the first company in its subsidiary or to prevent that company from exercising rights in the subsidiary for its own benefit.

Clause 159: Associates

Sub-clause 159(1) of this clause will extend the definition of "associate" in clause 136 by specifying that any reference to spouse in the Income Tax Assessment Act 1936 is to be taken as a reference to a person who is a spouse for the purposes of the Bill. That means that the definition is to be taken to include a de facto spouse as an associate, which would not be the case if the meaning of associate were to be limited, as specified in clause 136, to the meaning it has in section 26AAB of that Act.

By sub-clause 159(2), the following relationships will be treated as though between associates:

•

companies related to each other (as explained in the notes on clause 158) are associates of each other;

•

the Commonwealth is an associate of each of its authorities;

•

each Commonwealth authority is an associate of each other Commonwealth authority;

•

a State is an associate of each of its authorities;

•

each State authority is an associate of each other State authority;

•

a Territory is an associate of each of its Authorities; and

•

each Territory authority is an associate of each other Territory authority.

Sub-clause 159(3) has effect so that, where an association is established by sub-clause (2), each associated person is treated as a company related to the other for the purposes of the fringe benefits and fringe benefits taxable value rules in Part III.

Sub-clause 159(4) will extend the meaning of the term "associate" by providing that the definition of that term in section 26AAB of the Income Tax Assessment Act 1936 is to apply for the purposes of the Bill as if -

•

an associate, in relation to a natural person, includes a partner of the person and a partnership in which the person is or was a partner (whether or not the partnership still exists); and

•

an associate, in relation to a company, includes a partner of the company and a partnership in which the company is or was a partner (whether or not the partnership still exists).

An effect of sub-clause (4) is that where a partnership is reconstituted, the new partnership will be treated as an associate of the old partnership.

Clause 160: Continuity of employment where business disposed of, etc

The basic purpose of clause 160 is to ensure that where an employer disposes of a business and the new owner of the business continues to provide fringe benefits to persons who where employed by the former owner, the new employer will be liable for the fringe benefit tax in respect of those benefits. By way of background, the legislation is structured on the basis that an employer is liable for tax in respect of fringe benefits provided to employees in respect of employment with that employer.

Examples of situations where clause 160 would commonly have application include -

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the sale of a business by one legal person (e.g., a natural person, a company or a trustee of a trust estate) to another legal person; and

•

a change in ownership of a business by reason of formation or dissolution of a partnership or a variation in the constitution of a partnership.

Sub-clause 160(1) is the operative provision which establishes the liability of a purchaser of a business to account for fringe benefits provided in respect of the employment of an employee by the former owner. The sub-clause will apply where -

•

an employer (the "former employer") disposes of a business to another person (the "new employer") (paragraph (a)); and

•

under an arrangement relating to the disposal, the new employer continues to provide fringe benefits in respect of the employment of a person by the former employer (irrespective of whether or not the employee of the former employer is employed by the new employer).

Where the above conditions are met, paragraphs (c) and (d) specify the consequences that are to follow.

Paragraph (c) has the effect that liability for tax is to be determined as though benefits provided in respect of the employment of a person by the former employer were provided in respect of employment with the new employer. That is, liability for the tax is, in effect, to be transferred from the former employer to the new employer.

Paragraph (d) applies where the new employer assumes the rights of the former employer under a loan, lease or licence that was granted by the former employer in respect of the employment of a person. In that situation, the Act is to apply as though the loan, lease or licence had been granted by the new employer. This will ensure that the benefit will continue to be valued under the loan fringe benefits valuation rule or the housing fringe benefits valuation rule, as the case requires.

Sub-clause 160(2) ensures that a business is regarded as having been acquired by its new owners at the time of a partial change of ownership, including where that change is associated with the formation, dissolution or variation of a partnership. If, for example, a partnership of A and B owns a business and A sells his partnership interest to C, the partnership of A and B will be regarded as having disposed of the business to the partnership of B and C.

The sub-clause applies to any partial changes of ownership of, or of interests in, property but specifically including changes occurring in connection with -

•

the formation or dissolution of a partnership (paragraph (a)); or

•

a variation in the constitution of a partnership or in the interests of the partners (paragraph (b)).

•

by paragraph (c), the person who owned the business before the change will be treated as having disposed of the business to the person who owned the business after the change.

This will mean that the condition specified in paragraph 160(1)(a) will be satisfied and as a result the new partnership will be required to account for any fringe benefits that are continued to be provided to employees of the former partnership under an arrangement relating to the change of ownership of the partnership. By virtue of sub-clause 159(4), the new partnership will also be deemed to be an associate of the old partnership.

Under paragraph (d) the property in respect of which ownership has changed is deemed to have been sold to the persons who owned the property after the change for a consideration equal to the "notional value" (a defined term) of the property. This notional value of the property will thus be taken to be the cost price of the property to the new partnership for the purpose of those valuation rules which value benefits by reference to the cost price of the property.

Sub-clause 160(3) deals with the situation where a trustee of a trust estate is an employee. In that situation, the trustees of the trust from time to time are to be taken as constituting a single employer so that the obligations of the trust under this Bill will not be affected by changes in the trustee.

Clause 161: Business journeys in car

Clause 161 applies where there is a requirement under the Bill to maintain a log book entry of business journeys undertaken in a car. Broadly, this is a requirement where an employer adopts the cost basis of valuing the benefit of a car made available for the private use of an employee or where a reduction in the taxable value of certain car expense benefits is being sought under the "otherwise deductible" rule.

Sub-clause 161(1) operates to reduce the number of times that log book entries must be made to substantiate car expenses. It does so by treating any consecutive series of business journeys undertaken during a day as a single journey. Thus, if the car is used only for business purposes during a day, only one log book entry, as specified in paragraph (a) of the definition of "relevant car documents" in sub-clause 131(1), need be made for that day's journeys.

Sub-clauses 161(2) and (3) operate to ensure that if an entry is not properly made in relation to a particular journey, or the entry is not signed as required, the journey will not be treated as a business journey.

Business journey is defined for these purposes in sub-clause 136(1).

Clause 162: References to holding of a car

Clause 162 is a drafting measure that 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.

Clause 163: Application of Act

Sub-clause 163(1) makes it clear that the operation of the Bill applies irrespective of whether the acts, omissions, etc giving rise to a liability under the Bill occurred inside or outside Australia.

Sub-clause 163(2) ensures that the Bill can have application to matters occurring before or after its commencement. Sub-clause (2) will make it clear - for example, that the valuation rules embodied in Division 4 can apply to free or low interest loans made before the commencement of the Bill - although a taxable value will only arise in relation to the benefit as it subsists on or after 1 July 1986.

Sub-clause 163(3) expresses the intention of the Bill that it bind the crown in right of the States, the Northern Territory and Norfolk Island.

Sub-clause 163(4) ensures that the extended operation of the Bill as expressed in sub-clause 163(4) applies similarly to so much of the Taxation Administration Act 1953 as relates to the Bill.

Clause 164: Residence

Clause 164 details the circumstances in which a person is to be taken to be a resident of Australia for the purposes of the Bill. Determination of residence is relevant for certain of the collection provisions of the Bill. By this clause -

•

a natural person will be regarded as a resident if he or she resides in Australia or, if not residing in Australia, is domiciled in Australia and does not have a permanent place of residence outside Australia;

•

a company will be treated as a resident if the company was incorporated in Australia or if it carries on business in Australia and has either its central management and control here or its voting power is controlled by shareholders who are residents;

•

a partnership or unincorporated company will be regarded as a resident if any of its members are Australian residents.

Clause 165: Partnerships

This clause contains rules under which partnerships as employers will be subject to the provisions of the Bill.

By sub-clause (1), the Bill applies to a partnership as if the partnership were a person i.e. a separate legal entity.

Where, as an entity to which the Bill applies, a partnership is subject to an obligation under the Bill, sub-clause (2) stipulates that the obligation is imposed on each partner but may be discharged by any one of them.

By sub-clause (3), where an amount is payable under the Bill by a partnership, the partners are jointly and severally liable to pay that amount.

If an offence is deemed to have been committed against the Bill by a partnership, by virtue of the application of sub-clause (1), each partner will by sub-clause (4) be deemed to have committed the offence.

However, by sub-clause (5) it will be a defence against a prosecution for such an offence deemed to have been committed by a partner if the partner proves that he or she did not, aid, abet, counsel or procure the particular act or omission of the partnership and was not in any way directly or indirectly knowingly concerned in, or party to, that act or omission.

Sub-clause (6) makes clear that a reference in clause 165 to the proposed Fringe Benefits Tax Assessment Act includes a reference to provisions of the Taxation Administration Act 1953 relating to prosecutions and offences to the extent that those provisions relate to the Bill.

Clause 166: Unincorporated companies

Clause 166 applies in relation to unincorporated companies in the same way as clause 165 applies in relation to partnerships, and each member of the committee of management assumes the obligations of the unincorporated company in the same way as each partner assumes those of a partnership.

Clause 167: Offences by government bodies

This clause makes clear that, regardless of any obligation that may be imposed by the Bill on a government body, such a body will not be capable of committing an offence against the Bill.