House of Representatives

Explanatory Memorandum

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

FRINGE BENEFITS TAX BILL 1986

This Bill will formally impose tax liability on the taxable amount of fringe benefits provided by employers to their employees in respect of their employment, as determined under the Fringe Benefits Tax Assessment Bill 1986. The Bill will also declare the rate of tax that is to apply to employers liable to pay the tax.

NOTES ON CLAUSES

Clause 1: Short title

This clause provides for the Act to be cited as the Fringe Benefits Tax Act 1986.

Clause 2: Commencement

By this clause the Act is to come into operation on the same day as the proposed Fringe Benefits Tax Assessment Act. As explained in the explanatory notes relating to that proposed Act, this will be the day on which it receives the Royal Assent.

But for this clause the Act would come into operation on the twenty-eighth day after Royal Assent by virtue of sub-section 5(1A) of the Acts Interpretation Act 1901.

Clause 3: Incorporation

This clause requires the two complementary Bills - the Fringe Benefits Tax Assessment Bill and the Fringe Benefits Tax Bill - to be incorporated and read as one. This mirrors the position under the income tax law and other taxation laws where there are related assessment and rating Acts.

Clause 4: Imposition of tax

By this clause is formally imposed tax in respect of the fringe benefits taxable amount of an employer of a year of tax.

The term "fringe benefits taxable amount" is defined in sub-clause 136(1) of the Fringe Benefits Tax Assessment Bill as explained earlier in the notes on that Bill. Briefly, it is the total of the taxable values of all fringe benefits provided by an employer to his or her employees during a "year of tax".

Clause 5: Rates of tax

The standard "year of tax" for the purposes of fringe benefits tax is the 12 month period commencing on 1 April each year - see the definition of that term in sub-clause 136(1) of the Fringe Benefits Tax Assessment Bill. As explained in the introductory section of this memorandum, however, the first tax year - referred to as the transitional year of tax - will be the 9 month period from 1 July 1986 to 31 March 1987.

Liability to fringe benefits tax is to be assessed annually on the fringe benefits taxable amount of an employer as referred to in the notes on clause 4.

For the transitional year of tax, tax will be imposed on that amount at the rate of 46% (paragraph 5(a)).

For the year of tax commencing on 1 April 1987 and for subsequent years the rate of tax is to be 49% (paragraph 5(b)).

Clause 6: Severability

Section 114 of the Constitution precludes the imposition by the Commonwealth of a tax on the property of a State.

Liability for fringe benefits tax is to be imposed on all employers - including State governments and their agencies - who provide taxable fringe benefits to their employees. Against any possibility that this could be held to constitute in any circumstance the imposition of a tax contrary to section 114, clause 6 expresses that it is the intention of the Parliament that the imposition of tax under clause 4 should be given effect as if it did not impose tax on the property of a State.