House of Representatives

Explanatory Memorandum

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

FRINGE BENEFITS TAX (APPLICATION TO THE COMMONWEALTH) BILL 1986

Introductory Note

This Bill is designed to ensure that Commonwealth Departments have the same obligations in relation to fringe benefits provided to Commonwealth employees as are imposed on employers generally. Accordingly, the Bill provides that the proposed Fringe Benefits Tax Assessment Act 1986 is to apply to Commonwealth Departments as though each Department were a company which employed those employees of the Commonwealth whose remuneration is paid out of the annual appropriation for the Department. In addition, an employee whose remuneration is paid out of money appropriated under a standing appropriation will be treated as being an employee of the Department for which he or she performs duties.

NOTES ON CLAUSES

Clause 1: Short title

By this clause, the proposed Act is to be cited as the Fringe Benefits Tax (Application to the Commonwealth) Act 1986.

Clause 2: Commencement

By clause 2, it is proposed that the Bill will come into operation at the same time as the Fringe Benefits Tax Assessment Act 1986.

Clause 3: Interpretation

This clause contains measures to assist in interpretation.

Sub-clause 3(1) defines various expressions used in the Bill. Each expression is to have the given meaning, unless the contrary intention appears:

•

"Assessment Act" means the Fringe Benefits Tax Assessment Act 1986.

•

"Commonwealth employee" means an employee of the Commonwealth. By virtue of sub-clause 3(2), the term "employee" has the same meaning as in the Assessment Act and thus encompasses persons who, either currently or in the past, have been treated as employees of the Commonwealth for the purposes of the PAYE provisions of the income tax law.

•

"Department" is a term used in the Bill to identify the Commonwealth organisations that under the Bill will be treated as though they were corporate employers with consequent obligations in respect of fringe benefits. As is the case under the Audit Act 1901, the term Department is defined to mean -

(a)

a Department of State;

(b)

a Department of the Parliament; or

(c)

a branch of the Australian Public Service headed by a person who has statutory powers of a departmental Secretary.

•

"responsible Department" is a term used in the Bill to identify, in relation to a particular Commonwealth employee, the Department that is to be responsible for accounting for fringe benefits provided to the employee. In the case of an employee whose remuneration is paid out of an annual appropriation, the responsible Department is defined to be the one whose appropriation is charged with that remuneration (paragraph (a)). Where the remuneration of the employee concerned is paid out of a standing appropriation (e.g., remuneration of a statutory office holder that is paid out of money appropriated by the Remuneration Tribunals Act 1973), the responsible Department will generally be the one for which the employee performs duties (sub-paragraph (b)(i)). However, if the employee concerned (e.g., a member of the Federal Parliament) does not perform duties for a Department, the responsible Department will be the one that administers that part of the Act under which money is appropriated for the payment of the employee's salary (sub-paragraph (b)(ii)). The Department of the Special Minister of State will be the responsible Department in the case of employees (e.g., Ministers) whose remuneration is paid out of money appropriated by the Constitution (paragraph (c)).

Sub-clause 3(2) is a drafting measure that provides that an expression used in the Bill is to have the same meaning as is ascribed to that expression in the Assessment Act, unless the contrary intention appears.

Clause 4: Application of Assessment Act in relation to Commonwealth employment

Clause 4 will operate to make the provisions of the Assessment Act, with appropriate variations applicable in respect of fringe benefits provided to Commonwealth employees.

While public servants and other Commonwealth employees are, in practice, assigned to Departments, they are, as a matter of law, employed by the Commonwealth. Accordingly, sub-clause 4(1) provides that the Assessment Act is to apply as though a Commonwealth employee were employed by the responsible Department (and not by the Commonwealth) and that Department were a separate legal identity, viz., a company.

In addition, the Assessment Act is to apply as if each responsible Department were related to each other Department and authority of the Commonwealth. This measure parallels the rules in the Assessment Act which treat companies under common ownership and control as being related companies and is relevant to a number of the exemption and valuation rules contained in the Assessment Act.

The broad effect of the application of the provisions of the Assessment Act is that responsible Departments will be required to calculate and remit amounts for fringe benefits tax on the same basis as corporate employers are required to pay the tax. Responsible Departments will also be subject to the same ancillary obligations as apply to corporate employers. In particular, they will be required to lodge annual returns and remit quarterly instalments.

The effect of paragraph 4(1)(c) is that certain provisions of the Assessment Act relating to government bodies (mainly provisions concerning offences) will apply to responsible Departments. By virtue of paragraph 4(1)(d), responsible Departments will have the same rights of objection as other employers but will not have appeal rights.

Clause 5: Application of Act to certain Commonwealth authorities

Clause 5 is a technical measure which provides that if any authority of the Commonwealth cannot, by a law of the Commonwealth, be made liable to taxation by the Commonwealth, it is to be treated as a Department and thus subject to the provisions of this Bill rather than the Fringe Benefits Tax Assessment Bill 1986.

Clause 6: Exemption of certain benefits provided under the Defence Services Homes Act

This clause has the effect that a loan authorised under the Defence Services Homes Act is to be an exempt benefit where the loan was made by virtue of an employee's war service.

Clause 7: Directions by Minister for Finance

This clause authorises the Minister for Finance to give directions to Departments concerning the implementation of the provisions of the Bill and, in particular, to give directions in relation to the transfer of money within the public account.

Clause 8: Annual report

By this clause, the Commissioner of Taxation will be required to report on the operation of the proposed legislation in the annual report that the Commissioner will be required to furnish under the proposed Fringe Benefits Tax Assessment Act 1986. Any breaches of the proposed legislation may be reported on by the Commissioner.

Clause 9: Regulations

By this clause, formal authority is given for the making of any regulations necessary for carrying out or giving effect to the proposed Act.