House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Ralph Willis, MP)

Chapter 2 - Fringe benefits tax rate increase

Overview

2.1 The Fringe Benefits Tax Amendment Bill 1995 will amend the Fringe Benefits Tax Act 1986 (the Act) to increase the rate of fringe benefits tax (FBT).

Summary of the amendments

Purpose of the amendments

2.2 The amendments will amend section 6 of the Act to increase the rate of tax from 48.4% to 48.475% for the FBT year commencing 1 April 1995. From 1 April 1996 and all later FBT years the rate will be 48.5%.

Date of effect

2.3 The amendment to increase the rate to 48.475% will apply from 1 April 1995. The amendment to increase the rate to 48.5% will apply from 1 April 1996.

Background to the legislation

2.4 The rate of FBT is set by section 6 of the Act. It imposes tax in respect of the value of certain fringe benefits provided in respect of the employment of employees.

2.5 The FBT rate is to be adjusted in line with the change from 1.4% to 1.5% in the Medicare levy rate from 1 July 1995. However, to avoid two different rates in the 1995-96 FBT year of tax, the rate to apply to the year commencing 1 April 1995 will be a composite rate of 48.475%. From 1 April 1996 and all later FBT years the rate will be increased to 48.5%.

Explanation of the amendment

2.6 The amendments in the Bill are contained in clause 3. Details of the amendments are in the Schedules to the Bill.

2.7 The Bill proposes to amend section 6 of the Act by increasing the FBT rate from '48.4%' to '48.475%' [item 1 of Schedule 1] . This amendment will apply to the FBT year of tax beginning on 1 April 1995 [item 2 of Schedule 1] .

2.8 The Bill further amends section 6 of the Act by increasing the FBT rate from '48.475%' to '48.5% [item 1 of Schedule 2] . This amendment will apply to the FBT year of tax beginning on 1 April 1996 and all later FBT years [item 2 of Schedule 2] .