SENATE

Explanatory Memorandum

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

Chapter 5 - Taxi travel provided to employees

Overview

5.1 Schedule 4 of this Bill will amend the Fringe Benefits Tax Assessment Act 1986 (FBTAA) so that taxi travel provided by an employer to employees who are required to travel home between 8pm and 6am, or to sick employees to travel home or to another place of care, will be exempt from fringe benefits tax (FBT).

Summary of the amendments

Purpose of the amendments

5.2 Taxi travel provided to employees will be exempt from FBT where the taxi travel is provided:

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for an employee to travel directly between the work place and home between the hours of 8pm and 6am;

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to a sick or injured employee to travel between the work place and home or to any other place where care can be obtained.

Date of effect

5.3 The amendments will apply to any taxi travel provided for employees on or after 1 April 1995. [Sub item 4(2)]

Background to the legislation

5.4 A fringe benefit arises where an employer incurs the cost of an employee's travel to and from work. The type of benefit that can arise when a taxi is provided depends on how the taxi is paid for:

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an expense payment fringe benefit arises if the employee pays for the taxi and is subsequently reimbursed by his or her employer or if the employee pays for the taxi by way of credit card and the employer subsequently pays the credit card.

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a residual benefit arises if the employee uses the employer's credit card to pay for the taxi.

5.6 The cost of travel between home and work is of a private nature and is not deductible to the employee for income tax purposes. Therefore, the 'otherwise deductible' rule does not operate to reduce the taxable value of the benefit provided.

5.7 The provision of transport by an employer to an employee for travel to and from work may nevertheless be exempt from FBT if it is an exempt minor benefit under section 58P of the FBTAA. In general terms, a benefit is an exempt 'minor benefit' where the benefit provided is small and similar benefits are provided irregularly or infrequently. These amendments will widen the circumstances in which taxi travel may be an exempt benefit.

Explanation of the amendments

Taxi travel provided between 8pm and 6am

5.8 New subsection 58Z(1) will exempt a benefit that arises from taxi travel provided to employees where the travel is provided for direct travel between the workplace and home and the taxi is provided between the hours of 8pm and 6am. [Item 2]

5.9 The exemption applies whether the taxi travel covered all or part of a journey between home and work. The journey between home and work has to be direct.

5.10 The exemption will still apply if the taxi travel covers only part of a direct journey between home and work. For example, an employee may travel by taxi to a railway station and travel the rest of the way home by train. However, stopping at a hotel for a drink on the way home, for example, will not be considered to be travel directly to home.

Taxi travel for sick or injured employees

5.11 New subsection 58Z(2) will exempt a benefit that arises where a taxi is provided for a sick or injured employee to travel from the work place to home. [Item 2]

5.12 The exemption also applies where an employee is taken to a place other than home or via that place on the way home, providing that the employee is transported to that other place because of the sickness or injury. For example, an employee falls sick and travels by taxi to see a doctor. After consultation with the doctor the employee travels from the surgery to home in another taxi. In this case, any benefit arising from either journey will be exempt.