Senate

Replacement Supplementary Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

General outline and financial impact

Fringe Benefits Tax Reform

The amendments made to Schedule 1 to this Bill will:

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provide consistent fringe benefits tax (FBT) treatment between public and non-profit hospitals by replacing the rebate currently available to only some hospitals with an FBT exemption;

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increase the level of benefits eligible for concessional FBT treatment from $25,000 to $30,000 for each employee of a rebatable employer, or a public benevolent institution (PBI) other than a hospital, and effectively postpone the commencement of this aspect of the capping measure until 1 April 2001;

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ensure that a greater number of housing benefits provided to employees of public and non-profit hospitals, charities and police services in regional areas will qualify for the remote area housing exemption, by broadening the definition of remote areas; and

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clarify the operation of the new FBT grossing-up measure by restructuring the provisions that determine whether an input tax credit was available in respect of the provision of a benefit.

Date of effect: The extension of the section 57A exemption to public and non-profit hospitals will apply from 1 April 2000.

The $30,000 cap on benefits provided to an employee of rebatable employer, or a PBI that is not a hospital, is effectively delayed until 1 April 2001. However, the $17,000 cap for public and non-profit hospitals will continue to apply from 1 April 2000.

The new remote area test for public and non-profit hospitals, charitable organisations and the police services will apply from the FBT year commencing 1 April 2000.

The FBT gross-up provisions will continue to apply from 1 April 2000.

Proposal announced: The Bill containing the original measures was introduced into the House of Representatives on 9 March 2000. The $30,000 cap on concessional FBT treatment and the extension of the remote area definition to apply to certain employers was announced in Treasurer's Press Release No. 22 of 13 April 2000. The remaining measures have not been previously announced.

Financial impact: The total revenue to be raised from the revised FBT capping measure (including the impact of transferring public and non-profit hospitals from the rebate provisions to the section 57A exemption) is expected to be $100 million in 2000-2001, $110 million in 2001-2002, $115 million in 2002-2003 and $120 million in 2003-2004.

The revenue impact of the new remote area test for housing benefits for charities, public and non-profit hospitals, and police services are unquantifiable.

The amendments to the new FBT grossing-up arrangements do not alter the original estimates contained in the explanatory memorandum to this Bill.

Compliance cost impact: The amendments to the new FBT grossing-up provisions and the FBT capping measure will not alter the compliance costs outlined in the explanatory memorandum to this Bill.

Public and non-profit hospitals, charities and the police services will experience reduced costs of compliance and record keeping costs, as a greater number of housing benefits will be eligible for the remote area housing exemption.