Tax Laws Amendment (2011 Measures No. 6) Bill 2011

Bills Digest no. 12 2011–12

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WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

John Murray
Law and Bills Digest Section
26 July 2011

Contents
Purpose
Financial implications
Schedule 1 - Better Start for Children with Disability initiative
Schedule 2 - Fly-in fly-out arrangements for Australians working overseas
Schedule 3 - Deductable gift recipients


    Date introduced:  22 June 2011
    House:  House of Representatives
    Portfolio:  Treasury
    Commencement:  The formal provisions, Schedule 1, Part 1 of Schedule 2 and Part 2 of Schedule 3 commence on the day of Royal Assent.  Divisions 1, 2 and 3 of Part 3 of Schedule 3 commence on 1 July 2013, 1 July 2014 and 1 July 2015 respectively. Part 2 of Schedule 2 commences on the later of the commencement of Part 1 of Schedule 2 and the commencement of item 4 of Schedule 1 to the Acts Interpretation Amendment Act 2011, or not at all if item 4 does not commence.  Part 2 of Schedule 3 commences retrospectively on 22 February 2011. 

    Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill's home page, or through http://www.aph.gov.au/bills/. When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the ComLaw website at http://www.comlaw.gov.au/.

    Purpose

    The Bill contains three Schedules, each with a different purpose:

    • to amend the Income Tax Assessment Act 1997 (the ITAA 1997) in order to ensure that certain payments made under the Better Start for Children with Disability initiative are exempt from income tax (Schedule 1)
    • to amend the Fringe Benefits Tax Assessment Act 1986 (the FBT Act) to exempt from fringe benefits tax the cost of transport for Australian residents travelling to and from remote overseas places of employment (Schedule 2), and
    • to amend the list of deductible gift recipients (DGRs) in the ITAA 1997 to make gifts to the Christchurch Earthquake Appeal Trust and/or Cancer Australia tax-deductible (Schedule 3).

    Financial implications

    According to the Explanatory Memorandum, the sole financial implication of the Bill is a
    $0.68 million cost to revenue in the 2011–12 financial year (Schedule 3).[1]

    Schedule 1—Better Start for Children with Disability initiative

    Background

    The Better Start for Children with Disability initiative (Better Start) provides funding for early intervention for particular disabled children.  Better Start was announced by the Gillard Government as an election commitment on 29 July 2010.[2]  The disabilities covered by the initiative are cerebral palsy, Down syndrome, Fragile X syndrome, and moderate or greater vision and hearing impairments including deafblindness.  From 1 July 2011, Better Start benefits will include a one-off payment of $2000 to families living in outer regional and remote areas (OR&R payment).[3]  The amendments contained in Schedule 1 will ensure that this payment is exempt from income tax.

    The measure has not been previously announced.

    Main provisions

    Division 11 of the ITAA 1997 lists particular kinds of non-assessable income.  Item 1 inserts the Better Start initiative into the table of types of non-assessable income in section 11-15 under the heading ‘social security or like payments’.  The table item refers in turn to proposed section 52-172, inserted by item 2, which exempts OR&R payments from income tax.

    Schedule 2—Fly-in fly-out arrangements for Australians working overseas

    Background

    Fringe benefits tax (FBT) is a tax on benefits (such as company cars, food and entertainment, loans, housing and salary sacrifice arrangements) provided by an employer to an employee in place of salary or wages.  Currently, FBT is paid by the employer at a rate of 46.5 per cent of the value of the benefit, being the highest personal income tax rate (45 per cent) plus the Medicare levy (1.5 per cent).[4]

    Division 12 of the FBT Act contains rules relating to ‘residual fringe benefits’.  This is a catch-all category for fringe benefits which are not otherwise dealt with in the FBT Act.  Subsection 47(7) provides that where:

    • an employee usually works on an oil rig (or other installation) at sea or at a location in a State or internal Territory (but not in or next to an ‘eligible urban area’)
    • the employer (or an associate) provides the employee with residential accommodation at or near the workplace
    • on a regular basis, the employee works for a number of days and has a number of days off
    • on completion of the block of working days, the employee travels to his or her usual place of residence, and on completion of the block of days off, the employee travels back to the residential accommodation provided by the employer, and
    • the employer (or an associate) provides the employee with transport between his or her usual residence and the residential accommodation provided by the employer,

    the provision of the transport is an exempt benefit if it would be unreasonable to expect the employee to travel between his or her usual place of employment and usual place of residence on a daily basis.  These arrangements are often referred to as ‘fly-in fly-out’ arrangements.

    Schedule 2 extends the exemption to Australians whose usual place of employment is overseas, specifically where they work ‘at a remote location that is not in a State or internal Territory’ (proposed subparagraph 47(7)(a)(iii)) for an Australian employer.  The extension will apply to fringe benefits provided since 1 July 2009, which is when the foreign employment income of Australian residents became assessable in certain circumstances.  Previously, foreign employment income was exempt from income tax in Australia provided the taxpayer had been employed overseas for more than 91 days in a continuous period.  However, in 2009 the Rudd Government tightened the eligibility requirements for the exemption in section 23AG of the ITAA 1936 so that only foreign income that is ‘directly attributable’ to particular activities, such as the delivery of Australia’s official development assistance or the person’s deployment as a member of an Australian ‘disciplined force’, is exempt.[5]

    Since 1 July 2009, the foreign employment income of Australian taxpayers who are not engaged in these specific activities has been subject to Australian income tax.  Similarly, any fringe benefits provided by the employer, including transport between the employee’s usual place of residence in Australia and their workplace overseas, has also been subject to tax.  The amendments in Schedule 2 will mean that even though the taxpayer’s foreign employment income will remain subject to Australian income tax, the provision of transport will become exempt from FBT.

    The Assistant Treasurer and Minister for Financial Services and Superannuation, Mr Bill Shorten, announced the measure on 18 November 2010.[6]

    Main provisions

    Item 1 inserts proposed subparagraph 47(7)(a)(iii), which operates to include remote locations which are ‘not in a state or internal territory’ in the list of eligible places of employment.  The term ‘remote’ is not defined in the Bill or in the FBT Act.  The Explanatory Memorandum includes factors to be considered in determining whether a location is ‘remote’, and a series of worked examples.[7] 

    Items 2 to 8 make minor, consequential amendments.

    Item 9 applies the amendments made by item 1 to benefits provided on or after 1 July 2009.

    Schedule 3—Deductible gift recipients

    Background

    Organisations with deductible gift recipient status (DGRs) can receive income tax deductible donations.  DGRs can be endorsed under the ITAA 1997 under a number of general categories or can be specifically listed in Division 30. 

    The amendments in Schedule 3 add the New Zealand Government’s Christchurch Earthquake Appeal Trust (established following the 22 February 2011 Christchurch earthquake) and Cancer Australia to the list of DGRs, and make other minor changes to the DGR listings.

    Main provisions

    Item 3 amends subsection 30-20(2) to require that gifts to the National Breast Cancer Gift Fund be made before 2 August 2011 in order to be tax-deductible.  The listing is redundant following the amalgamation of the National Breast and Ovarian Cancer Centre with Cancer Australia on 15 June 2010.[8]

    Item 4 amends subsection 30-20(2) to impose a ‘special condition’ requiring that deductible gifts to the Bionic Ear Institute be made before 10 November 2010, effectively removing its endorsement as a specifically-listed DGR.  The Institute is instead endorsed under the general category of health promotion.[9]

    Item 5 adds Cancer Australia to the list of health-related DGRs in section 30-20.  Item 7 amends the index to Division 30 in section 30-315 accordingly.

    Item 6 adds the Christchurch Earthquake Appeal Trust of New Zealand to the list of international affairs-related DGRs in section 30-80.  Item 8 amends the index to Division 30 in section 30-315 accordingly.  However, it is not clear why slightly different terminology is used to refer to the trust in items 6 and 8.

    Members, Senators and Parliamentary staff can obtain further information from the Parliamentary Library on (02) 6277 2413.


    [1].       Explanatory Memorandum, Tax Laws Amendment (2011 Measures No. 6) Bill 2011, pp. 3-4.  The figure of
    $0.68 million is solely attributable to deductions in relation to gifts to the New Zealand Government’s Christchurch Earthquake Appeal Trust.

    [2].       B Shorten (then Parliamentary Secretary for Disabilities and Children's Services), J Macklin (Minister for Families, Housing, Community Services and Indigenous Affairs) and J Gillard (Prime Minister), Children with a disability given a better start, joint media release, 29 July 2010, viewed 30 June 2011,  http://parlinfo.aph.gov.au/parlInfo/search/display/disFlay.w3p;query=Id%3A%22media%2Fpressrel%2FUIHX6%22

    [3].       J Macklin (Minister for Families, Housing, Community Services and Indigenous Affairs), N Roxon (Minister for Health and Ageing) and J McLucas (Parliamentary Secretary for Disabilities and Carers), Better start for children with disability, joint media release, 10 May 2011, viewed 30 June 2011,  http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22media%2Fpressrel%2F757441%22 

    [4].       For further information about FBT, see the Australian Taxation Office website at:  http://www.ato.gov.au/businesses/pathway.aspx?pc=001/003/027&mnu=699 (viewed 5 July 2011)

    [5].       The activities are specified in subsection 23AG(1AA) of the ITAA 1936.

    [6].       B Shorten (Assistant Treasurer and Minister for Financial Services and Superannuation), Providing certainty for the taxation of fly-in/fly-out employees working overseas, media release, no. 11, 18 November 2010, viewed 4 July 2011, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22media%2Fpressrel%2F405139%22

    [7].       Explanatory Memorandum, paragraphs 2.35 – 2.50.  No single factor is expected to be determinative.  Each location will be assessed on a case-by-case basis.  Proximity to an urban area and the size and facilities of that urban area are key factors.

    [8].       Explanatory Memorandum, paragraphs 3.8 - 3.12.

    [9].       For information about health promotion charities, see the ATO website:  http://www.ato.gov.au/nonprofit/content.aspx?menuid=0&doc=/content/34490.htm&page=20#P1016_43383 (viewed 6 July 2011).  The DGR status of the Bionic Ear Institute is recorded in its entry on the Australian Business Register: http://www.abn.business.gov.au/SearchByAbn.aspx?abn=56006580883

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