Changed eligibility for the Zone Tax Offset

Budget Review 2015–16 Index

Kali Sanyal

The Zone Tax Offset (ZTO) is a concessional tax offset available to individuals against their tax liability in recognition of the isolation, extreme climate and high cost of living associated with living in particular locations. Eligibility is based on defined geographic zones.[1] The offset and its predecessors have existed since just after the Second World War and the regions have not significantly changed since 1981.[2]

The specified remote areas of Australia covered by the ZTO are in two zones, Zone A and Zone B. Zone A comprises the Australian tropics apart from the Queensland east coast south of Cape Tribulation, and zone B includes the Queensland coast from Cape Tribulation south to Sarina plus the following: a belt of inland Queensland adjacent to zone A; the far west of New South Wales; the far north of South Australia; the Western Australian goldfields and the west of Tasmania.[3]

Zone A comprises those areas where the unfavourable factors are more pronounced and Zone B comprises the less badly affected areas. The tax offset for ordinary Zone A residents is accordingly higher than the tax offset for ordinary Zone B residents. A special category of zone allowances is available to taxpayers residing in particularly isolated areas (‘special areas’) within either zone.

In addition to those benefits available through the ZTO, there are a range of fringe benefits tax exemptions and concessions which apply to employers. They include exemptions predominantly around housing and transportation.[4]

Eligibility for ZTO restricted

Currently, to be eligible for this tax offset, a taxpayer must reside or work in a specified remote area for more than 183 days in an income year.

The Government announced in the 2015–16 Budget that ‘fly-in fly-out’ (FIFO) and ‘drive-in drive-out’ (DIDO) workers will be excluded from the ZTO where their normal residence is not within a designated ‘zone’.  The measure is designed to target the ZTO to taxpayers who have taken up genuine residence within the zones and align the tax offset with the original intent of the policy. For those FIFO workers whose normal residence is in one zone, but who work in a different zone, they will retain the ZTO entitlement associated with their normal place of residence.[5]

Background to the proposed changes

The measure follows a recent inquiry by the House of Representative Standing Committee on Regional Australia (the Committee) into the use of FIFO and DIDO workforce practices in regional Australia’.[6] 

In its findings, the Committee observed that the use of FIFO and DIDO workers presented two very different dynamics depending on whether the perspective was from a ‘host’ or ‘source’ community.

For host communities, concerns were raised about access to medical services, availability of accommodation and the security implications of a large influx of young men.

On the other hand, the remote work practices suited a lot of people and were more convenient than actually being in the zone. For example they could earn relatively higher wages by being FIFO or DIDO workers. A substantial proportion of them live in an urban area–outside the designated zones—and enjoy the ZTO benefit at the same time.[7]

The Committee acknowledged that the labour and skills shortages meant that employers need to offer a range of work practices, including FIFO/DIDO in order to attract employees. The findings of the inquiry admitted that the prevalent work practices are necessary and appropriate for operations in remote areas and the labour intensive construction phase of resource projects.

Given the complexity of the dynamics of the host community, the Committee suggested that FIFO/DIDO should not be utilised as the primary work practice where it undermines the liveability of regional Australia. In some areas liveability is becoming so eroded that the choice to ‘live-in’ rather than FIFO/DIDO is simply not available.[8]

Recommendation 14 of the inquiry report asked the ‘Commonwealth Government to review the Zone Tax Offset arrangements to ensure that they are only claimable by permanent residents of a zone or special area’.[9]

The Government announced in the 2015–16 Budget that FIFO workers will be excluded from the ZTO where their normal residence is not within a ZTO ‘zone’.  Those FIFO workers who live in one ZTO zone, but work in a different ZTO zone, will have their ZTO entitlement unchanged.

In the 2012-13 income year, more than half a million Australian residents (with taxable income) claimed ZTO of $284.3 million.[10]  It is estimated that around 20 per cent of all claimants do not actually live full-time in the zones.[11]

On 20 May 2015, the Labor Opposition pledged to support this budget measure.[12] But Steve McCartney, the WA secretary of the Australian Manufacturing Workers Union, said that the measure was unfair because those affected were spending a substantial proportion of their time in those zones.[13]

This budget measure will apply from 1 July 2015 (in the 2015–16 income year), but the revenue gain of approximately $110 million a year will start flowing from the 2016–17 accounting year.[14]

[1].          Australian Government, Budget measures: budget paper no. 2: 2015–16, p. 25.

[2].          R Donelly (Chief Adviser, Personal and Retirement Income Division, Treasury), Evidence to Joint Select Committee on Northern Australia, Inquiry into the development of northern Australia, House of Representatives, Hansard, 21 March 2014, p. 45.

[3].          I Manning, (Deputy Executive Director, National Institute of Economic and Industrial Research–NIEIR), Income tax zone rebates, 2013, pp. 24.

[4].          Australian Taxation Office (ATO), Fringe benefit tax–remote areas, website.

[5].          Budget measures: budget paper no. 2: 2015–16, op. cit., p. 25.

[6].          House of Representatives, Standing Committee on Regional Australia, ‘Inquiry into ‘the use of ‘fly-in, fly-out’ (FIFO) and ‘drive-in, drive-out’ (DIDO) workforce practices in regional Australia’: Final Report, Chapter 1, p. 2, February 2013.

[7].          Ibid.

[8].          Ibid.

[9].          Inquiry into ‘the use of ‘fly-in, fly-out’ (FIFO) and ‘drive-in, drive-out’ (DIDO) workforce practices in regional Australia’, op. cit.

[10].       Australian Taxation Office, Taxation Statistics 2012–13, Detail Tables-Individuals, Table 11, 4 May 2015.

[11].       Budget measures, budget paper no. 2: 2015–16, op. cit. p. 25.

[12].       C Bowen (the Shadow Treasurer), ‘Labor and the Economy: Owning the Future’, speech delivered at the National Press Club, 20 May 2015.

[13].       L Gartry, ‘Budget 2015: AMWU slams move to exclude FIFOs from zone tax offset as attack on workers’, ABC News, 13 May 2015.

[14].       Budget measures, budget paper no. 2: 2015–16, op. cit.


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