When Bills have been passed and have received Royal Assent, they
become Acts, which can be found at the ComLaw
website.
2.
The Zone Tax Offset (ZTO) provides a tax offset to some people living or
working in designated zones. The eligibility rules for ZTO will be amended to
exclude those people who work in the zones but fly or drive into those zones
from their usual place of residence that is located outside of the zone. This
is implemented by Schedule 2 which amends the Income Tax Assessment
Act 1936 (ITAA 1936).[2]
3.
It introduces a cap on the total amount of salary packaged entertainment
benefits enjoyed by certain employees that are exempt from fringe benefits tax
(FBT), or subject to it at concessional rates. It will also remove the
reporting exclusion in respect of salary packaged entertainment benefits and
withdraw the access to elective valuation rules that are practised currently by
some employers. This is implemented by Schedule 3 which amends the FBTAA
1986.
4.
It requires reporting of more information to the Australian Taxation Office
(ATO), by a host of third parties, to improve compliance by taxpayers. New reporting
obligations will apply in relation to payments of government grants, transfers
of real property, shares and units in unit trusts, consideration for services
provided to government entities and business transactions made through payment
systems. This is implemented by Schedule 4 which amends the Taxation
Administration Act 1953 (TAA 1953) and ITAA 1997.[3]
The measures in the first three schedules in the Bill were
announced as part of the 2015–16 Budget.[4]
The third party reporting regime in Schedule 4 to the Bill was first announced
by the Labor Government in the 2013–14 Budget as part of the ‘Tax
compliance–Improving compliance through third party reporting and data
matching’ package.[5]
In November 2013, the Government initially committed to proceed with these
amendments on 1 July 2014[6]
but subsequently extended the start date of this measure to 1 July 2016. [7]
- taxable
government grants and specified other government payments
- sales
of real property, shares (including options and warrants) and units in managed
funds
- sales
through merchant debit and credit services
- managed
investment trust and partnership distributions, company dividend and interest
payments and
- transactions
reported to the ATO by the Australian Transaction Reports and Analysis Centre.[11]
Taxpayers can claim deductions for the expense of running
a motor vehicle used to earn assessable income.
Currently, work related car expenses are claimed by 3.8
million taxpayers each year.[12]
The actual costs of running a motor vehicle are difficult
to calculate and the work-related components are difficult to allocate with
accuracy. For instance, one element of the cost, the cost of fuel, can vary
over time and place of purchase. In its 2014 car expenses survey, NRMA observed:
Predicting fuel cost for the next 12 months is difficult with
the impact of larger global events, hurricanes or conflict and the widespread
campaigns of fuel discounting particularly in the larger cities. The cost of
fuel can fluctuate wildly depending on where and when you buy fuel...
For example if the price of unleaded petrol changes from
$1.50 to $1.55 per litre for a Micro Car Class Vehicle add 0.31 cents per
kilometre or $0.90 to the weekly running costs.[13]
The ATO therefore currently allows running costs to be
approximated by applying one of four methods, only the first two of which will
remain in place under this Bill:
- cents
per kilometre – for fewer than 5,000 kilometres of travel for work-related
purposes
- logbook
- 12
per cent of original value or
- one-third
of actual expenses.[14]
Currently, the ‘12 per cent of original value’ method and the
‘one-third of actual expenses’ methods may be used where more than 5,000
kilometres are travelled in a year for work-related purposes.[15]
Taxpayers using ‘one-third of actual expenses’ method are
required to keep written evidence of expenses, but not log book records.
Taxpayers using ‘12 per cent original value’ method are not obliged to maintain
written evidence, log book or odometer records.[16]
The latest available data for 2012–13 shows that these two methods are used in about
two per cent of claims each year.[17]
The Bill will remove these two options.
Following the amendment, taxpayers travelling fewer than 5,000
kilometres for work-related purposes will be able to use the
cents-per-kilometre method or the logbook method depending on their needs.[18]
Under the logbook method, actual work related travel is
recorded in a log and all relevant expenses (including depreciation if any)
incurred in operating a vehicle for those journeys—such as petrol, oil, tyres,
registration, servicing costs, lease charges, interest on a car loan, necessary
car parking expenses and car washing costs—are claimable as deductions. Written
records must be kept of expenses.[19]
Those travelling more than 5,000 kilometres for
work-related purposes will use the logbook method only.
The Bill will also change the cents-per-kilometre method
from one with three tiers based on vehicle engine size to one amount for all
vehicles.
The current rates per km, by engine capacity and engine
type, are in the following table.
Table 1: Rates per km for motor vehicle expense claims
Ordinary engine
|
Rotary engine
|
Cents per km
|
1.6 litres or less
|
0.8 litres or less
|
65
|
1.601 to 2.6 litres
|
0.801 to 1.3 litres
|
76
|
2.601 litres and over
|
1.301 litres and over
|
77
|
Source: ATO[20]
The new rate, in the first year, will be 66 cents per
kilometre for all motor vehicles. The Commissioner of Taxation will have the
power to determine a different rate each year to reflect the most up-to-date
running costs for motor vehicles.
Financial implications
In the 2015–16 Budget, the Government stated that revenue
gains for this measure would be $845 million over the forward estimates
starting 2016–17, including $270 million in the first year.[21]
Will these savings be realised?
Some savings may arise from claimants moving from the abandoned
methods to the cents-per-kilometre method.
However, it seems likely that the main savings will come
from the substitution of a single rate only slightly above the existing lowest
rate for the three rates per kilometre.
In the most recent tax year for which data is available, 2012–13,
total work-related vehicle expenses deductions were approximately $8,026
million.[22]
Of this amount, approximately $5,096 million was claimed by the per
kilometre method.
The amount claimed for the two biggest engine sizes will
reduce by at least 10 cents per kilometre or about 13.5 per cent. Assuming
that half of the vehicles used for cents per kilometre claims have engine
capacity greater than 1.6 litres,[23] all other things being equal,
those claimants will reduce their claim by 13 per cent resulting in savings of nearly
$330 million.[24]
So the estimate of the saving appears plausible, even conservative.
What is a tax offset?
A tax offset is an amount that is deducted from a taxpayer’s
tax liability if the relevant eligibility conditions for that offset are met.
A refundable tax offset is one that is available in
full even if it exceeds the tax liability of the taxpayer.
A non-refundable tax offset is available only up to
the amount of the person’s tax liability.
For example, if a person has a tax liability of $500, and is
entitled to a hypothetical tax offset of $600, they would have the benefit of
all of the offset and would be entitled to a refund of $100 if the tax offset
were refundable but would have their tax liability reduced to zero, with
no refund, if the offset were non-refundable.
The ZTO is a non-refundable tax offset. It was introduced in
1945 in recognition of the difficulties of living in some more remote parts of
Australia. It is intended to compensate people for living in particular
locations in difficult conditions like isolation, adverse climate and with high
living costs.
The ZTO is available if a person resides (in the sense
required by the legislation) in one of defined geographic zones. The ZTO
arrangements are long-standing:
This offset and its predecessors have been around since just
after the Second World War and have not significantly changed based on regions
since 1981.[25]
The rate of the ZTO depends on which of the defined
geographic zones that a person is resident in. The specified remote areas of
Australia covered by the ZTO are Zone A and Zone B.
Zone A comprises those areas where the unfavourable factors
are more pronounced than Zone B. The tax offset for ordinary Zone A residents
is accordingly higher than 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.
The areas covered by Zone A and Zone B are generally in
the west, north and centre of Australia. Zone B covers the islands forming part
of Australia that are adjacent to the coastline of the mainland and Tasmania.
Some places (but not islands) are eligible for a higher
basic ZTO if, by the shortest practical land or sea route, they are more than
250 kilometres from the centre of an urban area (whether or not that urban area
is within an eligible zone) with a 1981 census population of over 2,499. The
1981 census is used only if the taxpayer is not disadvantaged by it.[26]
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 current test for ZTO eligibility can be met by those for
whom it was not necessarily intended. For instance, a person who lives in
Sydney but who flies into a zone to work 16 consecutive days every month would
reside in the zone for 192 days per year and satisfy the test even though their
normal residence is in Sydney.
The Government announced in the 2015–16 Budget that FIFO and
DIDO workers would be excluded from the ZTO where their normal residence is not
within a designated zone. [27]
Those FIFO workers who live in one zone, but work in a different zone, will
have their ZTO entitlement unchanged.
The measure is designed to target the ZTO to taxpayers who
have taken up genuine residence within the zones. This was to align the tax
offset with the original intent of the policy which was to support genuine
residents of zones.[28]
The measure follows an inquiry in 2013 by the House of
Representative Standing Committee on Regional Australia (the Committee) into the
use of FIFO and DIDO workforce practices in regional Australia.[29]
In its findings, the Committee observed that the use of ‘FIFO/DIDO
presents two very different faces depending on whether the perspective is from
a ‘host’ or ‘source’ community’.[30]
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. [31]
On the other hand, remote work practices and conditions suit
many people making FIFO and DIDO arrangements more advantageous than living in
the zone full time. For example, people can earn relatively high wages by being
FIFO or DIDO workers. Consequently, a substantial proportion of them live in
urban areas, outside the designated zones but enjoy the ZTO benefit.[32]
The Committee acknowledged that ‘labour and skills shortages
mean that employers need to offer a range of work practices, including FIFO and
DIDO in order to attract employees’.[33]
The findings of the inquiry were that the prevalent work practices ‘are
necessary and appropriate for operations in remote areas and the labour
intensive construction phase of resource projects’.[34]
Given the complexity of the effects on 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 or DIDO is simply not available’.[35]
Recommendation 14 of the inquiry report was that the Commonwealth Government ‘review
the Zone Tax Offset arrangements to ensure that they are only claimable by
permanent residents of a zone or special area’.[36]
In the 2012-13 income year, more than half a million Australian
residents (with taxable income) claimed ZTO of $284.3 million.[37]
It is estimated that around 20 per cent of all claimants do not actually live
full-time in the zones.[38]
In the 2015–16 Budget, the Government stated that revenue
gains for this measure would be $325 million over the forward estimates
starting 2016–17, including $105 million in the first year.[39]
Fringe benefits tax (FBT) is paid by employers on certain
benefits provided to their employees, employee’s family or other associates.
The benefit may or may not be part of their salary or wages package.
Some benefits are exempt from fringe benefits tax or
receive concessional treatment. Specific exemptions and concessions apply to
some non-profit organisations.
Fringe benefits tax exemptions are primarily used by Public
Benevolent Institutions (PBIs), health promotion charities, public and not-for-profit
(NFP) hospitals, and public ambulance services. The FBT rebate is used by other
charities and certain other income tax exempt employers, to provide salary
packaging benefits in order to attract and retain employees. FBT concessions
are also used to compensate for funding shortfalls in the NFP sector.
In the 2015–16 Budget the Government announced a limit of
$5,000 per year, per employee, for the value of fringe benefits exempt for FBT
purposes :
- salary
sacrificed meal entertainment expenses and
- salary
sacrificed entertainment facility leasing expenses.[40]
Accordingly the Government proposes in this Bill a
separate single grossed-up cap of $5,000 for salary sacrificed meal
entertainment and entertainment facility leasing expenses (meal entertainment
benefits) for employees. Meal entertainment benefits exceeding the separate
grossed-up cap of $5,000 can also be counted in calculating whether an employee
exceeds their existing FBT exemption or rebate cap. All use of meal
entertainment benefits will now become reportable fringe benefits in the
Business Activity Statement (BAS) for those enterprises that are registered for
GST or the Instalment Activity Statement (IAS) for those who are not registered
for GST.
The current annual cap for FBT exempt benefits of public
benevolent institutions and health promotion charities is $30,000 per employee.
The cap for public and NFP hospitals and public ambulance services is $17,000
per employee.[41]
Generally these caps apply on a per employer basis, and as
a consequence, some of those employees who work for multiple eligible employers
can avail themselves of multiple caps. On top of that there is no pro-rata
entitlement to the cap based on days of service, so new employees, who start
working after the start of FBT year, can use the annual cap amount even if they
have only worked for the eligible employer for a short period during the year.
Currently there are no limits on meal entertainment
expenses; they are all exempt from FBT for employees of these organisations.
Under the proposed measure all use of meal entertainment benefits will be
reportable.
All entertainment fringe benefits provided by a for-profit
employer, including meals, are subject to FBT. There is no FBT exemption limit
for benefits provided to employees of these entities.
The material in the following two sections is taken from the
Parliamentary Library Budget Review 2015-16.[42]
The limits on FBT exemptions for employees of health
related not-for-profit (NFP) institutions arise under subsection 5B(1E) of the Fringe
Benefits Tax Assessment Act 1986.[43] Initially these employees had been exempt from
FBT. Subsection 5B(IE) was inserted by the A New Tax System (Fringe
Benefits) Act 2000.[44]
The Explanatory Memorandum to the A New Tax System (Fringe Benefits) Bill 2000
noted:
The FBT capping measure will stop
the overuse of the FBT exemption for PBIs [public benevolent institutions] and
the concessional FBT treatment for certain non-profit, non-government
organisations, which are currently open‑ended, by capping the exempt or
concessional treatment to $25,000 of the tax-inclusive value of an employee's
fringe benefits. However, the threshold is $17,000 where the employee of the
s57A employer or rebatable employer works in a hospital. This measure goes some
way towards the ideal position where employees earning the same remuneration
are taxed the same, while ensuring that PBIs and certain non-profit
organisations retain a cost advantage over other employers.[45]
The annual limit of $25,000 was later increased to $30,000
as the result of a Government Senate amendment, arising from negotiations
between the then Government and the Democrats.[46] These limits have not changed since 2000, so
their real value has decreased. The FBT concessions available to the NFP sector
at that time were aimed at helping these organisations attract and retain
staff.[47]
The proposed measure is to commence from 1 April 2016, to
coincide with the start of the FBT year and is projected to produce a revenue
gain of $295 million between 2015–16 and 2018–19.[48]
While the FBT concessions were implemented to allow health-related
NFP organisations to offer competitive salaries to attract staff, two questions
remain. Are these FBT incentives still effective? Do they place ‘for-profit’
organisations at a disadvantage? In a 2010 study the Productivity Commission
found:
... in a small number of areas, notably hospitals, FBT
arrangements confer advantage to both not for profits (NFP) and public
hospitals. The concession allows them to offer staff, often considerable, FBT
benefits that commercial hospitals cannot, despite facing the same funding
arrangements. In relation to hospitals, the FBT benefits do impact on
competitive neutrality. More generally, these arrangements are not an ideal
method of providing support to those NFPs that the government wishes to assist
as FBT rates have been frozen, eroding the benefit conferred; and FBT
exemptions are complex and costly to administer for both the [Australian
Taxation Office] and NFPs.[49]
The Commission concluded:
[g]iven the distortions, the
significant transactions costs associated with salary packaging, and the lack
of a clear public benefit justification, the FBT concession does not appear to
be very effective, efficient or equitable. In the case of public hospitals, it
also provides a non-transparent Commonwealth subsidy to state and territory public
hospitals.[50]
A 2013 study by a Treasury Working Group reported that the
FBT concession was:
... primarily used by PBIs, health
promotion charities, public and NFP hospitals, and public ambulance services ...
to provide salary packaging benefits in order to attract and retain employees.
FBT concessions are also used to compensate for funding shortfalls in the NFP
sector.[51]
This study also found:
The uncapped access to meal
entertainment and entertainment facility leasing benefits has raised concerns
about the legitimacy of such concessions, especially since the rest of the
community are not able to access such concessions or claim a deduction for such
expenses. The benefit of this concession is also not evenly spread among NFP
employees, tending to be more highly utilised by eligible employees on higher
salaries.[52]
Since the inception of the salary packaging benefits, some
employers have been actively promoting the use of meal entertainment cards for
dining. The extension of the concession to entertainment facility leasing, which
includes both domestic and overseas holiday accommodation, has reportedly been exploited
by some employers.[53]
The Productivity Commission preferred that assistance to
not-for-profits be provided in a more transparent manner, such as direct
government funding, and the gradual phase out of these concessions.[54] The Henry Tax Review recommended that the FBT
concessions be phased out and replaced with direct government funding.[55]
The Treasury Working Group recommended
that the FBT concessions be removed and proposed ‘an alternative support
payment to employers, possibly through the tax system, to replace the FBT
concessions provided through salary packaging’.[56]
These uncapped concessions were viewed as resulting in inequitable
outcomes, particularly for employers who are able to access a generous FBT exemption
cap or rebate. According to the independent review of the regime, the benefit
of this concession was not evenly spread among NFP employees, but more highly
utilised by eligible employees on higher salaries. The policy intent was that
this concession would help registered charities and public hospitals attract staff
and reduce their costs of employment.[57]
Schedule 3 to the Bill introduces a limit for concessional
treatment of salary package entertainment. There are three features of such
changes:
-
it ensures salary packaged meal entertainment and entertainment
facility leasing expense benefits will always appear as part of an employee’s
reportable fringe benefits total which is included on their payment summaries
-
it removes access to elective valuation rules to prevent
unintended and excessively concessional values being applied to those benefits
and
-
it introduces a cap on the total amount of salary packaged
entertainment benefits that employees can be provided by exempt employers
(covered by section 57A of the FBTAA 1986) and rebatable employers
(covered by section 65J of the FBTAA 1986) that are exempt from or subject
to a reduced amount of FBT.[58]
In the 2015–16 Budget, the Government stated that revenue
gains for this measure would be $295 million over the forward estimates
starting 2015–16, including $20 million in the first year.[59]
Since 1986–87, Australia’s income tax system has largely
operated on a self-assessment basis for individuals. This means that it is the
individual taxpayer who is obliged to self-assess their income tax affairs and
to report relevant information to the ATO. For most people this means preparing
and lodging an annual income tax return.[60]
In order to make the self-assessment of individual tax
returns an easy option, the ATO commenced a pre-filling service in 2007. The
ATO uses the information from third parties to provide this service. According
to ATO, this service has reached a point where most taxpayers can now fill a
simple tax return on the basis of third party information so collected.[61]
In essence, the ATO provides its pre-filling service by using the information
it has received for compliance purposes and adding it directly to the relevant
tax return label or providing additional information in a summary form.[62]
The information so collected used to pre-fill simple tax
returns includes:
- wage
and salary data from employers
- government
welfare payments from Centrelink and other providers
- interest
income from financial institutions
- dividend
income from share registries and
- Medicare
levy surcharge and private health insurance policy details from private health
insurers.[63]
Under the present arrangements, the ATO receives relevant
information from third parties for the purposes of post lodgement compliance
activities. This is done by the Commissioner under his general information
collection power.
Third party reporting—ATO
experience
Prior to the introduction of formal interest reporting in
the late 1980s, it was estimated that more than $4 billion in interest income
was omitted by individuals each year. In 2012, financial institutions reported to
the ATO in excess of $24.2 billion in interest paid to individuals. When
matched to income tax returns, only $175.9 million, or 0.7 per cent, was
not returned voluntarily in tax returns.[64]
Consequently, the previous Labor Government proposed the
measure ‘Tax compliance: improving compliance through third party reporting and
data matching’ in the in the 2013–14 Budget.
The measure was intended to establish new, and strengthen
existing, reporting systems for:
-
taxable government grants and specified other government payments
-
sales of real property, shares and units in managed funds
-
sales through merchant debit and credit services
-
managed investment trust and partnership distributions, company
dividend and interest payments, and
-
transactions reported to the ATO by the Australian Transaction
Reports and Analysis Centre.[65]
At the time, the Government said that the information
provided to the ATO would also improve the pre-filling of tax returns, making the
exercise simpler for taxpayers.[66]
The changes were proposed to broadly apply to transactions occurring on or
after 1 July 2014.
The measure is aimed at improving compliance and providing a
level playing field for Australian taxpayers by enabling the ATO to expand its
data matching with third party information.[67]
On 6 November 2013, the Coalition government announced its
intention to proceed with this measure.[68]
Reporting obligations in relation to transfers of real
property (reported by states and territories) and ASIC market integrity data
(reported by ASIC) apply to transactions happening after 30 June 2016, and other
third party reporting obligations apply to transactions happening after 30 June
2017.[69]
Under the proposed streamlined measure, the below
transactions will be reported by relevant third parties to the ATO:
-
government related entities, other than local government bodies,
to report on government grants
-
government related entities to report on consideration they
provide for services
-
states and territories to report on transfer of real property in
their jurisdiction
-
ASIC market participants and trustees of trusts with an
absolutely entitled beneficiary to report on transactions relating to shares
and units of unit trusts
-
listed companies to report on transactions relating to their shares
-
trustees of unit trusts to report on transactions relating to
their trust units and
- administrators of payment systems to report on electronic
business transactions.[70]
On 10 July 2015 Treasury released an exposure draft and
explanatory memorandum.[71]
The Government however acknowledged that the introduction
of the proposed legislative amendments would involve a policy trade-off between
the compliance benefits to taxpayers of improved ATO data-matching capabilities
and the compliance costs imposed on third party reporters. The existing
reporting entities that already collect relevant information in the ordinary
course of their business or through other activities, or integrate the
obligation into existing natural business systems are not expected to face
extra compliance costs. However, the Government has advised the Commissioner to
streamline the process and avoid duplication.[72]
The existing legislative obligations for entities to report
information to the ATO are spread throughout the tax legislation. For example,
regulation 56 of the Income Tax Assessment Regulations 1936 requires various
investment bodies to provide an annual investment income report to the ATO
(this report allows the ATO to pre‑fill, amongst other things, an
individual’s dividend and bank interest payments) and Division 410 of Schedule
1 to the TAA 1953 contains the structural framework for the taxable
payments annual report that applies to payments in the building and
construction industry.[73]
There may be legislative synergies if these regimes were to
be co-located in Schedule 1 of the TAA 1953.[74]
Given the breadth of the proposed reporting regimes, as well
as the fact that there is currently no consistent legislative approach for
third party reporting, the Government introduced this new legislative framework
within Schedule 1 of the TAA 1953 specifically to support this type of
reporting. This could, over time, allow for further third party reporting
obligations to be established within a consistent framework. Of note, the
Government has enacted a treaty-status Intergovernmental Agreement with the
United States of America (US) to comply with the US Foreign Account Tax
Compliance Act (FATCA) to enable the financial sector to comply with US FATCA reporting
rules.[75]
This, in effect, requires the development of a similar third party reporting
regime for entities in the financial sector.[76]
In the Explanatory Memorandum, the Government states that revenue
gains for this measure would be $123.0 million over the forward estimates
starting 2017–18, including $36.6 million in the first year.[77]
On 11 November 2015, the Senate Standing Committee for the
Scrutiny of Bills commented on the Bill by stating:
The amendments made by both of these schedules [Schedule 1
and Schedule 2] will apply in relation to the 2015-16 income year, that is,
they will apply retrospectively from 1 July 2015 (Schedule 1, item 45; Schedule
2, item 15). Beyond noting that these measures were announced in the Budget,
the explanatory memorandum does not address the retrospective application of
these schedules.[78]
In its most recent report, dated 12 November 2015, the
Committee recommended that the Bill not be referred to any Committee.[79]
On 20 May 2015, the Labor Opposition pledged to support
the changes to work-related car expense deduction methods and the ZTO measures
(in Schedules 1 and 2 to the Bill) as contained in the 2015–16 Budget.[80]
Labor stated that ’it will support excluding “fly-in, fly-out” workers from a
zone tax offset to save $325m over three years and support changes to employee
deductions for car expenses to recoup $845m over three years’.[81]
In a media report, the Brisbane Courier-Mail
reported on 21 May 2015:
Mr Bowen said yesterday Labor would support five measures
including a planned tax hike for backpackers on working holiday visas, cuts to
zonal tax perks for FIFO workers, reductions to tax deductions for car expenses
and an end to the large family bonus.[82]
The proposed measure concerning FBT for salary sacrificed
meal entertainment and entertainment facility leasing expenses for the NPF
sector (in Schedule 3 to the Bill) was not initially supported by the
Opposition.[83]
However, a deal was reportedly reached between the Government and the
Opposition in the first week of June this year to clear the measure in the
Parliament. [84]
Since the third party reporting measure contained in this
Bill was an initiative of a previous Labor Government, it could be expected
that it would be supported by the Opposition.
On the proposed changes to the method of calculating car
expense deductions (Schedule 1), analysts have cautioned motorists that they
would lose $85 a year with the new car-expense claim measure:
Motorists who use their own cars for work will lose about $85
a year in tax claims when the Australian Taxation Office updates its mileage
rates from July 1. Under a Budget measure set to save $845 million over the
next four years, workers who drive less than 5000km will no longer claim
per-kilometre rates depending on the size of their car engine.
At the moment, about four million Australians who claim
work-related car expenses in their annual tax return claim 65c a km in petrol
and running costs for a small car, and 76c and 77c respectively for medium and
large cars. But one flat rate of 66c will come into effect on July 1,
delivering a boost to those who drive small cars, but stinging those with
larger models. Those who believe their costs are higher, or who drive more than
5000km a year for work, will be able to claim the former rates, but only if
they keep a detailed logbook.[85]
On the proposed changes to ZTO eligibility (Schedule 2),
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.[86]
On the question of fairness of FBT concession changes for the
NFP sector (Schedule 3), the Institute of Public Accountants (IPA) noted:
Whilst we support the introduction of a cap for salary
sacrificed meal entertainment and entertainment facility leasing expenses, the
proposed threshold of a grossed up amount of $5,000 may be deemed too low for
cash strapped NFP trying to attract and retain employees. The introduction of a
cap will remove the exploitation of the concession and ensure that it is not
unevenly used by employees on higher salaries. However if the cap is struck at
a level which is too low, it can place undue pressure on small NFP employers
trying to compete with commercial remuneration packages. Some research should
be conducted on the impacts of the proposed threshold will have particularly
for small NFP organisations.[87]
In a submission to the Treasury,
the Tax Institute suggested that the Government needs to reconsider the salary
cap of $5,000 for the NFP Sector as proposed in the Bill. The Institute argued:
We consider that the current proposed cap of $5,000 will
unduly impact lower income earners who are provided these types of
salary-packaged benefits in lieu of more competitive salaries their non-profit
employers may not otherwise be able to offer. The proposed measure does not
compensate non-profit employers for the impact the cap will have on their
ability to attract employees and offer competitive salary packages comparable
to private sector salaries. In our view, a higher cap of $15,000 strikes a
better balance between preserving the position under the current law for many
lower income employees while at the same time preventing excessive salary
packaging of these benefits by higher income earners and therefore still
achieving ‘fairness’ as intended by the Government upon introducing this
measure.[88]
As required under Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the
Bill’s compatibility with the human rights and freedoms recognised or declared
in the international instruments listed in section 3 of that Act. The
Government considers that the Schedule 1, Schedule 2 and Schedule 3 to this Bill
are compatible as they do not raise human rights issues.[89]
However, the proposed third party reporting regime in
Schedule 4 to this Bill raises human rights issues.[90]
The Explanatory Memorandum says:
The amendments made by this Schedule engage the prohibition
on arbitrary or unlawful interference with privacy contained in Article 17 of
the International Covenant on Civil and Political Rights (ICCPR) as
third parties will need to provide a range of personal information to the
Commissioner that they collect in the ordinary course of business.[91]
The Government argues that these reporting obligations are
compatible with the prohibition, as they are neither arbitrary nor unlawful. In
addition, the mechanisms of reporting are effective and proportionate means to
minimise the cost compliance burden of tax payers requiring only the minimum
amount of information necessary to identify relevant taxpayers and
transactions.[92]
Further, safeguards already exist to maintain the privacy of the taxpayers. The
ATO data record system ensures that taxpayer information held by the ATO is not
disclosed or recorded by officials unless a specific legislation exemption
applies.[93]
On the basis that its engagement of the right to privacy
will neither be unlawful (including by virtue of the amendments to Australia’s
taxation legislation set out in the Bill) nor arbitrary, the Government has
determined the Bill to be consistent with Article 17 of the ICCPR.[94]
Parliamentary Joint Committee on
Human Rights
The Parliamentary Joint Committee on Human Rights
considers that the Bill does not raise human rights concerns.[95]
Item 1 of Schedule 1 of the Bill will amend ITAA
1997 to repeal subsection 28-25(1) which will remove the three rates which
are set according to the engine capacity of the vehicle, and will insert a new
formula to calculate car expenses based on a single rate of cents per kilometre
in the income year.
Item 2 of Schedule 1 insert proposed
subsections 28-25(4) and 28-25(5) to allow the Commissioner to
determine a rate of cents per kilometre for vehicles for an income year having
regard to the average operating costs of the vehicles.
Item 3 of Schedule 1 proposes to repeal Subdivisions
28D and 28-E of ITAA 1997 to remove the ‘12 per cent of original value’
method and the ‘one-third of actual expenses’ methods. Individual taxpayers who
travel less than 5,000 business kilometres in a year will now have a choice of
using the cents per kilometre method or the logbook method, a discretion they
can use based on the appropriateness of the cost of running their vehicles.
Items 4 to 20 of Schedule 1 are minor
consequential amendments to the FBTAA 1986 to, among other things,
remove references to the two methods to be repealed.
Item 45 of Schedule 1 stipulates the
transitional provision that will bring changes to the FBTAA 1986
effective from 1 April 2016. Item 46 proposes that the 66 cents per
kilometre method will be applicable for the 2015–16 income year, and allows the
Commissioner to change the rate for later income years.
The proposed amendments in the ITAA 1936 are
intended to ensure that the ZTO is appropriately targeted to people genuinely
living in the designated geographical Zones by limiting access to ZTO to those
people whose usual place of residence in within a Zone.
Items 1 to 14 of Schedule 2 propose
changes to the provisions of the ITAA 1936 in order to restrict people
living outside designated zones from accessing the ZTO.
Item 15 stipulates that the measure will apply from
the 2015–16 income year.
The amendments in the Bill to the FBTAA 1986 are
targeted to apply a separate grossed up cap of $5,000 for salary sacrificed
meal entertainment and entertainment facility leasing expenses for certain
employees of NFP organisations. It will also ensure that all use of these
salary sacrificed benefits become reportable.
Items 1, 2 and 7 of Schedule 3
propose to repeal a number of provisions from the FBTAA 1986, which are
currently inoperative. The amendments will remove subsection 5B(1) (which
applies to tax years prior to April 2000); step 3, paragraph (a) of the method
statement in subsection 5B(1E); and step 2, paragraph (a) of the method
statement in subsection 65J(2B)). The repeal will have no substantive effect on
the operation of the law. The provisions will also substitute steps 3 and 4 and
add step 5 in subsection 5B(1E) with a new measure that will help calculate an
employer’s aggregate non-exempt amount for the year of tax.
Item 3 inserts proposed subsection 5B(1M) of
the FBTAA 1986 that will determine the benefit provided under a salary
packaging arrangement if the benefit is constituted by the provision of meal
entertainment or the benefit is wholly or partly attributable to entertainment
facility leasing expenses.
Items 4 and 5 amend paragraphs 5E(3)(a) and
(c) to change the definition of excluded fringe benefit to remove the provision
of meal entertainment (as currently defined in section 37AD) and entertainment
facility leasing expenses (as currently defined in subsection 136(1)) that are
provided under the salary packaging arrangement at the moment.
Items 6, 10 and 11 introduce provisions that
will prevent Division 9A of Part III and section 152B of FBTAA 1986 from
making any valuation of salary packaged entertainment benefits. Currently these
two provisions allow employers to access elective valuation rules for meal
entertainment benefits and for entertainment facility leasing expenses
respectively under salary sacrifice arrangements.
Items 7 and 8 propose to amend subsection
65J(2B) and insert 65J(2J) in order to limit the existing concession by
increasing the existing capping threshold by the lesser of $5,000 and an
employee’s total grossed-up taxable value of salary packaged entertainment
benefits.
Item 9 of Schedule 3 amends subsection
136(1) to make changes to the definition of ‘salary packaging arrangement’ in
order to ensure that it captures both benefits provided to employees and
benefits provided to associates of an employee where the employee has reduced
their salary and wages in return for the benefit.
Item 12 of Schedule 3 provides that the
amendments made by this Schedule apply in relation to the 2016–17 FBT year.
The Bill proposes to insert proposed Subdivision 396-B
(information about transactions that could have tax consequences for tax
payers) into Schedule 1 of the TAA 1953 to create a new third party
reporting regime. The ATO will use this information to pre-fill tax returns and
to undertake compliance activities.
Item 1 of Schedule 4 adds proposed Subdivision
396-B, which explains in detail the third party reporting regime, and the
transactions on which the reporting entities have to report to ATO.
Item 2 of Schedule 4 inserts three
definitions into the Dictionary at subsection 995-1(1) in the ITAA
1997 in order to clarify the market integrity rules under the new
arrangement for the Australian Securities and Investments Commission (ASIC).
Currently under section 798G of the Corporations Act 2001,
financial markets are required to report information to ASIC on transactions
that take place on their market.[96]
The participants are also required to provide information that assists identification
of the person who provided instructions to place an order to enter into a
transaction. Under the amended rules, ASIC will have to provide information
collected under those rules to the Commissioner – see table item 4 of the table
in proposed section 396-55 of the TAA 1953, at item 1
of Schedule 4. These new definitions facilitate the operation of that
requirement.
Item 2 to 15 and 22–26 of Schedule
4 make consequential amendments to section 995-1 of the ITAA 1997 in
order to define the ASIC and standardise that definition throughout Schedule 1
to TAA 1953 and the Tax Agent Services Act 2009.[97]
Members, Senators and Parliamentary staff can obtain
further information from the Parliamentary Library on (02) 6277 2500.
[1]. Income Tax Assessment
Act 1997 (Cth) and Fringe Benefits Tax
Assessment Act 1986 (Cth), both
accessed 22 October 2015.
[2]. Income Tax Assessment Act
1936 (Cth), accessed 22 October
2015.
[3]. Taxation Administration
Act 1953 (Cth), accessed 22
October 2015.
[4]. Australian
Government, Budget
measures: budget paper no. 2: 2015–16, pp. 22, 25 and 27, accessed 9 November 2015.
[5]. Australian
Government, Budget
measures: budget paper no. 2: 2013–14, p. 44, accessed 9 November 2015.
[6]. J
Hockey (Treasurer) and A Sinodinos (Assistant Treasurer), Restoring
integrity in the Australian tax system, joint media release,
6 November 2013, accessed 9 November 2015.
[7]. Explanatory
Memorandum, Tax and Superannuation Laws Amendment (2015 Measures No. 5)
Bill 2015, p. 7, accessed 25 November 2015.
[8]. Australian
Government, Budget measures: budget paper no. 2: 2015–16, op. cit., p. 27.
[9]. Ibid.,
p. 25.
[10]. Ibid.,
p. 22.
[11]. Australian
Government, Budget measures: budget paper no. 2: 2013–14, op. cit.
[12]. K
O’Dwyer (Assistant Treasurer), ‘Second
reading speech: Tax and Superannuation Laws Amendment (2015 Measures No. 5)
Bill 2015’, House of Representatives, Debates, 15 October 2015, p.
11307, accessed 23 October 2015.
[13]. NRMA,
‘About
2014 car operating costs’, NRMA website, accessed 9 November 2015.
[14]. Explanatory
Memorandum, Tax and Superannuation Laws Amendment
(2015 Measures No. 5) Bill 2015, p. 3, accessed 26 October 2015.
[15]. CCH Australia, Australian master tax guide 2015, 56th edn, Wolters Kluwer, Sydney, January 2015, pp. 926–927.
[16]. Ibid.,
p. 227.
[17]. ATO,
‘Taxation
Statistics 2012–13, Table 1: Individuals: Selected items, for income years
1978–79 to 2012–13’, ATO website, accessed 26 October 2015.
[18]. Explanatory
Memorandum, op. cit., p. 11.
[19]. Australian
master tax guide 2015, op. cit., p. 919. See also
ATO, ‘Keeping a logbook’, ATO website, accessed 10 November 2015.
[20]. ATO,
‘Income
and deductions for business, cents per kilometre’, ATO website, accessed 26
October 2015.
[21]. Australian
Government, Budget measures: budget paper no. 2:
2015–16, op. cit., p. 27.
[22]. ATO,
‘Taxation
Statistics 2012–13, Table 1: Individuals: Selected items, for income years
1978–79 to 2012–13’, data.gov.au website, accessed 29 October 2015.
[23]. This
is probably a very conservative estimate, as the average fuel consumption of
passenger vehicles in 2014 was 10.7 litres per 100 kilometres. Australian
Bureau of Statistics Survey
of motor vehicle use, cat. no. 9208.0, ABS, Canberra, October 2015,
accessed 29 October 2015.
[24]. This
estimate is based on 13.5 per cent being the average reduction in the per
km rate multiplied by 50 per cent representing the number of vehicles
assumed here to be in the top two tiers multiplied by $5,046 million, being the
value of deductions using the cents-per-kilometre method.
[25]. 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.
[26]. ATO,
Taxation
Ruling, TR 94/27, p. 4, accessed 17 November 2015.
[27]. Australian
Government, Budget
measures: budget paper no. 2: 2015–16, p.
25.
[28]. Ibid.
[29]. 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, House of
Representatives, Canberra, February 2013, ch. 1, p. 2, accessed
26 October 2015.
[30]. Ibid.
[31]. Ibid.
[32]. Ibid.
[33]. Ibid.,
p. 2.
[34]. Ibid.,
p. 2.
[35]. Ibid., p. 2.
[36]. Ibid., p. 124.
[37]. ATO, ‘Taxation
Statistics 2012–13, Table 11: Selected items, by
residency status, taxable status and taxable income, 2012–13 income year’,
ATO website, accessed 29 October 2015.
[38]. Australian Government,
Budget measures, budget paper no. 2: 2015–16, op. cit., p. 25.
[39]. Ibid.
[40]. Ibid.,
p. 22.
[41]. Ibid, pp. 22–23. Slightly higher limits apply in the first
year due to the Temporary Budget Repair Levy. Further, these values are
‘grossed up’, meaning that the value of the limit is calculated to take into
account benefits provided with a taxable value that included the FBT paid by
the employer.
[42]. L
Nielson, ‘Tightening fringe benefit tax on not-for-profit organisations’, Budget
Review 2015–16, Research paper series, 2015–16, Parliamentary Library,
Canberra, 2015, p. 165, accessed 11 November 2015.
[43]. Fringe Benefits Tax
Assessment Act 1986 (Cth).
[44]. A New Tax System
(Fringe Benefits) Act 2000 (Cth).
[45]. Explanatory
Memorandum, A New Tax System (Fringe
Benefits) Bill 2000 and A New Tax System (Medicare Levy Surcharge - Fringe
Benefits) Amendment Bill 2000, p. 24, accessed 29
October 2015.
[46]. R Kemp, A New Tax System (Fringe Benefits) Bill 2000, A
New Tax System (Medicare Levy Surcharge—Fringe Benefits) Amendment Bill 2000,
Senate, Debates, 10 May 2000, p. 14267 and p. 14277; J Woodley, A New Tax
System (Fringe Benefits) Bill 2000, A New Tax System (Medicare Levy Surcharge—Fringe
Benefits) Amendment Bill 2000, Senate, Debates, 10 May 2000, p. 14268.
[47]. J
Singer, Battle
looming over FBT in health industry, The 7.30 Report, transcript,
Australian Broadcasting Commission, 17 December 1999, accessed 26 October 2015.
[48]. Explanatory
Memorandum, Tax and Superannuation Laws Amendment
(2015 Measures No. 5) Bill 2015, p. 5, accessed 10 November 2015.
[49]. Productivity
Commission, Contribution
of the not-for-profit sector, January 2010, p. XXXI.
[50]. Ibid.,
p. 216.
[51]. Not-For-Profit
Sector Tax Concession Working Group, Fairer,
simpler and more effective tax concessions for the not-for-profit sector: final
report, report prepared for Treasury, The Treasury, Canberra, May 2013,
p. 7, accessed 27 October 2015.
[52]. Ibid.
[53]. Institute
of Public Accountants (IPA), Submission
to Treasury, Limiting fringe benefits tax concessions on salary packaged
entertainment benefits—Exposure Draft, 21 August 2015, p. 2, accessed 17
November 2015.
[54]. Contribution
of the Not-for Profit Sector, op. cit., pp. XLVIII–XLIX and p. 213.
[55]. K
Henry (Chair), Australia’s
future tax system, Part 2 Detailed analysis, December 2009, Vol. 1, p.
211, accessed 27 October 2015.
[56]. Fairer,
simpler and more effective tax concessions for the not-for-profit sector: final
report, op. cit., p. 7.
[57]. Ibid.
[58]. T
Hayes (ed.), ‘FBT Concessions on salary packaged entertainment benefits’, Weekly
Tax Bulletin, 44, 2015, para [1634].
[59]. Australian
Government, Budget measures: budget paper no. 2:
2015–16, op. cit., pp. 22–23.
[60]. The
Treasury, ‘Improving
tax compliance — enhanced third party reporting, pre-filling and data matching’,
Discussion paper, February 2014, p. 2, accessed 28 October 2015.
[61]. K
O’Dwyer (Assistant Treasurer), ‘Second
reading speech’, op. cit.
[62]. The
Treasury, ‘Improving tax compliance — enhanced third party reporting,
pre-filling and data matching’, Discussion paper, op. cit.
[63]. Ibid.
[64]. Australian
Taxation Office (ATO) ‘Third party reporting’, Annual
report 2012–13, ATO, Canberra, 2013, accessed 28 October 2015.
[65]. Australian
Government, Budget measures: budget paper no. 2: 2013–14, op. cit. p. 44.
[66]. Ibid.
[67]. The
Treasury, ‘Improving tax compliance — enhanced third party reporting,
pre-filling and data matching’, Discussion paper, op. cit. p. 15.
[68]. J
Hockey (Treasurer) and A Sinodinos (Assistant Treasurer), Restoring
integrity in the Australian tax system, joint media release,
6 November 2013, accessed 9 November 2015.
[69]. Explanatory
Memorandum, op. cit., p. 76.
[70]. Thomson
Reuters, Weekly Tax Bulletin, Vol No. 44, [1634], p. 1534.
[71]. Treasury,
‘Improving
tax compliance — enhanced third party reporting, pre-filling and data matching’,
Exposure draft, 10 July 2015, accessed 18 November 2015.
[72]. K
O’Dwyer (Assistant Treasurer), Second reading speech, op. cit.
[73]. The
Treasury, ‘Improving
tax compliance — enhanced third party reporting, pre-filling and data matching’,
op. cit., p. 13.
[74]. Ibid.
[75]. Agreement
between the Government of Australia and the Government of the United States of
America to Improve International Tax Compliance and to Implement FATCA,
done at Canberra 28 April 2014, [2014] ATS 14 (entered into force 30 June
2014).
[76]. ATO,
‘Foreign
Account Tax Compliance Act’, ATO website, accessed 30 October 2015.
[77]. Explanatory
Memorandum, Tax and Superannuation Laws Amendment
(2015 Measures No. 5) Bill 2015, op. cit. p. 7.
[78]. Senate
Standing Committee for the Scrutiny of Bills, Alert
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2015.
[79]. Senate
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14, 2015, The Senate, 12 November 2015, accessed 24 November 2015.
[80]. C
Bowen (the Shadow Treasurer), ‘Labor
and the economy: owning the future’, speech delivered at the National Press
Club, 20 May 2015, accessed 12 November 2015.
[81]. D
Crowe, ‘ALP
to back $2.4bn in cuts and tax increases’, The Australian, 21 May
2015, p. 4, accessed 12 November 2015.
[82]. ‘Labor
to back $2.4b in savings’, Courier-Mail, 21 May 2015, p. 4, accessed
28 October 2015.
[83]. P
Coorey, ‘Spouses
and doctors lose tax break’, Australian Financial Review, 9 June
2015, p. 1, accessed 28 October 2015.
[84]. Ibid.
[85]. J
Marszalek, ‘Motorists
lose $85 after ATO’s rate move’, Courier-Mail, 12 May 2015, p. 7,
accessed 12 November 2015.
[86]. L
Gartry, ‘Budget
2015: AMWU slams move to exclude FIFOs from zone tax offset as attack on
workers’, ABC News, (online edition), 13 May 2015,
accessed 12 November 2015.
[87]. Institute
of Public Accountants (IPA), Submission
to Treasury, Limiting fringe benefits tax concessions on salary packaged
entertainment benefits– Exposure Draft, 21 August 2015, p.4, accessed 12
November 2015.
[88]. The
Tax Institute, Submission
to Treasury, Limiting Fringe Benefits Tax concessions on salary packaged
entertainment benefits–Exposure Draft, 26 August 2015, p. 2, accessed 12 November 2015.
[89]. The
Statements of Compatibility with Human Rights for each Schedule of the Bill can
be found at pages 15, 20, 49 and 78 of the Explanatory Memorandum to the Bill.
[90]. Ibid.,
p. 79.
[91]. Ibid.,
p. 79.
[92]. Ibid.
[93]. Ibid.,
p. 80.
[94]. Ibid.
[95]. Parliamentary
Joint Committee on Human Rights, Thirtieth
Report of the 44th Parliament, The Senate, Canberra, 10 November 2015,
p. 2, accessed 25 November 2015.
[96]. Corporations Act 2001,
accessed 25 November 2015.
[97]. Tax Agent Services Act
2009, accessed 25 November 2015.
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