House of Representatives

Explanatory Memorandum

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

General outline and financial impact

Fringe benefits tax - reducing regulatory burdens on business

Schedule 1 to this Bill amends the Fringe Benefits Tax Assessment Act 1986 to:

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increase the minor benefits exemption threshold from less than $100 to less than $300;

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increase the reportable fringe benefits amount threshold from more than $1,000 to more than $2,000;

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increase, from $500 to $1,000, the reduction of taxable value that applies to eligible fringe benefits (ie, in-house fringe benefits and airline transport fringe benefits); and

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extend the definition of 'remote', for the purposes of the fringe benefits tax (FBT) concessions, where the shortest practicable route involves travel by water.

Date of effect: These amendments apply in respect of the FBT year starting on 1 April 2007 and all later FBT years.

Proposal announced: The increase in the minor benefits exemption and the reportable fringe benefits amount thresholds were announced in the Treasurer and the Prime Minister's joint Press Release No. 019 of 7 April 2006 as part of the Government's response to the Report of the Taskforce on Reducing the Regulatory Burdens on Business - Rethinking Regulation , and in the 2006-07 Budget. The increase in the reduction of taxable value applying to eligible fringe benefits and the extension of the definition of remote were announced in the 2006-07 Budget and in Attachment B of the Treasurer's Press Release No. 039 of 9 May 2006.

Financial impact: This measure will have these revenue implications:

Compliance cost impact: These amendments are expected to reduce compliance costs for employers and consequently reduce regulatory burdens on business.

GST car and pharmaceutical concessions

Schedule 2 to this Bill amends the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) so that supplies of drugs, medicines and other pharmaceutical items are GST-free when supplied as pharmaceutical benefits under the Military Rehabilitation and Compensation Act 2004 .

This Schedule also amends the GST Act to extend the GST-free car concession to people who have served in the Defence Force or in any other armed force of Her Majesty and as a result of that service, receive, or are eligible to receive, a Special Rate Disability Pension under Part 6 of Chapter 4 of the Military Rehabilitation and Compensation Act 2004 .

Date of effect: These amendments apply to net amounts for tax periods starting on or after 1 July 2004.

Proposal announced: The amendments regarding supplies of drugs, medicines and other pharmaceutical items have not previously been announced.

The amendments to extend the GST-free car concession were announced in the then Minister for Revenue and Assistant Treasurer's Press Release No. C042/04 of 11 May 2004.

Financial impact: Negligible.

Compliance cost impact: Negligible.

Removing the part-year tax-free threshold for taxpayers who have ceased to be full-time students

Schedule 3 to this Bill amends the Income Tax Rates Act 1986 to remove the part-year tax-free threshold for taxpayers who cease to be engaged in full-time education for the first time. These amendments extend the standard tax-free threshold of $6,000 to students who cease full-time education for the first time in the same way that it applies to other resident taxpayers.

Date of effect: These amendments apply to assessments for the 2006-07 year of income and later years of income.

Proposal announced: This measure was announced in the 2006-07 Budget and the Treasurer's Press Release No. 39 of 9 May 2006.

Financial impact: This measure will have these revenue implications:

Compliance cost impact: The removal of the part-year tax-free threshold reduces compliance costs for taxpayers who have finished full-time education for the first time.