Explanatory Memorandum(Circulated by authority of the Treasurer, the Hon Ralph Willis, MP)
Chapter 6 - Section 65 rebate for medical research bodies
6.1 Schedule 4 of this Bill will amend the Fringe Benefits Tax Assessment Act 1986 (FBTAA) so that certain non-profit medical research bodies that are not operated for governments will be entitled to a rebate of fringe benefits tax under section 65J. The amount of the rebate is broadly equivalent to the amount of tax paid under the grossing up provisions.
6.2 Section 65J provides to certain non-profit, non-government bodies a rebate of fringe benefits tax (FBT) broadly equivalent to the amount of additional tax paid under the grossing up provisions. Medical research bodies which are not established under a Commonwealth, State or Territory law qualify for this rebate.
6.3 This amendment will extend the section 65J rebate to certain medical research bodies established under Commonwealth, State or Territory laws but which are not conducted by or on behalf of a government.
6.4 This amendment is retrospective. It will apply to assessments for the FBT year commencing on 1 April 1994, when the grossing up provisions came into effect, and later years. [Sub item 4(3)]
6.5 Since 1 April 1994, FBT has been imposed on the tax inclusive value of a fringe benefit and any FBT payable is deductible for income tax purposes. The purpose of this measure, called 'grossing up', is to make the amount of FBT payable in respect of a fringe benefit similar to the amount of income tax that would be payable at the highest marginal rate on the equivalent amount of salary income.
6.6 Certain non-profit, non-government bodies are entitled under section 65J of the FBTAA to a rebate of an amount slightly less than the additional tax paid under the grossing up provisions. These bodies, called rebatable employers, are listed in subsection 65J(1). The rebate is provided by subsection 65J(2).
6.7 The purpose of this rebate is to compensate these bodies for the impact of the grossing up provisions. Because these bodies are exempt from income tax, they do not benefit from the income tax deduction for fringe benefits tax. Consequently, the increase in tax payable by these bodies under the grossing up provisions is much greater than for taxable bodies that are entitled to an income tax deduction.
6.8 A medical research body is entitled to the section 65 rebate providing that it is not an institution of the Commonwealth, a State or a Territory. It is a rebatable employer under paragraph 65J(1)(b) because it is a scientific institution.
6.9 However, a medical research body established under a Commonwealth, State or Territory law is not entitled to the rebate. Under subsection 65J(3), such a body is an institution of the Commonwealth, State or Territory, even if it does not engage in activities for or on behalf of the Commonwealth, State or Territory. It is therefore excluded from being a rebatable employer under paragraph 65J(1)(b).
6.10 Subsection 65J(1) will be amended so that certain medical research bodies established under a Commonwealth, State or Territory law but which do not engage in activities for or on behalf of the Commonwealth, State or Territory will qualify as rebatable employers and therefore be entitled to the rebate under subsection 65J(2). [Item 3 in Schedule 4; new paragraph 65J(1)(aa)]