House of Representatives

A New Tax System (Fringe Benefits) Bill 2000

Second Reading Speech

By Mr HOCKEY, MP (North Sydney, Minister for Financial Services and Regulation, LP, Government)

- I move:

That the bill be now read a second time.

Government policy announced in A New Tax System in August 1998 is to improve the fairness of the FBT exemption for public benevolent institutions and the concessional FBT treatment for certain non-profit organisations (`rebatable employers').

At present, a public benevolent institution which is FBT exempt could remunerate employees totally in the form of fringe benefits. No tax would be paid by the employer and the employee would pay no tax. This concession is being overused.

The policy objective is to stop the overuse of these tax breaks. Both the opposition, in their 1998 election policy, and the Australian Democrats have also identified the need to limit this concession.

This bill will place a cap of $25,000 tax inclusive value on the level of concessionally taxed fringe benefits that certain public benevolent institutions and rebatable employers can give their employees. However, the cap does not place a limit on the use of other FBT exempt benefits, such as superannuation, minor benefits of less than $100, laptop computers, work related mobile phones and other miscellaneous benefits. Further, the concessional methods of valuing certain benefits will also increase the total value of benefits that can be provided without breaching the cap.

The original announcement in A New Tax System was for a $17,000 cap. Following consultation with the charitable sector, the government has decided to lift this cap to $25,000. This represents a very concessional limit to the sector, as the benefits received by the majority of employees within this sector would be unlikely to exceed, and thus be affected by, the cap.

The cap that will apply to public hospitals and private not-for-profit hospitals will be $17,000. This is justified on competitive neutrality grounds, given that the public health sector represents a significant component of the health industry overall and competes directly with the for-profit health sector for qualified staff.

The government is determined to introduce greater equity to the rules for taxing fringe benefits, and these measures go some way towards having the same level of employees' fringe benefits remuneration taxed to the same extent, while ensuring that public benevolent institutions and certain non-profit organisations retain a cost advantage over other employers.

The bill should make it easier for employers to attract and retain staff in remote areas because it will extend the fringe benefits tax exemption for remote area housing to all employers. Currently, only primary producers in remote areas are exempt from FBT on housing benefits provided to their employees. This is very good news for employers and employees in remote areas and builds upon the many FBT concessions that already apply to benefits provided to employees in remote areas. Also, the bill will remove primary producers' liability for fringe benefits tax in respect of non-entertainment meals provided to their remote area employees on a work day.

To ensure tax neutrality between fringe benefits and cash salary following the introduction of the goods and services tax system, the FBT gross-up formula is being adjusted to nominally recoup input tax credits allowed on fringe benefits provided to employees or their associates. Minor amendments are also being made to the GST law to ensure its proper interaction with the FBT law. Full details of the measures in this bill are contained in the explanatory memorandum, which I present to the House. I commend the bill.

Debate (on motion by Mr Martin ) adjourned.