House of Representatives

Taxation Laws Amendment (Fringe Benefits and Substantiation) Bill 1987

Taxation Laws Amendment (Fringe Benefits and Substantiation) Act 1987

Second Reading Speech

by the Minister assisting the Treasurer, the Hon. A.C. Holding, M.P.

I move that this Bill now be read a second time. The Bill will amend the Fringe Benefits Tax and income tax laws. It will implement a large number of Fringe Benefits Tax changes of a concessional kind that were announced by the Treasurer on 26 August and 29 October 1986. It also contains income tax amendments announced on 29 October 1986 to exclude from substantiation claims against travel allowances paid under award conditions where the amount of the allowance is not greater than was payable under the award on that date.

When introducing the Fringe Benefits Tax Assessment Bill last year, the Treasurer described it as a major part of the Government's tax reform program.

He did so against the background that for some years the income tax law had been increasingly exploited by predominantly higher income taxpayers converting substantial parts of their remuneration into non-taxed fringe benefits.

That course had been open to them because there were technical deficiencies in the income tax law itself and because previous governments had displayed little enthusiasm to remedy them.

This government had no such hesitation.

The Fringe Benefits Tax legislation, therefore, was a very important measure both in its content and its contribution to restoring public confidence in the equity of the Australian tax system.

Like other tax reform measures, it has been more successful than we anticipated. At the time of its introduction, the revenue gain from the imposition of Fringe Benefits Tax was estimated at $300 million in 1986-87 and $540 million in 1987-88.

However, excluding payments by Commonwealth Government Departments, actual revenue collections for 1986-87 were $535 million, some $200 million more than originally estimated.

The estimated receipts for 1987-88 are $750 million.

These results demonstrate forcefully the merit of the Government's actions to correct the costly inequities that had arisen from the growing use of fringe benefit package.

The measures contained in the Bill reflect a response by the Government to community concerns that the car log book and certain other record keeping obligations contained in the original legislation were overly burdensome, that some benefits - particularly those of a minor or compassionate kind - which were technically taxable should have been exempt, and that a greater degree of discounting was warranted in taxing remote area housing and other remote area benefits.

Madam Speaker, I emphasise that while the Government has shown its willingness to respond to reasonable community representations on the operation of the Fringe Benefits Tax law, it has not and will not yield to pressures to alter the basic structure and principles of the tax. The general effects of the amendments being made by the Bill were set out in the two announcements mentioned earlier, and I do not propose to take up the time of the House in discussing them in detail at this time.

In giving effect to the announced measures it has been necessary to modify the operation of one of the proposals.

On 29 October last year it was announced that the general rule for determining the reduction in taxable value arising from employee contributions was to be changed so that any contribution by an employee was first set off against the private component of the benefit.

While that will continue to be the general rule in practice, its operation could have produced inequitable results in cases where the contribution was not in fact related to the private component.

As explained in the Explanatory Memorandum accompanying the Bill, the reduction rule now being introduced will apply flexibly to reflect the particular circumstances under which employee contributions are made.

A further reduction rule applies under the law to ensure that employee expenses borne by the employer are not subject to Fringe Benefits Tax where the expenses would otherwise have been deductible for income tax purposes in the hands of the employee. Presently, expenditure of a kind that would otherwise be subject to the negative gearing rules is excluded from this "otherwise deductible" rule.

Consistent with the Government's decision to remove the negative gearing rules for income tax purposes with effect from the 1987-/88 income tax year, the exclusion will cease to apply for Fringe Benefits Tax purposes with effect from the 1987-/88 Fringe Benefits Tax year, which commenced on 1 April 1987.

Madam Speaker, before concluding I draw attention to two proposed changes to the Fringe Benefits Tax law that have not been possible to include in this Bill due to time constraints.

In his announcement of 29 October 1986, the Treasurer said that the Fringe Benefits Tax liability arising from any discounts of purchase price under home ownership schemes in remote areas was to be amortised over the period, if any, of the relevant purchase contract until unrestricted title passes to the employee.

These rather complex proposals have been the subject of lengthy discussions between officials of the Treasurer's department and representatives of the Australian mining industry.

While it will not now be possible to bring the amendments forward until the autumn sittings of the Parliament the industry has been advised in detail of the arrangements that will apply. The second matter arises from discussion in the tax liaison group.

As noted in the 29 October 1986 announcement the liaison group, which was established in 1984 by the Commissioner of Taxation with the major legal and accounting bodies, was to be used as a forum for further consultations with tax practitioners on technical and practical aspects of the tax reform package.

The Government has decided to accept the proposal emanating from that group to introduce amendments that will facilitate genuine arrangements under which employers May be reimbursed by employees for the whole or a part of the Fringe Benefits Tax liability attributable to the employee's benefit, or from a third party such as a manufacturer who arranges incentives for employees of a retailer.

These amendments will be introduced in the autumn sittings of Parliament next year.

I commend the Bill to the House.

In doing so, I present for the information of Honourable Members part "a" of the Explanatory Memorandum on this Bill, which contains a general outline of the amendments and a comprehensive explanation of the operation of the main features of the Bill. As Honourable Members will see, The Bill is a lengthy one reflecting the number of concessions granted and the structural features of the existing law that have made it necessary, at a technical level, to repeat a number of the revised reduction rules.

Nevertheless, the details of the changes are, as explained in the explanatory memorandum, relatively straightforward.

Detailed clause notes will be circulated to Honourable Members in the next few days.