NTLG FBT Sub-committee minutes - 19 May 2005.
Venue:
KPMG, 5th Floor, 161 Collins Street, Melbourne
Meeting commenced at 10.00am
Attendees:
|
Lee Beaver (Chairperson) |
Tax Office |
Paul Hockridge |
CPA Aust |
|
Maria Benardis |
ICAA |
Evan Lancaster |
TA |
|
Graham Clarke |
ICAA |
Elizabeth Lucas |
CPA Aust |
|
Joanne Dibetta |
Tax Office |
Andrew Purdon |
CPA Aust |
|
Richard Ferraro |
FCAI |
Stephen Quah |
Tax Office |
|
Tony Greco |
TA |
Karen Stein |
ICAA |
Apologies:
|
Lance Cunningham |
NIA |
Frank Klasic |
LCA |
|
Ray Conwell |
LCA |
Gavin Ord |
NIA |
|
James Deliyannis |
NTAA |
Elsa Payne |
TIA |
Disclaimer:
Please note: NTLG FBT sub-committee agendas, minutes and related papers are not binding on the Tax Office or any of the other bodies referred to in these papers. While every effort is made to accurately record views expressed, the wording necessarily represents a summary of statements of general position only, and care should be taken in interpreting those statements. These papers reflect the position at the date of release (unless otherwise noted) and readers should note that the position on any issue may subsequently change.
External representatives
|
CPA Australia |
CPA Aust |
|
The Federal Chamber of Automotive Industries |
FCAI |
|
Institute of Chartered Accountants in Australia |
ICAA |
|
Law Council of Australia |
LCA |
|
National Institute of Accountants |
NIA |
|
National Tax and Accountants Association |
NTAA |
|
Taxation Institute of Australia |
TA |
1 Opening of meeting including any changes to the agenda
The chairperson opened the meeting and welcomed members. Karen Stein was welcomed back after a leave of absence.
Apologies were received from Lance Cunningham (NIA), James Deliyannis (NTAA), Ray Conwell (LCA), Frank Klasic (LCA), Gavin Ord (NIA) and Elsa Payne.
2 Confirmation of minutes of the 17 February 2005 meeting
The minutes of the 17 February 2005 meeting were accepted.
3 Items carried over from previous meetings
3.1 Stock appreciation rights (SAR)
The Tax Office provided an update on the review of issues raised in relation to ATO Interpretative Decision ATO ID 2002/645 and Class Ruling CR 2001/76.
The review is proceeding with an in principle position agreed to at a meeting of stakeholders that ATO ID 2002/645 will be amended to remove the last two paragraphs that deal with a capital gain and that a SAR may be an intangible property benefit. As raised in submissions and at this forum, these two paragraphs are in conflict with the outcome contained in CR 2001/76.
It was further noted that the ATOID will remain in place for the purposes of the Tax Office view that a SAR is not a right to acquire a share, for the purposes of section 139B of the Income Tax Assessment Act 1936 (ITAA 1936)
CR 2001/76 contains the Tax Office view that a 'cash bonus' resulting from a SAR is assessable income of the employee upon receipt and subject to PAYG.
3.2 The application of fringe benefits tax ( FBT ) to benefits provided to short term Australian visitors who are exempt from Australian income tax
The following response relates to the matters raised at agenda item 13 of the FBT NTLG meeting held on 18 November 2004. In considering the following response, members were reminded of the Tax Office interim response given at that meeting (and as recorded in the minutes of that meeting).
Broadly, the question that was put forward, was whether the provision of an incidental non-cash benefit (such as a lunch) by a resident subsidiary company ('the resident benefit provider') of a non-resident employer is subject to fringe benefits tax ( FBT ) where:
¦ it is provided to a non-resident employee of the non-resident employer
¦ the non-resident employee is a resident of a treaty country other than the United Kingdom or New Zealand
¦ the recipient of the benefit resided in Australia for less than 183 days, or
¦ the non-resident employer does not have a permanent establishment in Australia.
Australia has jurisdiction to tax individuals where they are either a resident of Australia for tax purposes, or where the relevant income has an Australian source. Section 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a non-resident taxpayer includes:
1. the ordinary income you derived directly or indirectly from all Australian sources during the income year, and
2. other ordinary income that a provision includes in your assessable income for the income year on some basis other than having an Australian source.
However, where a non-resident receives a 'fringe benefit', such amount is specifically exempt from tax in their hands by virtue of section 23L of the ITAA 1936.
For a fringe benefit to be subject to FBT in the hands of the employer, it must satisfy a number of conditions, including the broad requirement for a fringe benefit to be provided by an employer to an employee in respect of an employment. In this case, the issue is whether the resident benefit provider can be taken to be an employer for the purposes of the Fringe Benefits Tax Assessment Act 1986 (FBTAA). The term 'employer' is defined in section 136 of the FBTAA and means, inter alia, a person who pays, or is liable to pay, salary or wages.
The term 'salary or wages' is also defined in section 136 and broadly refers to a payment from which an amount must be withheld under a provision in Schedule 1 to the Taxation Administration Act 1953 (TAA 1953). In the case of the resident benefit provider, no payment of an amount from which an amount must be withheld has been made to the non-resident employee.
In this situation, it is arguable that the resident benefit provider is the 'third person' referred to in subparagraph (c)(ii) of section 137 of the FBTAA. As such, the resident benefit provider may qualify as an employer for the purposes of the FBTAA if the benefit provided by it to the non-resident employee, had it been paid in cash, would have constituted 'salary or wages'. If so, it would be subject to FBT in respect of the incidental benefit it provided to the non-resident employee.
However, as subparagraph (c) of section 137 looks at whether the provision of the benefit would have constituted salary or wages had it been paid in cash, it is necessary to 'notionally' consider whether such cash payment would have satisfied the salary or wages definition in section 136 of the FBTAA. For that definition to be satisfied, the notional payment must give rise to a withholding event in Schedule 1 to the TAA 1953, to the extent that the notional payment is assessable income. The notional payment will not be assessable income and hence will not satisfy the definition of salary or wages for the purposes of section 136 of the FBTAA if Australia, inter alia, does not have a taxing right under a tax treaty in respect of such notional payment.
Therefore, it is necessary to consider the 'notional' interaction between the relevant tax treaty and domestic law. In the case of salary or wages, Article 15 of the OECD Model Tax Convention deals with the tax treatment of income from employment or the dependent services article.
Paragraph 1 establishes the general rule as to the taxation of salaries, wages and other similar remuneration in respect of an employment (other than pensions). It states that such income may be taxable in the State where the employment is actually exercised. Employment is exercised in the place where the employee is physically present when performing the activities for which the employment income is paid.
The term 'salaries, wages and other similar remuneration' in Article 15 includes benefits in kind received in respect of an employment. In this case, the relevant benefit provided by the resident benefit provider constitutes 'salaries, wages and other similar remuneration' in respect of an employment. Although this Article deals with the taxing rights in respect of non-cash benefits, most of Australia's Treaties do not include FBT within the scope of taxes covered. As such, Australia's FBT regime is not limited by the Treaties per se. Two notable exceptions to this approach are the New Zealand and UK Treaties which include FBT within the scope of taxes covered
However, paragraph 2 contains a general exception to the rule in paragraph 1 which gives a taxing right to the country where the employment services are exercised. The effect of the application of paragraph 2 is that it gives sole taxing rights to the country of residence of the taxpayer (commonly referred to as the 'expatriate exemption').The three conditions prescribed in this paragraph must be satisfied for the remuneration to qualify for the expatriate exemption. OECD Model Article 15.2 states as follows:
2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:
a) the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in any twelve month period commencing or ending in the fiscal year concerned.
b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State, and
c) the remuneration is not borne by a permanent establishment which the employer has in the other State.
In this case, the first condition is met because the non-resident employee is present in Australia for a period of less than 183 days.
The application of the second condition depends on the meaning of an 'employer' in its context. In this case, the question is whether the remuneration paid by the 'resident benefit provider' is paid by, or on behalf of, an employer who is not a resident. The term 'employer' is not defined in the OECD Model Tax Convention. In accordance with the 'General Definitions' Article, it then takes on its domestic law meaning, unless the context otherwise requires a contrary definition. As there is no contrary context in evidence, the term 'employer' takes on its Australian domestic law meaning. Based on that meaning, the resident benefit provider is not the 'employer' for the purposes of paragraph 2 of Article 15. Rather, the term 'employer' in this context looks to the 'economic' employer of the non-resident employee (refer to TR 2003/11). In this case, the term 'employer' refers to the non-resident employer.
However, for the condition to be satisfied, the remuneration (in this case the incidental fringe benefit) must be paid by the non-resident employer or on behalf of the non-resident employer. Having regard to the association between the non-resident employer and the resident benefit provider and the incidental nature of the benefit provided, it is concluded that the benefit paid by the resident benefit provider constitutes 'remuneration paid on behalf of the non-resident employer'. Consequently, the second condition for the application of paragraph 2 of Article 15 is met.
Lastly, as the term 'employer' in paragraph 3 refers to the non-resident employer, this condition is met because the non-resident employer is not operating through a permanent establishment or fixed base in Australia.
As all the conditions for the operation of paragraph 2 of OECD Model Article 15 are 'notionally' met, Australia does not have a taxing right in respect of the incidental benefit. As such, the incidental benefit provided by the resident benefit provider to the non-resident employee does not constitute 'salary or wages' for the purposes of section 136 of the FBTAA.
3.3 Review of living-away-from-home allowance
The Tax Office advised that the ongoing review of LAFHA, as previously noted and discussed at previous meetings, was progressing, with some outcomes now being identified.
The Tax Office noted that at the 19 August 2004 meeting the Tax Office advised that it was proposing to issue two draft taxation determinations and one draft taxation ruling and that they were, at that time, being progressed internally. Subsequently, decisions have been taken which, in effect, will mean that the proposed drafts referred to will now not issue.
The extent to which a LAFHA provided to an employee is tax free is a question of fact to be determined on the facts of each case. Our broad view on the interpretation of subsection 30(1) will continue to be as set out in MT 2030.
In light of extensive dialogue that the Tax Office has had with certain stakeholders and the review of the arrangements undertaken to date, the Tax Office is satisfied that the conduct in relation to some arrangements at the time the alert was issued has moderated and the consequential tax risks have reduced.
The Tax Office indicated that action will now be put in course to withdraw Taxpayer Alert 2002/7.
The Tax Office stated that there will however be a continued monitoring of LAFHA arrangements, with a view to keeping Treasury and the Government informed. The Tax Office also stated that there was an identified need to provide some practical guidance concerning quantum associated with LAFHA. Such practical guidelines may be released in the form of a law administration practice statement for the purposes of providing assistance to Tax Office compliance staff. This could include guidelines relating to the determination of eligibility and acceptable processes for determining the reasonableness of a LAFHA.
3.4 Full Federal Court decision - Amway
The Tax Office advised members that it is currently monitoring the impacts of the Full Court's decision in the Amway case through, as an example, amendment requests and objections. That is whether there has been an increase in same since the decision. A review of the legislation and Taxation Ruling TR 97/17 is also ongoing.
The Tax Office will keep members informed as to the outcome of this review.
4 TRs/TDs, LAPS, class rulings and ATOIDS issued since the last meeting
4.1 FBT related taxation rulings, taxation determinations, LAPS and class rulings
The Tax Office advised that the following draft FBT related taxation ruling has issued since the last meeting.
¦ Draft Taxation Ruling TR 2005/D6 - Income tax and fringe benefits tax: charities.
TR 2005/D6 replaces the previously issued TR 1999/D21 which has been withdrawn. The draft ruling explains key concepts of charitable purposes, contrasts charitable with non-charitable purposes, explains how to determine an organisation's purpose and outlines the differences between charitable institutions and charitable funds. The draft ruling incorporates recent legislative extensions to include non-profit child care, closed or contemplative religious orders and open and non-discriminatory self-help groups.
The following draft income tax ruling has issued:
¦ Draft Taxation Ruling TR 2005/D3 - Income tax: Pay As You Go - withholding from payments to employees replaces Taxation Ruling TR 2000/14 which has been withdrawn.
The draft ruling reflects recent case law developments and the views expressed in TR 2000/14 are otherwise mostly unchanged. FBT is mentioned in paragraph 14 of the draft ruling.
The following miscellaneous taxation ruling has issued:
¦ Miscellaneous Taxation Ruling MT 2005/1 - What is the tax treatment of an expense incurred by a superannuation fund that is paid by an employer or eligible person on behalf of a superannuation fund?
This ruling clarifies the tax treatment when a superannuation expense is paid by a self employed person and the payment is journalised as a contribution to their fund. FBT is discussed at paragraph 12 and paragraphs 35 to 38 of the ruling.
The following FBT taxation determinations have issued:
¦ Taxation Determination TD 2005/8 - FBT : What is the benchmark interest rate to be used for the fringe benefits tax year commencing on 1 April 2005?
¦ Taxation Determination TD 2005/9 - FBT : What are the rates to be applied on a cents per kilometre basis for calculating the taxable value of a fringe benefit arising from the private use of a motor vehicle other than a car for the fringe benefits tax year commencing on 1 April 2005?
¦ Taxation Determination TD 2005/10 - FBT : For the purposes of section 28 of the Fringe Benefits Tax Assessment Act 1986, what are the indexation factors for valuing non-remote housing for the fringe benefits tax year commencing on 1 April 2005?
¦ Taxation Determination TD 2005/11 - FBT : For the purposes of section 135C of the Fringe Benefits Tax Assessment Act 1986, what is the exemption threshold for the fringe benefits tax year commencing on 1 April 2005?
¦ Taxation Determination TD 2005/12 - FBT : For the purposes of Division 7 of Part 111 of the Fringe Benefits Tax Assessment Act 1986, what amount represents a reasonable food component of a living away from home allowance for expatriate employees for the fringe benefits tax year commencing on 1 April 2005?
¦ Taxation Determination TD 2005/18 - FBT : for the purposes of section 39A of the Fringe Benefits Tax Assessment Act 1986 what is the car parking threshold for the fringe benefits tax year commencing on 1 April 2005?
The following law administration practice statement has issued:
¦ Practice Statement Law Administration PS LA 2005/7 - The Commissioner's discretions to treat a particular document as a tax invoice or adjustment note.
This practice statement provides guidance to tax officers as to what documentary evidence or other evidence will normally be accepted as sufficient evidence to substantiate an individual taxpayer's claim for deductible work and car expenses. The ruling may be relevant for FBT when considering the operation of the 'otherwise deductible' rule.
The Tax Office advised that no FBT related class rulings have issued.
4.2 FBT related ATO interpretative decisions
The following ATO interpretative decisions have issued:
¦ ATO ID 2005/68 - Fringe Benefits Tax - Exempt Benefits: laptop computers - loan arrangements.
¦ ATO ID 2005/109 - Exempt benefits: vouchers - property consumed by employee on employer's business premises.
The following ATO interpretative decision has been withdrawn:
¦ ATO ID 2001/298 - Fringe Benefits Tax : Status of a Public Benevolent Institution Health Care Provider for Fringe Benefits Tax ( FBT ) purposes.
The ATOID was withdrawn on 18 March 2005 because PS LA 2001/9 on which this decision was based, only applies in relation to the FBT Transitional Allowance Scheme which ceased on 31 March 2003.
5 News from the Tax Office
5.1 Legislation update
¦ Tax Laws Amendment (2004 Measures No. 7) Bill 2004 received Royal Assent on 1 April 2005 as Tax Laws Tax Laws Amendment (2004 Measures No 7) Act 2005, Act No 41 of 2005.
The Act amends the FBTAA to increase the fringe benefits tax exemption thresholds for long service leave awards from $500 to $1,000 for 15 years service, and from $50 to $100 for each additional year of service. This amendment applies for the FBT year beginning 1 April 2005 and later FBT years.
The Act also contains technical amendments to ensure that the term 'remote area housing benefit' used in subsection 59(1) of the FBTAA will be applied for use throughout the fringe benefits taxation law. This amendment will apply from the time that section 58ZC and 59 of the FBTAA were introduced: 1 April 2000.
¦ Tax Laws Amendment (2005 Measures No. 1) Bill 2005 was passed by the House of Representatives on 16 February 2005 and has been referred to the Senate Economics Legislation Committee for inquiry and report by 15 June 2005. Subsequent to this meeting the Bill received Royal Assent on 29 June 2005 as Tax Laws Amendment (2005 Measures No. 1) Act 2005, Act No. 77 of 2005.
The Bill amends the FBTAA to:
¦ provide an FBT exemption to cover the engagement of a relocation consultant to assist in the relocation of an employee
¦ broaden the FBT exemption for eligible work-related items to include personal digital assistants and portable printers designed for use with portable computers and
¦ broaden the FBT exemption for remote area housing to cover employers in industries where employer-provided housing is not customary.
These amendments will apply in respect of the FBT year beginning 1 April 2006 and all later FBT years.
¦ Tax Laws Amendment (2005 Measures No. 2) Bill 2005 was introduced in the House of Representatives on 17 March 2005. Subsequent to this meeting this Bill received Royal Assent on 29 June 2005 as Taxation Laws Amendment (2005 Measures No. 2) Act 2005, Act No 78 of 2005.
The Bill amends the FBTAA to remove the condition that contributions to approved worker entitlement funds must be required under an industrial instrument in order to be eligible for an exemption from fringe benefits.
This amendment will apply in respect of the FBT year beginning 1 April 2005 and in respect of all later FBT years.
¦ Tax Laws Amendment (2005 Measures No. 3) Bill 2005 was introduced in the House of Representatives on 12 May 2005. Subsequent to this meeting the Bill received Royal Assent on 26 June 2005, as Tax Laws Amendment (2005 Measures No. 3) Act 2005, Act No 63 of 2005.
The Bill amends the FBTAA to correct an anomaly that allows government institutions that are charitable institutions at law to be eligible for fringe benefits tax rebatable employer status from 1 July 2005. This amendment will ensure that government institutions of the Commonwealth, a State or Territory that are accepted as charitable at law will continue to be ineligible for FBT rebatable status from 1 July 2005.
This amendment will apply from 1 July 2005.
¦ Fringe Benefits Tax Amendment Regulations 2005 (No. 1) (44 of 2005) amends the Fringe Benefits Tax Regulations 1992 to prescribe the following excluded fringe benefits for a member of a police force or police service of the Commonwealth, a State or Territory:
¦
– private travel between home and work in unmarked police cars used by police officers
– housing benefits provided to police officers residing in housing attached or on the same or adjacent block to a working police station
– expense payment fringe benefit that is housing rent connected with a unit of accommodation and it is provided to police officers situated in 'regional' areas (that is, at least 100 kms from a town with a 1981 census population of 130,000 or more), and
– costs incidental to the purchase of a new dwelling by a police officer, that occurs because the member is required to change his or her usual place of residence in order to perform the duties of employment and is made within 4 years after commencing duties after the change.
The amendments commence on 1 April 2005 but apply to the 2004-05 FBT tax year starting on 1 April 2004 and each subsequent year;
¦ assistance for the removal or storage of household effects if the police officer is directed to change residence and the removal or storage arises from that direction
This amendment commences on 1 April 2005 but applies to the year of tax starting on 1 April 2002 and each subsequent year.
5.2 Lodgement of activity statements
The Tax Office advised that currently 6% of FBT returns lodged in 2005 have been held up awaiting lodgment of activity statements. FBT returns for instalment payers cannot be processed while activity statements remain outstanding.
Often clients lodge their own activity statement while engaging a tax agent to lodge their FBT return. The Tax Office has asked tax agents to ensure, particularly where their client lodges their own activity statement, that their clients who are FBT instalment payers, lodge all four activity statements for the FBT year ending 31 March 2005, including the March 2005 quarter, prior to lodging their FBT return.
5.3 Publications
The following publication has been released:
¦ Fringe benefits tax - non-profit organisations and fund raising (Nat Num 13095)
This publication is for all non-profit organisations and includes a chapter on FBT . The guide explains the various concessions that exist under the income tax, goods and services tax and fringe benefits tax laws to assist non-profit organisations with their fundraising activities. It also provides information on state, territory and local government requirements in relation to fundraising.
This publication is available on www.ato.gov.au via the path:
Home/Non-profit organisations/Non-profit organisations home page/Tax topics explained/fringe benefits tax/Start here- FBT fringe benefits tax/general information
The following publications have been updated:
¦ Fringe benefits tax: A guide for employers
The guide has been updated to incorporate amendments to the FBTAA as a result of Tax Laws Amendment (2004 Measures No 6) Act 2005 and Tax Laws Amendment (2004 Measures No 7) Act 2005.
The relevant sections updated are:
¦ 20.4 Relocation exemptions - information under sale or acquisition of a dwelling, and
¦ 20.8 Other exemptions - information under long service awards.
¦ Volunteers and tax (Nat Num 4612)
This publication is for volunteers and organisations that deal with volunteers and includes a chapter on FBT . The guide explains the tax treatment of transactions that commonly occur between non-profit organisations and their volunteers. The guide also provides guidance for organisations on GST, fringe benefits tax and pay as you go withholding obligations that may arise on transactions involving volunteers.
The publication is available on www.ato.gov.au via the path:
Home/Non-profit organisations/non-profit organisations home page/operating your organisation - Employees and other workers/More - volunteers
¦ Reportable fringe benefits - facts for employees (NAT 2836)
A new version of Reportable fringe benefits tax - facts for employees (NAT 2836) will be released shortly in response to an increasing number of employees seeking information in regard to their reportable fringe benefits. The booklet will be available electronically and a printed copy will be available to order.
The new version incorporates information formerly available in the previous version of Reportable fringe benefits tax - facts for employees and Reportable fringe benefits tax - impacts on income tests. The publication also includes a brief overview of the different benefit types.
The booklet explains to employees:
¦ what is a fringe benefit and who pays fringe benefits tax
¦ the different types of fringe benefits
¦ what is a reportable fringe benefits amount
¦ how a reportable fringe benefit amount is calculated, and
¦ the impacts a fringe benefits amount reported on their payment summary may have on their income tests.
Subsequent to this meeting the booklet has been released and is available on www.ato.gov.au via the path:
For tax professionals/Tax professionals home page/Tax topics explained - Fringe benefits/publications
Reportable fringe benefits tax - impacts on income tests (NAT 3031) has been retired.
5.4 New endorsement arrangements for charities
From 1 July 2005 charities will need to be endorsed by the Tax Office in order to access income tax, fringe benefits tax and goods and services tax charity concessions.
Currently endorsed charities will receive a replacement endorsement notice in July 2005 which will state their charity type and the tax concessions they have been endorsed to access.
Charities wanting to access charity tax concessions should ensure they have the necessary endorsements in place by 1 July 2005. To apply for endorsement for any of the charity tax concessions you should complete an Application for Endorsement as a tax concession charity (Nat 10651).
For more information enquires can be made by phoning the non-profit enquiry line on 1300 130 248 between 8.00am and 6.00pm, Monday to Friday.
Information can also be obtained by:
¦ visiting our website at www.ato.gov.au/nonprofit , or
¦ writing to the Tax Office at GPO Box 816 Hobart Tasmania 7001.
5.5 Taxation statistics 2002-03
The annual publication Taxation Statistics 2002-03 was released on 15 April 2005. The publication contains statistics for FBT for the 2003-04 FBT year (1 April 2003 to 31 March 2004). The data for the FBT statistics are sourced from 2003-2004 FBT annual returns processed by 31 October 2004.
Taxation Statistics 2002-2003 can be accessed electronically from the Tax Office website www.ato.gov.au.
A printed version and a CD ROM will be available during May 2005 and may be requested by emailing taxstats@ato.gov.au
6 Car fringe benefits - contributions by employees to the base value of a car (CPA Aust)
CPA Australia would like the Tax Office to clarify the issue of employee contributions towards the cost price of a car. This issue has been discussed several times, but the issue has still not been resolved.
The question still arises on a regular basis as to whether the cost price of a car can be reduced by way of an employee contribution made towards the purchase price (either in cash or by way of trade-in vehicle). The following example is given of a typical scenario.
Facts
¦ An employer allows employees to salary package cars through using novated lease arrangements.
¦ The employer limits the value of a car which may be packaged by an employee to $40,000.
¦ Employees are allowed to make an initial contribution to the cost price of a more luxurious car at the commencement of the lease to reduce the cost base to $40,000.
What is the 'cost price' of the car for FBT purposes?
Legislation
Under the definition of the statutory formula method for calculating car fringe benefits, the cost price of a leased car provided by the employer will be the 'leased car value'.
Section 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) defines 'leased car value' as the cost price of the car to the lessor if the lessee commenced to lease the car at the time the lessor purchased the car. Where the lessee did not lease the car at the time the lessor purchased the car, then the leased car value of the car is the amount that would be expected to be paid to purchase the car from the lessor under an arm's length transaction at the time the lessee commenced to lease the car.
For example, where the employer commenced to lease a new car which had just been purchased by a finance company the 'leased car value' would be the 'cost price' of the car to the finance company if the lessee (the employer) commenced to lease the car at the time the finance company purchased the car.
Section 136(1) of the FBTAA defines 'cost price' of a car as 'the expenditure incurred by the person…that is directly attributable to the acquisition or delivery of the car…and…any additional expenditure incurred by the person in relation to the fitting of non-business accessories'.
The minutes of the NTLG FBT sub-committee held on 11 December 1997, stated that the expenditure incurred by the purchaser of a car is the total amount of consideration due to be paid under the transaction (that is, the full purchase price agreed between the vendor and purchaser before deduction of any relevant deposit or trade-in value). However, the minutes went on to explain that in some circumstances the amount paid by an employee towards the purchase price of a car may be treated as a 'recipient's payment'.
Section 9(2) of the FBTAA defines 'recipient's payment' as the 'expenses incurred to the provider or employer during the holding period by recipients of the car fringe benefits by way of consideration for the provision of the car fringe benefits'.
However, this view was inconsistent with the Commissioner's view as expressed in Taxation Ruling MT 2021 released on 25 August 1989, which stated that the cost price of a car is the amount of expenditure incurred by the employer in acquiring the car. The example given is that where the employee supplies a trade-in vehicle, the cost price to the employer would be the purchase price minus the trade-in allowed.
Issue
In respect of the facts above:
Will the contribution to the cost price of the car be treated as a reduction in the base value of that car for Fringe Benefits Tax ( FBT ) purposes?
or
Would the contribution by the employee be regarded as a recipients payment and thus reduce the taxable value of the provision of the car fringe benefit for the FBT year?
CPA Australia's opinion
The employee contribution will reduce the base value of the car.
As, on the facts as set out the employer has agreed to provide a car with a cost base of $40,000. The employee has agreed to pay $10,000 towards the acquisition of the car so that the employee can have access to a more luxurious car whilst maintaining the cost base to the employer of $40,000.
Tax Office response:
The Tax Office advised that the cost price of a car was discussed at a number of the NTLG FBT sub-committee meetings up to and including those of 11 December 1997 and 22 May 2003.
In the minutes of 11 December 1997 the Tax Office confirmed the Tax Office view reflected in MT 2021 was that a trade-in by an employee can reduce the cost price of a car for FBT purposes. Cash payments by an employee however needed to be considered in view of the actual contractual arrangement between the parties. Under the contract for sale the employer could be liable for the full purchase price in which case the full purchase price is the 'cost price' for FBT purposes.
Without restating the legislative framework relating to the valuation of 'car fringe benefits' found in Division 2 of the FBTAA in detail, it was agreed that the clarification being sought is the Tax Office view of the meaning of 'cost price' that applies for that Division.
It is clear that where a vehicle is purchased by the provider or leased at or around the same time as it was acquired by the lessor, the base value should be the expenditure incurred by the owner, that is, provider or the lessor.
Where, at the time of acquisition, an employee provides a trade in or a cash contribution so that the expenditure incurred by the provider or lessor is less than the full price, the legislation only requires that the 'expenditure incurred by the person that is directly attributable to the acquisition or delivery of the car' is taken to be the 'cost price' for the purposes of the Division.
As has been stated previously, the arrangements in place between the relevant parties may create different outcomes. As an example, the trade in and cash contribution referred to would have to be made to a third party and not the employer, for example directly to the car dealer. If a cash contribution was made directly to the employer, it would not be possible to say that the expenditure incurred, as per the relevant invoices and so on between the employer and the car dealer, is an amount other than the full cost price. In such a case, the cash contribution, although not taken into account in ascertaining the 'cost price' may be treated as a 'recipients payment' in that year.
The question, as stated in previous meetings, can in fact only be answered by reference to the terms of the contract between the supplier and the purchaser; in essence what was incurred is a question of fact arising from those contractual arrangements.
Further, the possible application of section 155; Use of property before title passes, was mentioned as matters that employers should consider. This provision may be triggered where arrangements are in place which would indicate that following a contribution by an employee, the transaction results in use of the car for a period at the end of which the title to the car will or may pass to the employee.
In relation to the 'facts' put forward in the CPA Australia submission, it is not clear to whom the employee has made the initial contribution to, simply that an employee makes an initial contribution to the cost price of a more luxurious car at the commencement of the lease. Given the lack of detail, a specific response is not able to be provided.
7 Tax exempt body entertainment fringe benefits and sporting bodies/clubs (CPA Aust)
Many sporting bodies and clubs that raise funds towards the furtherance of their sport require certain employees to attend functions/events to represent the body/club and host sponsors of the body or club or members of the public/supporters who have paid to attend a function/event and be entertained.
The entertainment provided to the sponsor or member of the public/supporter in question is:
¦ a table at an awards night, or
¦ a table at a president's lunch/dinner at a game/event.
It is our view that the employee hosting the table on behalf of the body/club is not being entertained, but is in fact providing the entertainment in return for payment to his/her employer.
Accordingly, we are of the view that the cost of attendance at the function/event and the consumption of the meal should not be subject to FBT as the expenses incurred are work related expenses incurred in raising funds for the furtherance of the sport and hosting the table is part of the employee's duties of employment.
We accept that if the employee is not hosting a table of sponsors or members of the public/supporters then the employee is being entertained.
Analysis
Section 136(1) of the FBTAA defines entertainment as:
¦ Entertainment by way of food, drink or recreation, or
¦ Accommodation or travel to do with providing entertainment by way of food, drink or recreation.
The provision of entertainment to employees by an employer which is a tax exempt body constitutes a tax-exempt body entertainment benefit pursuant to section 38 of the FBTAA. The taxable value of the tax-exempt body entertainment benefit is determined in accordance with section 39 of the FBTAA.
TR 97/17 sets out the Commissioner of Taxation's ('the Commissioner') views concerning what is entertainment. The ruling outlines two alternative views in interpreting what is entertainment by way of food or drink. They are:
3. That the provision of all food and drink in any circumstances will constitute entertainment, or
4. That only the provision of food or drink that has an element of entertainment satisfies the abovementioned definition, that is, the provision of food or drink must confer entertainment on the recipient.
TR 97/17 indicates that the latter interpretation represents the better view of the law in that an 'element of entertainment' is required before the provision of food or drink becomes meal entertainment.
In accordance with TR 97/17 and the facts outlined above, we are of the opinion that the provision of food or drink to certain employees of sporting clubs/bodies whilst hosting tables at award nights, or games/events does not constitute entertainment by way of food or drink.
Certain employees of sporting clubs/bodies are required at the awards night or games/events to fulfil their work-related obligations and assist in carrying out the sporting clubs/bodies functions and obligations to sponsors and to those members of the public/supporters who have paid to attend the function/game/event (a funds raising activity of the club/body). Usually the CEO or President fulfils the role of chair person, promotes further functions, promotes the club/body by meeting various members and non-members and gain further funds where possible. Other attending club/body staff are required to attend in order to assist in organising the function and attending to the needs of the sporting members of the public or supporters and promote the club/body.
Subject to the fact that the provision of food or drink to certain club/body employees during the functions/games/events in our opinion does not satisfy the definition of entertainment by way of food or drink, in accordance with Pollak Partners Pty Ltd and DC we are of the view that such a provision amounts to a property fringe benefit under section 40 of the FBTAA. The taxable value of a property fringe benefit is determined in accordance with section 43 of the FBTAA. Generally, this will be the cost of the food or drink provided to the club or body.
Under section 44 of the FBTAA the taxable value of a property fringe benefit may be reduced to the extent the employee would have been entitled to a once-only tax deduction had the taxpayer paid for the benefit personally.
Under section 8-1 of the Income Tax Assessment Act 1997 ('ITAA97'), a taxpayer is entitled to an income tax deduction where there is sufficient connection between the expense and the income producing activities of the taxpayer, and the expense is not of a private or domestic nature.
Given the fact that club/body employees are required to attend functions/games/ events in order fulfil their work-related obligations, in our opinion the provision of food and drink is part of their fund raising work related activities has a sufficient connection with the employee's income producing activities and is therefore deductible under section 8-1 of ITAA97. Someone must sit at the table and consume the meal with those persons paying for the privilege.
Accordingly, the taxable value arising from the provision of the food and drink to certain club/body employees at functions/games/events should be reduced to nil on the basis of the 'otherwise deductible' rule under section 44 of the FBTAA.
It is also contended that the taxable value of the provision of entry to the function/game/event by employees required to host at the function/game/event should also be reduced for FBT purposes.
The attendance of such employees at a function/game/event is necessary to fulfil their duties of employment. Sometimes employees will leave the function/game/event prior to its conclusion when their official duties are fulfilled.
In addition to the above, where club/body employees are provided with food and drink while attending functions interstate, such food and drink also does not have the character of entertainment. In this circumstance club/body employees are provided with food and drink while undertaking their work-related travel. The cost of the food and drink would therefore be otherwise deductible in accordance with the logic presented above and pursuant to TR 97/17, whether the food and drink is consumed at a restaurant, hotel or at the function/game/event where the employee is representing his/her employer.
It is our view that the provision of other meals, attendance at the event, travel and accommodation to employees who are required to host functions/games/events interstate should also be otherwise deductible under either section 24, 44 or 52 of the FBTAA as these expenses are incurred as part of the ordinary duties of employment performed by the employee in the ordinary course of the club/bodies activities that includes providing that entertainment for payment that will finance the club/bodies furtherance of sport.
Tax exempt body entertainment work related examples:
Senior employees of Governing Body (for example, Board Member/CEO)
¦ Travel interstate as guest of a participating club to represent the governing body and promote the sport in that state.
¦ Entry to event (game/contest/awards night) provided by participating club.
¦ Meal provided at event.
¦ Airfares and accommodation paid by the governing body.
¦ Attendance at major awards night of the governing body (e.g. player of the year from participating clubs).
Senior employees of clubs (for example, CEO, Marketing Manager)
¦ Required to attend events and awards nights to host paying guests (to raise funds for the club) or sponsors.
¦ Other employees of clubs (for example, players).
¦ Injured player required to attend Presidents lunch at an event:
¦
– to make a speech, or
– to sit with paying guests.
¦ Players sitting on tables with paying members at an Awards night
Note that members may pay a premium to be on the table of a nominated person or player, thus it is our view the person or player is in fact part of the entertainment.
For sponsors, part of the sponsorship may include a table for X number of people with the sponsor's table to be hosted by a high profile sportsperson from the club or association or a senior official of the club or governing body; that is, the sponsor is in the sponsorship paying to be entertained by the employee of the club or governing body.
Tax Office response:
The issues raised in this agenda item are by their very nature and because of the myriad of possibilities given particular facts, difficult to answer succinctly within the parameters of this forum's minutes.
As noted in the CPA Australia submission, Taxation Ruling TR 97/17 sets out the Tax Office's broad views concerning what is 'entertainment'. To recap, relevantly, at paragraph 18 of TR 97/17 it is accepted 'only the provision of food or drink that has an element of entertainment satisfies the definition, that is, the provision of food or drink must confer entertainment on the recipient.'
However, it is further noted 'that in most cases the mere provision of food or drink satisfies the 'entertainment' test. It is only in a narrow category of cases where the mere provision of food or drink does not amount to 'entertainment' for purposes of Division 32 of the ITAA.'
At paragraph 19, it is acknowledged that this view has been expressed previously in Taxation Ruling IT 2675. That Ruling considers that the provision of morning and afternoon tea to employees (and associates of employees) on a working day, either on the employer's premises or at a worksite of the employer, is not entertainment. The provision of light meals (finger food, and so on), for example in the context of providing a working lunch, is not considered to be entertainment. The provision of food or drink in these circumstances does not confer entertainment on the recipient.
Further, at paragraph 20, the provision of light meals is contrasted with the examples of non-deductible entertainment given in the explanatory memorandum to Taxation Laws Amendment Bill (No 4) 1985, that is, business lunches and drinks, dinners, cocktail parties and staff social functions. In these examples the provision of the food or drink confers entertainment on the recipient. The wording of section 32-10 of the ITAA shows a clear intention to treat food or drink consumed in these situations as entertainment, whether or not business discussions or business transactions occur at the same time.
It can be seen that the determination of whether or not the provision of food or drink constitutes entertainment requires an objective analysis of all the circumstances surrounding that provision (paragraph 23). The Tax Office view is that the following are relevant factors that should be considered in undertaking any objective analysis:
5. Why is the food or drink being provided. This test is a 'purpose test'. For example, food or drink provided for the purposes of refreshment does not generally have the character of entertainment, whereas food or drink provided in a social situation where the purpose of the function is for employees to enjoy themselves has the character of entertainment.
6. What food or drink is being provided. As noted above, morning and afternoon teas and light meals are generally not considered to constitute entertainment. However, as light meals become more elaborate, they take on more of the characteristics of entertainment. The reason for this is that the more elaborate a meal, the greater the likelihood that entertainment arises from the consumption of the meal.
For example, when an employer provides morning or afternoon teas or light meals, that food or drink does not usually confer entertainment on the employee. By contrast, a three course meal provided to an employee during a working lunch has the characteristics of entertainment. The nature of the food itself confers entertainment on the employee.
7. When is the food or drink being provided. Food or drink provided during work time, during overtime or while an employee is travelling is less likely to have the character of entertainment. This is because in the majority of these cases food provided is for a work-related purpose rather than an entertainment purpose. This, however, depends upon whether the entertainment of the recipient is the expected outcome of the provision of the food or drink. For example, a staff social function held during work time still has the character of entertainment.
8. Where is the food or drink being provided. Food or drink provided on the employer's business premises or at the usual place of work of the employee is less likely to have the character of entertainment; refer to the reasons in (b) and (c) above. However, food or drink provided in a function room, hotel, restaurant, cafe, coffee shop or consumed with other forms of entertainment is more likely to have the character of entertainment. This is because the provision of the food or drink is less likely to have a work-related purpose.
As noted at paragraph 24, no one of the above factors will be determinative; however, paragraphs (a) and (b) are considered the more important. The application of the above factors results in the determination of whether the food or drink amounts to meal entertainment.
In essence, the CPA Australia submission contends that firstly, in the circumstances outlined, that the employee's attendance is required/mandatory and is part of the employee's duties of employment. Secondly, that a 'player' is providing entertainment at a particular function and therefore is not being entertained and thirdly that attendance at interstate functions does not have the character of entertainment.
Given the above referred to extracts from TR 97/17 the first proposition put forward cannot be accepted. The views of the Tax Office and the clear policy intent of the relevant legislation covering 'entertainment' is that a requirement to attend a lunch, function and so on, as part of employment duties, whether or not business discussions occur, will not be detrimental to a finding that in fact 'entertainment' has been provided.
The Tax Office noted Case Y11, 91 ATC 184, as being on point (notwithstanding the fact that the case considered section 51AE which was repealed, as the current relevant provisions in Division 32 of the ITAA contain the same broad policy intent).
That case concerned a senior officer of the Australian defence force who was engaged to negotiate at high levels in the USA over substantial contracts. The expenditure that was in question in the case was incurred on a range of lunches, cocktail parties, dinners and other forms of social contact which were directly relevant to the taxpayer's negotiating duties and the discharge of the protocols of his exacting office. The applicant's argument was that he was a serving military officer and that he was required to carry out those duties. The Senior Member affirmed the decision under review, the applicant was not entitled to deduct the expenditure incurred and noted that 'whatever policy compromises are involved in a blunt and essentially arbitrary solution to the problem of taxation of entertainment fringe benefits, the objectives of the provision are clear'.
In relation to the second contention, that a 'player' is in fact the entertainment at a particular function and is not therefore being entertained, the Tax Office acknowledged that in applying the tests in TR 97/17, it could be correct to say that entertainment has not been provided to that player (as an employee). The player may appear as the draw-card and is not attending the function to be entertained.
In respect of the third contention, that attendance at interstate functions does not have the character of entertainment, this would require all the facts of a particular circumstance to be considered.
TR 97/17 adopts the following broad position re entertainment and travelling at paragraph 21. 'Where an employee is travelling in the course of performing their employment duties, the food or drink provided is consumed as a result of that work-related travel. In the absence of supplementary entertainment, the food or drink is not provided by the employer in order to confer entertainment on that employee. Therefore, the meal does not have the character of entertainment.'
In the circumstances put forward, supplementary entertainment is, given the tests and views expressed in TR 97/17, being provided. In such cases attendance at an event, related travel and related accommodation to employees who are required to attend functions/games/events interstate would not appear to immediately be otherwise deductible under either section 24, 44 or 52 of the FBTAA.
In the submission, CPA Australia makes reference to the decision of the Administrative Appeals Tribunal in Pollack Partners Pty Ltd and Deputy Commissioner of Taxation 39 ATR 1120; 98 ATC 2213. Briefly, the case considered a factual situation in which an employee (trainer) was provided a light and inexpensive luncheon. This case and its outcome are clearly distinguishable from the circumstances being put forward in the CPA Australia submission.
In providing the above response to this submission, the Tax Office stressed that TR 97/17 (and related public rulings) provide broad guidelines to the way in which it considers the entertainment provisions (in both the FBTAA and ITAA) operate. In specific cases, where those guidelines are not considered to apply to particular circumstances, employers should seek a private binding ruling from the Tax Office.
8 Differences between the interest rates for FBT and Division 7A (ICAA)
We understand that there is generally a difference in the interest rates for FBT purposes and for Division 7A because these rates are set at different times and apply in respect of different year ends, for example, the FBT rate will apply for a year ended 31 March whilst the Division 7A rate will apply for a year ended 30 June. These differences are confusing and have led to instances of taxpayers applying the wrong rates.
Furthermore, we note that there is a fact sheet on the Tax Office's website entitled Division 7A & Fringe Benefits Tax ( FBT ), which provides that a loan that is excluded from Division 7A because it meets the criteria in section 109N can still be subject to FBT . An extract from the fact sheet reads as follows:
FBT may apply to an excluded loan. For example, suppose a loan is excluded because it was made under a written agreement as above. Division 7A does not require that any interest be payable on such a loan in the income year it is made. If no interest is payable in that year, the private company may be subject to FBT in that year if the loan is a loan fringe benefit. The private company may also be subject to FBT in future years, assuming the loan is not treated as a dividend, if the interest rate payable on the loan is greater than or equal to the Division 7A benchmark interest rate, but is less than the FBT statutory rate of interest.
We note that section 109ZB clearly indicates that Division 7A applies to a loan of an amount to an entity by a private company even if the loan is made:
9. to the entity in its capacity as an employee (as defined in the Fringe Benefits Tax Assessment Act 1986) or to an associate of such an employee; or
10. in respect of the employment of an employee (once again as defined in the Fringe Benefits Tax Assessment Act 1986).
The note to section 109ZB clearly states:
This helps ensure that a loan is not a fringe benefit for the purposes of that Act
There is no requirement in that provision that the loan be a deemed dividend under section 109D as the fact sheet seems to implicitly suggest. We note that even though the FBT and Division 7A rates have been the same in recent years, the FBT rate applies from 1 April of a particular year whilst the Division 7A rate is applicable from 1 July of the same year. Accordingly, even though the rates have been the same for the last two years, that is, 6.55% in 2004 and 7.05% in 2005, there will still have been a 3-month window from 1 April 2004 to 30 June 2004 in which the FBT rate would have been 7.05% and the Division 7A rate would have still been 6.55%. The approach taken by the Tax Office would suggest that FBT would be payable in respect of the interest represented by this rate differential. We note that the approach taken by the Tax Office would impose a considerable compliance burden on taxpayers to have to monitor and calculate loan repayments under two sets of provisions.
Recommendation
We believe that the Tax Office should review its guidance on the interaction between FBT and Division 7A. Our view is that a loan that complies with the criteria in section 109N should not be subject to FBT in any circumstances, e.g. even if the Division 7A interest rate is less than the FBT rate.
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Meeting discussion: The ICAA advised that this issue will be raised in a submission which will be lodged with the Commissioner of Taxation in the near future. The ICAA indicated that this item was submitted simply 'for information'. No response was sought from the Tax Office on the matters raised at the meeting. |
9 Administration of section 65J rebate for certain non-profit employers (CPA Aust)
Section 65J(1) (baa) of the FBTAA provides that from 1 July 2005 certain entities that have been fully subject to FBT will be entitled to a rebate of FBT .
As this will result in two different treatments of FBT for these entities during the FBT year ended 31 March 2006 , it would appear that those entities will need to lodge two FBT returns. One for the period, 1 April 2005 to 30 June 2005 as a fully FBT payable employer and one for the period 1 July 2005 to 31 March 2006 as a rebatable employer.
Has the Tax Office considered how this will be administratively managed?
Tax Office response:
The Tax Office advised that on the 12 May 2005 Tax Laws Amendment (2005 Measures No 3) Bill 2005 was introduced in the House of Representatives.
The Bill amends the FBTAA to ensure that certain institutions established under a law of the Commonwealth, State or Territory will continue to be ineligible for FBT rebatable status from 1 July 2005.
When this Bill is passed the status of these entities will not have, in effect, changed.
Subsequent to this meeting this Bill was passed and received Royal Assent on 26 June 2005.
10 Exemption from FBT for expenses paid when an employee's car is moved due to relocation (ICAA)
The ICAA wishes for the Tax Office to clarify whether the exemption contained in section 58B of the Fringe Benefits Tax Assessment Act 1986 (Cth.) (FBTAA) applies to the situation where an employee is reimbursed for customs duty incurred in order to move a car due to a change of usual place of residence in order for the employee to perform their duties of employment.
Background
The specific circumstances of the arrangement to remove the car are as follows:
¦ The employee is provided with an expense payment fringe benefit in relation to customs duty paid when his / her car is moved into Australia.
¦ The payment is made solely because the employee is forced to change his/her usual place of residence in order to perform the duties of his/her employment.
¦ The payment is received by the employee to assist the employee and/or the employee's family to take up residence or to reside near his/her place of employment.
¦ The removal takes place within 12 months of the employee commencing to perform his/her duties at the new place of employment.
The ICAA view
Household effects of the employee
It is the ICAA's position that a car falls within the ambit of 'household effects of the employee' as defined in section 58B(2) of the FBTAA. This is consistent with the definition of 'household effects of the employee' included in section 58B(2)(a), which defines 'household effects of the employee' to include 'tangible property' (even if it is not owned by a family member) kept primarily for personal use of the family.
Section 58B(1) states that removal and storage expenditures incurred in respect of the employee's employment are exempt from FBT . While section 58B(2)(b) does not limit section 58B(1), it itemises some removal/storage expenditures to include expenditures such as transport, packing, unpacking and insurance costs.
The ICAA submits that 'tangible property' should include cars. Section 136 FBTAA defines 'tangible property' to include goods. Thus cars would be classified as a 'good' and hence would be part of the 'household effects of the employee'.
In respect of
It is the ICAA's position that the customs duties payable when the car is transported into Australia due to employee's transfer for employment purposes are payable 'in respect of' a tax year and 'in respect of' the employment of an employee as defined in section 58B(1)(a) of the FBTAA.
The ICAA submits that the transfer of a car is 'in respect of' the employment of the employee. Section 137 of the FBTAA defines 'in respect of' to be in relation to the employment of the employee which would also include by reason of or by virtue of or for or in relation to (either directly or indirectly) to that employment. Thus customs duties payable when the employee is forced to move due to employment would be 'in respect of' that employment. Similarly the ICAA submits that the customs duties paid would also be in respect of the removal of the household effects of the employee.
ICAA's submissions
The ICAA makes two submissions in relation to this matter:
11. A car is considered to be 'household effects' of the employee.
12. The customs duties incurred by the employee when the employee is required to move for his/her employment are incurred 'in respect of' the employee's employment and 'in respect of' the removal of the household effects.
In this regard, the ICAA submits that where an employee incurs an expense payment fringe benefit in relation to the customs duties payable on the removal of a car (as a 'household effect') 'in respect of' his/her employment, the fringe benefit would be exempt.
Tax Office response:
Although a car may not come within the ordinary meaning of 'household effects', the Tax Office agreed that it will come within the very broad definition as described in subsection 58B(2) of the FBTAA, noting that the car must be kept primarily for the personal use of family members.
The custom duties incurred by the employee when the employee is required to move for his/her employment duties are accepted as being incurred 'in respect of' the employee's employment and 'in respect of' the removal of 'household effects'.
11 Cost of compliance
11.1 Progress re cost of compliance submission (TIA)
The TIA would like the Tax Office to provide feedback on the progress of the FBT Cost of Compliance submission following the meeting with Treasury.
Tax Office response:
The Tax Office thanked everyone who attended the consultation meeting with Treasury on 7 April 2005.
Representatives from the Tax Office will be meeting with Treasury on 9 June 2005 to discuss the progress of the submission.
11.2 Cost of compliance and car fringe benefits (ICAA)
The joint professional body submission under the heading of Reportable Fringe Benefits contained a number of examples confined to 'remuneration benefits' only to exemplify the issues faced by employers. The ICAA has a further example to add:
A member writes:
'I work in the Residential Colleges accommodating X amount of students and occasionally when we hire a car from the university car pool to transport newly arrived or late arriving students to their accommodation, the university charges us FBT for having the car overnight.
Note that personal use is banned but why should the university have to pay FBT to the Tax Office when there is no private use. In addition the cars are being driven by resident students who look after new arrivals and they are living on campus. Our three adjacent colleges are accessed via a public road. The car keys are usually in the office or with one of the on-duty residents overnight. Then there is the reportable fringe benefit that appears on the PAYE summary.'
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Meeting discussion: The ICAA asked that this matter be tabled in the minutes and sought agreement from the Tax Office that it would be forwarded to Treasury in support of the Joint Professional Body submission. |
Tax Office response:
The Tax Office advised that this submission has been forwarded to Treasury.
12 Other business
12.1 Fringe benefits tax and budget announcements re: tax rates and scales (ICAA)
There is an increasing gap occurring between the FBT rate and the rate of tax paid by most employees. When the 2005/06 Budget tax reductions have been passed the FBT rate will correspond to a marginal tax rate that only 3% of the population faces, and which is considerably higher than the 30% rate that is the highest marginal rate for 80% of the population. There will be less people falling on the top tax rate thus reducing the benefit for employees to salary package benefits that are concessionally taxed for example, motor vehicles. Can the Tax Office please comment on this observation.
Tax Office response:
The Tax Office advised that the issue raised was a policy/Government issue and no further comment was available.
12.2 Car parking (ICAA)
The ICAA noted that in the recently updated Fringe benefits tax: A guide for employers, at 16.6 and 16.7, the formula shown for both the 12 week register and the statutory formula methods for valuing car parking fringe benefits makes reference to 365 days. There is a note to each stating that 366 can apply in a leap year.
However the ICAA was concerned that the FBTAA relevantly provides no such position. The FBTAA clearly only uses 366 in the formula. Whether this is an oversight, being introduced in a leap year, or intended is not clear.
Tax Office response:
The Tax Office indicated that clearly an administrative position had been adopted. As this was raised in general discussion, the Tax Office agreed to review same and report back to the members at the next meeting.
13 Close of meeting
The next meeting will be held on 18 August 2005 at the Tax Office, 12-22 Woniora Road, Hurstville.