House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon. John Howard, M.P.)

General outline

The main features of each of the two principal matters that are the subject of the Income Tax Assessment Amendment Bill (No.2) 1981 are as follows:

Taxation of payments made under a return to work agreement (Clauses 3, 5 and 6)

The Bill will give effect to the proposal announced on 11 August 1981 that payments similar to those made last year on the settlement of the industrial dispute on the Loy Yang power station project - payments designed to induce employees to return to work - be made subject to income tax and liable to pay-as-you-earn tax instalment deductions.

Broadly, the Bill proposes that any payment made to a taxpayer under an agreement entered into after 11 August 1981 for a purpose of having the taxpayer resume performing work or rendering services will be included in the taxpayer's assessable income.

The Bill will also provide for the deduction of PAYE tax instalments from such payments made after the end of the month in which this legislation receives the Royal Assent.

Employees' housing (Clause 4)

The income tax law is also to be amended so as to provide a more concessional basis for determining for income tax assessment purposes the value of the taxable benefit in respect of free or subsidised accommodation provided by an employer to an employee who:

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does not reside or work in, or adjacent to, an urban centre; or

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put very broadly, is required to reside within close proximity to the work place.

The new measure will mean that the amount of the benefit to be included in an employee's assessable income is to be limited to 10 per cent of the market rental value of the accommodation provided by the employer, less the amount of any rent paid by the employee.

The Bill will specify that cities and towns with a population of 12,000 or more will be regarded as urban centres. An area ''adjacent" to an urban centre will be an area within 100 km of the centre of a town or city with a population of more than 130,000 or within 40 km of a town with a population of more than 12,000. The population figures to be used for this purpose are those published by the Australian Bureau of Statistics as a result of the 1976 Census.

The new concession will only be available on the basis of these "remoteness" tests if it is customary in the industry in which the taxpayer is employed for employers to provide free or subsidised housing for their employees and if, in the case of the particular taxpayer, it is necessary for his or her employer to provide such accommodation for employees for any of the following reasons:

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the nature of the employer's business is such that employees are liable to frequent movement from one residential location to another;

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in the area in which the employee is employed there is not sufficient suitable residential accommodation otherwise available; or

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because of the custom in the employer's industry to provide free or subsidised housing for employees.

Where a taxpayer resides in, or adjacent to, an urban centre, i.e., other than in a "remote" area, he or she may also be entitled to the new concession if all of the following conditions are satisfied:

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the employer's industry is one in which it is customary to provide subsidised housing for employees at or in close proximity to the work place;

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the employee had no alternative to occupying the accommodation provided because suitable alternative accommodation was not available at or in close proximity to the work place on reasonable terms and conditions or the employee was required by the employer to live at or near the work place and to be on call;

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the conditions under which the employee occupies the accommodation are onerous because of its proximity to the work place; and

•

the employer of the taxpayer provided accommodation connected with the taxpayer's work place for at least six employees.

These measures are proposed to have effect in assessments in respect of the 1977-78 income year and subsequent years. The market rental value of the subsidised accommodation is to be first determined in relation to the 1977-78 income year or, where the employee commenced to occupy the accommodation in a year after 1977-78, in relation to that later year. In subsequent years, the market rental value will be indexed in accordance with movements in the rent sub-group of the Consumer Price Index.

The Commissioner of Taxation will have power under the provisions to treat a person who resides or works in, or in an area adjacent to, an urban centre as residing or working outside that area if persons residing or working near to that person are regarded as being remote.

There are to be safeguards against abuse of the concession so as to counter any arrangements that may be entered into for the purpose of obtaining the benefit of the concession.

The Bill will also provide the Commissioner with the authority to amend assessments made before the provisions come into operation so as to effect any reduction in the value of assessable housing benefits that is available under the new measures.

The provisions of the Bill are explained in more detail in the notes that follow.