House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

General outline and financial impact

Reporting of fringe benefits on group certificates

This Bill amends the Fringe Benefits Tax Assessment Act 1986 and the Income Tax Assessment Act 1936 to implement the first phase of the Governments tax reform package for fringe benefits tax (FBT). Employers will be required, from the 1999-2000 year of income, to identify on group certificates the grossed-up taxable value of certain employee fringe benefits. This value will be included in the income tests used to determine liability for various tax surcharges, levies and other income related obligations. In implementing the changes to the Medicare levy surcharge, the A New Tax System (Medicare Levy Surcharge-Fringe Benefits) Bill 1998 is being introduced to impose the surcharge on the reported amounts.

Date of effect: From 1 April 1999, employers will be required to ascribe the taxable value of most fringe benefits to individual employees. The reported value will first be used in income tests for the income year ending 30 June 2000.

Proposal announced: This proposal was announced on 13 August 1998 in the Governments tax reform package, Tax Reform: not a new tax, a new tax system: The Howard Governments Plan for a New Tax System.

Financial impact: The measure is expected to raise $255 million in 2000-2001; $260 million in 2001-2002; $265 million in 2002-2003 and $270 million in 2003-2004.

Compliance cost impact: The Compliance Cost Impact Statement for this measure is incorporated in the Regulation Impact Statement which appears at the end of Chapter 1.

Summary of regulation impact statement

Impact: Medium to high

Main points:

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Employers will be required to calculate the taxable value of fringe benefits provided in respect of each employees employment and record the grossed-up taxable value on the employees group certificate where the amount exceeds $1000.

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Employers providing fringe benefits of greater than $1,000 in respect of individual employees may face additional compliance costs as a result of this measure, including employers who currently provide benefits which are exempt from FBT under certain provisions.

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Some employees receiving reportable fringe benefits amounts will be affected by this measure; for example, where employees were avoiding government surcharges or income related obligations through salary packaging arrangements.

Policy objective

The policy objective of this measure is to enhance the fairness of the taxation and social security systems by enabling the value of fringe benefits to be taken into account in income tests for determining entitlement to government benefits, and liability to tax surcharges and income related obligations. This will minimise the opportunities available to employees to swap cash salary for fringe benefits to avoid surcharges and levies and to access rebates to which they would not otherwise be entitled on the basis of their total remuneration.