House of Representatives

Tax Laws Amendment (Budget Measures) Bill 2008

Second Reading Speech

Senator FAULKNER (Special Minister of State and Cabinet Secretary)

I table a replacement explanatory memorandum relating to the Fisheries Legislation Amendment (New Governance Arrangements for the Australian Fisheries Management Authority and Other Matters) Bill 2008 and revised explanatory memoranda relating to the Tax Laws Amendment (2008 Measures No. 2) Bill 2008, the Tax Laws Amendment (2008 Measures No. 3) Bill 2008, and the Excise Legislation Amendment (Condensate) Bill 2008 and a related bill, and move:

That these bills be now read a second time

I seek leave to have the second reading speeches incorporated in Hansard.

Leave granted.

The speeches read as follows-

This bill makes a number of important improvements to the tax law.

First, it improves the fairness and integrity of the fringe benefits tax system.

Second, it restores the intent of the tax treatment of employee share scheme arrangements.

And third, it aligns the period over which taxpayers can write-off depreciable in-house software with that for computer hardware.

These measures are part of a Budget that has delivered significant reform of tax expenditures to improve productivity, fairness and integrity in the tax system.

The Government has moved with the times on this.

A major theme of the 2020 Summit was the need for a tax system that is fair, simple and efficient.

I quote the following from the initial Summit report:

'Australia needs a tax system that supports the global competitiveness of our economy, provides incentives, minimises distortions and supports fiscal responsibility.'

Reforming tax concessions is an important step in this direction.

This bill restores the original intent of the FBT law by tightening the arrangements for eligible work related items, and property consumed on an employer's premises.

The FBT law currently exempts certain work related items.

With the exception of mobile phones, computer software and protective clothing, there is no requirement that these items be used for work purposes in order to be FBT exempt.

The FBT exemption was introduced in 1995. At the time it was thought that generally any private use would be incidental.

Since then, changes in technology have meant that certain items are commonly acquired for personal use.

Laptops are one example.

The FBT exemption allows employees to enter into tax-effective arrangements to acquire these items out of their pre-tax income.

The amendments restore the original policy intent to restrict the FBT exemption to items used primarily for employment.

The exemption will also be limited to one item of each type per employee each FBT year, unless it is a replacement item.

The list of eligible work related items will also be updated for technological changes.

This will remove uncertainty for taxpayers, industry and the Australian Taxation Office as to whether electronic devices with more than one function are FBT exempt.

The amendments also remove depreciation for FBT exempt items purchased after 7.30 pm Australian Eastern Standard Time 13 May 2008.

This addresses a double tax benefit under the existing law whereby an employee can claim depreciation for an item that is also FBT free.

For items purchased before that time, depreciation will be removed for the 2008-09 and later income years.

The Government is also tightening the FBT exemption for the private use of business property.

With a meal card, an employer pays for employee meals provided by a third party located on, or delivering to, the employer's premises.

An employee can salary sacrifice a meal card to purchase lunch, coffee and other consumption items out of their pre-tax income.

The amendments will exclude meals from the FBT exemption where they are provided as part of a salary sacrifice arrangement.

This restores the intended policy and improves equity in the treatment of employee remuneration.

Genuine staff canteens will not be affected.

The measure may also promote greater competition between meal providers.

This is because it removes a disincentive for employees to shop around for the best price or quality available for meals.

The bill also amends the income tax law to close a loophole in the employee share scheme provisions and address double taxation.

Amending the election requirements in the employee share scheme provisions will stop taxpayers manipulating when they have a tax liability for discounts on employee shares or rights.

This will ensure discounts are properly included in assessable income.

An employee will be required to make an election by including the value of the discount in their income tax return.

The amount must be included in the income year they acquire the shares or rights.

The second change will remove double taxation where certain employee share schemes use an employee share trust.

The amendments will ensure that the trustee or beneficiary of the trust can access CGT relief.

Schedule 2 amends the tax law to extend the write-off period for in-house software from 21/2 to four years.

This is the same as the Tax Commissioner's safe harbour period for computer hardware.

The amount deductible is unchanged, but the write-off period is extended by 18 months.

If the software is scrapped before four years, the business will still get an immediate write-off for the remainder under the existing tax law.

Small businesses are generally not likely to be impacted by the measure.

Businesses that pay an annual licence fee for their software generally won't be affected.

The amendments in this bill help restore fairness to the tax system and contribute to funding the Government's key priorities for the future.

Full details of the measures in this bill are contained in the explanatory memorandum.

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