1985—86 OF AUSTRALIA FRINGE BENEFITS TAX ASSESSMENT … · GENERAL OUTLINE Fringe Benefits Tax Assessment Bill 1986 ... Australian source. Subject to what follows, all employers

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1985—86

THE PARLIAMENT OF THE COMMONWEALTHOF AUSTRALIA

HOUSEOF REPRESENTATIVES

FRINGE BENEFITS TAX ASSESSMENTBILL 1986

FRINGE BENEFITS TAX BILL 1986

FRINGE BENEFITS TAX (APPLICATION TO THE COMMONWEALTH)BILL 1986

FRINGE BENEFITS TAX (MISCELLANEOUS PROVISIONS) BILL 1986

EXPLANATORYMEMORANDUM

(Circulated by authority of the Treasurer,the Hon. P.3. Keating, M.P.)

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1985-86

THE PARLIAMENT OF THE COMMONWEALTH

OF AUSTRALIA

HOUSE OF REPRESENTATIVES

FRINGE BENEFITS TAX ASSESSMENTBILL 1986

FRiNGE BENEFITS TAX BILL 1986

FRINGE BENEFITS TAX (APPLICATION TO THE COMMONWEALTH)BILL 1986


EXPLANATORYMEMORANDUM

(Circulated by authority of the Treasurer,the Hon. P.J. Keating, M.P.)

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Printed by Authority by the Commonwealth Government Printer

GENERALOUTLINE

Fringe Benefits Tax Assessment Bill 1986

This Bill provides for the assessment andcollection of fringe benefits tax payable by employers.Its provisions:

contain specific rules for valuing the following

kinds of fringe benefits provided by employers toemployees on and after 1 July 1986:

— private use of motor cars;

— interest-free or low interest loans;

- release of debts;

- payment of private expenses;

- free or subsidised residential accommodation;

- excessive living-away-from-home allowances;

— free or subsidised board;

- concessional fares for airline transport;

- entertainment (tax-exempt bodies only)

- tree or discounted goods or other property;

- free or discounted services and other

benefits;

• specify that fringe benefits tax is an annual taxpayable in respect of benefits provided in eachyear ending on 31 March;

• treat the 9 month period 1 July 1986 to31 March 1987 as a “transitional year of tax”, andspecify rules for valuing fringe benefits providedin that period;

• require employers to pay fringe benefits tax by 3

quarterly instalments by 28 July, 28 October and28 January (for the transitional year 2instalments payable on 28 October 1986 and28 January 1987 are required)

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• impose an obligation on employers to calculatetheir annual liability for fringe benefits tax andremit the amount calculated (less. instalmentspaid) with an annual fringe benefits tax return by28 April each year;

• contain measures for the assessment, collectionand recovery of tax, to afford usual rights ofobjection and appeal, and general machineryprovisions consistent with those in other taxationlaws.

Fringe Benefits Tax Bill 1986

This Bill will declare the rate of fringe benefitstax and formally impose the tax on an employer in respectof fringe benefits within the meaning of the proposedFringe Benefits Assessment Act 1986.

The rate of tax is 46% for the 9 months periodfrom 1 July 1986 to 31 March 1987 and 49% for eachsubsequent year ending on 31 March.

Fringe Benefits Tax (Application to the Commonwealth)Bill 1986

This Bill will ensure that departments andauthorities of the Commonwealth are subject to taxliability in respect of fringe benefits provided to theiremployees as if they were employer corporations subject tothe operation of the proposed Fringe Benefits TaxAssessment Act 1986.

Departments and authorities will broadly be underthe same obligations as other employers to. lodge annualfringe benefits tax returns with the Commissioner ofTaxation, and to remit annual amounts of fringe- benefitstax, including quarterly instalments.

Fringe Benefits Tax (Miscellaneous Provisions) Bill 1986

This Bill will amend various laws, principally theIncome Tax Assessment Act 1936, consequent upon theenactment of the proposed Fringe Benefits Tax AssessmentAct 1986. The principal conseguential amendments will:

ensure that a fringe benefit the value of whichgives rise to a fringe benefits tax liability toan employer (or that is specifically exempted fromsuch a liability) is not subject to income tax inthe hands of the employee who is provided with thebe me f i t;

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repeal existing income tax measures for theconcessional valuation of remuneration in the formof residential accommodation provided to employeesin designated remote locations;

• deny a deduction under the income tax law forfringe benefits tax paid by an employer;

ensure that the cost of food and drink provided toan employee either as board or aliving-away-from-home fringe benefit is nottreated as non-deductible entertainment expenses;

ensure that income tax deductions are notallowable to employees against expenditure of(non-taxable) living-away-from-home allowances;

include jn the assessable income of an employeethe amount of any reimbursement of car expenses byan employer calculated on a per kilometre basis -

such hlreimbursenentse being outside of the scopeof the proposed new fringe benefits tax;

preclude any income tax deduction for an expenseincurred by an employee that is reimbursed by anemployer where the reimbursement constitutes ataxable fringe benefit;

• extend the operation of the Crimes (TaxationOffences) Act 1980 to schemes for the evasion offringe benefits tax.

FINANCIAL IMPACT

The revenue gain from the imposition of fringebenefits tax on and after 1 July 1986 is estimated at $330million for 1986—87, $540 million in 1987—88 and $625million in 1988—89.

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MAIN FEATURES

The main features of the principal bill — theFringe Benefits Tax Assessment Bill 1SL� - are as follows:

General application of fringe benefits tax

The tax is to apply to the value of benefitsspecified in the Bill that are provided after 3~ June 1986to an employee or an employee’s associates (typically, theemployee’s spouse or children) by an employer in respect ofthe employee’s employment activities. It will also applywhere the benefits ate provided by an associate of theemployer or by another person by arrangement with theemployer or associate. In all cases, however, the employerwill be liable for the tax. The tax will extend tobenefits that are provided to prospective or formeremployees in connection with their prospective or pastemployment.

Fringe benefits tax will apply to benefitsprovided in relation to an employee who is a resident ofAustralia, except where the relevant salary or wage of theemployee is exempt from income tax, and to a non-residentemployee whose salary or wage from the employment has anAustralian source.

Subject to what follows, all employers who eitherdirectly or by arrangement with others provide benefits ofthe kind specified in the Dill to their current,prospective or former employees will be liable to fringebenefits tax. The tax will apply whether the employer is asole trader, partnership, trustee, corporation,unincorporated association or government department orgovernment authority, and whether or not the employer isexempt from income tax or other taxes.

Employers exempt from fringe benefits tax

Religious institutions will not be subject tofringe benefits tax on benefits provided to a minister ofreligion or a member of a religious order where the benefitis provided on account of that persons religious duties.Benefits provided in respect of duties that are notreligious in nature will not be exempt.

In addition, employers who are exempt fromtaxation generally under international immunities providedby the International Organisations (Privileges aiidImmunities) Act 1983, the Consular Privileges andImmunities Act 1972 or the Diplomatic Privileges andImmunities Act 1967, and organizations established underinternational agreements which oblige Australia to grant ageneral tax exemption, will also be exempt from fringebenefits tax.

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Fringe benefits tax year

Liability to fringe benefits tax will be assessedon an annual basis, with the tax year being the 12 monthperiod 1 April to 31 March. The first “tax year”, however,will be the 9 month period 1 July 1986 to 31 March 1987.For convenience, that 9 month period is called thetransitional year of tax.

Self—assessment(Clauses 65 to 89)

Employers will self—assess their liability to payfringe benefits tax. That will entail calculating theliability and remitting the tax so calculated with anannual fringe benefits tax return by the 28th day after theend of the tax year. The lodgment of a fringe benefits taxreturn will, for all practical purposes, constitute an‘assessment” of an employer’s fringe benefits tax liability.

if a fringe benefits tax return is not lodged bythe due date, the Commissioner will be able to make aformal assessment of the fringe benefits taxable amount andof the amount of fringe benefits tax to which, in hisopinion, the employer is liable. The Commissioner mayalternatively require an employer to lodge a fringebenefits tax return for a particular year.

Where an assessnent has been made of an employer’sfringe benefits tax liability, including an assessmentdeemed to have been made by virtue of the lodging of theemployer’s fringe benefits tax return, the Commissionerwill be authorised to amend the assessment, broadlyaccording to the rules that apply for assessments madeunder the income tax law.

An employer will have rights, consistent withthose under the income tax law, to object against a fringebenefits tax assessment.

Instalments of fringe benefits tax(Clauses 101 to 111)

As mentioned, fringe benefits tax is to beself—assessed by employers annually for a standard 12 monthperiod 1 April to 31 March but with the first transitional“year of tax” being for the 9 month period from 1 July 1986to 31 March 1987. Employers will be required to pay tax byquarterly instalments according to the following rules:

3 instalments of tax will be payable in respect ofa standard year of tax on 28 July, 28 October and28 January;

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2 instalments of tax will be payable in respect ofthe transitional year of tax on 28 October 1986and 28 January 1987;

the 3 instalments payable in respect of a standardyear will generally equal one—quarter of theprevious year’s annual fringe benefits taxliability, although variations based on theestimated liability for the current year will bepermitted;

the 2 instalments payable in respect of thetransitional year will be based, broadly, on thetaxable value of fringe benefits provided toemployees in the September and December 1986quarters (special valuation rules apply for thispurpose)

on lodgment of the annual fringe benefits taxreturn, the 3 instalments — or 2 in respect of thetransitional year — will be offset against thefringe benefits tax liability for the year, withthe balance of the tax payable to be remitted withthe return;

quarterly instalments will not ordinarily berequired to be paid in respect of a standard yearof tax unless the employer’s assessed taxliability of the previous year exceeded $1000.

Car fringe benefits(Clauses 7 to 13)

~s a general rule, a taxable fringe benefit willarise if an employer’s car - one either leased or owned bythe employer - is made available for the private use of anemployee. For that purpose, a “car” is a passenger car,station wagon, mini-bus, panel van, utility or othercommercial vehicle designed to carry less than 1 tonne orfewer than 9 passengers.

There are two alternative bases of valuing the Ibenefit. Under the first, which will apply unless anelection is made to adopt the second method, a percentageof the cost of the car (or the market value of a leased caras at the time the lease commences) is to be the taxablevalue, the attributable percentage to be determinedaccording to how many kilometres are travelled in the year,as follows:

Total kilometres Taxable value as % of costless than 25,000 2425,000 to 40,000 16more than 40,000 8

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If any sales tax or customs duty concessions areobtained on the purchase of a car (e.g., by an employer whois a hospital or government authority) , the cost price forfringe benefits tax purpose is the amount the employercould reasonably have expected to pay for the car if thoseconcessions did not apply. In the case of a carmanufacturer who as an employer makes a car available forthe private use of an employee, the cost price is thewholesale value of the car grossed up for sales tax.

If the car is not owned or leased for the fullyear, or is not made available for the employee’s privateuse throughout the full year, there will be a proportionatereduction in the taxable value.

‘ After a car has been owned or leased for 4 years,the amount against which the relevant percentage is appliedwill be reduced to 2/3rds of the original cost price, ormarket value if leased.

Under the alternative method, the taxable value of‘ the car fringe benefit is the total operating costs of thecar for the relevant year, reduced in the proportion ofprivate kilometres to total kilometres travelled.

Operating expenses here include all costs -

whether incurred by the employer, the employee or others -

of operating the car during the year including, if the caris owned, depreciation and imputed interest costs.Depreciation will be calculated at 22.5% per annum of thedepreciated value of the car. Imputed interest will be theamount obtained by multiplying the depreciated value of thecar by a statutory interest rate set, broadly, by referenceto the lowest rate charged by the Commonwealth Savings Bankfor housing loans immediately before the start of the yearof tax. The interest rate will be published annually.

Under either method, any contribution by theemployee for the use of the car, or in payment of caroperating expenses, is deducted in calculating the finaltaxable value of the car fringe benefit. However, the‘ employer will be required to obtain documentary evidence ofany such contribution. This is to be generally in linewith the records that would need to be kept under theincome tax law to substantiate car expense deductions. Ifthe operating costs method of valuation is adopted, a logbook to establish the number of business and privatekilometres travelled is also required.

Private use of taxis, panel vans, utilities andother commercial vehicles (i.e., those not designedprincipally to carry passengers) will not attract fringe

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benefits tax if an employee’s private use of such a vehicleconsists solely of travel to and from work and privatetravel that is incidental to travel in the course ofperforming duties of employment.

Loan fringe benefitsIClauses 16 to 19)

The taxable value of any interest—free or lowinterest loan provided to an employee will be thedifference between an amount of interest notionallycalculated as accruing over the year of tax by applying thebenchmark interest rate to the daily balance of the loanand the interest that actually accrued on the loan duringthe year of tax.

The benchmark rate will generally be the lowest Irate charged for housing loans by the Commonwealth SavingsBank immediately prior to the beginning of the year oftax. A maximum rate of 13.5% will, however, apply forhousing loans made to employees before 3 April 1986. Inaddition, for fixed interest loans made prior to1 July 1986, an employer will be entitled to adopt as thebenchmark interest rate, the Commonwealth Savings Bankhousing loan rate prevailing at the tine the loan was madeif this would be to his or her advantage.

For fringe benefits tax purposes, the deferral ofa requirement to repay a debt on time will be treated as aloan granted at the rate of interest, if any, that accrueson the unpaid amount. If the terms of a loan enableinterest payments to be deferred for more than 6 months,the lender will be treated at the end of each 6 months ashaving separately loaned interest-free the amount ofinterest so deferred.

Debt waiver fringe benefits I(Clauses 16 to 19)

If an employer releases an employee from anobligation to pay an amount owing, there will be a taxablefringe benefit equal to the amount of the debt released. 4Expense paynent fringe benefits(Clauses 20 to 24)

Generally, the taxable value of expenses of anemployee that are paid or reimbursed by an employer will bethe amount of those expenses so paid or reimbursed.

Compensation paid to an employee for the cost ofusing the employee’s own car will not be subject to fringebenefits tax if it is calculated according to a perkilometre basis, e.g., a reimbursement of car expenses atan agreed rate of cents per business kilometre travelled.

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A complementary amendment of the income tax law is proposedto ensure that such payments are treated as assessableincome of employees. To the extent that the reimbursementis in respect of use of the car in the course of theemployee’s duties, offsetting deductions will be availableto the employee.

Housing fringe benefits(Clauses 25 to 29)

A taxable fringe benefit will arise where anemployee is granted a right to occupy, as a usual place ofresidence, a unit of accommodation provided by an employer.

If the accommodation is outside Australia, the‘ taxable value will be the market value of the accommodationfor the time it is occupied less any rent or otherconsideration paid.

For accommodation within Australia the taxablevalue is the “statutory annual value” of the accommodation‘ less the amount of any consideration paid by the employee.If the employee’s occupancy is for only part of the year,the statutory annual value is reduced proportionately.

To determine the statutory annual value, themarket value of the right to occupy the accommodation for afull year is obtained in the year when the accommodation isfirst used to provide a housing fringe benefit. If inconsecutive years the accommodation continues to be used toprovide housing frimge benefits to employees, that initialannual amount is, generally, to be indexed annuallyaccording to movements in the rent sub-group of theConsumer Price Index. Each tenth year, an up to datemarket valuation will be made as the basis for setting thestatutory annual value.

For accommodation located in a designated remotearea of Australia, the statutory annual value will bereduced by 40% if the accommodation is provided underconditions of a kind that attract concessions in valuingemployees’ remote area housing benefits under the presentincome tax law.

Alternatively, am employer may elect to valueremote area accommodation under a statutory formula. Underthis, the annual value of the accommodation is set bymultiplying the officially published figure for averageadult full-time wages in the mining industry by the figurepublished for the dwelling rent share of private finalconsumption expenditure. The annual value determined on

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this basis is reduced by 40%, and then further by anyemployee rent, to arrive at the taxable value of the fringebenefit. If an election for this basis is made, all remotearea accommodation provided by the employer must be valuedby the formula.

Where the taxable value of remote area housingfringe benefits is calculated according to the aboveformula, that value will be taken to include the value ofany free or subsidised domestic electricity, gas or oilthat is provided for, or paid on behalf of, the employeeoccupying the accommodation. That is, the value ofbenefits of that kind provided by the employer will not beadditionally taxed. If, however, a remote area housingbenefit is valued by applying the 40% discount to thestatutory annual value, a separate taxable fringe benefitwill be subject to fringe benefits tax if residential fuelis provided or paid for by the employer. In calculatingthe taxable value of this a 40% discount will also beapplied. -

Accommodation will be treated as being “remote”for these purposes if it is located more than 40 kilometresfrom a population centre of 14,000 or more and beyond 100kilometres of a population centre of 130,000 or more, thepopulation being as established by the 1981 census.

If the accommodation is in a location that is inzone A or zone B, it will be treated as being remote forfringe benefits tax if it is located more than 40kilometres from a population centre of 28,000 rather than14,000.

Living-away-from-home allowance fringe benefitsIClauses 30 and 31)

An allowance paid to an employee to compensate for Iadditional expenses or disadvantages suffered through theemployee (and family) having to live away from home inorder to perform duties for his or her employer may also besubject to fringe benefits tax.

The taxable value of a benefit derived from such 4an allowance is the amount of the allowance less so much ofit as is reasonable to compensate the employee for the costof accommodation away from home and for increasedexpenditure on food.

In determining what would be reasonablecompensation for increased expenditure on food, $42 perweek is specified for each person who is 12 years or overat the start of the year of tax as the amount that wouldhave been expended on food at the employee’s usual place ofresidence, and $21 per week for each younger person.

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If, instead of paying a cash allowance, anemployer provides, or pays for, accommodation of anemployee (and, where appropriate, his or her family) who isliving away from home, the accommodation benefit will notbe treated as a taxable living-away-from-home allowance.

If food is-paid for or supplied, the benefit ofthat will not be treated as a living-away-from-homeallowance, but as an expense payment fringe benefit (asoutlihed above) or a property fringe benefit (as outlinedbelow) respectively, the taxable value of which is reducedto the extent that it exceeds the amount prescribed as thestandard cost of food expenditure at home (i.e., $42 perweek for a person over 12 years and $21 per week for ayounger person)

Airline transport fringe benefits(Clauses 32 to 34)

Industry—specific valuation rules will apply tofree or discounted travel in passenger aircraft provided on

P a stand-by basis to airline employees on flights operatedby an employer or by another airline under industryarrangements. They will also apply where such concessionalair travel is pro~rided to employees of a travel agent.

These rules only apply to travel undertaken byemployees on the basis that their stand-by travel rightsare subordinate to those of other airline customers.

Where the travel is on a scheduled domesticservice of a domestic carrier, the taxable value of thefringe benefit is to be, in effect, 75% of an amount equalto the standard economy air fare as reduced by 50% of thatfare to take into account the stand-by nature pf the

travel. In practice this means that the taxable value willbe- 37.5% of the standard economy fare. Any amount paid bythe employee is deducted from the taxable value.

- If the travel is not on a scheduled domesticservice, e.g., if an international airline employee travelswithin Australia on a domestic leg of an internationalflight, the taxable value will generally be 37.5% of thelowest economy fare charged by TAA for an equivalentflight, again less the employee’s fare.

The taxable value of travel provided over aninternational route will generally be 37.5% of the lowestfare published in Australia as being publicly available —

including reductions for advanced fare or return travelbookings but not group bookings - in the 12 months up tothe end of the year of tax, less the fare paid.

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Board fringe benefits(Clauses 35 to 37)

Special valuation rules apply where an employee isprovided with board by an employer. An employee is treatedas being provided with board if the employee is entitled tothe provision of accommodation and:

there is an entitlement under an industrial awardto at least 2 meals a day; or

under an employment arrangement, at least 2 mealsa day are ordinarily provided.

Where an employee is provided with board, thespecial valuation rules detailed below will apply to mealsprovided by the employer or, if the employer is a company,by a related company in a wholly owned group, that areprepared and supplied on the employer’s (or relatedcompany’s) premises or at or adjacent to a work site. Somecommon examples of where these rules could apply are mealsgiven to shearers, etc., in a farmhouse kitchen or in ameal area attached to a bunkhouse. They would also applyto meals in a dining facility located on a constructionsite camp, oil rig or ship.

The taxable value of a board meals falling forvaluation under these rules will be $2 for each meal to aperson 12 years or more at the beginning of the year oftax, and $1 per meal for a younger person, less any amountpaid for the meal.

Tax-exempt body entertainment fringe benefits(Clauses 38 and 39)

A taxable fringe benefit will arise whereentertainment to the benefit of an employee is provided byan employer who is either wholly exempt from income tax ordoes not derive assessable income from the activities towhich the entertainment relates, e.g., a tax exemptstatutory authority or a taxable employer where theemployees concerned work in an activity, such as goldmining, that is not subject to income tax.

If the entertainment is purely personal to theemployee, e.g., a private dinner party, the whole of anyexpenditure incurred by the employer in providing theentertainment or reimbursing the employee for its cost willbe the taxable value of the fringe benefit. However, ifemployees participate in official or businessentertainment, e.g., a reception or other social functionheld mainly for clients of the employer, the taxable valuewill be so much of the relevant entertainment expenses asis reasonably attributable to the employees, i.e., usuallya proportion based on the number of persons attending.

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Entertainment expenses that would qualify as aspecific exception to the general rule of non-deductib~ilityof entertainment expenses for income tax purposes will notgive rise to a taxable fringe benefit, e.g., the provisionof meals to employees in staff cafeterias, the cost ofmeals at certain business seminars, meals on businesstravel away from home, etc.

Property fringe benefits(Clauses 40 to 44)

A taxable fringe benefit will arise where anemployee is provided with property, free or at a discount,by an employer. For these purposes, property includes allgoods (including non-reticulated gas and electricity and‘ animals) , real property, shares and other choses inaction. Goods supplied on a working day and consumed onthe employer’s premises, e.g., a daily ration of beerconsumed at work by brewery workers, will not attract tax.

Different valuation rules apply according towhether the property provided to the employee was:

goods normally manufactured or produced as part ofan employer’s business;

goods purchased by the employer and normally soldas part of the employer’s business; or

goods not normally part of the employer’s businessat all, or other property, e.g., choses in action

For goods provided to an employee that areidentical or broadly similar to goods that the employerordinarily supplies to the public in the course of his orher business, the following valuation rules apply:

where the goods provided free or at a discount toemployees are identical to goods normally sold bythe employer to manufacturers, wholesalers orretailers, the taxable value of the benefit is theamount by which the employer’s lowest arm’s lengthselling price (adjusted upwards, whereappropriate, for sales tax) exceeds the price, ifany, paid by the employee;

if the goods provided free or at a discount areidentical to goods normally sold by the employerto the public by retail, the taxable value of thebenefit is the amount by which 75% of the lowestprice charged to the public exceeds the amountpaid by the employee;

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where particular goods provided to employees aresimilar to, but are not identical to, those soldby the employer (e.g , because manufacturingdefects make them unsuitable for general sale) thetaxable value is the amount by which the employeecould be expected to pay to obtain the goods underan arm’s length transaction exceeds the priceactually paid.

For goods purchased by an employer for sale in theordinary course of his or her business, which are suppliedto an employee free or at a discount, the taxable value isthe amount by which the arm’s length purchase price paid bythe employer (adjusted, if necessary, to include sales tax)exceeds the amount paid by the employee.

In the event that such goods have lost value by Ithe time they are provided to the employee (e.g., becauseof obsolescence or deterioration) the taxable value ismeasured by reference to the amount for which the employeecould be expected to purchase the goods in an arm’s lengthdealing if that amount is less than the cost to theemployer.

The taxable value of goods not normally sold aspart of the employer’s business or other property that isprovided free or at a discount to employees is, generally,the amount by which the arm’s length cost price of theproperty to the employer exceeds the price charged to theemployee.

In the event that goods (or other property) areobtained from a third party under arrangements whereby theemployer pays for the goods, etc, (e.g., where goods arepurchased by an employee using the employer’s credit card)the taxable value is the amount of expenditure incurred bythe employer less any amount paid by the employee.

Other fringe benefits

There is a residual category of benfits notcovered by any of the previous valuation rules. Examples,would include the supply of free or discounted servicessuch as for travel or the performance of professional ormanual work, the use of property and the provision ofinsurance coverage.

Different fringe benefit valuation rules applyaccording to whether or not benefits in this residual classare of a kind that the employer provides to the public inthe ordinary course of business.

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Where the benefits are of a kind ordinarilyprovided as part of the employer’s business, the taxablevalue is 75% of the lowest price charged to the public lessany amount paid by the employee. If the benefits aresimilar but not identical to those provided to the public,the taxable value will be based on 75% of the amount that aperson could reasonably have expected to pay as an arm’slength consideration, i.e., broadly, market value.

Where benefits do not relate to things of a kindordinarily provided to the public as part of the employer’sbusiness, the taxable value will, generally, be the amountby which the cost to the employer of supplying the itenexceeds any consideration paid by the employee. If abenefit is not provided directly by the employer, but theemployer incurs expenditure to a third party under an arm’sp length transaction in respect of their provision to theemployee (e.g., where the employee uses the employer’scredit card to obtain the benefit) the taxable value willbe the amount incurred by the employer. In any other case,the taxable value will be the amount the employee couldexpect to pay for the benefit under an arm’s lengthtransaction, less any consideration given for the benefit.

Concasccinnal treatment of certain fringe benefits

The following kinds of benefits that wouldotherwise be taxable fringe benefits will be exempt fromfringe benefits tax;

Live-in residential care workers(Clause 58)

The provision of residential accommodation tolive—in residential care workers will be exempt from fringe

S benefits tax. These are employees of a government body,religious institution or non—profit body engaged in caringfor disabled persons or persons in necessitouscircumstances and who, in the course of those duties,reside with those persons in a house or hostel of theemployer body in order to provide such care.

Employee share acquisition schemes andcontributions to superannuation funds(Clause 135)

Benefits constituted by employer contributions tosuperannuation funds or the provision of shares or rightsto employees under employee share acquisition schemes aresubject to specific taxing arrangements under the incometax law and, as such, will not be subject to fringebenefits tax.

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Free or discounted commuter transport(Clause 47)

Where an employer operates a business of providingtransport (other than air transport) to the public, theProvision of free or discounted travel to employees of thatbusiness for the purpose of their travelling to and fromwork will be exempt as will free or discounted travel on ascheduled metropolitan service of the employer.

Where the benefit is provided by an associatecompany, it will also be exempt if both the employer andthe associate carry on a public transport business.

Recreational and child minding facilities(Clause 47)

Recreational or child minding facilities providedon an employer’s business premises for the benefit ofemployees will be exempt from fringe benefits tax.Facilities of these kinds provided on business premises ofa related company in a wholly-owned company group will besimilarly exempt.

Use of business property on an employer’s premises(Clause 47)

Where plant or equipment that is located on thebusiness premises of the employer is used wholly or partlyin connection with the operation of that business, anyprivate use of that plant or equipment by an employee on aworking day will be exempt from fringe benefits tax, e.g.,private telephone calls.

Exemption of the first $200 of certain“in—house”fringe benefits(Clause 62)

The first $200 of the aggregate of the taxablevalues of three categories of fringe benefits that aregiven to am employee in a year of tax is exempt from fringebenefits tax. These are airline transport fringe benefits,goods fringe benefits or residual benefits attributable tothings of a kind supplied to the public in the ordinarycourse of the employer’s business. The exemption isproportionally reduced to $150 in the transitional (part)year of tax.

Some benefits provided to employees who work indesignated remote areas of Australia will be either exemptfrom fringe benefits tax, or valued on a concessionalbasis, as follows:

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Housing assistance(Clause 60)

Benefits may be provided to assist employees toacquire houses in remote areas instead of the employersupplying rental accommodation. These may take the form ofreimbursing an employee for all or part of interestincurred by the employee on a loan to purchase a house foruse as his or her residence. Alternatively, the employermay sell a house to the employee on interest—free orlow—interest instalment terms. Such a house may also besold at less than its market value.

The taxable value of these benefits will attract a40% reduction if the house is located in a designated‘ remote area as described in the notes relating to remotearea housing benefits and the following additional factorsapply:

- the employee works in the remote area;

- it is customary in the employer’s industry foremployers to provide employees with housingassistance; and

- broadly stated, it is necessary for the employerto provide such assistance.

Associated fuel benefits(Clause 59)

Where electricity, gas and other fuel is suppliedor paid for by the employer in relation to housing thesubject of such an assistance arrangement, that benefit isalso discounted by 40% for fringe benefits tax valuationpurposes.

“Fly—in fly—out” arrangements(Clause 47)

Instead of providing permanent residential‘ accommodation to their employees in designated remoteareas, some employers choose to provide regular transportbetween the employee’s place of residence and the worksite. Under this kind of arrangement the employee isprovided with accommodation at or near the work site onworking days and is returned to his or her permanent placeof residence on days off.

The provision of transport on this basis is exemptfrom fringe benefits tax where, having regard to therespective locations of the work site and the employee’splace of residence, it would be unreasonable to expect theemployee to travel to and from work on a daily basis.

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Transport provided on a similar basis to employeeson oil rigs and other installations off-shore- are -alsoexempt from fringe benefits tax.

Remote area holiday travel- (Clause 61) -

Employees working in remote areas may, under an -

award, be reimbursed for the costs of, or may be providedwith, transport in connection with extended recreationleave (of more than 3 days) from the work locality to thetown from which they were engaged to work or to the capitalcity of the State or Territory where the work-place islocated. -

1n such cases, the taxable value of the resultingfringe benefit is to be reduced by half. - This concessionalvaluation also applies to such transport benefits given tothe employee’s family.

Reduction in taxable value: expenditure otherwisedeductible to employee(Clauses 19, 24, 34, 37, 44 and 52) -

The scheme of the Frinqe Benefits Tax AssessmentAct 1986 is to place a taxable value on a benefit providedto am employee, irrespective of whether or not theexpenditure reimbursed or the property or other benefitsupplied is used for the purpose of producing assessableincome of the employee. The Bill, however, provides forthe taxable value of the benefit to be reduced to theextent to which the expenditure incurred by the employee(in the case of expense payment benefits) or any -

expenditure that would otherwise have been incurred by the -

employee in obtaining the relevant benefit would have beendeductible for income tax purposes. In determining thisfor fringe benefits tax purposes, the $250 deductionthreshold embodied in section 3M of the Income Tax - -

Assessment Act is to be disregarded. -

This otherwise deductible rule will not apply inrelation to deductions that might have been available byway of depreciation allowances or to interest and otherexpenses that would otherwise be subject to the proposednew “negative gearing” rules for income tax purposes inrelation to property investments made after 17 July 1985.(See clause 11 of the Taxation Laws Amendment Bill 1986)

Substantiation requirements broadly ôonsistentwith those recently introduced into the income tax law fo-remployee expenses apply for the purpose of determining theextent to which any expenditure is to reduce the taxablevalue of a fringe benefit on the basis that it would havebeen otherwise deductible to an employee. For this purposespecific rules apply for determining the extent to whichany car expenses met by an employer would have been

19.

deductible to the employee. Employees will also berequired to maintain travel diaries to demonstrate theextent to which expenses relating to overseas travel andextended domestic travel (other than domestic travelundertaken exclusively in the course of the employee’sduties) would have been deductible for income tax purposes.

Re~uct ion in taxable value: non-deductible expenses of

employers

Entertainment expenses

Recent amendments to the income tax law introduceda code for the treatment of expenditure in respect of theprovision of entertainment. As a general rule suchexpenditure is not allowable as a deduction, although thereare some specific exceptions.

where an employer reimburses entertainmentexpenses of am employee or incurs expenditure in providinga benefit in circumstances where the employer’s expenditure

a is, wholly or in part, ineligible for income tax deductions• under that code, the taxable value of the fringe benefit is~ reduced - broadly in proportion to the disallowance of

deductions. If the whole of the expenditure is notallowable in this way no fringe benefits tax will bepayable.

Leisure facilities and travel by accompanyingrelatives -

Further provisions of the income tax law denydeductions for expenditure on club fees and certain leisurefacilities and expenditure incurred in respect of relativeswho accompany an employee on a business trip.

Consistent with the rule outlined above inrelation to entertainment expenses, where am employerreimburses employees’ expenditures of these kinds or incursexpenditure in providing benefits of these kinds such thatthe employer’s expenditure is, wholly or in part,

~ ineligible for income tax deductions, the taxable value ofthe resultant fringe benefit is reduced broadly inproportion to the disallowance of deductions.

A more detailed explanation of the provisions ofthe Bills is contained in the following notes.

/ 20.

FRINGE BENEFITS TAX ASSESSNENT BILL 1986

Introductory note: General scheme of the Bill in~etermimimg a liability to fringe benefits tax

An employer is liable to tax on the aggregatetaxable value of fringe benefits provided to his or heremployees during a year of tax. The essemtial requirementsfor determining that liability are to be found in thedefinition of “frinqe benefit” in sub—clause 136(1). Theseare -

that a benefit be provided during a year of tax toan employee or an associate of the employee (oranother person at the direction of the employee oran associate - see sub—clause 148(2));

that the benefit be provided by the employer ofthe employee, an associate of the employer oramother person under an arrangement betweem theemployer or associate and that other person oranother person (am example of this last categorywould be where an employer enters into anarrangement with a non-associated company for anassociate of that company to provide benefits tothe employer’s employees); and

that the benefit be provided in respect of theemployment of the employee.

For these purposes “associate” is, subject tocertain modifications in proposed section 159, given thesame broad meaning as im the Income Tax Assessment Act, andreferences to an employer and employee include future,current and past employers and employees, respectively.

The requirement that the benefit be provided “in Irespect of” the employment of am employee is also given ailide meaning under the definition of that expression insub-clause 136(1) to include any benefits provided byreason of, by virtue of, or for or in relation directly orindirectly to, that employment. For convenience, the term“in respect of” is used in this memorandum as embracing allof those terms.

By virtue of the meaning given to “employment” inits definition in proposed sub-section 136(1), onlybemefits that arise im relation to a position of employmentor employment activity that gives rise to salary or wagesthat are assessable to income tax in Australia will besubject to fringe bemefits tax. Clause 137 ensures,however, that benefits provided in lieu of assessablesalary or wages are also subject to tax.

The expression “benefit” is also given a widemeaning by virtue of its definition in sub—clause 136(1)and the meanimg given to the expression “provision of

21.

benefits” in sub-clause 148(1). In addition, proposed PartIII specifically treats certain items as benefits (e.g.,employer—provided cars, loans, etc., as specified in theintroductory notes) and specifies valuation rules for thesebenefits and any other benefits that are brought within thescope of the Act by the general meaning of benefit, i.e.,“residual benefits”.

Consistent with the intended application of theAct — which is to apply, broadly, to non-cash fringebenefits provided to employees — the definition of fringebenefit excludes from the scope of the Act salary and wages(whether assessable or exempt for income tax purposes) . Italso excludes contributions to superannuation funds (andany payments out of such funds) , benefits arising from‘ employee share acquisitions and payments made inconsequence of termination of employment, each of whichfall for specific treatment under express terms of theincome tax law.

The wide meaning given to “benefit” and the~ specific valuation rules has the broad result that the full

amount of any expenses paid or reimbursed or the marketvalue of any property, services or other benefits providedwill, subject to certain concessions and exemptionsspecified in the proposed law, be subject to fringebenefits tax. This is the result irrespective of whetherthe particular expenditure reimbursed, services provided,etc., may be directly related to the employee’s employmentor other income-producing activities.

Against that background two general reductionfactors apply. Under the first of these, any amount paidby the employee to acquire any property, etc., operates toreduce the taxable value of the particular benefit.

The second applies, broadly, to reduce the taxablevalue of a benefit provided to an employee to the extent towhich the expenditure incurred by the employee (in the caseof expense payment or expense reimbursement benefits) orany expenditure that would otherwise have been incurred by

~ the employee in obtaining the relevant benefit and wouldhave been deductible for income tax purposes. As explainedin the introductory notes on the main features of the Bill,this reduction is limited to expenditure that would be‘immediately’ deductible and substantiation requirementsbroadly consistent with those now embodied in the incometax law for employment expenses apply.

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PART I - PRELIMINARY

Clause I : Short title, &c.

By this clause the Act is to be cited as theFringe Benefits Tax Assessment Act 1986.

Clause 2 Commencement

Under clause 2 the Act is to come into operationon the day on which it receives the Royal Assent. But forthis clause the Act would, by reason of sub-section 5(1A)of the Acts Interpretation Act 1901, come into operation onthe twenty-eighth day after the date of Assent.

As the fringe benefits tax will apply to benefits 4provided on or after 1 July 1986 it is most desirable thatthe legislative base for the tax be put in place promptlyfor the information of employers and others affected by it.

PART II - ADMINISTRATION 4Clause 3 General administration of Act

Under this clause, the Commissioner of Taxation isto be responsible for the general administration of thelaws relating to fringe benefits tax.

Clause 4 : Annual report

This clause will, as is customary in Australiantaxation laws, require the Commissioner to furnish anannual report on the working of the Act to the Ministerresponsible for taxation matters for presentation to theParliament. In the report the Commissioner will berequired to draw attention to any breaches or evasions ofthe Act that have come under notice.

Clause S Secrecy

This clause contains secrecy provisions consistentwith those in other Commonwealth taxation Acts. It willimpose an obligation of secrecy on officers or formerofficers who, in the course of their duties related to theadministration of the Act, have acquired information withrespect to the affairs of another person. For thatpurpose, an “officer” includes a person who, although notactually appointed or employed by the Commonwealth,performs services for the Commonwealth. Officers will beobliged not to make a record of or divulge or communicatesuch information to any other person except in the courseof their duties and will not be compellable to give to anycourt information relating to the affairs of a personexcept when it is necessary to do so for the purpose ofgiving effect to the provisions of the Act. An officer may

23.

also communicate information to a person performing dutiesas an officer under another taxation Act administered bythe Commissioner for the purpose of enabling that person toperform those duties.

An officer may be required to make am oath ordeclaration to maintain secrecy in conformity with thesecrecy provisions.

The maximum penalty for an offence against thesection is a fine of $5,000, or imprisonment for one year,or both.

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PART III - FRINGE BENEFITS

DIVISION I - PRELIMINARY

çlaus~ 6 Part not to limit qenerality of “benefJr”

This clause is a drafting measure to ensure thatnothing in the specific fringe benefit valuation rulescontained in this Part can have the effect of limiting thegeneral meaning of the word “benefit” where it is used inthe Bill.

DIVISIOII 2 - CAR FRINGE BENEFITS

An outline of the operation of the Bill inrelation to car fringe benefits is given in theintroductory section of this memorandum. The main featuresare -

a taxable fringe benefit is to arise on any day onwhich an employer’s car is used by an employee forprivate purposes or is available for such use; 4

• for these purposes a car is defined as a motorvehicle (including a 4-wheel drive) that is amotor car, station wagon, panel van, utility truckor similar vehicle or any other road vehicledesigned to carry a load of less than 1 tonne orfewer than 9 passengers;

• unless the alternative method is elected, thetaxable value of a car fringe benefit is to bedetermined, broadly, according to a percentage(which will vary according to the total kiiometres

travelled in the year) of the original cost of thecar; 4under the alternative method, the taxable value isto be measured by reference to the private usageproportion of the actual cost of operating the carduring the year;

taxis, panel vans and certain other commercialcars are to be exempt from tax if private use isrestricted to home to work travel and other usethat is incidental to work travel.

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Subdivision A — Car Benefits

Clause 7 : Car benefits

Sub—clause 7(1) specifies the circumstances inwhich a car benefit will be taken to arise for fringebenefits tax purposes. The rules apply to establish carbenefits on a daily basis.

Under this sub—clause a car benefit will arise onamy day on which a car (as defined) that is held by anemployer (or associate or third party arranger) is appliedto a private use by an employee (or associate) or isavailable for the private use of the employee (orassociate)

For these purposes, a car is taken to be held by aperson where it is owned, leased or otherwise held by theperson (see clause 162). An example of a car “otherwiseheld” by a person would be where a car owned by a parentcompany is loaned to one of its subsidiaries, which in turnmake the car available to its employee’s for private use.

“Private use” of a car is, by virtue of thedefinition of that term in sub—clause 136(1) , amy use thatis not exclusively in the course of producing assessableincome of the employee.

Sub—clauses 7(2) and (3) specify the circumstancesin which a car will be taken to be “available” for theprivate use of an employee (or associate).

Under sub—clause 7(2), when a car is garaged orkept at or near a place of residence of the employee or anassociate it will be taken to be available at that time forthe employee’s private use.

By sub—clause 7(3), a car that is not at thebusiness premises of an employer (or associate, etc.) willbe taken to be available for the private use of an employee(or associate) if the employee is entitled to use the car‘ for a private purpose, if the employee has custody orcontrol of the car at a time when he or she is notperforming duties as an employee, or if an associate isentitled to use or has custody or control of the car. Forthese purposes “business premises” of a person are definedin sub-clause 136(1) to mean premises that are used in thebusiness operations of the person, but exclude any part ofthose premises that are used as an employee’s place ofresidence.

Sub—clause 7(4) ensures that any prohibition onthe use of a car for private purposes will be disregardedif the prohibition is not one that is consistently enforced.

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Sub—clause 7(5) ensures that a car that is used inaccordance with the directions or wishes of a person istaken, for the purposes of the preceding rules, to havebeen used by that person.

________________ applies to treat a car that ishire-purchase agreement as havingby that person. By thisarrangements outlined in

to a car held under hire-purchaseby the employer.

Sub-clause 7~7j applies to exclude from the carbenefit valuation rules the use by an employee of a taxi orother car let on short-tern hire to the employer, etc.Such benefits will, as necessary, be subject to valuationunder the residual benefit rules outlined in the motes onDivision 12.

Sub—clause 7(6)held by a person under abeen purchased and ownedsub-clause, the valuationSubdivision B will applyas if the car were owned

I

4

I

4

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Clause 8 Exempt car benefits

Sub—clause 8(1) ensures that the rules outlined inclause 7 are an exclusive code for the determination of thevalue of any car benefits and, as such, ensures that theywill not fall for valuation under any of the remainingvaluation rules.

By sub—clause 8(2) fringe benefits tax will notapply to taxis, panel vans, utilities and other commercialvehicles (i.e., those not designed principally to carrypassengers) if an employee’s private use of such a vehicleis solely work related. “Work related” is defined forthese purposes in sub-clause 136(1) to mean travel to andfrom work or use that is incidental to travel in the courseof the employee’s duties of empjoyment.

Subdivision B - Taxable Value of Car Fringe Benefits

Clause 9 Taxable value of car fcin~~benefits— statutory formula

Sub-clause 9(1) specifies a statutory formula thatis to apply in determining the taxable value of any carfringe benefits provided to employees. As explained in theintroductory note, this basis of valuation is to apply inthe absence of an election by the employer to adopt thealternative operating cost method of valuation provided inclause 10.

The formula operates on a per car basis byapplying a statutory percentage of the base value of thecar - broadly its cost price in the case of an owned car orits initial market value in the case of a leased car — that‘ varies according to the total number of kilometrestravelled in the year of tax. That value is reducedaccording to the number of any days during the year of taxon which the car was not used or available for private useby am employee or associate, and further reduced by theamount of any expense (referred to as the “recipient’s‘ payment”) incurred by the employee in operating the car oras consideration to the employer for having supplied thecar.

The statutory formula is expressed in sub-clause9(1) as —

- B0

For this purpose -

A is the base value of the car;

B is the relevant statutory fraction;

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C is the number of days during the relevantyear of tax in which the car was notprivately used or available for the privateuse of an employee (or associate), i.e., the

number of days on which a car benefit asdetermined in accordance with the precedingSubdivision did not arise in relation to thecar;

is the number of days in the year of tax;

E is the amount (if any) of the recipient’spayment.

The meaning of these components of the statutory formulaare explained in the following motes on sub—clause (2) anda practical example is given of the operation of theformula at the end of the notes on this clause,

Paragraph 2(a) specifies the amount that is thebase value of a car for the purposes of the statutoryformula.

Sub—paragraph 2(a) Ci) applies in circumstanceswhere the car is owned by the person providing it (i.e.,the employer, associate or the third party arranger) . Thegeneral rule for this purpose is that the base value of thecar is its cost price. “Cost price” is defined insub—clause 136(1) and is, generally, the amount of theexpenditure incurred in acquiring the car (including anydelivery costs) . The cost of accessories fitted at thattime are also Included in the base value unless they areaccessories that are required to meet the special needs ofany business operations in which the car is used (e.g., a2-way radio fitted to a salesman’s car). Accessories whichfall for inclusion in the cost price of a car are definedin sub—clause 136(1) as “non—business accessories”.

Where the person providing the car manufacturedit, the cost price is its wholesale value increased by theamount of sales tax payable by virtue of the car beingapplied to the manufacturer’s own use.

If any sales tax or customs duty concessions areobtained on the purchase of the car (e.g., by an employerwho is a hospital or government authority) , the base valueis the amount that the person could reasonably haveexpected to pay for the car if those concessions did notapply.

Sub-paragraph 2(a) (ii) applies where the car isleased or otherwise held by the person providing it for theemployee’s use. In these circumstances the base value isthe cost price (as outlined above) of the car to the lessoror, if the car is otherwise held by the person providingit, the amount that the person could reasonably be expected

29.

to have paid to purchase the car under an arm’s lengthtransaction (see the definition of “leased car value” insub—clause 136(1)).

In applying the preceding sub-paragraphs, the basevalue of the car is determined at the earliest time atwhich the car was held by the person providing it (or by anassociate of that person) . This is a safeguard that willensure that the base value of a car is not reduced by suchtechniques as sale and lease-back or buy-backarrangements. It will also ensure that the base value isnot reduced where the car is acquired by a lessee ontermination of a lease.

The base value of a car determined under the‘ preceding rules is, however, reduced by one-third witheffect from the beginning of the first year of taxfollowing the fourth anniversary of the date on which thecar was first owned by the provider (or associate) - seesub—paragraph (A) in each of paragraphs 9(2) (a) (i) and (ii)

Under sub—paragraph 9(1) (iii), the base value of acar is increased by the cost price of any non—businessaccessories fitted to the car after it was originallyacquired. The resulting increased base value applies inrelation to the whole year of tax in which the accessorieswere fitted. The cost price of any non-business accessoryis determined on the same base as that outlined broadlyabove in relation to the cost price of a car (seedefinition of “cost price” in sub-clause 136(1)).

Paragraph 9(2)(b) is a drafting measure thatdefines the “earliest holding time” which determines, asoutlined in the preceding notes, the date on which the basevalue of a car is established.

Paragraph 9(2) (c) specifies the statutoryfractions that are to apply to the base value of the car indetermining the taxable value of any fringe benefit inrelation to the car (i.e., component B in the statutoryformula) . The fractions vary according to the number ofkilometres travelled by the car during the year of tax.

Sub-paragraph (2) (c) (i) specifies the statutoryfractions for the transitional year of tax, as follows:

Total kilometres Taxable value as %travelled in the of base valuetransitional year

less than 18,750 18

18,750 to 30,000 12

over 30,000 6

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The statutory fractions for a standard year of taxare specified in sub-paragraph (2) (c) (ii) as follows:

Total kilometres Taxable value as %travelled in the of base valueyear

less than 25,000 24

25,000 to 40,000 16

more than 40,000 8

As explained above, the relevant statutoryfraction is determined according to the total number ofkilometres travelled by the car during the whole of theyear of tax. Paragraph 9(2)j~ applies in a case where thecar is held by the person providing it to the employeeduring a part only of the year of tax. The effect of theparagraph is to annuaiise the number of kilometrestravelled during that part of the year. This annualisedfigure forms the basis for determining the relevantstatutory fraction.

Paragraph 9(2) (el specifies the basis fordetermining component B in the statutory formula, i.e., theamount of any recipient’s payment.

By virtue of paragraph (e) , the amount of anyconsideration paid to the employer (or, if the car isprovided by another person, to the employer or that otherperson) as consideration for use of the car (sub—paragraphjjj) and any car expense paid by the employee(sub—paragraph (2)) apply to reduce the taxable value ofthe car fringe benefit. To qualify for this purpose, therelevant expenses must be incurred during the period whenthe car was provided for the employee’s (or associate’s)use.

As a safeguard, the amount of the reduction doesnot extend to any expenses incurred by the employee thatare reimbursed. In addition, any reduction in respect ofcar expenses incurred by the employee is conditional uponthe employer being provided with documentary evidence ofthe expenditure by the time of the lodgmemt of theemployer’s annual fringe benefits tax return. “Documentaryevidence” for this purpose has the same meaning as in therecently introduced substantiation reguirements of theincome tax law for employment-related expenses, e.g.,receipts, invoices, etc.

The following is am illustration of the operationof the statutory formula —

Assume that —

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a car is purchased by an employer for $20,000 on1 January 1987;

for the whole period 1 January to 31 March 1987(i.e. 90 days) the car is available for privateuse by am employee and travels 7,000 kilometres(i.e., projected “annual” kilometres for the ninemonths of the transitional year would be 21,000)

no sales tax or customs duty concessions wereobtained on the purchase of the car;

there are no “non-business” accessories to add tothe cost base;

the employee paid for the fuel used in the carduring the period 1 January to 31 March, amountingto $300, and substantiated the expense.

The taxable value of the car fringe benefit forthe transitional year of tax would be -

20,000 x .12 x 90 - $300 = $488274

Clause 10 Taxable value of car frinqe benefits- cost basis

Under sub-clause 10(1) an employer may elect thatthe operating cost method of valuing a car fringe benefitapply in relation to a particular car or cars. Asexplained in the notes on sub-clause 10(4) the electionmust be made by the time of lodgment of the fringe benefitstax return of the first year in which a taxable fringebenefit arises in relation to the car. Once adopted, theoperating cost basis must continue to be used for thatvehicle.

Sub—clause 10(2) specifies the basis forcalculating the taxable value of a car fringe benefit wherethe operating cost method applies. By this sub-clause the‘ taxable value is calculated by ascertaining the totaloperating costs of the car during the year of tax andreducing the total in the proportion of private kilometrestravelled during the year to total kilometres travelled.From that amount, any payment of operating costs orconsideration for use of the car by an employee (i.e., therecipient’s payment) is deducted to arrive at the taxablevalue of the car fringe benefit.

Where the particular car is held for part of theyear by the person providing it to am employee for privateuse (e.g., where the car is acquired by the employer partway through a year of tax) the operating costs arecalculated by reference to that period. The period during

32.

a year in which the car is held is referred to in thelegislation as the “holding period”.

The means for determining the value of a carfringe benefit under the operating cost method is expressedby a formula as follows —

C

For this purpose -

A is the operating costs of the car during theholding period;

B is the number of private kilometres travelledby the car in the holding period;

C is the total number of kilometres travelledby the car in the holding period; and

D is the amount of the recipient’s payment.

Details for ascertaining the amount to be imcludedunder each of these components are contained in sub-clauselOU).

Paragraph (3) (aj details the amounts that are tobe taken to constitute the operating costs of a particularcar during a holding period. These are -

expenditure incurred during the holding period onfuel, repairs and maintenance, irrespective of whoincurs them. The only exception to this generalrule is that costs borne by a lessor under therelevant lease agreement will not be taken intoaccount;

so much of any registration or insurance chargesthat are attributable to the holding period. Forthis purpose such expenses incurred by a previousowner are not taken into account when a car ispurchased second-hand (sub-paragraph (3) (a) (ii));

where the car is owned by the person providing thefringe benefit (i.e., the employer, associate orthird party arranger) , the amount of depreciationand interest deemed to have been incurred duringthe holding period in respect of the car and anysubsequently fitted mom-business accessories(sub-paraqraphs (3) (a) (iii) and (iv)). The methodfor calculating deemed depreciation and interestcharges is explained in the notes on clause 11;

where the car is leased by the person providingthe fringe benefit, the amount of amy leasecharges that are attributable to the holding

33.

period. In the event that the lessor obtained thebenefit of any sales tax or customs privilege orexemption in connection with the lease, the leasecharges taken into account for these purposes isthe amount that could reasonably be expected tohave been payable if the privilege or exemptionhad not been available (sub—paragraph (3) (a) (i)

where the car is neither owned nor leased by theprovider of the fringe benefit, deemeddepreciation and interest charges calculated as ifthe person were the owner are included asoperating costs (sub—paragraph (3) (a) (vi)).

Paragraph (3) (b) specifies the method for~ determining the number of private kilometres travelled by

the car during the holding period. For this purpose thenumber is calculated by deducting from the total number ofkilometres travelled by the car the number of kilometrestravelled by the car on “business journeys” (see thedefinition of that term in sub-clause i36(1)). A log book

s or similar document is required to be maintained tosubstantiate the number of kilometres travelled on businessjourneys (see the definition of “relevant car documents” insub—clause 136(1) and clause 161).

The amount of the “recipient’s payment” is definedin paragraph (3) (c) and has the same meaning as inparagraph 9(1) (e) — see notes on the paragraph for furtherexplanat ion.

Sub-clause 1014) specifies that an election toadopt the operating cost basis of deduction is to be lodgedin writing with the employer’s annual fringe benefits taxreturn, although the Commissioner of Taxation is to be

k empowered to extend the date for lodgment of the election~ (see definition of “declaration date” in sub-clause 136(1)).

Sub-clauses 10(5) and (6) give effect to thepolicy expressed in the notes on sub-clause 10(1) that anelection by an employer to adopt this method of valuation

~ is to be made in the first year of tax in which a taxablep fringe benefit arises in relation to the car and, oncemade, is to be irrevocable.

By sub-section 10(5) if an employer does not makean election in the first year of tax in which a fringebenefit arises in relation to the car, the employer isprevented from making such an election in a subsequentyear Similarly an employer will not be entitled to makesuch an election if an associate was entitled in a prioryear of tax to adopt the operating cost method of valuationand did not do so.

Under sub-section 10(6) am employer who makes avalid election to adopt the operating cost method in a yearof tax is deemed to have made such an election in relation

34.

to amy subsequent year of tax in which he or she is liableto fringe benefits tax in respect of the use of theparticular car.

As explained in the notes on sub-clause 10(1), theoperating costs of a car owned by a provider of fringebenefits in relation to the car includes the amount ofdepreciation and interest deemed to have been incurredduring the period during the year of tax in which the carwas owned by that person. Clause 11 specifies the basisfor calculation of these amounts.

Under sub-clause 11(]j, the amount of depreciationincurred in relation to a car is to be determined on adiminishing value basis by reference to a standarddepreciation rate of 22.5%. Thus, the amount ofdepreciation is calculated by multiplying the depreciatedvalue of the car as arrived at under this rule at the startof the year (see notes on clause 12) of tax (or its costprice if the car was acquired during the year) by 22.5%.The resultant figure is reduced proportionately where thenumber of days during the year of tax in which the car isowned by the person is less than 365. It follows from thisthat there will inevitably be a proportionate reduction inthe transitional year of tax, i.e., if the car is ownedduring the whole of the 9 months’ transitional year, theamount of depreciation in that year will be three-quartersof the full year depreciation amount.

By virtue of sub—clause llflL, the amount ofinterest deemed to have been incurred in a year of tax isdetermined by multiplying the depreciated value of the carat the start of the year (see motes on clause 12) by the“statutory interest rate”. This rate is defined insub—clause 136(1) and is, broadly, the lowest rate chargedby the Commonwealth Savings Bank for housing loansimmediately before the start of the year. This rate isalso used in determining the value of free or low interestloans (see notes on Division 4) and will be publishedannually. As with the calculation of deemed depreciation,the amount determined on this basis is reducedproportionately where the number of days during the year oftax in which the car is owned by the person is less than365.

Clause 12 defines “depreciated value” of a car forthe purpose of determining the amount of any deemeddepreciation and interest in accordance with the rulesoutlined in clause 11.

Under paragraph 12(a), the depreciated value of acar at the beginning of the transitional year of tax is thecost of the car to the owner less depreciation calculatedon a diminishing value basis at the 22.5% per annum rate byreference to financial years (i.e., years ending on30 June)

35.

By paragraph 12(b), the depreciated value of a carat the commencement of a subsequent year of tax isdetermined by deducting from its cost (where the car wasacquired after 1 July 1986) or its depreciated value at1 July 1986 (as determined in accordance with paragraphl2(a)) the amount of depreciation allowable in respect ofeach fringe benefits tax year.

Clause 13 applies to ensure that the taxable valueof a car fringe benefit is, broadly, determined byreference to expenditure under arm’s length transactions.For this purpose, sub-clause l3(2) ensures that whereexpenditure is incurred in acquiring a car or on anyoperating expenses of a car under the transaction where theparties are not operating at arm’s length, the amount of

~ the expenditure will, where necessary, be increased to thep amount that could reasonably be expected to be incurredunder an arm’s length transaction. This rule would apply,for example, where a car is sold by a person to anassociate at less than its true market value. Sub—clause13(4) applies similarly to situations where no expenditure

~ is incurred (e.g., where a car is donated to a charity) todeem expenditure to have been incurred of an amount equalto the amount that could reasonably be expected to havebeen incurred in acquiring the car, etc., on the openmarket.

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DIVISION 3 - DEBT WAIVER FRINGE BENEFITS

As explained in the introductory section of thismemorandum, a taxable fringe benefit will arise where anemployer releases an employee from an obligation to pay anamount owing to the employer. Commonly these type ofbenefits will arise where am employer makes a free or lowinterest loan to an employee which, in the event, is notrequired to be repaid. The free or low interst loan rulesdetailed in the motes on Division 4 will ensure that theinterest benefit is subject to tax for as long as theobligation to repay the loan remains outstanding; whileDivision 3 will ensure that the amount of the outstandingdebt is subject to tax in the year in which it is waived.

Subdivision A - Debt Waiver Fringe Benefits

Clause 14 Debt waiver benefits

By clause 14, a debt waiver benefit will be takento arise at a time when a person waives the obligation ofanother person to pay or repay an amount owed by that otherperson.

As explained in the notes on the general scheme ofthe Bill, a debt waiver benefit will be subject to tax as afringe benefit where the relevant debt is one that is owedby am employee (or associate) to the employer (or associateor third party arranger) and the benefit arises in respectof the employee’s employment with the employer.

Subdivision B - Taxable Value of DebtWaiver Fringe Benefits

Clause 15 Taxable value of debt waiver IfrimMe benefits

By clause 15 the taxable value of a debt waiverfringe benefit (as defined above) is the amount releasedfrom payment. I

DIVISION 4 - LOAN FRINGE BENEFITS

An outline of the operation of the Bill inrelation to the provision of free or low interest loans iscontained in the introductory section of this memorandum.The main features are

a free or low interest loan made to an employee(or associate) will constitute a benefit;

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“loans” for this purpose is given a wide meaningso as to include any advance, provision of credit,etc., and also includes any interest accruing on aloan that does not become payable for an extendedperiod;

loans made to employees by persons engaged in abusiness that includes lending will not be subjectto fringe benefits tax where the employee-loansare made on no more favourable terms than thosemade to the public in the course of the employer’sbusiness;

the taxable value of free or low interest loansmade to employees will be the difference betweenthe amount of interest notionally calculated asaccruing over the relevant year of tax by applyinga specified benchmark interest rate to the dailybalance of the loan and the interest that actuallyaccrued on the loan during the year of tax;

the benchmark interest rate may vary according towhether the loan was a fixed interest loan madebefore 1 July 1986, a housing loan made before3 April 1986 or any other loan;

the value of the benefit is generally reduced tothe extent to which amy interest payable on theloan is, or would have been, deductible to theemployee for income tax purposes.

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Subdivision A - Loan Benefits

Clause 16 Loan benefits

Sub-clause 16(1) establishes the prima facie rulethat the making of a loan to a person is taken toconstitute a benefit. The sub-section also ensures thatthe benefit is taken to have been provided in each year oftax in which the obligation to repay amy part of the loanexists. This is a drafting measure that ensures that thevalue of the benefit of the concessional rate of interestis brought to account in each year in which the loamremains outstanding.

Sub-clause 16(1) does not require that the loan bemade at a concessional rate of interest in determiningwhether there is, in the first instance, a benefit.However, as explained in the notes on clause 17, loans madeto employees by am employer whose business includes lendingto the public will be excluded from liability for fringebenefits tax where they are made on the same terms as loansmade to members of the public in the ordinary course ofthat business. In addition, as explained in the notes onSubdivision B, a taxable fringe benefit will not ariseunless the interest rate charged to the employee is lessthan the specified benchmark rate.

As explained in the notes on the general scheme ofthe Bill, a “loam benefit” as defined by clause 16 will besubject to fringe benefits tax only where the loan is madeby an employer (or associate or third party arranger) to anemployee (or associate) and the loan is made in respect ofthe employee’s employment.

By virtue of its definition in sub—clause 136(1)“loan” is given a wide meaning so as to include any advanceof money, any credit or financial accommodation and anytransaction which in substance effects a loan of money.The remaining sub-clauses of clause 16 further extend themeaning of the expressiom in specified circumstances.

By sub-clause 16(2), the loan fringe benefitsrules will apply in any case where an amount which a personis under an obligation to pay or repay to another person isnot paid on the date on which it falls due for payment.Where these circumstances occur and the amoumt originallypayable would not otherwise be a loan, the amount will,with effect from the date when it fell due for payment, betreated as a loan.

Sub—clauses 16(3) and (4) apply in circumstanceswhere interest accrues on a loam but does not fall due forpayment for an extended period.

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Sub-clause 16(4) brings within the scope of theDivision what are termed “deferred interest loans”. Theseare loans where interest is payable on a loan but atintervals exceeding 6 months.

Where sub-clause 16(4) applies, sub—clause 16(3)treats the amount of any unpaid interest that accruesduring each 6 month period after the making of theprincipal loam to have been separately and additionallyloaned to the borrower, free of interest. The period ofthe additional loan extends from the end of the 6 monthperiod until the interest is paid or becomes payable.

Sub—clause 16(5) is a drafting measure thatensures that where no interest is payable on a loam, a nilrate of interest is takem to be payable.

flause 17 Exempt loam benefit

Clause 17 exempts certaim loans from the operationof fringe benefits tax.

By virtue of sub—clause 17 (1) , a fixed interestloan made to an employee (or associate) by a person whocarries on a business that includes making loans to thepublic will be exempt from fringe benefits tax if the rateof interest is at least equal to the fixed interest rateapplicable under a comparable loan made to a member of thepublic in the ordinary course of business at or about thetime when the loan was made to the employee.

Sub—clause 17(2) confers a similar exemptiom on avariable interest loan made to an employee where the rateof interest varies in line with interest charged under acomparable arm~s length business loan made at about thesame time.

Under sub-clause 17(3), an advance made by amemployer to am employee solely for the purpose of meetingexpenses to be incurred, within a maximum of 6 months of‘ the advance being made, in carrying out duties ofemployment, is taken outside the scope of the fringebenefits tax rules.

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Subdivision B - Taxable Value of Loan Fringe Benefits

Clause 18 Taxable value of loan frinoe benefits

Sub—clause 18(11 is the operative provision thatestablishes the taxable value of a loan fringe benefit inrespect of a year of tax. By this sub-clause, the taxablevalue is the amount by which the notional interestcalculated on the loan for the year of tax exceeds theamount of interest that has actually accrued on the loanduring the year.

Sub—clause 18(2) specifies the basis forcalculating the notional interest on a loan. Notionalinterest is calculated by reference to the amount ofinterest that would have accrued on the loan during theyear if the interest were calculated om the daily balanceof the loan at a prescribed rate. The prescribed rate forthis purpose is, generally, the lowest rate charged by theCommonwealth Savings Bank for housing loans immediatelyprior to the commencement of the year of tax (see paragraph(a) of the definition of “statutory interest rate” insub—clause 136(1)).

For housing loans made to employees (orassociates) prior to 3 April 1986, the notional rate ofinterest is subject to a ceiling of 13.5%. For thispurpose a “housing loan” is defined in clause 141 (seenotes on that clause) and has the same general meaning asin the housing loan interest rebate provisions of theincome tax law.

The prescribed interest rate may also vary in thecase of fixed interest loans made prior to 1 July 1986. Inthese cases the notional interest on the loan is to becalculated by reference to the Commonwealth Savings Bankhousing loan rate prevailing when the loan was made if thiswould produce a lower taxable value. For this purpose, theprevailing Commonwealth Savings Bank housing loan rates ofimterest up to 2 April 1986 are specified in a schedule tothe Fringe Benefits Tax Assessment Bill.

Clause 19 : Reduction of taxable value IClause 19 applies, broadly, to reduce the taxable

value of a loam fringe benefit to the extent to whichinterest payable on the loan is, or would be, allowable asan income tax deduction to the employee. For example, ifan employee were to use a loan wholly to finance thepurchase of interest-bearing investments, the loan wouldnot produce a taxable value for fringe benefits becauseinterest paid on the loan, even if not provided by theemployer at a concessional rate, would be wholly deductiblefor income tax purposes.

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Paragraph 19(1) (a) applies to limit the operationof the reduction rule to loans made to an employee.

Sub-paragraph 19(1) (b) (i) establishes the generalpre-condition for application of the reduction rule thatthe whole or a part (the “deductible percentage”) of anyinterest payable on the loan would have been deductiblewhen incurred for income tax purposes. The recentlyintroduced income tax substantiation requirements aredisregarded for this purpose. As necessary, specificsubstantiation requirements are established for fringebenefits tax purposes.

By sub-paragraph 19(1) (b) (ii), any interestexpense that would otherwise be subject to the proposed new‘ “negative gearing” rules for imcome tax purposes inrelation to property investments made after 17 July 1985(see clause 11 of the Taxation Laws Amendment Bill 1986)will not reduce the taxable value of a loan fringe benefit.

In order to establish the income tax deductibility‘ of interest on a loan, paragraph i9(l)(c) requires that theemployee give to the employer a declaration setting outparticulars of the use to which the loan was put. Thedeclaration must be made in a form approved by theCommissioner of Taxation and given to the employer beforethe date of lodgment of the employer’s fringe benefits taxreturn of the particular year (see definition of“declaration date” in sub-clause 136(1)).

Where these requirements are satisfied the taxablevalue of the loan fringe benefit is reduced in line withthe proportion of any interest payable on the loam thatwould have been deductible for income tax purposes (e.g.,if half of any interest payable on the loan would have beem‘ deductible for income tax purposes, the taxable value ofthe loan fringe benefit would be reduced by half).

Specific rules apply if the loan was used by anemployee to purchase a car that is used forincome-producing purposes. In this case, paragraph‘ l9(l)(d) requires that the employee lodge with the employerbefore the date of lodgment of the annual fringe benefitstax returm, one of two declarations.

The first of these requires that the employeespecify -

the period of the year in which the car was ownedby the employee;

• the total number of business kilometres travelledin the car durimg the year; and

• the total number of kilometres (business andprivate) travelled in the car during the year.

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Where this declaration also includes a statementthat a log book or similar document (see the definition of“relevant car documents” in sub—clause 136(1) and clause161) have been maintained and a copy has been supplied tothe employer, the deductible percentage will generally bedetermined by reference to the details of kilometres shownin the declaration.

If log books, etc., have not beem maintained, thedeductible percentage will similarly be determimed byreference to the details shown in the declaration, but inthis case there will be a maximum deductible percentage of33 1/3.

The alternative declaration available undersub—paragraph 19(1) (d) (ii) requires that the employee —

specify the period of the year in which the carwas owned by the employee; and

declare that the average number of businesskilometres per week travelled by the car duringthat period exceeded 96 kilometres per week. IWhere this alternative declaration is lodged, the

deductible percentage is treated as being 33 1/3.

“Business kilometres” is defined for the purposesof these rules in sub-clause 136(1) as, broadly, kilometresforming a jourmey undertaken in the car in the course ofproducing assessable income of the employee.

In general, the various substantiation documentswill, as explained in the motes on Part X, need to beretained by an employer for a period of 6 years from whenthe relevant fringe benefits tax return is lodged.

In addition, technical compliance with thesubstantiation requirements and retention of substantiationdocuments by the employer, although a necessarypre-condition, will not be conclusive that an income taxdeduction would have been allowable to an employee inrespect of interest on the loan. Whether or mot adeduction would have been allowable will turn on theapplication of the income tax law to the facts of eachparticular employee’s case.

Sub—clause 19(2) is a drafting measure thatensures that the specific arrangememts relating to loansused to purchase cars have their intended effect in caseswhere a part only of the loan is used to purchase a car.

DIVISION 5 - EXPENSE PAYMENTFRINGE BENEFIT

Am outline of the operation of the Bill inrelation to expense payment fringe benefits is given in theintroductory section of this memorandum. The main featuresare -

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the payment or reimbursement by an employer of anyexpenses incurred by an employee will constitute afringe benefit of an amount equal to the amountpaid or reimbursed;

“reimbursement” of an employee’s expenses inoperating his or her own car will be outside thescope of fringe benefits tax, such reimbursementsbeing treated as assessable income of the employeefor income tax purposes; and

the taxable value is to be reduced to the extentto which the employee’s expenditure wouldotherwise have been deductible for income taxpurposes.

Subdivision A - Expense Payment Benefits

Clause 20 Expense payment benefits

Clause 20 establishes the rule that the payment ofan amount of expenditure incurred by another person

V (paragraph 20(a)), or the reimbursement of an amount ofexpenditure incurred by another person (paragraph 20(b)),constitutes a benefit provided to that other person.

As explained in the notes on the general scheme ofthe Bill, an expense payment benefit will be subject tofringe benefits tax where the payment or reimbursement ismade by anemployer (or associate or third party arranger)and where the benefit is provided in respect of theemployee’ s employment.

Clause 21 Exempt accommodation expense payment benefits

Clause 21 complements the rules embodied inDivision 7 for the treatment of living-away-from-homeallowances. By clause 21, where an expense payment benefitrelates to the payment or reimbursement of expenditureincurred by an employee on accommodation in circumstanceswhere the employee is required to live away from his or her

• usual place of residence in order to perform employmentV duties, it is exempt from fringe benefits tax. A

requirement for exemption under clause 21 is that theemployee gives to the employer a declaratiom specifyingboth the employee’s usual place of residence and the placeat which the employee is residing while living away fromthat usual place of residence. The declaration is to belodged with the employer prior to lodgmemt of theemployer’s annual fringe benefits tax return.

Clause 22 Exempt car expense payment benefits

By clause 22, where an employer compensates anemployee on a cents per kilometre basis for expenses of

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operating a car that is owned or leased by the employee,the compensation will not be subject to fringe benefits tax.

As explained in the notes on the Fringe BenefitsTax (Miscellaneous Provisions) Bill, amendments proposed bythat Bill will ensure that such paymemts are treated asassessable income of the employee. To obtain offsettingincome tax deductions, employees will meed to satisfy thesubstantiation rules applicable to car expenses under theincome tax law.

This general rule that cents per kilometrereimbursements are to be outside the scope of the fringebenefits tax law will not, however, apply in the case ofreimbursements that relate to remote area holidaytransport. These benefits are subject to special valuationarrangements outlined in the notes om clause 61.

Subdivision B - Taxable Value of Expense PaymentFringe Benefits

Clause 23 Taxable value of expense paymentfringe benefits

By clause 23, the taxable value of an expensepayment fringe benefit is the amount of the expenditurepaid or reimbursed. If, as may occur where an employerpays the full amount of expenditure incurred by amemployee (e.g., an employee’s telephone account) and theemployee reimburses the employer for a part of theemployer’s payment, the taxable value is reduced by theamount of the employee’s contribution.

Clause 24 Reductiom of taxable value

Clause 24 applies, broadly, to reduce the taxablevalue of am expense payment fringe benefit to the extent towhich the expenditure incurred by the employee would havebeen deductible to the employee for income tax purposes ifit had not been paid or reimbursed by the employer.

Paraqraph 24(1) (a) applies to limit the operationof the reduction rule to payment or reimbursement ofexpenditure incurred by an employee.

Sub-paragraph 24(1) (b) (ii establishes the generalpre—condf�16h for application of the reduction rule thatthe whole or a part (the “deductible percentage”) of theexpenditure incurred by the employee would have beenimmediately deductible when incurred for income taxpurposes. The recently introduced income taxsubstantiation requirementsfor employment-related expenseclaims are disregarded for this purpose. As necessary,specific substantiation requirements are established forfringe benefits tax purposes. In addition, the $250threshold on the deductibility under section 51 of theIncome Tax Assessment Act for self-education expenses issimilarly disregarded.

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By 5ub—paragraph 24(1) (b) (ii), any expenditurethat would otherwise be subject to tlilé proposed mew“negative gearing” rules for income tax purposes inrelation to rental property investments made a’fter17 July 1985 (see clause 11 of the Taxation Laws AmendmentBill 1986) will not apply to reduce the taxable value ofexpense payment fringe benefits.

Paragraphs 24(1) (c) to (f) prescribe thesubstantiation requirememts that are to be satisfied if thereduction rule embodied in clause 24 is to apply.

By paragraph 24(l)(c), documentary evidence ofexpenditure is required. As a general rule, thatdocumentary evidence is to be of a kimd that would be

a required if the employee sought to obtain an income taxdeduction for the expenses, i.e., receipts, invoices, etc.(see definition of “documentary evidemce” in sub—clause136(1)).

Sub-paragraph 24(1) (c) (i) applies in conjunction

~ with sub—clauses 24(3) and (4) to enable entries in a pettycash book, which provide details of the amount and natureof the employee’s expenditure, to substitute for receipts,etc., in the case of individual items of expenditure ofless than $10. The maximum amount per employee for whichentries can be made in substitution for actual receipts is$200.

The requirement to obtain documentary evidence ofexpenditure does not apply in two cases. These are,broadly -

the reasonable costs of accommodation, mealsor other incidentals of travel withinAustralia which would not requiresubstantiation under the income tax law whenmet out of a reasonable travel allowance (seethe definition of “eligible incidemtal travelexpense benefit” in sub—clause 136(1)) ; and

overtime meal expenses that would not requiresubstantiation when met out of a reasonableovertime meal allowance (see the definitionof “eligible overtime neal expense benefit”in sub—clause 136(1)).

Paragraph 24(1) (d) applies in circumstances wherethe employee’s expenditure was incurred in respect oftravel outside Australia or in respect of travel inAustralia in circumstances where the travel was notundertaken exclusively im the course of the employee’semployment with the employer and involved the employeebeing away from home for more than 5 nights.

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In these circumstances a further pre-condition forthe application of the reduction rule is that the employeekeep a diary of a kind required to substantiate under theincome tax law deductions for overseas or extended domestictravel (see the definition of “travel diary” in sub—clause136(1)). A further requirement is that the diary (or acopy) be supplied to the employer by the time of lodgmemtof the employer’s annual fringe benefits tax return.

By paragraph 24(1)(e) the employee is alsorequired to lodge with the employer a declaration, in amapproved form, setting out details of the expenditure.This provides the details necessary to establish theconnection betweem the expenditure and the income-producingactivities of the employee.

This requirement does not, however, apply in Irelation to expenses that are incurred by the employeeexclusively in the course of his or her employment dutieswith the employer (i.e., “exclusive employee expensepayment benefit” as defined in sub—clause 136(1)). Nordoes the requirement for a declaration apply to overtimemeal expenses that are excluded from the operation ofparagraph 24(1) (c) (“eligible overtime meal expense paymentbenefits”), travel expenses to which paragraph 24(1) (d)applies (“eligible incidental travel expense paymentbenefits”) or car expenses which are subject to the rulesin paragraph 24(1) (f) (“car expense payment benefits”).

Paragraph 24(1) (f) establishes rules forapplication of the “otherwise deductible” reduction rulewhere the expenses met or reimbursed by an employer orexpenses incurred by an employee are in operating a car heor she owns or leases. Car expenses for this purpose isgiven a wide meaning, consistemt with the meaning given forpurposes of the income tax substantiation requirements (seethe definition of “car expense payment benefit” insub-clause 136(1)). The requirements imposed by paragraph24(1) (f), and the resuitamt rules for ascertaining the“otherwise deductible” percentage are consistent with thoseoutlined in the notes on paragraph 19(1) (d)

Where the substantiation requirements referred to 4above are satisfied, the taxable value of the relevantexpense payment benefit determined in accordance with therule established in clause 23 is reduced by the amount ofthe employee’s expenditure that would otherwise have beendeductible to the employee for income tax purposes.

Sub—clause 24J~j ensures that, where expenditureis incurred on travel in respect of which an employee isrequired by paragraph 24(1) (d) to maintain a travel diary,any expenditure on an activity that is not duly emtered inthe diary will be disregarded in determining the extent towhich the travel expenses is to be taken as “otherwisedeductible” to the employee.

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The operation of sub-sections 24(3) and (4) is asexplained in the notes on paragraph 24(1) (c).

Sub—clause 24(5) is a safeguard which ensures thatwhere an amount of an employee’s expenditure is reimbursedby an employer in instalments, the “otherwise deductible”reduction rule applies only to the aggregate of thereimbursements.

The various substantiation documents required byclause 24 will, as explained in the notes on Part X,generally need to be retained by an employer for a periodof 6 years from when the relevant fringe benefits taxreturn is lodged. In addition, as mentioned in the noteson sub-clause 19(1) relating to loan fringe benefits,

a technical compliance with the substantiation requirementsp will not of itself be conclusive that an employee wouldhave been entitled to an income tax deduction.

DIVISION 6 - HOUSING FRINGE BENEFITS

An outline of the operation of the Bill inrelation to free or subsidised residential accommodation iscontained in the introductory section of this memorandum.The maim features are -

a taxable benefit arises where an employee isgranted a right to occupy a unit of accommodationas the employees usual place of residence;

the value of the benefit is ascertained in thefirst year in which a taxable benefit is grantedin relation to the unit, generally by reference tothe market value of the right to occupy the unit;

in subsequent years the taxable value is generallyto be ascertained by indexing the prior year’staxable value according to movements in the rentsub—group of the Consumer Price Index; although afresh market valuation is required each tenth year;

the taxable value of accommodation located in aremote area that qualifies for existingconcessional treatment under the income tax law(with some extension) is to qualify for a 40%reduction in the value determined under thepreceding rules;

there is to be an alternative statutory method forvaluing remote area accommodation that qualifiesfor the preceding concession;

in each case the taxable value is to be reduced bythe amount of any rent paid by the employee forthe right to occupy the unit.

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Subdivision A - Housing Benefits

Clause 25 Housing benefits

Clause 25 establishes the basic rule that theexistence of a housing right granted to a person during ayear of tax is to constitute a benefit provided to thatperson.

For this purpose a “housing right” is defined insub-clause 136(1) to mean the granting of a lease orlicence to occupy or use a unit of accommodation as theperson’s usual place of residence.

By this latter requirement, the valuation rulesembodied in Division 6 will not extend to accommodationprovided to an employee who is required to live away fromhis or her usual place of employment in the course ofemployment duties. Such accommodation benefits wilt bedealt with under the residual benefits rules contained inDivision 12 and will, where the specific requirements ofsub-clause 47(5) are met, be exempt from fringe benefitstax.

Nor will Division 6 apply to accommodationprovided to an employee where the employee is undertakingtravel. Such benefits will similarly fall for valuationunder the residual benefits rules. Where the travel isundertaken for income-producing purposes of the employee,the taxable value will be subject to reduction under the“otherwise deductible” reduction rules embodied insub—clause 52(1).

A “unit of accommodation” is defined widely insub-clause 136(1) to include a house, flat or home unit;accommodation in a hotel, hostel, motel or guesthouse;accommodation in a bunkhouse or other living quarters;accommodation in a ship, vessel or floating structure, anda caravan or mobile home.

As explained in the notes on the general scheme ofthe Bill, a housing right benefit as defined in thisSubdivision wilt be subject to fringe benefits tax wherethe right is granted by the employer (or associate or thirdparty arranger) to an employee or associate and where thebenefit is provided in respect of the employee’s employment.

Subdivision B — Taxable value of housing fringe benefits

Clause 26 Taxable value of non-remote housino frinee benefi~t5

Clause 26 establishes the rules for valuinghousing fringe benefits other than those that qualify forthe concessional remote area valuation rules provided inclause 29. Broadly, these latter rules apply to

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accommodation that qualifies for existing concessionaltreatment under section 2SAAAB of the Income Tax AssessmentAct.

By paragraph 26(1) (a), the taxable value of theright to occupy a unit of accommodation that is not locatedin a State or internal Territory is the market value ofthat right, reduced by the amount of rent paid by theemployee (or associate)

Paragraph 26(1) (b) applies where the accommodationis provided in a hotel, motel, hostel or guesthouse withinAustralia. In this case the taxable value is similarly themarket value of the right to occupy the accommodation lessany rent paid. If, apart from being a housing benefit,such a benefit would be an “in-house” residual fringep benefit - broadly, services supplied by an employer whosebusiness it is to provide similar or identical services tothe public — the taxable value is reduced to 75% of themarket value, less the employee’s rent. That will be thecase, for example, if a hotel employee is provided with‘ residential accommodation in the employer’s hotel similarto that provided to paying guests.

Paragraph 26(1) (c) applies to the provision ofother accommodation located within Australia.Accommodation benefits falling witfhin this wide categorywill initially be valued by reference to the market valueof the right to occupy the accommodation, but imdexationadjustments will apply. The taxable value will be found by

obtaining the “statutory annual value” of theright to occupy the accommodation;

multiplying the statutory annual value by theproportion of the number of days in the year oftax when the housing right existed over the totalnumber of days in that year (this is expressed inparagraph 26(1) (c) by the formula ~fi) ; and

deducting the amount of rent paid.

Note that while it is necessary to determine afull—year renta) value of a housing right so as tofacilitate the indexatiom arrangements described below, thepractical result of the operation of this formula inrelation to the transitional year of tax is thataccommodation rights will be valued in that year byreference to the market value of the right, less the amountof rent paid.

The statutory annual value of a right to occupy aunit of accommodation is determined in accordance with therules embodied in sub—clause 26(2).

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Paragraph 26(2LLoI prescribes the rules forascertaining the statutory annual value of a housing rightin what is termed a “base year of tax”. Put broadly, thestatutory annual value is the market value of the right tooccupy the accommodation for the year. Where theemployee’s housing right exists for part only of the yearthe market value of that right is amnualLised to determinethe statutory annual value.

Whether a year of tax is a base year of tax isdetermined under the rules established in sub—clauses 26(3)and (4) . By virtue of these sub—clauses, the transitionalyear of tax will be a base year, and so will amy other yearwhere the unit of accommodation was not, in the precedingyear, used to provide a housing fringe benefit to amemployee or associate. A year will also be a base year ifthe unit of accommodation has been used to provide housingbenefits to am employee or employees in each of the 9preceding years, none of which was a base year. (This willallow the indexed value to be aligned with market rentalvalue every 10 years.)

Paragraph 26(2) (b) establishes the imdexationarrangements for valuing a right to occupy a unit ofaccommodation in a year other than a base year.

By virtue of this. paragraph, the statutory annualvalue of a right to occupy a unit of accommodation in ayear immediately succeeding a base year is determined byapplying the relevant index number derived from movementsin the rent sub-group of the Consumer Price Index - seenotes on clause 28 - to the statutory annual valuedetermined in relation to the base year under paragraph26(2) (b) (broadly, the annualised market value of theemployee’s right to occupy the unit for the full base year).

In circumstances where the unit of accommodationhas been occupied during differemt periods in the year bydifferent employees, the statutory annual value of the baseyear for purposes of the indexatiom arrangement, isdetermined by reference to the weighted average of therespective anmualised values determined in relation to eachemployee.

Having established the indexed statutory annualvalue of a right to occupy a unit of accommodation inrelation to the year of tax immediately succeeding a baseyear, the current indexation factor is then applied to thatvalue in determining the statutory annual value for thesucceeding year. That process of annual indexing continuesuntil there is another base year in relation to the unit.

Sub-clause 26j~j applies where there has been amaterial alteration to a unit of accommodation that has theeffect of substantially altering (i.e. by at least 10%) themarket value of the right to occupy the unit. Where this

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occurs the sub-clause requires the unit to be treated as a“mew” unit of accommodation, with the result that the valueof the right to occupy the unit is, from the date of thechange, re-established by reference to the market value ofthat right.

Sub—clause 26(6) defines, for the purposes ofsub—clause 26 (5) , a “material alteration” to a unit ofaccommodation as additions or improvements or other workcarried out on the unit, any damage to the unit, or anyaddition of facilities to the unit or removal of facilitiesfrom the umit.

Clause 27 Determination of market value of housing right

Clause 27 specifies certain factors that are to bedisregarded in determining the market value of a right tooccupy a unit of accommodation.

Under sub-clause 27(1), any rights of the occupantof the unit to have any associated expenses (e.g., forelectricity) incurred by the occupant paid or reimbursed byp another person are disregarded. Such benefits will besubject to valuation under the expense payment rulesexplained in the notes on Division 5.

By sub—clause 27(2), amy onerous conditionsattached to the housing right that relate to the employee’soccupancy are similarly to be disregarded. For example,the fact that the employee is provided with accommodationunder arrangements where the employee is “on-call” will notaffect the market value of the housing right.

Clause 28 Indexation factor for valuation purposes

Clause 28 establishes the indexatiom factor thatis to apply in relation to a particular year of tax for thepurposes of the imdexation arrangements detailed inparagraph 26(2) (b) . Separate indexation numbers are toapply for each State and internal Territory.

By sub—clause 28(1), the factor is to beascertained as at the date on which the index number isfirst published for the December quarter immediatelypreceding the year of tax. The factor is to be ascertainedby dividing the sum of the rent sub—group numbers of theConsumer Price Index for each quarter of the twelve monthsending 31 December that immediately precedes the relevantyear of tax by the sum of the corresponding numbers foreach quarter of the twelve months ending on the previous31 December.

Under sub-clause 28(2) the index number firstpublished for each quarter of any year is to be used in thecalculation in sub-clause (2) . Any index number publishedin substitution for a previously published index number isto be disregarded.

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Sub—clause 28(3) requires that if, at any time,the Australian Statistician changes the reference base forthe rent sub-group of the Consumer Price Index, theindexatiom factor calculated after that time will bedetermined by reference only to index numbers published interms of the new base.

Sub-clause 28(4) specifies the basis for roundingto three decimal places the factor calculated in accordancewith sub—clause (1).

By paragraph 28(5) (a), the Jervis Bay Territory is

treated as part of New South Wales, with the result thatthe indexation factor for that State is to be used inindexing the statutory annual value of accommodationprovided in that Territory. Paragraph 28(5) (b) appliessimilarly to index accommodation in the Territory ofChristmas Island as for the Northern Territory.

Clause 29 Taxable value of remote area accommodation

Clause 29 specifies the valuation rules that areto apply to accommodation that is located in a designatedremote area and that satisfies certain other eligibilitycriteria (see notes on sub—clause 29(4)).

Paragraph 29(1) (a) prescribes a statutory formulafor determining the value of a housing right that qualifiesas a remote area housing right within the terms ofsub-clause 29(4). This basis of valuation will apply onlywhere an employer makes an election under sub—clause 29(2)(see notes on that sub-clause).

Calculation of the taxable value of each remotearea housing right granted by an employer in a year of taxin accordance with this formula involves the followingsteps -

the statutory annual rent amount — which asexplained in the motes below is a standard figuredetermined in relation to a year of tax - isdiscounted by 40%; 4this discounted annual figure is apportionableaccording to the number of days in the year of taxin which the employee’s housing right existed -

because the transitional “year” of tax is a periodof 9 months only, an apportionment will berequired in all cases for that year;

the amount of rent paid by the employee is thendeducted to arrive at the taxable value of thebenef it.

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The “statutory annual rent amount” is defined forthese purposes in sub—clause 136(1). This amount iscalculated in relation to a particular year of tax asfollows -

the amount of the average weekly earnings(including overtime) of adult male full-timeemployees in the mining industry published by theAustralian Statistician in respect of the Novemberpay period immediately preceding the beginning ofthe year of tax is multiplied by 52 to give anannual figure;

this figure is then apportioned by the fractionobtained by dividing the sum of the dwelling rentcomponents of the total private final consumptionexpenditure figures published in respect of thequarters in the calender year immediatelypreceding the year of tax by the sum of the totalprivate consumption expenditure figures publishedin respect of each of those quarters.

For the transitional year of tax the averageweekly earnings figure mentioned above is the figure aspublished by the Australian Statistician in the publication“Average Earnings and Hours of Employees, Australia”. Forsubsequent years the figures are to be published in theofficial publication “Average Weekly Earnings, States andAustralia”.

The dwelling rent components and total privateconsumption expenditure amounts are amounts, expressed atcurrent prices and without seasonal adjustments, aspublished by the Australian Statistician in the documentpublished in respect of the December quarter of the‘ relevant calender year titled “Quarterly Estimate ofNational Income and Expenditure”.

If an employer does not elect to adopt thestatutory formula method of valuation, the taxable value ofqualifying remote area housing rights is the amountdetermined in accordance with clause 26 as reduced by 40%.

Any rent paid by the employee is deducted fromthis discounted amount. A housing right that qualifies forthis 40% discount will not also qualify for the general 25%“in—house” fringe benefits reduction described in the noteson paragraph 26(1) (b).

The basis for making an election to adopt thestatutory formula valuation method is contained insub—clauses 29(2) and (3). By virtue of these sub-clauses,where an employer has made an election, all remote areaaccommodation benefits provided by that employer will bevalued by the formula method. An election must be made bythe time of lodgment by the employer of the annual fringe

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benefit tax return for the year of tax. Once the electionis made it is irrevocable and applies to the year of taxand all subsequent years.

Sub-clause 29(4) specifies the conditions, each ofwhich must be satisfied before the valuation rules embodiedin this clause can apply.

These conditions, which are similar to conditionsthat have applied for purposes of valuing employees’ remotearea housing benefits under the income tax law, are that -

the unit of accommodation is located in a State orinternal Territory and is in a remote area(paragraph (a));

the unit of accommodation is occupied by an Iemployee whose annual place of employment is in aremote area (paragraph (b));

it is customary in the particular industry foremployers to provide free or subsidisedresidential accommodation to employees (paragraphJsl); and

it is necessary for the employer to provide freeor subsidised accommodation for employees for anyof the following reasons (paragraph (d))

- the nature of the employer’s business is suchthat employees are liable to frequentmovement from one residential location toanother;

- in the area in which the employee is employedthere is not sufficient suitable residentialaccommodation otherwise available; or

- because it is customary in the employer’sindustry to provide free or subsidisedhousimg to employees.

Paragraph 29(4) (e) mirrors safeguards designed to 4prevent non-arm’s length and other arrangements beingemployed to obtain the unintended benefit of the remotearea valuation concession.

For the purposes of the concessional rules toapply im remote localities, a unit of accommodation will betreated as being in a remote area if it is not at alocation in, or adjacent to an eligible urban area. Byvirtue of clause 140, an eligible urban area is a town orcity with a 1981 Census population of 14,000 (or 28,000 ifthe town or city is located in zone A or zone B for incometax purposes). A locatiom will be treated as beingadjacent to an eligible urban area (i.e., mot remote) if itis less than 40 kilometres by the shortest practicable

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surface route from the centre point of an eligible urbanarea with a 1981 Census population of less than 130,000 oris less than 100 kilometres from an eligible urban areawith a population of 130,000 or more.

Sub-clause 29(5) mirrors a similar provision inthe income tax law and gives the Commissioner of Taxationthe power where circumstances warrant it, to treat a personwho resides or works in an area adjacent to an eligibleurban area, as residing or working outside that area ifpersons who live or work near to that person, are outsidethat area. This power is to meet situations where nearneighbours would otherwise be treated differently as towhether they qualify for the concession under the“remoteness” tests because they live or work just onopposite sides of the dividing mark.

DIVISION 7 - LIVING-AWAY-FROM-HOME ALLOWANCEFRINGE BENEFITS

Am outline of the operation of the Bill inrelation to expense payment fringe benefits is contained inthe introductory section of the memorandum. The maimfeatures are —

an allowance paid by an employer to an employee tocompensate for additional expenses ordisadvantages suffered through having to live awayfrom home to perform employment duties is to betreated as a fringe benefit;

the taxable value is the amount of the allowanceless so much of the allowance as is reasonablecompensation for the cost of accommodation awayfrom home and increased expenditure on food.

Subdivision A - Living-away-from-homeAllowance Benefits

Clause 30 Living-away-from-home allowance benefit

Clause 30 specifies the circumstances in which an‘ allowance paid by an employer to an employee will betreated as a living-away-from-home allowance benefit.These are where the allowance paid to an employee is in thenature of compensation for additional expenses incurred, oradditional expenses incurred and other disadvantagessuffered, because the employee is required to live awayfrom home to perform his or her duties of employment,Additional expenses for this purpose do not includeexpenses for which the employee would be entitled to adeduction under the income tax law.

Subdivision B - Taxable Value of Living-away-from-homeAllowance Fringe Benefits

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Clause 31 Taxable value of living—away—from—homeallowance fringe benefits

Under clause 31, the taxable value of aliving—away—from-home allowance is the amount of theallowance reduced by either or both of two components.These components are termed the “exempt accommodationcomponent” and the “exempt food component”. Both aredefined in sub—clause 136(1).

The amount of an exempt accommodation component isso much of the allowance as is reasonable compensation forthe cost of accommodation of the employee.

The second component that may be deducted from theallowance in calculating the taxable value — the exemptfood component - is, broadly, so much of the allowance asis reasonable compensation for increased expenditure onfood.

ln determining what is reasonable compensation forincreased expenditure on food, the law specifies (see thedefinition of “statutory food amount” in sub—clause 136(1))the amount that an employee could reasonably be expected tohave incurred on food at his or her home. Only so much ofthe food component of the allowance (see the definition of“food component” in sub-clause 136(1)) as exceeds thatstatutory amount for home food costs is treated as anexempt food component.

To illustrate the operation of these arrangements,if, as part of a living-away-from-home allowance anemployee is paid $80 per week to cover the gross cost offood while living away from home, the taxable value of theallowance would be reduced by $38. In this case $38represents the excess of the food component over the homefood cost (the “statutory food amount”) which for an adultis set at $42 per week.

If the amount of the food component of theallowance has been determined after allowing an estimatefor the normal cost of food at the employee’s home and theestimated home food cost for this purpose is at least equalto the $42 statutory amount, the taxable value of theliving-away-from-home allowance will be reduced by the fullamount of the food component of the allowance.

In the event that the estimated home food costadopted in paying the allowance was less than the $42statutory amount, so much of the food component as exceedsthe difference between the estimated home food cost and the$42 statutory amount will apply to reduce the taxable valueof the living-away-from-home allowance. To take anexample, if the food component of am allowance paid to anemployee was set at $60 per week after allowing forestimated home food costs of $20, the taxable value of the

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allowance would be reduced by $38 (i.e , $60 reduced by thedifference between $42 and $20)

In the event that the food component of theallowance is paid to compensate for the cost of foodpurchased for the employee and a spouse or child who moveswith the employee from their usual place of residence (seethe definition of “eligible family member” in suh—clause136(1)) the preceding rules apply on an equivalent basis byreference to the aggregate of the statutory food amountsapplicable to the employee and family members who movedwith him or her.

As already mentioned the statutory food amount foran adult is set at $42 per week. The comparable figure fora child who is less than 12 years of age at the beginningof the relevant year of tax is $21. It is intended thatthese amounts be regularly reviewed by reference tomovements in the Consumer Price Index.

Before the taxable value of a~ living-away-from-home allowance cam be reduced by either or

both of the exempt accommodation component or exempt foodcomponent, the employee is required to give to the employera declaration, in an approved form, that sets out theparticulars of the employee’s “usual place of residence”and “actual place of residence” during the period ofabsence from home (see the definitions of those terms insub—clause 136(1)).

DIVISION 8 - AIRLINE TRANSPORTFRINGE BENEFITS

The operation of the Bill in relatiom todiscounted airline transport provided to employees in theairline and travel industries is contained in theintroductory section of this memorandum. The main featuresare -

the special valuation arrangements embodied inthis Division are to apply to free or discountedairline transport provided within the travelindustry on an employee stand-by hasis (otherdiscoumted travel will be subject to tax under theresidual benefits rules contained in Division 12)

the taxahle value of domestic travel will be 37.5%of the standard economy fare charged by thecarrier (where the travel is on a domestic leg ofan international flight, the taxable value willgenerally be 37.5% of the equivalent TAA fare);

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the taxable value of international travel willgenerally be 37.5% of the lowest fare published inAustralia that is charged by the carrier fortravel over that route in the 12 month periodpreceding the end of the relevant year of tax.

Subdivision A - Airline Iransport Benefits

Clause 32 Airline transport benefits

Clause 32 specifies the circumstances in which theprovision of airline transport will be subject to valuationunder Division 8.

Paragraph 32(a) establishes, firstly, that thetransport must be provided to an employee (or associate) ina passenger aircraft which, by virtue of sub-paragraph32(b)(i), must be operated by am “airline operator”. Thisterm is defined in sub-clause 136(1), broadly, to mean aperson who carries on a business of providing transport tothe public on passenger aircraft.

A further condition for the application of ILivision 8 is that the employer (or an associate of theemployer) is an airline operator or, ~IternativeIy, thatthe esployer is a travel agent (sub—paragraph 32(b) (ii)).it should he noted that it is not necessary in the case ofemployees of an airline operator that the transport beprovided on a flight of that operator. As is the generalrule, fringe benefits tax will extend to discounted travelprovided on flights operated by another carrier under anarrangement with the employer. As is explained in themotes on sub—clause 136(1), “arrangement” has a widemeaning and includes all agreements, understandings,umdertakings, etc., formal or otherwise.

The final requirement for the application of 4Division 8 is embodied in paragraph 32(c). This is thatthe transport is provided under the employee stand-byrestrictions that are customary in the airline industry.Under these, the stand-by travel rights of an employee comebehind those of members of the general public (including,where applicable, members of the public who fly on astand-by basis).

Subdivision B - Taxable Value of Airline TransportFrimge Benefits

Clause 33 Taxable value of airline transportfringe benefits

Clause 33 establishes the taxable value of abenefit subject to the operation of Division 6 as thestand-by value of the transport, reduced by the fare paidby the employee (or associate).

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“stand-by value” is defined for these purposes insub—clause 136(1) and different rules apply according towhether the benefit relates to domestic or internationalair travel.

For domestic travel on a scheduled service of adomestic carrier, the stamd-by value is the amount equalto 37.5% of the standard economy fare charged by thecarrier for travel on that flight.

Where an employee is provided with transportwithin Australia on the domestic leg of an internationalflight, the stand-by value will, generally, be 37.5% of thestandard economy fare charged by TAA for an equivalentflight.

The stand-by value of travel provided over aninternational route will be determined, broadly, as 37.5%of the lowest fare published in Australia and charged bythe carrier for travel over that route in the 12 monthperiod preceding the end of the relevant year of tax.

The relevant published fare for this purpose isthat charged on an individual booking basis. Reduced faresapplicable for return travel or advance purchase will applyin determining the relevant stand—by value (see thedefinition of “providers published air fare” in sub—clause136(1)).

As explained in the notes on the definition of“qualifying air fare” in sub—clause 136(1) , a published airfare of a carrier who has premises in Australia is a fareoffered as being available to all members of the public andspecified in a publication authorised by the carrier andavailable at those premises.

Where the carrier does not have premises inAustralia, the equivalent fare is one that is offered asbeing available to all members of the public and specifiedin a tariff manual authorised by the provider and availableat an agent’s premises in Australia.

Clause 34 : Reduction of taxable value

Clause 34 applies, broadly, to reduce the taxablevalue of an airline transport fringe benefit to the extentto which any expenditure that has been, or would otherwisehave been, incurred on the transport would be deductiblefor income tax purposes (e.g., because the travel wasumdertaken in the course of the employee’s employment).

Paragraph 34(1) (a) applies to limit the operationof the reduction rule to travel undertaken by am employee.

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Paragraph 34(1) (b) establishes the generalpre-condition for application of the reduction rule thatthe whole or a part (the “deductible percentage”) of anyexpenditure that the employee might have incurred on thetransport would have been deductible for income taxpurposes. The recently introduced income taxsubstantiation requirements for employment-related expenseclaims are disregarded for this purpose. As detailedbelow, specific substantiation requirements are establishedfor fringe benefits tax purposes.

By paragraph 34(1) (c) the employee is required tolodge with the employer a declaration, in am approved form,setting out details of the transport so as to establish itsconnection with the income-producing activities of theemployee. This requirement does not need to be satisfiedwhere the travel is undertaken exclusively in the course ofthe employee’s employment duties with the employer(sub—paragraph 34(1) (c) (i) — see the definition of“exclusive employee airline transport benefit” insub-clause 136(1)); nor does it apply in relation tooverseas or extended domestic travel to which paragraph34(1) (d) applies (sub—paragraph 34(1) (c) (ii) — seedefinition of “extended travel airline transport benefit”).

Paragraph 34(1) (d) applies in circumstances wherethe benefit relates to travel outside Australia or totravel in Australia where it was not undertaken exclusivelyin the course of the employee’s employment and involved theemployee being away from home for more than 5 nights.

In these circumstances a further pre-condition forthe application of the reduction rule is that the employeekeep a diary of a kind required to substantiate under theincome tax law deductions for overseas or extended domestictravel (see the definition of “travel diary” in sub—clause136(1)). A further requirement is that the diary (or acopy) be supplied to the employer by the time of lodgmemtof the employer’s annual frimge benefits tax return.

Where these requirements are satisfied the taxablevalue is reduced in line with the proportion of anyexpenditure on the transport that would have beendeductible for income tax purposes (e.g., if half of anyexpenditure would have been deductible for income taxpurposes, the taxable value of the airline transport fringebenefit would be reduced by half).

Sub—clause 34(2) ensures that, where the travel isof a kind for which a travel diary is required to bemaintained by paragraph 34(1) (d) , any activity that is notduly entered in the diary will be disregarded indetermining the extent to which travel expenses would be“otherwise deductible” to the employee.

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The various substantiation documents required byclause 34 will, as explained in the notes on Part X,generally need to be retained by an employer for a periodof 6 years from when the relevant fringe benefits taxreturn is lodged. In addition, as mentioned in the noteson sub—clause 19(1) relating to loan fringe benefits,technical compliance with the substantiation requirementswill not of itself be conclusive that an employee wouldhave been entitled to an income tax deduction.

DIVISION 9 - BOARD FRINGE BENEFITS

An outline of the operation of the Bill inrelation to board fringe benefits is contained in theintroductory section of this memorandum. The main featuresare -

an employee will be treated as being provided withboard during a period when he or she is entitledto the provision of accommodation and, broadly,there is an entitlement to the provision of atleast 2 meals a day;

where these meals are provided by the employee onthe employer’s premises or at a work site, specialvaluation rules apply;

under these valuation rules, the taxable value ofthe benefit is set at $2 per meal (Si per meal fora person under 12 years) , less any amount paid forthe meal.

Subdivision A - Board Benefits

Clause 35 : Board benefits

Clause 35 establishes the rule that the provisionof a board meal to a person will constitute the provisionof a benefit.

“Board meal” is defined for the purposes of thisk Division in sub—clause 136(1). The first requirement to bep satisfied for this purpose is that the meal be provided qn

what is termed a “meal entitlement day” (paragraph (a) ofthe definition of board meal).

“Meal entitlement day” is also defined for thesepurposes in sub-clause 136(1) . Amy day on which anemployee is entitled to the provision of accommodation amdis also entitled, within the terms of an industrialinstrument, to the provision of at least 2 meals will besuch a day. “Industrial instrument” is defined insub-clause 136(1) to mean a law of the Commonwealth or of aState or Territory or an award, order, determination orindustrial agreement in force under any such law.

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A day may also be treated as a meal emtitlementday if it occurs during a period when the employee isentitled to the provision of accommodation and, under anarrangement that is in force during that period, theemployee is entitled to be supplied with at least 2 mealsper day. This requirement will be satisfied only where themeal entitlement extends both to working days andnon-working days during the period and only where mealsare, in fact, ordinarily provided on the working days.

Where these conditions are satisfied, theremaining paragraphs of the definition of board mealspecify the circumstances in which a meal provided on ameal entitlement day will be subject to the specificvaluation rules embodied in Subdivision B.

The first condition — paragraph (b) of the Idefinition of board meal - is that the meal be provided bythe employer; although a meal provided by a related company(see ciause 158) will, in a case where the employer is acompany, satisfy this requirement.

The second requirement - paragraph (c) of the 4definitiom - may be satisfied on one of two alternativebasis. The first of these is that the meal be cooked orotherwise prepared on the employer’s (or, as appropriate, arelated company’s) premises and be provided to the employeeon such premises. Meals prepared and provided at oradjacent to a work site would also satisfy this requirement(see the definition of “eligible premises” in sub-clause136(1)). The requirements of paragraph (c) would not,however, be satisfied if the meal is provided in a publicrestaurant.

The other basis for satisfying the requirements ofparagraph (c) relate to meals supplied to employees whowork in a restaurant or other public dining facility (seethe definition of “eligible dining facility in sub-clause135(1)) or in an associated accommodation or recreationalfacility (e.g., employees in a hotel or motel). In thesecases the requirements of paragraph (c) will be satisfiedif the meal is prepared and provided to the employee inthat facility.

Reference should also be made to clause 151, thebroad effect of which is to ensure that where a personcontracts out the services of his or her employees toanother person, the board meal requirements apply as ifmeals provided by that other person on his or her premiseswere supplied by the employer on the employer’s premises

By virtue of paragraph (d) of the definition ofboard meal, the special board valuation rules will notapply to meals prepared in a facility that is principallyused to prepare meals for a particular employee. By thisparagraph, the valuation rules will mot apply where a houseprovided to an employee and immediate family also has a

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cook on the domestic staff. Such benefits will either besubject to the recently introduced entertainment provisionsof the income tax law or be dealt with under otherDivisions of this Bill.

By paragraph (e) of the definition of board meal,a meal provided at a party, reception or other socialfunction will also be excluded from the scope of thisDivision.

Meals provided to an employee’s family will besubject to the special valuation rules where the conditionsoutlined above are satisfied.

Subdivision B - Taxable Value of Board Meals

Clause 36 Taxable value of board meals

By clause 36, the taxable value of a meal that istreated as a board meal by virtue of Subdivision A is setat $2, less any amount paid by the employee to obtain themeal. In the event that the person receiving the meal is‘ less than 12 years old at the beginning of the relevantyear of tax, the taxable value is $1, again reduced by anycharge.

It is intended that these values be regularlyreviewed having regard to movements in the Consumer PriceIndex.

Clause 37 Reduction of taxable value

Consistent with similar provisions in otherDivisions, clause 37 applies to reduce the taxable value ofa board fringe benefit to the extent to which anyexpenditure incurred by an employee in obtaining the mealwould have beem deductible for income tax purposes.

Paragraph 37(1) (a) applies to limit the operationof the reduction rule to meals provided to an employee.

Paragraph 37(1) (b) establishes the generalpre-condition for application of the reduction rule thatthe whole or a part (the “deductible percentage”) of anyexpenditure that the employee night otherwise have incurredon the meals would have been deductible for income taxpurposes. The recently introduced income taxsubstantiation requirements for employment-related expenseclaims are disregarded for this purpose.

DIVISION 10 - TAX EXEMPT BODY ENTERTAINMENTFRINGE BENEFITS

As noted in the introductory section of thismemorandum, a taxable fringe benefit will arise whereentertainment to the benefit of an employee is provided byan employer who is either wholly exempt from income tax or

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does not derive assessable income from the activities towhich the entertainment relates.

A taxable fringe benefit will arise both whereemployees participate in official or business entertainmentor where employees are entertained at, e.g., a staffChristmas party funded by the employer. Division 10 giveseffect to this rule.

Reference should also be made to the notes onsub—clause 64(2), which address the treatment ofentertainment that is purely personal to the employee,e.g., a private dinner party, the cost of which is borne bythe employer.

As such the benefit could be provided -

by a tax-exempt employer, e.g., a charity orstatutory authority;

by a taxable employer who providesentertainment to employees employed in anactivity (e.g., gold miming) which is notsubject to income tax; or

by an employer for employees whose employmentis unconnected with the production ofassessable income (e.g., employees of mutualassociations)

Subdivision A - Tax-exempt BodyEntertainment Benefits

Clause 38 Tax-exempt body entertainment benefits

Clause 38 specifies the circumstances in which abenefit to which Division 10 applies will be taken toarise. Broadly, these are where a person incurs what istermed non-deductible exempt entertainment expenditure thatis wholly or partly in respect of the provision ofentertainment to an employee (or associate). A furtherrequirement of clause 38 is that the provision of thatentertainment be in connection with the employee’semployment.

“Non-deductible exempt entertainment expenses” isdefined for these purposes in sub—clause 136(1) asexpenditure that is not incurred in producing assessableincome - that is, the person incurring the expenditure isexempt from income tax or the particular activities towhich the expenditure relate do not result in theproduction of assessable income - but which if it were soincurred would be denied a deduction by the operation ofsection SIAE(4) of the Income Tax Assessment Act 1936.

Where the person who incurs the relevantexpenditure is the employer (or associate or third party

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arranger), the benefit will be a fringe benefit to whichthe valuation rules embodied in Subdivision B will apply.

Subdivision B - Taxable Value of Tax-exempt BodyEntertainment Fringe Benefits

Clause 39 : Taxable value of tax-exempt bodyentertainment fringe benefits

By clause 39, the taxable value of a benefit towhich this Division applies is so much of the expenditureincurred in respect of the provision of entertainment as isattributable to the provision of entertainment to anemployee of the employer or to an associate of the employee.

DIVISION ii - PROPERTY FRINGE BENEFITS

An outline of the operation of the Bill inrelation to the provision of property, free or at adiscount, to employees is contained in the introductorysection to this memorandum. The main features are -

the provision of property to employees willgive rise to a taxable fringe benefit;

different valuation rules will applyaccording to whether the property provided tothe employee was:

- goods normally manufactured or produced aspart of an employer’s business;

- goods purchased by the employer and normallysold as part of the employer’s business; or

- goods not normally sold as part of theemployer’s business, or other property, e.g.,choses in action;

the valuation rules relating to goods normallysold as part of an employer’s business will alsoapply where goods are provided to the employer’semployees by an associate of the employer,provided they are goods of a kind normally sold aspart of the associate’s business;

the taxable value of benefits falling within thefirst two categories are subject to the generalexemption for up to $200 as explained in the noteson clause 62;

those rules will not, however, apply to goodsprovided by a third party under an arrangementwith the employer or associate; nor will theyapply to goods purchased by an employee using anemployer’s credit card or similar authority;

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goods supplied to employees on a working dayand consumed at the employer’s premises willnot attract tax;

a benefit that consists of a combined supplyof goods and services (e.g., repairs) will besubject to valuation under the residualbenefit rules embodied in Division 13; and

the taxable value of a property benefit is tobe reduced to the extent to which anyexpenditure that might otherwise have beenincurred by the employee in acquiring theproperty would have been deductible forincome tax purposes.

Subdivision A - Property Benefits IClause 40 : Property benefits

Clause 40 establishes the prima facie rule thatthe provision of property to a person is taken toconstitute a benefit provided to the person.

Clause 40 does not require that the property beprovided free or at a discount. However, as explained inthe motes on Subdivision B, a taxable value will only arisewhere the amount of any consideration paid to obtain theproperty is less than the value of the property as set bythe various rules embodied in that Subdivision.

As explained in the motes on the general scheme ofthe Bill, a “property benefit” as defined by sub-clause136(1) will be subject to fringe benefits tax only wherethe property is provided by the employer (or associate orthird party arranger) to an employee (or associate) and thebenefit is provided in respect of the employment of theemployee.

By virtue of the definition of “provide” insub-clause 136(1), property will be taken to have beenprovided at the time when the beneficial interest in theproperty is disposed of. This is to be the case whetherthe disposal is by means of sale, gift, declaration oftrust or otherwise.

In addition, clause 155 ensures that property willbe taken to have been provided to a person when that personobtains the use of the property under an arrangementwhereby title to the property is to pass to the person at aiater date. This will apply to property provided under ahire—purchase arrangement or other instalment purchasearrangement under which equitable (and legal) title in theproperty does not pass until the final instalment is paid.

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Clause 41 Exempt property benefits

By virtue of clause 41, property that is providedby an employer to an employee on a working day will beexempt from tax if it is consumed on the business premisesof the employee. “Business premises” is defined insub—clause 136(1) as premises used for the purposes ofbusiness operations of the employer, but does not includepremises used for the provision of accommodation toemployees. Property consumed on the premises of a “relatedcompany” — see the definition of that term in sub—clause136(1) — will also be exempt.

Subdivision B - Taxable Value of PropertyFringe Benefits

Clause 42 Taxable value of in-house propertyfringe benefits

Clause 42 establishes the valuation rules for whatare termed “in—house property fringe benefits”. This termis defined in sub-clause 136(1). The definitions of“tangible property” and “outsiders” in that sub—clause are

P relevant for this purpose, as is clause 156.

By virtue of the operation of those definitions,the valuation rules embodied in clause 42 will apply togoods (including for this purpose non-reticulatedelectricity and gas, animals and fish) provided toemployees where those goods are identical or similar togoods which the employer sells in the ordinary course ofbusiness. Clause 42 also extends to goods provided toemployees by an associate of the employer where theassociate sells identical or similar goods in the ordinarycourse of business.

Paragraph 42(1) (a) applies where the goodsprovided to employees were manufactured, produced,processed or treated by the employer (or associate)Sub—paragraphs 42(1) (a) (i) and (ii) apply where theparticular goods provided to employees are “identical” (seedefinition in sub—clause 136(1)), or practically so, tothose sold in the ordinary course of business and prescribealternative valuation rules according to whether the goodsare ordinarily sold by retail or not. Sub-paragraph42(1) (a) (iii) applies where the goods are similar but notidentical to goods sold in the course of business (e.g.,because manufacturing defects make them unsuitable forgeneral sale)

By sub—paragraph 42(1) (a) (i) the taxable value ofmanufactured, etc., goods provided to employees that areidentical to goods normally sold by the employer (orassociate) to manufacturers, wholesalers or retailers isthe amount by which the lowest arm’s length selling price

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of such goods sold at that time (see the definition of“provision time”) exceeds the price paid by the employee(or associate)

If sales tax is not normally payable by theemployer on sales to customers, the price must be adjustedto include sales tax that would be payable by the employeron disposal of the goods to the employee. If, for example,the employer is a manufacturer normally selling towholesalers (at which point there is no sales tax payable),an appropriate amount of sales tax is to be added toreflect, in terms of the sales tax law, the application ofthe goods to the employer’s own use.

If the manufactured, etc., goods provided toemployees are identical to goods normally sold by theemployer (or associate) to the public by retail, thetaxable value is, by virtue of sub-paragraph 42(1) (a) (ii),the amount by which 75% of the lowest arm’s length pricecharged at that time for goods sold in similarcircumstances to members of the public exceeds the amountpaid by the employee (or associate)

In establishing a taxable value under either ofthe preceding rules, regard is to be had only to sales madein the ordinary course of the employer’s business. Inaddition, where an employer (or associate) ordinarily sellsboth by wholesale, etc., and by retail, the valuation ruleestablished by sub-paragraph 42(1) (a) (i) will apply.

Sub-paragraph 42(1) (a) (iii) - which applies formanufactured, etc., goods provided to employees that aresimilar, but not identical, to goods sold in the ordinarycourse of business — establishes the taxable value as 75%of the amount by which the price that the employee (orassociate) could be expected to pay to acquire the goodsunder an arm’s length transaction (see the definition of“notional value” in sub—clause 136(1)) exceeds the priceactually paid.

Paragraph 42(1) (b) applies where the goodsprovided to employees were purchased by the employer (orassociate) for sale in the ordinary course of business. Inthese cases the taxable value is the amount by which the“arm’s length purchase price” (see notes on sub-clause42(2)) paid by the employer (or associate) exceeds theamount paid by the employee (sub-paragraph 42(1) (b) (Aj)~

In the event that such goods have lost value bythe time they are provided to the employee (e.g., becauseof obsolescence or deterioration) the taxable value ismeasured by reference to the amount for which the employeecould be expected to purchase the goods in an arm’s lengthdealing if that amount is less than the cost to theemployer (sub-paragra~h 42(1) (b) (ii)).

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~q~ah 42(1) Cc) is a residual valuation rulethat will apply in the event that paragraphs 42(1) (a) or(b) are inapplicable. By this paragraph the taxable valueof goods provided to employees is the amount by which 75%of the price for which the employee could be expected topurchase the goods under an arm’s length transaction (seethe definition of “notional value” in sub—clause 136(1))exceeds the price actually paid.

aub—clause 42(2J, defines, for the purposes ofparagraph 42(1) (b) , the amount that is to be accepted asthe arm’s length purchase price of goods acquired by anemployer (or associate) for sale in the ordinary course ofbusiness.

‘ By par~~pp42(2)(a), if the goods were in factacquired by the employer (or associate) in the ordinarycourse of business under an arm’s length transaction, theamount paid to acquire the goods will be treated as thearm’s length purchase price.

‘ If the goods were not so acquired, the arm’slength purchase price will be the amount that the employer(or associate) could be expected to have been required topay to purchase the goods under an arm’s length transactionin the ordinary course of business.

Clause 43 : Taxable value of external propertyfringe benefits

Clause 43 prescribes the valuation rules for whatare termed “external property fringe benefits”.

This term is defined in sub-clause 136(1) and, byvirtue of this, clause 43 will apply to goods provided to‘ employees other than by an employer or associate who sellsidentical or similar goods in the ordinary course ofbusiness. It will also apply to property other thangoods. By virtue of the definition of “intangibleproperty” in sub-clause 136(1), this latter category doesnot include a right arising under a contract of insurance‘ or a lease or licence in respect of property. Benefitsrelating to insurance and leases will fall for valuationunder the residual benefits rules embodied in Division 12.

By paragraph 43(a), the taxable value of theprovision of such property to employees (or associates) ina case where the property has been acquired under an arm’slength transaction by the employer (or associate orthird—party arranger) is the cost price of the property,reduced by the amount paid by the employee (or associate)This rule applies where the property is provided to theemployee around the time when it was acquired by theemployer (or associate, etc.) - see notes on paragraph43(c).

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Paragrapj~j~(b) applies where the property isobtained from a third party under am arrangement wherebythe expenditure in acquiring the property is incurred bythe employer (or an associate) . Where that expenditure isincurred under an arm’s length transaction, the taxablevalue will be the amount of that expenditure reduced by anyamount actually paid by the employee (or associate).

Paragraph 43(b) would apply, for example, wheregoods are purchased by an employee using am employer’scredit card - see the motes on clause 150.

Paragr~j~j3(cj is a residual rule that will applywherever the rules in the proceeding two paragraphs do notapply. Under this rule, the taxable value is the excess ofthe amount that the employee (or associate) couldreasonably he expected to have paid to acquire the propertyover the amount actually paid by the employee (orassociate)

Paragraph 43(c) would apply where the property wasnot purchased by the employer (or associate, etc.) or wherea material time has elapsed since it was purchased. Inpractical terms, material time will have elapsed only if itis such that the value of the goods has altered appreciably.

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§j~use44 : Reduction of taxable value

Consistent with similar provisions in other Divisions,clause 44 applies to reduce the taxable value of a propertyfringe benefit to the extent to which any exenditure that hasbeen, or would otherwise have been, incurred in acquiring therelevant property would have been immediately deductible to theemployee for income tax purposes.

,~aragraph 44(1)(a) applies to limit the operation ofthe reduction rule to property benefits provided to employees.

§u,frparagraph 44(fl (bL(~iJ establishes the generalpre-condition for application of the reduction rule that thewhole or a part (the “deductible percentage”) of any expenditure

that might have been incurred by the employee would have beenV immediately deductible when incurred for income tax purposes

(i.e., the reduction rule will not apply in relation to theprovision of plant in respect of which depreciation allowancedeductions might otherwise have been allowable). ‘Ihe recentlyintroduced income tax substantiation requirements for employmentrelated expenses are disregarded for this purpose. As detailed

V below, specific substantiation requirements are established forfringe benefits tax purposes.

By sub—paragraph 44(J) (it) (ii) any expenditure thatmight have been incurred by the employee that would otherwise besubject to the proposed new “negative gearing” rules for incometax purposes (see clause 11 of the laxation Laws Amendment Bill1986) will not apply to reduce the taxable value of propertyfringe benefits.

By paragraph 44(1) (cj the employee is required to lodgewith the employer a declaration, in an approved form, settingout details sufficient to establish the connection between theproperty provided and the income-producing activities of theemployee.

This requirement does not need to be satisfied whereany expenditure that the employee might have incurred inacquiring the property would have been expenditure incurredexclusively in the course of the employee’s employment duties

V with the employer (sub—paragraph44(1) (c)(~i) — see thedefinition of “exclusive employee property benefit” insub—clause 136(1)); nor does it apply where that expenditurewould have been expenditure incurred on overseas or extendeddomestic travel to which paragraph 44(1) (d) applies(~ub-paragjaph 44(1) (c)(ii) - see the definition of “extendedtravel property benefit” in sub—clause 136(1)) or on carexpenses to which paragraph 44(1) (e) applies - see thedefinition of “car property benefi�” in sub—clause 136(1)‘Ihese last two situations could arise where, for example, theemployee uses an employer’s credit card in connection withtravel or car expenditures.

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Farag~aph 44(1) (d) applies in circumstances where thebenefit relates to travel outside Australia or to travel inAustralia where it was not undertaken exclusively in the courseof the employee’s duties and involved the employee being awayfrom home for more than 5 nights.

in these circumstances a further pre-condition for theapplication of the reduction rule is that the employee keep adiary of a kind required to substantiate under the income taxlaw deductions for overseas or extended domestic travel (see thedefinition of “travel diary” in sub—clause 136(1)). ‘Ihat diary(or a copy) is to be supplied to the employer by the time oflodgement of the employer’s annual fringe benefits tax return.

Jpragxaph 44(1) (e) establishes the rules forapplication of the “ctherwise deductible” reduction rule wherethe property benefit consists of goods that relate to theoperation of a car owned or leased by the employee and used forbusiness or employment-related purposes (e.g., where anemployer-provided credit card is used to purchase petrol). Therequirements imposed by paragraph 44(1) (e), and the resultantrules for ascertaining the “otherwise deductible” percentage,are consistent with those outlined in the notes on paragraph19(1) (b) in relation to loan fringe benefits.

i’~here these requirements are satisfied the taxablevalue is reduced in line with the proportion of any expenditureon the transport that would have been deductible for income taxpurposes (e.g., if half of any expenditure would have beendeductible for income tax purposes, the taxable value of thefringe benefit would be reduced by half).

Sub-clause 44(2w ensures that, where the benefitrelates to travel of a kind for which a travel diary is requiredto be maintained by paragraph 44(1) (d), any activity that is notduly entered in the diary will be disregarded in determining theextent to which travel expenses would be “otherwise deductible”.

The various substantiation documents required by clause44 will, as explained in the notes on part X, generally need tobe retained by an employer for a period of 6 years from when therelevant fringe benefits tax return is lodged. In addition, asmentioned in the notes on sub—clause 19(1) relating to loanfringe benefits, technical compliance with the substantiationrequirements will not of itself be conclusive that an employeewould have been entitled to an income tax deduction.

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DIVISION 12 - ELSIDUAL FRINGE BENEFITS

This Division deals with benefits provided to employeesthat are not subject to the specific identification andvaluation arrangements contained in the preceding Divisions.These are termed “residual benefits”.

An outline of the operation of the Bill in relation tothese benefits is contained - under the heading “Other fringebenefits” — in the introductory section to this memorandum. Themain features are -

this Division applies to the provision of services(e.g., travel or the performance of professionalor manual work) , rights relating to the use ofproperty, insurance coverage amd to any otherbenefits - “benefits” is for this purpose given awide meaning;

as a general rule benefits falling for valuationunder this Division are treated as having beenreceived at the time when, or over the periodduring which, the particular services, etc., wereprovided;

different valuation rules apply according towhether the benefits are of a kind that theemployer supplies in the ordinary course ofbusiness or not;

the valuation rules relating to benefits fromservices, etc., of a kind normally supplied aspart of the employer’s business will also applywhere the services, etc., are provided to theemployer’s employees by an associate of theemployer, provided they are services, etc., of akind normally sold as part of the associate’sbusiness;

those rules will not, however, apply to benefitsprovided by a third party under an arrangementwith the employer or associate, nor will theyapply to benefits acquired by an employee using anemployer-provided credit card;

the taxable value of benefits normally sold aspart of the employer’s (or associate’s) businessare subject to the general exemption for up to$200 per employee as explained in the notes onclause 62;

a benefit that consists of a combined supply ofgoods and services (e.g., parts with repairs) willbe subject to valuation under this Division;

there is to be a range of benefits that arespecifically exempt from tax;

in addition, the taxable value of a residualbenefit is to be reduced to the extent to whichany expenditure that might otherwise have beenincurred by an employee in acquiring the benefitwould have been deductible for income tax purposes.

Subdivision A — Sesidual Benefits

Clause 45 Residual benefits

Clause 45 establishes the scope of Division 12 as beinga benefit that is not a benefit within the meaning of any of thepreceding Divisions of Fart Ill. Clause 45 has the effect ofprecluding the operation of Division 12 to benefits that aretaxable fringe benefits or exempt benefits within the weaning ofany of the preceding Divisions.

As explained in the introductory note on the generalscheme of the Bill in determining a liability to fringe benefitstax, “benefits” is given a wide meaning and reference should bemade to the definition of that term in sub-clause 136(1) and toclause l4~, which directs that certain factors be disregarded.These include that the benefit is provided or required inconnection with the employee’s employment or is somethingsurplus to the employee’s needs.

As also explained in that introductory note, a benefitthat comes within the meaning of Division 12 will be taxableonly where the benefit is provided by the employer (or anassociate or third party arranger) to an employee (or associate)and is provided in respect of the employment of the employee.

Clause 46 :Year in which residual bejtiefits taxed

Sub-clause 46JJJ specifies the general rule that abenefit that is provided during a period is to be treated ashaving been provided in each year of tax during which any partof that period occurred. By virtue of this rule, a benefit,e.g., services, that is provided over a period that extends overtwo or more years will be subject to tax in each of thoseyears. The taxable value in any year will be determinedaccording to the extent to which the services, etc., areprovided in that year.

Sub-clause 46(21 modifies the general rule stated insub-clause 46(1) in circumstances where the services, etc., areprovided in return for payments made on a regular basis,generally on receipt of a periodic account. Sub-clause 46(2)applies where discounted services, etc., are provided to anemployee (or associate) on the basis of that kind of regularbilling (paraQraph 46(2) (a)) and identical services, etc., areprovided to members of the public in the ordinary course ofbusiness of the person providing the benefit (paragraph46(2) Lbj ) . hhere these requirements are satisfied the services,etc., supplied in each billing period will be treated asseparate benefits (~aj~qxaph46(2) (c) ) , provided at the timewhen payment of the account falls due (paraai~pji 4�(2jfl~j).

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Sub—clause (2) would apply for example, if electricityis supplied at a concessional rate on the basis of, say,quarterly billings and will obviate the need for anapportionment of the benefit where a billing period straddlestwo years of tax.

Clause 47 Exempt residual benefits

By clause 47, certain types of benefits that wouldotherwise be subject to fringe benefits tax under the rulesestablished by Division 12 are exempted from tax.

By virtue of sub-cipuse ~~(ji, where an employeroperates a business of providing transport to members of thepublic, the provision of free or discounted travel to an‘ employee engaged in that business for the purpose of travellingto and from work is exempt from fringe benefits tax. Free ordiscounted travel on a scheduled metropolitan service of theemployer to employees living in the metropolitan area will besimilarly exempt from tax.

?Qhere the free or discounted transport is provided byan associate of the employer, the exemption will also apply ifboth the employer and associate are engaged in businesses ofproviding transport to the public and the employee is employedin such a business.

The exemption does not extend to transport provided inan aircraft; nor does it extend to retired employees.

By sub-clausejjj~j the provision of recreational orchild care facilities on an employer’s premises for the benefitof employeeswill not give rise to a taxable fringe benefit.

For these purposes “child” is defined in sub-clause

36(1)to include an adopted child, step-child or ex-nuptial

child of the employee. “Child care facility” is also defined inthat sub-clause and, broadly, means a facility where childrenunder the age of 6 are provided with care or education, but notwith residential care. “Recreational facility” is defined inthat sub-clause to exclude facilities for accommodationor fordrinking or dining.

?~herethe employer is a company, recreational or childminding facilities provided on a “related” company’s premises —

see notes on clause 158 but meaning, broadly, another companywithin a wholly owned company group - for the benefit of theemployer’s employees will be similarly exempt from tax.

Again, the exemption provided under this sub—clausedoes not extend to benefits provided to former employees.

Under sub-p~~pse47(3~,the use by an employee on aworking day of property that is located on business premises ofthe employer (or related company - see notes on previous

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sub—clause) and is used wholly or principally in the businessoperations of the employer (or related company) will be exemptfrom fringe benefits tax. By virtue of sub—c±~use47(4),employee amenities such as toilet facilities and tea makingfacilities are treated as being used in the business operationsof the employer.

The need for the exemptions granted by sub-clauses47(3) and (4) follows from the wide meaning of benefit which, aspreviously mentioned covers benefits - including the right touse property - which relate to the employee’s duties.Sub-clauses (3) and (4) will ensure that the use of property onthe employer’s premises in the course of his or her employmentand any incidental private use (e.g., private telephone calls)are both exempt from fringe benefits tax.

This exemption is, as for those under the preceding 4sub-clauses, limited to benefits provided to current employees.

Sub-clause 47(4) is a corollory of the rules embodiedin Division 7 for the treatment of living-away-from-homeallowances. By this sub-clause, a residual benefit thatconsists of a lease of residential accommodationgranted to anemployee who is required to live away from his or her usualplace of residence in order to perform employment duties isexempt from fringe benefits tax. A requirement for exemptionunder this sub-clause is that the employee gives to the employera declaration specifying both the employee’s usual place ofresidence and the place at which the employee is residing whileliving away from that usual place of residence. The declarationis to be lodged with the employer prior to lodgment of theemployer’s annual fringe benefits tax return.

The private use by an employee of an employer’s motorvehicle will give rise to a fringe benefit in accordance withDivision 13 where the motor vehicle is of a kind that is notsubject to the valuation arrangements for car benefits asembodied in Division 2 (e.g., private use of a vehicle designedto carry a load of more than 1 tonne would be subject to taxunder this Livision). ~~zclause 47(5) ensures that, consistentwith the exemption for car benefits embodied in clause 5, nofringe benefits tax liability will arise where any private useof such a vehicle during a year of tax is limited to travel byan employee to and from work or any use that is incidental tothe use of the vehicle on business - see the definition of“work-related travel” in sub-clause 136(1). For the reasonmentioned in the preceding paragraph, exclusive business use ofsuch a vehicle is also specifically exempted from tax by thissub-clause.

Sub—clause 47(3) exempts from fringe benefits tax whatare commonly known as “fly-in fly-out” arrangements.

The concession extends to employees who work in a“remote area” - see the notes on paragraph 29(4) (e) for anexplanation of this term — or on an oil rig or other

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installation at sea who are provided with residentialaccommodationat or near the work site on working days and arereturned to their usual residence on days off.

By sub-clause 47(7), the provision of transport on thisbasis is to be exempt from tax if, having regard to therespective locations of the work site and the employee’s placeof residence, it would be unreasonable to expect the employee totravel to and from work on a daily basis.

Subdivision B - Taxable \ialue of Fesiduai Fringe Benefits

Clause 48:Taxabi e v a lu e of in- hou.~e nom-pfliod

residiialffl~ge b~flS.~

k Clause 48 establishes the valuation rules for what aretermed “in—house non—period residual fringe benefits”. Thisterm is defined in sub-clause 136(1), with the definitions of~in-house residual fringe benefits”, “outsiders” and “contractof investment insurance” and clause 149 also being relevant forthis purpose.

By virtue of the operation of those definitions, thevaluation rules embodied in clause 48 will apply to benfitsconsisting of services, etc., provided to employees (orassociates) by an employer (or an associate) who suppliesidentical or similar services to the general public in theordinary course of his or her business. The operation ofclause 45 is further restricted to circumstances where theparticular services, etc., are of a kind that are provided at aparticular point in time or on a particular day only.

Neither clause 45 nor clause 49, which applies to“in-house benefits” that are provided over a period, apply inrelation to term life insurance coverage - see the definition of

k “contract of ihvestment insurance” in sub—clause136(1).V Benefits of this kind are subject to the valuation of “external

fringe benefits”, as discussed below.

än~pbA~1~1 prescribes the taxable value ofbenefits provided to employees (or associates) that are

k identical to services, etc., supplied around that time in the~ ordinary course of the employer’s (or associates) business to

members of the public under arm’s length transactions and, withthe exception of the price charged, subject to identical termsand conditions. where these requirements are satisfied, thetaxable value of the benefit is the amount by which 75% of thelowest price charged under such sales exceeds the price paid bythe employee (or associate)

Fara.si~,phji1k1applies in circumstances where therequirements for the application of paragraph 48(a) are not met— e.g., where the benefit supplied to an employee is similar butnot identical to services, etc., supplied to the public. Itsets the value of the benefit at the excess of the amount that

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the employee (or associate) could reasonably be expected to havepaid to acquire the benefit under an arm’s length transactionover the amount actually paid.

Clause 49:Taxable value of in-house periodresidual frthge±~n~jjSs

Clause 49 also applies in circumstances where theparticular services, etc., provided to employees (or associates)by an employer (or associate) are identical or similar toservices, etc., supplied to membersof the public in theordinary course of business. The distinction in its field ofoperation is that clause 49 applies where the particularservices, etc., are of a kind provided over a period.

The valuation rules embodied in clause 49 are the sameas those under clause 45. however, becausea benefit beingvalued under clause 49 is one that is supplied over a period, itoperates where that period extends over two or more years of taxto subject to tax in each of those years only so much of theoverall value of the benefit as relates to the period in theyear over which the benefit was supplied.

Clause 50 : Taxable value of external on-periodredualf~j~p~fl~

Clause 50 prescribes the valuation rules that are toapply to what are termed “external non-period residual fringebenefits”.

By virtue of the definition of that term and relateddefinitions in sub-clause 136(1) , clause 50 will apply tobenefits consisting of services, etc., provided to employees (orassociates) otherwise than by an employer (or associate) whosells identical or similar services, etc., to the public in theordinary course of business. I

The operation of clause 50 is limited to circumstanceswhere the particular services, etc., are of a kind that areprovided at a particular point in time or on a particular day.

By p apjLSOa, the taxable value of such benefitsto employees (or associates) in a case where the benefit wasacquired by the employer (or associate or third party arranger)under an arm’s length transaction is its cost price, reduced bythe amount paid by the employee (or associate).

Ra~pk50bl applies where the benefit is obtainedfrom a third party under an arrangement whereby the expenditurein acquiring the benefit is incurred by the employer (or anassociate). Where the expenditure is incurred under an arm’slength transaction, the taxable value will be the amount of theexpenditure reduced by any amount actually paid by the employee(or associate)

Pa~j~aph~ijtj would apply, for example, where theparticular ser’iices, etc., are acquired by an employee using an

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employer’s credit card. In this regard reference should be madeto the notes on clause 150.

Far,~gr,~pj~jCcj is a residual rule that will applywherever the rules in the preceding two paragraphs do notapply. Under this rule, the taxable value is the excess of theamount that the employee (or associate) could reasonably beexpected to have paid to accuire the property over the amountactually paid by the employee (or associate).

Clause 51 Taxable value of g~t~~j pU~n,Dflt~

Clause 51 also applies to benefits provided toemployees (or associates) otherwise than by an employer (orassociate) who sells identical or similar services, etc., to the‘ public in the ordinary course of business. Unlike clause 50,clause 51 operates in circumstances where the particularservices, etc, are of a kind provided over a period.

The valuation rules embodied in clause 51 are the sameas those embodied in clause SC. Nowever, becausea benefit‘ being valued under clause 51 is one that is supplied over aperiod, it operates where that period extends over two or moreyears to subject to tax in each of those years only so much ofthe overall value of the benefit as relates to each year.

Clause 52 Beduction of taxabie value

Consistent with similar provisions in other Divisions,clause 52 applies to reduce the taxable value of a residualfringe benefit to the extent to which any expenditure that hasbeen, or would otherwise have been, incurred by the employee inacquiring the relevant benefit would have been immediatelydeductible for income tax purposes.

Paragraph 52(1) (a) applies to limit the operation ofthe reduction rule to residual benefits provided to employees.

Sub—paragraph52(1) Ri (i) establishes the generalpre-condition for application of the reduction rule that thewhole or a part (the “deductible percentage”) of any expenditure‘ that might have been incurred by the employee in obtaining thebenefit would have been immediately deductible when incurred forincome tax purposes. As detailed below, specific substantiationrequirements are established for fringe benefits tax purposes.

By paragraph 52(1) (b) (ii) any expenditure that mighthave been incurred by the employee that would otherwise besubject to the proposed new “negative gearing” rules for incometax purposes (see clause 11 of the Taxation Laws Amendment Bill1986) will not apply to reduce the taxable value of propertyfringe benefits.

By paragraph 52(1) (c) the employee is required to lodgewith the employer a declaration, in an approved form, settingout details sufficient to establish the connection between the

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benefit provided and the income producing activities of theemployee.

This reguirement does not need to be satisfied whereany expenditure the employeemight have incurred in acquiring F’

the property would have been expenditure incurred exclusively inthe course of the employee’s employment duties with the employer(sub—paragraph52(1) (c)jjj — see the definition of “exclusiveemployee residual benefit” in sub-clause 136(1)). for does itapply where that expenditure would have been incurred onoverseas or extended domestic travel to which paragraph 52(1) (d)applies (sub—paragra~h52(1) (c) (ii) - see the definition of“extended travel resrdual benefit” in sub—clause 136(1) or oncar expensesto which sub—paragraph52(1) (eL applies - see thedefinition of “car residual benefit” in sub-clause 136(1).‘These last two situations could arise where, for example, theemployee uses an employer’s credit card in connection withtravel or car expenditures.

Faragraph 52(1) (d) applies in circumstances where thebenefit relates to travel outside Australia or to travel inAustralia not undertaken exclusively in the course of theemployee’s employment which involved the employee being awayfrom borne for more than 5 nights. ‘The requirements of paragraph52(1) (d) would apply, for example, where an employer-providedcredit card is used to obtain tranport or accommodation inconnection with such travel.

ln these circumstances a further pre—condition for theapplication of the reduction rule is that the employee keep adiary of a kind required to substantiate under the income taxlaw deductions for overseas or extended domestic travel (see thedefinition of “travel diary” in sub—clause136(1). That diary(or a copy) is to be supplied to the employer by the time oflodgment of the employer’s annual fringe benefits tax return.

Paragraph 52(1) (e) establishes the rules forapplication of the “otherwise deductible” reduction rule wherethe residual benefit relates to the operation of a car owned orleased by the employee and used for business oremployment-related purposes (e.g., where an employer-providedcredit card is used to pay for servicing of the car) . Therequirements imposed by paragraph 52(1) (e) , and the resultantrules for ascertaining the “otherwise deductible” percentage areconsistent with those outlined in the notes on paragraph19(1) (b) in relation to loan fringe benefits.

Where these requirements are satisfied the taxablevalue is reduced in line with the proportion of any expenditureon the benefit that would have been deductible for income taxpurposes.

Sub-clause 52(2) ensures that, where the benefitrelates to travel of a kind for which a travel diary is requiredto be maintained by paragraph 52(1) (d) , any activity that is notduly entered in the diary will be disregarded in determining theextent to which travel expenseswould be “otherwise deductible”.

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‘The various substantiation documents recuired by clause52 will, as explained in the notes on Part ]~, generally need tobe retained by am employer for a period of 6 years from when therelevant fringe benefits tax return is lodged. In addition, asmentioned in the notes on sub-clause 15(1) relating to loanfringe benefits, technical compliance with the substantiationrequirements will not of itself be conclusive that an employeewould have been entitled to an income tax deduction.

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LIS.’ISlGN 13 - MISCELLANLCtJS

Division 13 contains a range of provisions that willeither exempt, or reduce the taxable value of, certain benefits.

Clause 53 Plotor vehicle fr~ge benef.Lt iue1,~ atm- — Tfle~ewptiflCertairc i rcuw~ta~ces

Sub-clause 53(1) operates to ensure that the supply ofpetrol, etc., for an employer-provided car does not give rise toa taxable benefit additional to that under Division 2 inrelation to the use or availability for use of the car forPrivate purposes.

Sub-c1aus~53J21 performs a similar function tosub-clause 53(1) in a case where the use of a motor vehicle(other than a car) is exempted by virtue of the operation ofsub-clause 47(6), i.e., where the Private use is restricted to“work-related travel”.

Sub—clause 53(3) defines the oar expense benefits inrespect of which the preceding exemptions will apply.

Clause 54 Frovftionoff Crthjrk toie eLxetThpt________

Clause 54 ensures that where the board valuation rulesembodied in Division 9 apply in relation to the provision ofmeals to an employee or an associate, other food or drinkprovided (i.e., broadly, where the food or drink is provided andconsumed on the employer’s Premises or at a work site) will beexempt from tax. Clause 54 will apply for example, wheremorning or afternoon teas are Provided in addition to “board”meals. Clause 54 will not, however, exempt food or drinksupplied at a party, reception or other social function.

Clause 55 Benefits provided bertain_iata,rnatjonajOrganisatio~~ to be exempt

By clause 55, international organisations that areexempt from income tax and other taxer by virtue of theInternational Organisations (Privilegec ancLImmunitiesz~,tj.ggjare exempt from fringe benefits tax in rd~i~t of benefitsprovided to their employees. Organisatioms established underagreements to which Australia is a party and which obligeAustralia to grant the organisatio~ a general tax exemption arealso exempt.

Clause 5� orvthnofdip~n~atic andconsul mmunitie~

Clause 56 performs a similar function to clause 55 inrespect of persons who are exempt from taxes by virtue of theconsular Privileges and ~ ~ or the DiplomaticflfVfTë~B~ffECImmunities Act 1967.

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Clause 57 Provision of benefits to employees of religiousjpstitutions tp te exempt in certain cases

By clause 57, the provision of benefits by a religiousinstitution to a minister of religion or a full-time member of areligious order are generally to be exempt from tax. Theexemption does not, however, extend to benefits provided inrespect of duties that are not religious in nature.

‘The exemption conferred by clause 57 also applies tobenefits provided to a person who is training to be a member ofa religious order and to benefits provided to a spouse or childof the minister or member of the religious order (e.g., whereboard and quarters are provided to a minister and the minister’sfamily)

Clause 58 Provision of live-in residential accomrnodation,orresidential fuel, to live-in residential care vorkersto

be exempt benefits

By sub-clause 56(1) the provision of residentialaccommodation to live-in residential care workers will be exemptfrom tax.

‘The exemption applies to employees of a governmentbody, a religious institution or a non-profit company who areengaged in caring for disadvantaged persons (see the notes onclause (2) below) and who, in the course of those duties, residewith those persons in a house or hostel of the employer toprovide such care.

The exemption extends to any benefit that mightotherwise arise in relation to electricity and other fuelsupplied to the house and also to situations where an employee’sspouse or children also reside in the premises.

Sub—clause 58(2) defines a disadvantaged person to meana person who is intellectually, psychiatrically or physicallyhandicapped or who is in necessitous circumstances.

By this sub-clause, it is a requirement for the

K exemption that the par�icular house or hostel be used~ exclusively for the provision of residential accommodationto

disadvantaged persons and the live-in care workers (and theirfamilies).

Clause 59: Taxable value of certain fringe benefits inrespect of remote area residential fuel

Clause 59 confers ccncessionai. treatment om the supplyof electricity and other fuels to certain remote arearesidential accommodation.

By virtue of sub-clause 55(1) , the concessionaltreatment applies where the prcvision of accommodation issubject to valuation under the remote area valuationarrangementsembodied in clause 29 — see notes on that clause.

64.

Vthere the value of that benefit is determined on thestatutory formula basis provided in paragraph 29(1) (a) —

broadly, as a specified percentage of average earnings in themining industry — any benefit relating to the supply ofelectricity or other fuel to the unit of accommodation will notseparately be subject to tax.

If, alternatively, the value of a remote area housingbenefit is determined by applying the 40% discount to the(indexed) market value of the benefit, any benefit arising fromthe supply of electricity or other fuel to the unit ofresidential accommodation will be treated as a separate taxablebenefit and similarly discounted hy 40%.

Sub-clause 59flL applies where, perhaps instead ofproviding remote area accomnodation which would qualify for theconcessional valuation arrangements embodied in clause 29, anemployer assistr the employee in acquiring a unit ofaccommodation. These types of assistance are outlined in thenotes on the following clause.

By virtue of sub-clausc 59(2), the taxable value of anybenefit arising from the supply of electricity or other fuel tosuch a unjt will also be discounted by 40%.

Clause 60 Reduction of taxablevQL~eit&aktkfl&~[enefits related to remote area housinfl

Clause 60 applies, broadly, to discount by 40% abenefit relating to the provision of housing assistance toemployees in remote areas, for example, assistance provided inlieu of supplying the employee with residential accommodationthat would have qualified for the 40% remote area housingdiscount embodied in clause 29.

The forms of assistance to which the 40% discount is toapply are detailed in the three sub-clauses of clause 60.

Py sub-clause_60(1), the 40% discount will apply to thetaxable value - as determined under Division 4 - of a benefitconsisting of an interest free or low interest housing loanprovided to an employee by an employer. A commor example ofthir type of arrangement is where a house is sold by an employerto an employee on interest~free or low-interest instalment terms.

Sub-clause �OJjj appiles where the housing assistancetakes the form of a reimbursement by an empioyer of the whole ora part of the interest incurred by an employee on a housingloan. By this sub-clause, the taxable value of this kind ofbenefit - as determined under Civision 5 — will also be reducedby 46%.

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The discount provided by this clause applies only ifthe relevant unit of accommodation is located in a designatedremote area as described in the notes on sub-clause 29(4) andcertain additional conditions described in the notes on clause142 are satisfied. These are, broadly, that —

the employee works in a remote area;

it is customary for employers in the particularindustry to provide employees with housing assistance;and

it is necessary for the employer to provide such

assistance.

Clause61 Seduction of taxable value of certain fringe

benefits in respect of remote area holiday transport

Clause 61 applies to reduce by 50% the taxable value ofcertain benefits relating to remote area holiday transport.

~tK�mote

area holiday transport” is defined for these

purposes in clause 143 and reference should be made to the noteson that clause, Broadly, however, it refers to arrangementswhereby employees working in remote areas are, under the termsof an award, reimbursed for the costs of, or provided with,transport in connection with extended recreation leave from thework locality to the city from which they were engaged to workor to the capital city of the State or Territory in which thework place is located.

Sub—clause 61(1) applies where such qualifyingtransport costs are reimbursed by an employer to reduce by 50%the taxable value of the benefit as determined under Division 5.

To qualify for this reduction the employer will need tobe supplied with documentary evidence of the expenditure priorto lodgment of the fringe benefits tax return for the year. Ifthe reimbursement is for car expenses or meal and accommodationcosts associated with the travel, the employer must also obtaindetails as to the type of vehicle and the number of kilometrestravelled on the journey.

The reduction in taxable value in the case of car

‘expenses reimbursement is limited to 50% of so much of the

reimbursement as does not exceed a specified rate. This is thereimbursement that would be paid at the rate per kilometre thatwould apply to the vehicle used if income tax deductions werebeing claimed on a cents per kilometre basis for that amount oftravel.

Sub-clause 61(2) applies in a case where the holidaytransport is provided directly by the employer (or am associateor third party arranger) and also operates to reduce the taxablevalue as otherwise determined under Division 12 by 50%.

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Clause 62 Reduction of aggregate of taxable value ofcertain fringe benefits

By sub—clause 62(1), the first $150 of the aggregate ofthe taxable values of three categories of benefits given to anemployee in the transitional year of tax is to be exempt fromfringe benefits tax. For a standard year of tax the amount ofthe exemption is $200.

Sub—clause 62(2) describes the benefits to which theexemption will apply. These are -

airline transport fringe benefits (see notes onDivision 8);

“in—house” property fringe benefits which are, broadly,goods provided to employees which are of a kind sold inthe ordinary course of the employer’s (or anassociate’s) business (see notes on clause 42); and

“in-house” residual fringe benefits which are, broadly,services and other residual benefits provided toemployeeswhich are of a kind sold in the ordinarycourse of the employer’s (or associate’s) business (seemotes on clauses 45 and 49)

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Clause 63 Reduction of taxable value ofliving—away-from-home food fringe benefits

Clause 63 applies where, rather than pay a cashliving-away-from-home allowance, an employer prefers toprovide accommodation and food to an employee who isrequired to live away from his or her hone in theperformance of employment duties.

Consistent with the treatment of cashliving-away—from-home allowances under Division 7, clause21 and sub-clause 47(5) exempt from tax respectively anybenefit constituted by the reimbursement of the employee’saccommodation expenses or by the provision ofaccommodation. Clause 63 prescribes the treatment to beaccorded to benefits constituted by reimbursement of anemployee’s food expenses or by supplying food.

Clause 63 applies in these circumstances to reducethe taxable value of the benefits otherwise determinedunder Division 5 (expense payment benefit) or Division 11‘ (property benefits) to the extent that they exceed theamount prescribed as what would have been paid for food atthe employee’s home. This amount - the “statutory foodamount’t - is $42 per week.

In the event that the benefits relate to theemployee and a spouse or child who moves with the employeefron the usual place of residence (see the definition of“eligible family member” in sub—clause 136(1)) thepreceding rule applies on an equivalent basis by referenceto the aggregate of the statutory food amounts applicableto the employee and family members. For this purpose thestatutory food amount for a child who is less than 12 yearsof age at the beginning of the relevant year of tax is $21.

A pre-condition for the operation of clause 63 isthat the employee give to the employer before the date cflodgment of the employer’s annual return, a declaration, inan approved form, that sets out particulars of theemployee’s usual place of residence and actual place ofresidence during the period.

Clause 64 Seduction of taxable value in respect ofentertainment component of certain fringe benefits

Clause 64 applies, broadly, to reduce the taxablevalue of a fringe benefit where the amount of anyexpenditure incurred by the employer (or associate orthird-party arranger) on the benefit is expenditure inrespect of the provision of “entertainment” within themeaning of that term in section 5LPE of the Income TaxAssessment Act 1936.

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The operation of clause 64 in this regard istwofold. Firstly, to the extent that a deduction is deniedby the operation of section SlAB, a liability to fringebenefits tax is not to arise in respect of a benefitconstituted by that expenditure (e.g., where the benefit isa reimbursement of non-deductible entertainment expenditureincurred by an employee) . Consistent with that, clause 64will also apply to reduce the taxable value of a propertyfringe benefit or residual fringe benefit by the amount ofany expenditure incurred by the employer in acquiring therelevant goods or services, etc., that is denieddeductibility by section SlAP. Similarly, by virtue ofclause 64 a fringe benefits tax liability is not to arisewhere the benefit is constituted by the use of plant inrelation to entertainment where that use has resulted inthe denial of depreciation deductions under sub-section51AE(l4). 4

The second broad effect of clause 64 is that aliability to fringe benefits tax will not arise in relationto expenditure that, while being in respect of theprovision of entertainment, remains eligible for income taxceductions by virtue of one of the specific exclusionsprovided in sub—section SlAP (5) , e.g., meals provided inconnection with an “exempt training seminar”.

Clause 64 does not, however, operate to overidethe valuation rules relating to board meals or theprovirion of living—away-from-home food benefits. Suchbenefits are, by amendments proposed by the Fringe BenefitsTax (hiscel1aneous Provisions) Act 1586, to be treated asnot being in respect of the provision of entertainment.

Clause 64 applies as outlined above both inrelation to expenditure incurred by taxable employers andto equivalent expenditure incurred by income tax-exemptemployers (or by an otherwise taxable employer in respectof income tax-exempt activities). Sowever, referenceshould be made to the notes on the operation of Division 10which applies separately to subject to fringe benefits taxexpenditure incurred in respect of the provision ofentertainment, to the extent that it is to the benefit ofemployees (or their associates). Sub—clause 61(2) is alsorelevant.

Sub-clause 64(1) applies where a taxable fringebenefit would otherwise arise in relation to an expensepayment benefit. Sub-clause 64(1) ensures that the taxablevalue of that benefit Is reduced by so much of the amountof the expenditure incurred by the employer as is inrespect of the provision of entertainment.

Sub—clause 64(2) qualifies the operation ofsub—clause 64(1) to ensure that a reimbursement of anemployee’s expenditure on entertainment that is purely

9.

personal to the employee (e.g., a private dinner party)continues to be subject to fringe benefits tax.

For this purpose the’reqtiirements for theoperation of sub-clause 64(2) are that -

the expenditure incurred by the provider was notincurred in the production of assessable income,i.e., it was incurred by an income-tax exemptemployer, etc., (paragraph 64(2) (a)); and

the expenditure was incurred in the provision ofentertainment and is not expenditure incurred inconnection with the duties of the employee(paragraph 64(1) (b))

Sub-clause 64(3) applies where an employer (orassociate or third-party arranger) incurs expenditure inproviding property or airline transport as a benefit to anemployee (or associate). Sub-clause 64(3) ensures that thetaxable value of the benefit is reduced by so much of theamount of the expenditure incurred by the provider as isincurred in respect of the provision of entertainment.

Sub—clause 64(4) performs a similar function tothe preceding sub—paragraphs in relation to the provisionof a residual fringe benefit constituted by the use ofdepreciable property. Sub-clause 64(4) ensures that thetaxable value of that benefit is reduced to the extent, thatthe use is in respect of the provision of entertainment.

Sub—clause 64(5) applies to prevent bothsub-section 64(5) and section 65 - which relates tonon-deductible leisure facilities - applying to reduce thetaxable value of a particular benefit relating to the use

of depreciable property. Sub-section 64(5) achieves thisby ensuring that only section 65 applies where there wouldotherwise be an overlap.

Sub—clause 64(6) operates where the provider of aresidual fringe benefit constituted by the use of

k non-depreciable property incurs expenditure on leasing theproperty. By this sub-clause the taxable value of thebenefit is reduced to the extent to which the relevantexpenditure is incurred in respect of the provision ofentertainment.

“Depreciable property” is defined for the purposesof sub-clauses 64(4) and (6) as “plant or articles” withinthe meaning of section 64 of the Income lax Assessment Act(see sub—clause136(1)).

Sub-clause 64(7) applies in circumstances where anemployer (or associate or third-party arranger) incursexpenditure in respect of the provision of a residualfringe benefit that is not constituted by the use ofproperty. Where this occurs sub-clause 64(7) ensures that

90.

the taxable value of the benefit is reduced by so much ofthe amount of the expenditure as was incurred in respect ofthe provision of entertainment.

Sub-clause 64(8) is designed to ensure that therecan be no overlap in the operation of clause 64 and the“otherwise deductible” rules embodied in Divisions 5, 8, 11and 12. %~here this would otherwise occur the reductionafforded by clause 64 will not apply.

Clause 65 Reduction of taxable value in relation toexpenditure on leisure facilities and travel with

accompanying spouses

Clause 65 applies similarly to clause 64 to reducethe taxable value of a fringe benefit where the amount ofany expenditure incurred by the employer (or associate orthird—party arranger) on the benefit is expenditure inrespect of which a deduction is denied under section SiPE(expenditure on club fees and certain leisure facilities)or SlAG (expenditure in respect of relatives who accompanyan employee on a business trip) of the Income laxAssessmentAct 1936.

By sub-clause 65(1) the taxable value of a benefitis reduced by so much of the amount of any expenditureincurred by the person providing the benefit as is denieddeductibility by either section SlAB or SlAG.

Sub-clause 65(2) applies where the provision of aresidual fringe benefit is constituted by the use ofdepreciable property that is a leisure facility for thepurpores of section SlAB. Consistant with the operation ofsub-clause 65(1), sub-clause 65(2) applies to reduce thetaxable value of the benefit to the extent that sub—section54(3) of the Income Tax Assessment Act operates to denydepreciation allowance deductions in respect of thefacility.

FAST I\’ - LIABILITY ‘IC TAX

Clause 66 : Liability to pay tax 4This clause will establish liability to pay fringe

benefits tax. By sub—clause (1) , tax on the fringebenefits taxable amount of a year is payable by theemployer.

Sub-clause (2) ensures that prior legislation thatwould otherwise confer on an employer a general exemptionfrom liability to pay taxes such as would otherwise extendto fringe benefits tax will not exempt that employer fromfringe benefits tax liability.

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Sub—clause (3) applies in a similar way inrelation to future Commonwealth legislation enacted so thatonly a law that specifically exempts an employer fromfringe benefits tax liability will be able to do so.

Clause 67 Arrangements to avoid or reducefringe benefits tax

Clause 67 will import into the fringe benefits taxlaw a general anti-avoidance provision broadly similar ineffect to tart IVA of the Income Tax Assessment Act 1936.The clause is intended to apply where, on an objective viewof a particular arrangement and its surroundingcircumstances, it would be concluded that the arrangementwas entered into for the sole or dominant purpose of havingan amount omitted from an employer’s fringe benefitstaxable amount of any year of tax in respect of a benefitprovided to a person.

By sub-clause 67(1), where, on an examination ofthe circumstances, it is concluded that a relevant personhad the necessary dominant purpose of avoidance, and a tax

• benefit of such a kind has been or would be obtained, ther Commissioner of Taxation will he authorised to, in effect,

cancel the tax benefit by increasing the employer’s fringebenefits taxable amount of the relevant year and making anynecessary corresponding adjustments to the fringe benefitstaxable amount of other years. If necessary, correspondingadjustnents reducing the fringe benefits taxable amount ofother employers may be made.

The net effect of the authorised adjustments willbe to strike out the tax advantage sought by thearrangement and restore the situation to what it would havebeen if the arrangement had not been made.

By sub-clause 67(2) a reference to the obtainingby an employer of a tax benefit in relation to anarrangement under which a benefit is provided to a person —

the central pre—condition for the application forsub-clause 67(1) - is a reference to an amount not being‘ included as a fringe benefit taxable amount of an employerin a year of tax where that amount could reasonably beexpected to have been so included but for the arrangement.As explained in the notes on the definition of that term insub-clause 136(1), “arrangement” is given a wide meaningfor these purposes.

lt should be noted that sub-clause (2) requiresthat the tax benefit be obtained in relation to aparticular benefit that is provided to a person. As such,clause 67 would not apply merely by virtue of a benefitbeing terminated (e.g., “cashed—out”) or a differentbenefit (i.e., an alternative benefit or a diminishedbenefit) being provided.

92.

Sub-clause 67(2) ensures that clause 67 will notapply merely because a taxable amount in relation to aparticular benefit is reduced by virtue of the employeebeing required to pay consideration (or increasedconsideration) to obtain the benefit.

Sub-clause 67(4) confers on an employer the rightto request the Commissioner in writing to make acompensating adjustment of a kind referred to in the noteson sub-clause 67(1).

By sub-clause 67(5) the Commissioner is requiredto consider the request and serve notice in writing of hisdecision.

Under sub-clause 67(6) an employer who isdissatisfied with the Commissioner’s decision is entitledto lodge an objection in writing within 60 days of serviceof notice of that decision.

Sub—clause 67(7) ensures that the review andappeal arrangements embodied in Fart 111 apply in relationto a decision on that objection. I

Sub-clause 67(8) authorises the amendment of anassessmentto give effect to a determination of theCommissioner under sub-clause 67(1) to cancel a taxbenefit. By sub-clause 67(8) that amendment can be made atany time within the period of 6 years from the date onwhich the original assessmentwas made.

Sub—clause 67(9) authorises an amendmentat anytime to give effect to a compensating adjustment.

Clause 67 extends to a case where a person whoprovides a fringe benefit is not technically an employerbecauseof the particular arrangement, but otherwise couldbe expected to have been (sub-clause (10)).

Sub-clause 67(ljj ensures that a reference inclause 67 to the carrying out of an arrangement by a personincludes a reference to the carrying out of the arrangementby that person together with other persons.

Sub-clause 67(12) makes it clear that theoperation of the general anti-avoidance safeguard embodiedin clause 67 is not limited by the operation of any otherprovision of the Bill. In particular, sub—clause 67(12)will ensure that the mere fact that a specific safeguardingprovision of the Bill is found not to apply to a particulararrangement will not prevent clause 67 from applying inrelation to that matter.

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PAST ~‘ - RETURNS ANL ASSESSMENTS

CI\’ISICN 1 - FETUENS

Clause 68 : Annual return

By this clause, an employer will be required tofurnish to the Commissioner an annual return of the fringebenefits taxable amount within 28 days after the end of theyear of tax, unless a return has previously been furnishedin compliance with clause 69.

Clause 69 Further returns

~here the Commissioner has, by notice in writingserved on a person, required the person to furnish a returnin relation to a year of tax, under this clause the person,

~ whether an employer or not, shall furnish the return asrequired.

Fenalties for non-compliance with the requirementsof clauses 68 or 69 are being prescribed in the Taxation

Administration Act 1953 by amendments proposed in theFringe Benefits Tax (Consequential Amendments) Bill 1986.

Clause 70 Requirements for returns

Returns lodged in accordance with clause 68 or 69are, by clause 70, to be in the form provided or authorisedby the Commissioner of Taxation, to be furnished inaccordance with any relevant regulations, and to containsuch information as is required to duly complete theauthorised form. A return nust specify the fringe benefitstaxable amount of the year and the amount of tax payablethereon. The return is to be signed by, or by authorityof, the person who furnishes it.

Clause 71 Certificate of sources of information

This clause, which will apply in a similar way tosection 165 of the Income Tax Assessment Act 1936, will‘ require a tax agent who charges any fee for preparing orassisting in the preparation of a fringe benefits taxreturn to sign an agent’s certificate setting out thesources available for the compilation of the return. Anemployer not furnishing an agent’s certificate with areturn must also show details of relevant sources ofinformation.

LIVISiON 2 - ASSESSMENTS

Clause 72 First return deemed to be an assessment

By this clause, where an annual return is lodgedby an employer in compliance with an obligation underclause 65 or 69, and no previous return of that year hasbeen lodged and no assessment raised, the Commissioner of

94.

Taxation will be deemed to have made an assessment, at thetime the return is furnished, of both the fringe benefitstaxable amount and the amount of fringe benefits taxpayable, both amounts being as specified in the return.The return will be deemed to be a notice of assessmentunder the Commissioner’s hand served on the employer at thesame time.

Clause 73 Default assessments

if a fringe benefits tax return of a year of taxis not lodged by the due date, the Commissioner will beauthorised by clause 73 to make an assessmentof the fringebenefits taxable amount and of the amount of fringebenefits tax to which, in his opinion, the employer isliable in respect of that year.

Clause 74 Amendment of assessments

~4here an assessmenthas been made of an employer’sfringe benefits tax liability, including a deemedassessnentconstituted by the employer’s fringe benefitstax return, the Commissioner will be authorised to amendthe assessment in accordance with the rules contained inclause 74.

the general rule, contained in sub-clause (1), isthat an amendmentmay be made at any time within 3 yearsafter the original assessmentdate, as defined bysub-clause (8)

By sub-clause (2) , an assessment may be amendedafter the original assessmentdate in accordance with theconditions specified in sub—clauses (2) to (7).

By sub-clause (3) , where an employer does not makea full and true disclosure of all the material factsnecessary for an assessment of the tax payable by theemployer, the Commissionermakes an assessment,and thereis an avoidance of tax, the Commissioner may amend theassessnentwithin 6 years after the original assessmentdate. If he is of the opinion that the avoidance of tax isdue to fraud or evasion, he may amend the assessmentat anytime.

Sub—clause (4) , which applies in a similar way tosub-section 170(5) of the lncome Tax Assessment Act 1936,will allow the Commissioner, in respect of an assessmentthat has been amended in any particular, to make a furtheramendment in respect of that particular so as to effectsuch reduction in an employer’s liability as is consideredjust, within 3 years of making the previous amendment.

Sub-clause (5) has the effect of extending thegeneral 3 year period for the making of an amendedassessmentwhere an employer has applied for an amendmentwithin the 3 years and has supplied the Commissioner with

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sufficient information to enable the application to beprocessed.

By sub-clause (6), the Commissioner may amend anassessment at any time if the circumstances set out in thesub-clause arise. They are where the amendment -

is to give effect to the decision of a Board ofReview or a court; or

results from consideration of an objection againstthe assessment.

Sub—clause (7) authorises the Commissioner, at anytime, to amend an assessmentof additional tax under FactVIII of the Bill.

The original assessmentdate for the purposes ofthese rules is, by sub—clause (8), the date on which theemployer furnished the return or, if no return has beenfurnished, the date when the Commissioner made theassessment. That date is not affected by the making of asubsequentamendment.

Clause 75 Refund of amounts overpaid

This clause, is similar to section 172 of theIncome Tax Assessment Act 1936, treats a reduction in taxas a result of an amendment as never having been payable(so that there can be no penalty tax on account of its notbeing paid) , and requires the Commissioner to refund anytax overpaid or apply it against any other Commonwealthtaxation liability of the person and refund the balance.

Clause 76 Amended assessment to be an assessment

This clause is a technical measureto ensure thatan amended assessment will be treated as an assessment forall purposes of the proposed legislation.

Clause 77 Notice of assessment

This clause will require the Commissioner to servenotice of an assessment on the person liable to pay the taxas soon as practicable after making the assessment. It hasno application to a deemed notice of assessment taken, byclause 72, to have been served on a person.

Clause 78 Validity of assessment

Clause 78 is a customary measure in taxation lawsand declares that an assessment is valid notwithstandingthat a provision of the Pct has not been complied with.The purpose is to ensure that in any objection or disputerelating to an assessment, the objector may challenge thecorrectness of the assessmentbut not any act or omissionof the Commissioner in making the assessment.

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PART VI - OBJECTIONS, REVIEWS AND APPEALS

Introductory note

Under this Part, an employer will have rights,broadly consistent with those pertaining under the incometax law, to object against a fringe benefits taxassessment, i.e., against either a deemed assessmentconstituted by the lodging of a fringe benefits tax returnor an assessment formally made by the Commissioner of‘Taxation.

If dissatisfied with an assessment,the employermay object in writing within 60 days after notice of theassessment is served, in the case of a deemed assessment,that is taken to be the date on which the relevant fringebenefits tax return was lodged. The Commissioner will berequired to consider the objection and either disallow itor allow it wholly or in part. The employer, ifdissatisfied with that decision, may within a further 60days, request the Commissioner either to refer the decisionfor review by a Board of Review or treat the objection asan appeal to a Supreme Court. Decisions of the Board ofReview may be appealed, on a question of law, to theSupreme Court, but an appeal will not lie from a decisionof the SupremeCourt except by leave of the Federal Courtor High Court.

Clause 79 Interpretation

it is made clear by this clause that a referenceto “Supreme Court” in Part VI means the Supreme Court of aState and the Supreme Courts of the Australian Capital‘Territory and the Northern Territory.

Clause SO Objections 4This clause permits an employer who is

dissatisfied with an assessment to object in writing within60 days against that assessment, setting out fully thegrounds of the objection. The Commissioner of Taxation isrequired to consider the objection, disallow or allow itwholly or in part, and cause written notice of the decisionto be served on the employer. An employer may not furtherobject against an amendedassessmentexcept to the extentthat it imposes a new liability or increases an existingone.

Clause 81 Reference to Board or Court

By clause 81, an employer, upon payment of a feeof $2, nay request that the Commissioner’s decision on theobjection be referred to a Board of Review for review orthat the objection be treated as an appeal and forwarded toa specified Supreme Court. In any such reference orappeal, the employer is to be limited to the grounds stated

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in the objection and the burden of proving that theassessment is excessive lies on the employer.

Clause 82 Powers of Board

this clause provides that a Board of Review is tohave all the powers and functions of the Commissioner inmaking assessmentsfor the purpose of reviewing decisionsof the Commissioner, Second Commissioners or DeputyCommissioners that are referred to it. If the Commissionerhas amended an assessment that is subject to an objectionthe decision on which has been referred to the Board, theamended assessment will be the one dealt with by theBoard. A Board of Review will not have power to reviewdecisions of the Commissioner relating to the remission of‘ additional tax payable by way of penalty, except decisionsrelating to the remission of penalty tax assessed underPart VI1I.

Clause 83 Decision of Board

Clause 83 imposes on a Board of Review anobligation to give a decision in writing and grantsauthority to confirm, increase, reduce or vary anassessment. If requested, the Board shall state in writingits findings of fact and its reasons in law for thedecision.

Clause 64 Decision of Supreme Court

This clause authorises a single judge of a SupremeCourt to hear an appeal and to make an order to confirm,reduce, increase or vary the assessment. Except in thecircumstances permitted by clause 86, there is no appealfrom the Court’s decision. A Supreme Court may state a‘ case for the opinion of the Federal Court of Australia upona question of law arising on the appeal, and a Full Courtof the Federal Court will determine the question and remitthe case with its opinion back to the Supreme Court,including any orders as to costs that it thinks fit.

Clause 85 : Appeal or reference to Supreme~

Clause 85 allows an appeal to a Supreme Court byan employer or by the Commissioner from a decision of aBoard of Review that involves a question of law. ~cuestion of law that is before a Board may also bereferred, at the request of the Commissioner or theemployer, to the SupremeCourt. An appeal or referencewill be heard by a single judge and, except as permitted byclause 66, there will be no appeal from the Court’sdecision.

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Clause �6 : Appeals from Supreme Court and Federal Court

this clause authorises an appeal to the FederalCourt of Australia or the High Court from an order ordecision of a Supreme Court under clause 84 or 85 only ifthe Federal Court of Australia grants leave to appeal orthe high Court grants special leave to appeal.

Clause 87 Practice and procedure of SupremeCourt

The effect of this clause is that High Court Rulesin force immediately before the Hill becomes law are togovern Supreme Court proceedings until such time asspecific regulations have been made relating to thepractice and procedure of Supreme Court proceedings underPart VI.

Clause 88 A pending reference or appeal Inot to affect payment of tax

This clause specifies that tax and additional taxpayable may be recovered by the Commissioner,notwithstanding that a reference to a Board of Review or anappeal to a Supreme Court is pending.

Clause 89 Adjustment of assessmentafter appeal

this clause applies where, as a result of areference to a Board or an appeal, an assessment has beenvaried by a Board of Review or a Court. In that case, theCommissioner is required to have all necessary adjustmentsmade to reflect the decision of the Board or Court and theemployer notified in writing of the varied assessment.Where the variation reduces the amount of tax the amount ofthe reduction is treated as never having been payable (sothat there can be no penalty tax on account of its notbeing paid) and the Commissioner is required to refund anytax overpaid or apply it against any other tax liability ofthe person and refund the balance. The amount of anyunderpayment as a result of the adjustment is recoverable

from the employer.

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FART Vil - COLLECTION AND RECOVERYOF TAXDIVISION I - CENERAL

Clause 90 When tax payable

Clause 90 stipulates the time for payment of taxpayable under the Act. Fringe benefits tax of a year oftax is in every case to be due and payable twenty-eightdays after the end of the relevant year, i.e., whether ornot an assessmenthas been made or a fringe benefits taxreturn - deemed to be an assessment in terms of clause 72 -

has been lodged by that time. The effect is that anypenalty for unpaid tax under clause 93 begins to accrue onamounts unpaid after that time. Additional tax underPart VIII is due and payable on the date specified in thenotice of assessmentof such tax.

Clause 91 Taxpayer leaving Australia

This clause will apply in a similar way to section205 of the Income Tax AssessmentAct 1936 by modifying theeffect of clause 90 if the Commissioner believes a personliable to pay tax is about to leave the country before thedue date for payment. In such a case, the Commissioner mayrequire the person to pay the tax by a date notified by theCommissioner.

Clause 92 : Extension of time and payment by instalments

The Commissioner may, under clause 92, extend thetime permitted for payment of fringe benefits tax andadditional tax under the preceding two clauses and allowsuch tax to be paid in instalments. Each instalment isrequired to be paid on a date determined by theCommissioner. If an instalment is not paid by the duedate, the whole of the tax owing becomes payable at thattime.

Clause 93 : Penalty for unpaid tax

Sub—clause (1) of clause 93 is similar in

k operation to other provisions of taxation laws that imposeadditional tax for late payment, e.g., section 207 of theIncome Tax AssessmentAct 1536. It will impose penalty taxat the rate of 20% per annum on any tax (whether fringebenefits tax or additional tax under proposed Part VIII)that remains unpaid after the due date for payment.

Ey sub-clause (2), however, where the Commissionerhas amended an assessment, any penalty tax on account ofthe amendmentwill apply at the lower rate applicable underthe Taxation (Interest on Overpayments) Act 1983 if theincrease is not attributed to a false or misleadingstatement having been made, or a tax avoidance arrangementhaving been entered into, by the employer.

100.

Sub-clause (3) sets the rate of interestapplicable under sub—clause (2) at 14.026% unlessregulations to change the rate are made under the Taxation(Interest on Overpayments) Act 1983.

Sub-clause (4) will apply, in a similar way tosub-section 207(1A) of the Inoome Tax Assessment Act 1936,to authorise the Commissioner to remit penalty tax inspecified circumstances. They are, broadly, that the delayin payment was caused by circumstances beyond the controlof the person who owed the tax and who has taken action tomitigate those circumstances, the Commissioner may alsoremit penalty where it seems fair and reasonable to do so.

Sub-clause (5) will ensure that penalty tax forlate payment of tax continues to accrue notwithstandingthat judgment for its payment has been given or entered ina Court. Where the judgment debt itself carries interest,the penalty tax otherwise payable is to be reduced by theamount of interest that relates to the unpaid tax.

Sub-clause (6) stipulates that the meaning of“tax” in clause 93 includes additional tax under proposedPart VI1I.

Clause 94 Recovery of tax

This clause, which is of a kind commonly found intaxation Acts, e.g., section 34 of the Bank Account DebitsTax Administration Act 1982, gives fringe benefits taxpayable the status of a debt due to the Commonwealth andrequires that such tax be paid to the Commissioner. TheCommissioner or a Deputy Commissionerwill have authorityto sue for recovery of the tax in a Court of competentjurisdiction.

Clause 55 Substituted service 4This clause will enable the Commissioner, when

taking any recovery action, to serve a document in a casewhere a person is absent from Australia or cannot befound. Service may be effected by posting the document ora sealed copy to the person’s last known private orbusiness address in Australia.

Clause 96 Liquidators, &c.

This clause follows the principles of section 215of the Income Tax Assessment Act 1936, and applies for thepurpose of determining the status of taxation debts incompany liquidations and in the winding up of the assets orbusiness of non-residents.

Broadly, it will require a liguidator, receiver,or, in the case of a non-resident, an agent, to notify theCommissioner of Taxation of his or her appointment and theCommissioner in turn to notify the liquidator, receiver oragent as soon as possible of the amount of any taxation

101.

debt that is or will become owing. The liquidator,receiver or agent must then set aside sufficient assets topay the amount of tax notified by the Commissioner.

There will be a maximum penalty of $1,000 onconviction for a failure to comply with the requirements ofclause 96.

Clause 97 : Recovery of tax from trustee ofdeceasedemployer

This clause will require the trustees of adeceased employer’s estate to furnish any returns orinformation which the Commissioner of Taxation may requirein order to determine the deceased’s outstanding tax

k liability. The Commissioner has the same powers andremedies for the assessment and recovery of tax after thedate of an employer’s death as existed before it.

Clause 98 Where no administration of deceasedemployer’s estate

If probate or administration has not been grantedwithin 6 months of the date of an employer’s death, theCommissioner of Taxation is authorised by this clause tomake an assessment of the deceased’s fringe benefitstaxable amount or amounts, and the amount of tax payablethereon. Such an assessment is subject to rights ofobjection, review and appeal by a person who has aninterest in the deceased person’s estate.

After making an assessment, the Commissioner mayauthorise the distress and sale of any of the deceased’sproperty in order that the tax liability may be met.

I Clause 96 is similar in operation to section 220~ of the Income Tax AssessmentAct 193�.

Clause 95 Commissioner may collect tax fromperson owing money to person liable to tax

This clause is the counterpart of “garnishee”~ provisions in other taxation laws notably section 218 of

the Income Tax Assessment Act 1536.

It will authorise, and supply procedures for, theCommissioner to collect tax owing by an employer from anyperson who, broadly, owes money to the employer or hasauthority to pay money to the employer. The Commissionermay by written notice require such a person, at or before atime specified in the notice, to pay so much of such moneyas will meet the tax due. Payment may be required to bemade in a lump sum or by instalments. The maximum penaltyon conviction for failure to comply with a notice is$1,000, and a convicted person may also be ordered to paythe amount which he or she previously refused or failed topay. The amount specified in the notice will become a debt

102.

due to the Commonwealth from the time it becomes payableand may be recovered in a Court of competent jurisdiction.

Money deposited with a building society, where thedeposit is part of the society’s share capital, will betreated in the same way as investments in other financialinstitutions for the purposes of this clause.

Notwithstanding that some pre-condition for theobtaining of money (such as the production of a passbook)has not been fulfilled, that money will be treated as beingdue to an employer or repayable on demand.

Where a notice is to be served on the Commonwealthor a State or Territory, that notice may be served on anemployee who is responsible for disbursing public moneys.

Clause lCO Person in receipt or control ofmoney of a non-resident

This clause will empower the Commissioner tocollect tax due and payable by a non-resident from anyperson who has the control, receipt or disposal of moneybelonging to the non-resident. Por that purpose, a personwho is liable to pay money to a non-resident is deemed tobe in control of that money. The clause will also applywhere the Commonwealth, a State or a Territory has thereceipt, control or disposal of any of a non-resident’smoney.

I

I

103.

ElUSION 2 - COLLECTION BY INSTALMENTS

Subdivision A - Ceneral

Introductory note

This Subdivision contains general rules to enablefringe benefits tax to be collected by instalments, whileSubdivisions B and C contain rules that are specific toinstalment arrangementsapplicable to, respectively, thetransitional year of tax and standard years of tax.

The 3 instalments payable in respect of a standardyear will generally equal one-quarter of the previousyear’s annual fringe benefits tax liability, although

variations based on the estimated liability for the currentP year will be permitted.

The 2 instalments payable in respect of thetransitional year will be based, broadly, on the taxablevalue of fringe benefits provided to employees in theSeptember and December 1986 quarters. Special valuation

rules will apply for this purpose.

Clause 101 : Interpretation

Sub-clause (1) of this clause makes clear that aninstalment of tax will be treated as tax for the purposesof sections 92, 93, 94, 95, 100, 129, 130 and 131 —

sections relating to extensions of time, penalty tax andrecovery.

For those purposes, references to tax in sections54, 95, 100, 129, 130 and 131 also include, by sub-clause(2), additional tax under sub-section 112(4), i.e., penaltytax where an instalment based on an instalment variationmade by an employer has proven to be insufficient. Thosesections deal with recovery of tax, services of notice,persons in control of money of non-residents, mattersaffecting agents and trustees and recovery of tax paid onbehalf of other persons.

Sub—clause (3) is a technical measure that makesclear that the processes of ascertaining the amount of aninstalment of tax, or what is called the notional taxamount (broadly, the amount of tax that is divisible intoinstalments) , do not constitute the making of an assessment.

By sut-olause (4) , all instalment amounts are tobe calculated to the nearest dollar.

Clause 102 : Liability to pay instalments of tax

This clause imposesan obligation on an employerto pay, in accordance with the rules set down inSubdivision 2, two instalments of tax in respect of thetransitional year i.e., the 9 month period ending on 31

104.

March 1987, and three instalments in respect of eachstandard year, i.e., each 12 month period thereafter endingon 31 flarch.

Clause 103 When instalments of tax Pavab1~

The 2 transitional year instalments mentioned inthe previous clause are due and payable on 28 October 1986and 26 January 1967, while the 3 instalments of standardyears are due and payable on 28 July, 28 October and28 January in the particular year.

Clause 104 Application of instalments of tax

Installments of fringe benefits tax will, by thisclause be offset against the amount of fringe benefits taxpayable on assessment of the relevant year’s fringebenefits taxable amount. If there is an excess, it will becredited against any other Commonwealth taxation liabilityof the employer, and any balance refunded.

Clause 105 Unpaid instalments 4this clause deals with situations where

instalments remain unpaid on the date when the amount offringe benefits tax of a year of tax becomes due andpayable.

tinder sub-clause (I), if one instalment or part ofone instalment remains unpaid there are three possibleoutcomes -

if none of the “annual” tax has been paid only somuch of the unpaid instalment as does not exceedthe annual tax liability will remain payable;

where some but not all of the “annual” tax hasbeen paid, so much of the unpaid instalment asdoes not exceed the unpaid balance of the annualamount will remain payable; and

where all of the “annual” tax has been paid, the 4unpaid instalment ceases to be payable.

Under sub—clause (2) , if two or more instalmentsremain wholly or partly unpaid, the following rules apply -

if any of the “annual” tax remains unpaid, theCommissioner may determine the extent to whicheach of the unpaid instalments is no longerpayable; or

if all of the “annual” tax has been paid, theunpaid instalments cease to be payable.

105.

Sub—clauses (3) and (4) require the Commissionerto have due regard to the amounts of unpaid instalments andthe amount of unpaid “annual” tax in making a determinationunder sub—clause (2) , and to notify the employer in writingof the reduced instalments.

Subdivision B Transitional Year of Tax

Introductory note

This Subdivision contains rules for calculatingthe amount of each of the instalments payable in respect ofthe first two quarters of the fringe benefits transitionalyear of tax, i.e., the instalments payable on 28 October1986 and 28 January 1987. Under the rules, the amount of

k each instalment is, broadly, the amount of fringe benefitstax that would be payable if those quarters were eachtreated as a separate year of tax, this amount being foundby aggregating the taxable values of the fringe benefitsprovided in those quarters. The instalment payable is anamount equal to 46% of that aggregate value.

Clause 106 : Notional tax amount

This clause contains the rules for calculating thetwo transitional year instalments. The basic rule,paragraph (1) (a) , is that the “notional tax amount” (theamount payable as a quarterly instalment - see clause 107)is ecual to the tax that would be payable in respect of thetransitional year of tax if the quarter were itself thetransitional year. That rule is supplemented byadjustments to certain of the annual fringe benefitvaluation rules, explained earlier to reduce them to theirquarterly equivalents. Apart from those adjustmentsexplained below, fringe benefits provided in either quarter

~ will be valui~daccording to the valuation rules applicable~ for the transitional year.

Paragraph (1) (b) of clause 106 has the effect ofreducing to a quarterly equivalent the deemed depreciationand interest components (clause 11) that are included in

~ the operating costs of a car for the purpose of calculating~ the taxable value of a car fringe benefit under the actual

cost method described in the notes on clause 10. Indetermining the amounts of the depreciation and interestcomponents for the quarter, the amounts of depreciation andnotional interest arrived at under the valuation rules forthe transitional year are to be reduced to a quarterlyequivalent on a time basis.

For example, if a oar had a depreciated value of$15,000 at 1 July 1986, the depreciation component for theSeptember quarter would be one-third of the depreciationfor the full transitional year, as follows:

106.

I. x .225 x 15,000 x 274 = $6443 365

In this calculation it is assumed that the car ison hand at the end of the quarter and will continue to beat the close of the transitional year.

The taxable value of fringe benefits in the formof expenditure of an employee that is paid or reimbursed byan employer is reduced to the extent that, had the employeeborne the expense it would have been deductible for incometax purposes.

In order to establish whether the expense wouldhave teen deductible, the employee is to provide theemployer with a declaration setting out particulars of theexpense and, in most instances, specified documantaryevidence. The declaration and substantiation documentsmust normally be provided before the date of lodgment ofthe employer’s fringe benefits tax return of the relevantyear of tax. By paragraph (1) (o)~, if an employer wishes totake advantage of these reductions when calculating eitherof the quarterly instalments for the transitional year, thesubstantiation documents will need to be obtained beforethe date of lodgment of the relevant quarterly instalmentstatement required by clause 108 (see later notes)

Paragraph (1) (d) applies where a car fringebenefit is calculated according to the statutory formuladescribed in the notes on clause 9. If the car has beenowned or leased by the employer (or an associate) for morethan 4 years at 1 July 1986, its “base valueTM will bereduced by one-third for the purpose of calculating thetaxable value of the car fringe benefit for the quarter.

Where the statutory formula method is used, thequarterly taxable value will be based on a percentage ofthe “base value” of the car according to the annualisednumber of kilometres (both business and private) travelledin the quarter. In applying the formula to determine thevalue of a car benefit provided in the quarter, thefollowing component figures are substituted for thoseapplicable for the full transitional year:

Total kilometres Taxable value as %for the quarter of base value

less than 6,250 66,250 to 10,000 4more than 10,000

107.

EXAMPLE

Assume for the purposes of calculating theinstalment of tax for the September quarter that —

a car was purchased by an employer for$20,000 on 1 August 1986;

for the whole of the period 1 August 1986 to3D September 1986 (i.e., 61 days) the car wasavailable for private use by an employee andtravels 6,600 kilometres;

there was no fee for use of the car orpayment of running costs by the employer.

The projected “annual” kilometres for the quarteris (.000 x 92 = 9,050 kilometres.

61

The taxable value of the car fringe benefit forthe quarter would be 20,000 x .04 x 61 = $530.

92

As explained in the notes on clause 26, the valueof a housing fringe benefit is generally to be determinedby references to the market value of the right to use oroccupy the accommodation for the period of the year duringwhich the employee had that right. Where this basis ofvaluation is used in calculating a quarterly instalment,paragraph (1) (f) has the effect that the taxable value isto be determined by reference to the market value of theright to use the accommodation during the quarter. Thevalue is, in turn, reduced by the amount of any applicableremote area discount and rent paid by the employee.

An employee may elect that the taxable value of aremote area housing benefit be calculated by reference tothe “statutory annual rent amount”. As explained in thenotes on clause 29, the statutory annual rent amount isdiscounted by 40% and the discounted figure is multipliedby the number of days in the year of tax when the housing

~ right subsisted over the number of days in the year. Forthat purpose, the transitional year is treated as a fullyear having 365 days.

To convert the value of a housing fringe benefitto a quarterly equivalent for the purpose of ascertainingthe two quarterly instalments of the transitional year, thestatutory annual rent amount is divided by 4 (paragraph(1) (g)) and the actual number of days in the quarter issubstituted for 365 (paragraph (1) U)).

108.

EXAMPLE

Assume -

an employee has a right to occupy anemployer’s house in a remote area for 60 ofthe 92 days of the transitional quarterending on 30 September 1986;

the statutory annual rent amount calculatedas described in the notes on clause 29 is$6, 760;

the employee pays monthly rent of $200.

The taxable value of the housing fringe benefit

for the quarter would be -

$(6,760 x 6 x 60) - 400 = $261

4 10 92As explained in the notes on clause 62, the first

$150 of the taxable value of fringe benefits provided to anemployee in the transitional year that are, broadly, goodsor services of kinds supplied to the public in the ordinarycourse of the employer’s business are exempt from fringebenefits tax. By paragraph (1) (h) the first $50 in taxablevalue of such benefits is deducted in ascertaining thetaxable value of fringe benefits on which the two quarterlyinstalments of the transitional year are to be based.

Sub—clause 106(2) bears on the calculation ofinstalments for the transitional year quarters where anemployer wishes to take into account in the calculationalternative methods of valuation that require the making ofan election. These are the elections to adopt the costbasis of valuing car fringe benefits (see the notes onclause 10) and the alternative statutory formula forvaluing remote area housing benefits (see the notes onclause 29). If either or both of those bases are used incalculating for instalment purposes the value of a fringebenefit in respect of the first quarter of the transitional 4year, the basis must also be used for the second quarter’sinstalment. Calculation in that way, however, will notbind an employer to make an election to adopt theparticular method or methods of valuation when lodging thefringe benefits tax return of the transitional year of tax.

The Commissioner of Taxation will be authorised incertain circumstances, to determine the amount of tax (the“notional tax amount”) that an employer is required to payas a quarterly instalment of the transitional year. Thosecircumstances, set out in sub-clause 106(3), are that theemployer has not furnished information in relation to theinstalment as required by clause 108, or that theCommissioner is not satisfied with the information so

109.

provided. In determining the amount of the instalment therules set out in sub-clause (1) will be taken as the basisfor the calculation. If the commissioner makes adetermination, a copy must be served on the employer assoon as practicable (sub—clause 104(4))

Clause 107 Amount of instalment of tax

This clause is the operative provision ofSubdivision B. It stipulates that the amounts payable asinstalments in respect of the transitional year of tax arethe notional tax amounts in respect of the quarterbeginning on 1 July 1986 (the first instalment) and the9uarter beginning on 1 Cotober 1966 (the secondinstalment). That is, the quarterly instalments are theamounts of tax that would be payable if the fringe benefitsp provided in each of those quarters were valued, accordingto the valuation rules outlined earlier, as if the quarterwas the transitional year of tax, with adjustments asrequired by clause 106 to reduce the values to quarterlyequivalents.

Clause 108 Instalment statement

Clause 108 requires quarterly statements of thecalculations in respect of the two quarters of thetransitional year to be furnished to the Taxation Office by28 Cctober 1986 and 28 January 1987 respectively. Thestatements must be in a form approved by the Commissionerof Taxation and contain specified information as to how theinstalment was calculated.

Subdivision C — Standard ?ears of Tax

Introductory Note

This Subdivision contains rules relating to the

payment of fringe benefits tax by instalments in respect ofstandard years of tax, i.e., each 12 month period ending on31 March, beginning with year of tax commencing on1 April 1987. The general rule is that each instalmentwill equal one-quarter of the previous year’s annual fringebenefits tax liability, however, for the first standardyear adjustments are to be made to account for the factsthat tax liability of the transitional year covers only aperiod of 9 months, and that the rate of fringe benefitstax is 46% in the transitional year and 49% in standardyears.


This clause defines certain terms that arecontained in Subdivision C.

“employer’s estimate”, wherever used in theSubdivision, is a reference to the amountestimated by an employer as the amount of

110.

fringe benefits tax that will be payable bythe employer in respect of a year of tax.Such an estimate may be made, in terms ofclause 112, for the purpose of varying theamount of an instalment that would otherwisebe payable by the employer.

~estimated tax” also relates to clause112, being the tax that is equal to theemployer’s estimate or a greater amountcalculated by reference to an alternativeestimate which the Commissioner of Taxationmay make under sub-clause 112(3).

“penalty period” is a term used in clause 112 andis,

broadly, the period over which additional taxmay accrue where an employer has made anestimate of tax to reduce the amount payableas an instalment and that estimate proves tobe less than the ultimate tax liability. Thepenalty period is, in effect, the time fromwhen the instalment is due and payable to thetime when the next instalment is due andpayable.

“relevant fraction” is a component of thecalculation

of penalty tax where an employer’s estimateis deficient. It reflects the requirementthat, where an employer seeks to vary aninstalment, cumulative instalments for a taxyear must not amount to less than thecorresponding proportion of the previousyear’s assessed tax or the eventual taxliability of the current year, whichever isthe lesser. That proportion will be 1/4 forthe first instalment, 1/2 for the secondinstalment and 3/4 for the third instalment.The relevant fraction is also used incalculating the proportion of the “notionaltax amount” (see notes on clause 110) that ispayable as an instalment. 4Clause 110 : Notional tax amount

The notional tax amount calculated in accordancewith this clause will generally equal the previous year’stax liability. The notional amount will ordinarily bedivided by 4 to arrive at the amount payable as a quarterlyinstalment of fringe benefits tax.

for the first standard year of tax commencing on 1April 198’), paragraph 110(1) (a) prescribes the notional taxamount as the amount obtained by multiplying the taxassessed in respect of the transitional year of tax by1.42. This recognises that the transitional year coversonly 9 months and that the rate of tax is to increase forthat year from 46% to 49%.

111,

1or years of tax after this first standard year,the notional tax amount will be the amount of tax that wasassessedin the immediately preceding year (kox~gx~.~h(1) (b)

Sub-section (2) will permit the notional taxamount to be adjusted where the rate of fringe benefits taxfor a standard year is different from the rate that appliedfor the previous year. The manner of effecting thisadjustment is to be prescribed by regulations.

By sub—clause (3) , the Commissioner of Taxation isauthorised to determine the notional tax amount of anemployer if there is cause to believe that the taxliability of the year of tax will be greater than that

I assessed for the previous year. In that case, the notionaltax amount will be as estimated by the Commissioner.

If such a determination is made, the Commissioneris required by sub-clause (4) to notify the employer inwriting of the estimated i~&Eional tax amount and the dateon which the determination takes effect. That date mustnot be less than 30 days after service of the notice.

By the operation of sub-clause (5) , the notionaltax amount may be varied according to an estimate made bythe employer if the employer has given to the Commissionera statement (as required by sub-clause 112(1)) showing thetax amount estimated and the basis of the estimate. Theestimated amount will be substituted as the notional taxamount with effect from the last day of the quarter inrelation to which the employer’s estimate was made.

Clause 111 Amount of instalment of tax

This clause specifies the amount, based on theF notional tax amount calculated in accordance with clause

110, that is to be due and payable as an instalment on thetwenty—eighth day after the end of a quarter. Bysub-clause (1) , the instalment is to be calculated by theformula AB - C, i.e., the notional tax amount as at thelast day of the quarter (A) , multiplied by the “relevant

F fraction” (B) , less the sum of any instalments for the yearthat became due and payable at an earlier time (C). if,for example, the notional tax amount (as estimated by theemployer) is $B,000, the instalment due is the secondcuarterly instalment and the first quarterly instalment was~2,500, the second instalment payable would be

(8,000 x .50) — 2,500 = $1,500.

Sub—clause (2) will extinguish an obligation topay a quarterly instalment if the notional tax amount isbased solely on the previous year’s tax liability, i.e.,

112.

not by reference to an estimate by the employer, and isless than $1,ooo. By sub-clause (U, the Commissioner maydetermine a higher threshold amount than $1,000 by noticein the CommonwealthGazette.

Clause 112 Estimated tax

This clause enables an employer to vary the amountof a quarterly instalment of a year of tax~by making anestimate of the annual tax liability of that year.Sub—clause (1) permits an employer to make such an estimateand, not later than the date on which the instalment is dueand payable, to furnish a written statement to theConmissioner of Taxation showing the estimated amount andthe basis of the estimate. Only one such estimate may bemade in respect of each instalment. 4

Where a statement is furnished, sub-clause J21will apply so that the amount of tax specified in thestatement becomes the “employer’s estinate”, as defined inclause 109, and hence, by the operation of sub-clause110(5), the new notional tax amount. 4

Sub-clause (31 will allow Commissioner of Taxationto substitute for the employer’s estimate of the amountwhich, in the Commissioner’s opinion, should have been theamount estimated by the employer, having regard toinformation in returns furnished by the employer and anyother available information. In such a case, the newnotional tax amount will be the lesser of theCommissioner’s estimate or the notional tax amount beforethe employer’s estimate.

Sub-clause [41 will impose penalty tax where theemployer materially underestimates the annual taxliability. That will occur if the notional tax amountcalculated by reference to the employer’s estimate is lessthan 90% of the amount of the eventual assessed taxliability of the employer for the year of tax. The penaltytax will be calculated at the rate of 20% per annum overthe “penalty period” (see earlier notes on clause 109) inaccordance with the formula AS - C. Component A is thelesser of the actual tax assessed and the notional taxamount ascertained by reference to the previous year’sliability; component B is the relevant fraction (asexplained in the notes on clause 109) ; and component C isthe total of any instalments in respect of the year of taxthat becamedue and payable at an earlier time.

Sub-clause (SL is a technical measure to ensurethat sub-clause (4) has its intended effect where anemployer would have been liable to pay an instalment butmakes an estimate that no annual tax will be payable. inthat case, the amount payable as the relevant instalmentwill be treated as a nil amount.

113.

By sub—clause (6), the Commissioner of Taxationwill be authorised to remit penalty tax imposed bysub—clause (4) if satisfied that there are specialcircumstances by reason of which it would be fair andreasonable to do so.

Sub—clause (7) has the effect that any extensionof tine granted to pay an instalnent of tax is to bedisregarded in deternining whether or not an amount was dueand payable for the purposes of applying clause 112. Thus,for example, a penalty calculated under sub-clause (4) willaccrue from the 28th day after the end of the relevantquarter, regardless of whether an extension of time to payis given.

clause 113 Notice of alteration of amount o~ instalment

This clause applies where an employer has made anestimate of tax payable in respect of a year of tax but theCommissioner has substituted, in terms of sub-clause112(3), a higher estimate. The Commissioner will be‘ required to notify the employer in writing of the increasein the relevant tax instalment as a consequence of thesubstituted estimate and the due date for payment of theinstalment. That date, which must not be earlier than 14days after the notice is served, will become the due datenotwithstanding the usual due dates for the payment ofinstalments as specified in clause 103.

114.

PART VIII - FENALT~TAX

Clause 114 Penalty for failure to furnish return

This clause will impose a penalty of an amountequal to double the amount of tax payable by an employer inrespect of a year of tax if the employer - not being agovernment body — refuses or fails to furnish, whenrequired to do so under the law, a fringe benefits taxreturn of that year or information relevant to ascertainingthe employer’s tax liability. The minimum penalty will be

Clause 115 Penalty for false or misleading statements

Sub-clause (1) will apply where an employer -

other than a government body - makes a statement for thepurposes of the proposed Act that is false or misleading ina material particular or which, by the omission of somenatter, is rendered misleading. If, in such a case, thetax properly payable by the employer exceeds the tax thatwould be payable if the statement were correct, theemployer will be liable to penalty tax ecual to double theexcess.

By the operation of sub—clause ~ the minimumpenalty payable under this clause will be $20.

The penalty imposed by sub-clause (1) will applyto statements made to a taxation officer or other personfor purposes in connection with the operation of the taxand, for that purpose, sub-clause (U will define the term‘statement’ to nean an oral or written statement, or onemade on a data processing device or in any other form. Inparticular, the sub-clause will ensure that statementscontained in an objection against an assessment will bepeñalisable where such statements are false or misleading.The term will include a statement whether or not furnishedin accordance with provisions of the Bill, but will notinclude a statement in a book, doounent or paper furnishedpursuant to paragraph 128(1) Cc) of the Bill. Thatparagraph obliges a person, when required by theCommissioner, to attend and give evidence and to producebooks, docunents and other papers in his or her custody orunder his or her control. But for this exclusion a personmay have sought to decline to produce books, etc., requiredin case their production would give rise to the impositionof additional tax for false or misleading informationcontained in them.

A statement made to a person other than a taxationofficer will, by sub-clause (4k, include statements - madeorally, in writing, in a data processing device orotherwise - whether in a document given to the person, anyanswer to a question asked by the person or any informationfurnished to the person.

115.

Sub-clause__(5) defines the following terms used inclause 115

“data processing device” is any article or material(e.g., computer tapes or discs) from whichinformation is capable of being reproduced eitherwith or without the aid of any other article ordevice; and

“taxation officer” is a person exercisir.g powers, orperforming functions, under the proposed FringeBenefits Tax Assessment Act.

~JauseJ_1Ltk~flditLt~ where arrangement to avoid tax

‘ This clause will impose on participants in taxavoidance arrangements struck down by clause 67 penalty taxof double the tax sought to be avoided. it will applywhere -

in naking an assessment or considering anobjection, the Commissioner of Taxation hascalculated the amount of a tax liability of anemployer;

in making that calculation, the Commissioner hastaken into account a tax benefit obtained byreason of a tax avoidance arrangement in terms ofsub-clause 67(1); and

the amount of tax payable is greater than it would

have been had the adjustment not been made toeliminate the tax benefit.

Where those conditions apply, clause 116 will impose on the‘ employer a liatility to pay penalty tax equal to double thedifference between the tax properly payable and the taxthat would have teen payable if the assessment were made orthe objection determined on the basis that the fringebenefits amount represented by the tax benefit were notincluded in the employer’s fringe benefits taxable amountof the year of tax.

Clause l17:Assessment of additional tax

jy~s.pj1j.pfl.~. (2) of this clause impose anobligation on the Commissioner of Taxation to make anassessment of the additional tax payable by an employerunder a provision of this Part, but notice of theassessment may be incorporated in another notice ofassessment that is teing made in respect of the employer.

by t~ub-clause (3) the Comnissioner may, eitherbefore or after making an assessment of additional tax,remit the whole or any part of the additional tax payableby an employer.

116.

PAST IX - TAX ACEt~TS


This clause defines “registered tax agent” for thepurposes of this Part as a person or partnership registeredas a tax agent under the income tax law.

Clause 119 Unregistered tax agents not to charge faes

This clause stipulates that a person who is not are9istered tax agent must not charge a fee to prepare afringe benefits tax return or an objection for a person ortransact other fringe benefits tax business on behalf ofothers. The prohibition does not apply to a solicitor orcounsel acting professionally in preparing an objection, orin litigation or proceedings before a Board of Review, oracting in an advisory capacity concerning the preparationof a fringe benefits tax return or objection. The maximumpenalty on conviction for a breach of clause 119 is a fineof $2,000.

Clause 120 t~eg1igence of regiet-erec-i~gç~~ 1U, through the negligence of a registered tax

agent, an employer becomes liable to pay a fine or otherpenalty or any additional tax, clause 120 renders theregistered tax agent liable to pay to the employer theamount of the fine or other penalty or additional tax andallows that the amount may be sued for and recovered in acourt of competent jurisdiction. The clause does notexonerate the employer from any tax liability.

Clause 121 Preparation of reburne, &a., on behalf of

~reg~istered tax aqe~~~

This clause prohibits a registered tax agent fromallowing a person to prepare, on the registered tax agent’sbehalf, a fringe benefits tax retutn or objection, or toconduct any business related to a fringe benefits taxmatter unless the person is an employee of a registered taxagent, a registered tax agent or, in the case of apartnership which is registered as a tax agent, a member ofthat partnership. Similarly, a partnership or companyregistered as a tax agent must not allow a person to act inthose ways except under the supervision of a registerednominee of that partnership or company.

The maximum penalty on conviction for a breach ofclause 121 is a fine of $1,000. A tax agent is notprevented by clause 121 fron obtaining the professionalservices of a solicitor or counsel as mentioned in thenotes on clause 119.

117.

Clause 122 Advertising, &c., by persons other thanregistered tax agents

Clause 122 will debar any person who is not aregistered tax agent from advertising that fringe benefitstax returns will be prepared by that person or that anyother matter in connection with fringe benefits tax will beattended to by that person, with a maximum penalty onconviction of $1,000.

PART X - BLTLNTIOt4 OF STATUTORY EVIDEflTIAh’~( DOCUMENTS

Clause 123 Retention, of statutory evidenti~ry documents

‘ Part X of the Bill, contained in clause 123, dealswith the consequencesof a failure to retain “statutoryevidentiary documents” (as defined in sub—clause 136(1)).~chere the documents are relevant for the purpose ofdetermining the taxable value of a fringe benefit, orwhether a fringe benefit is exempt from tax, they must beretained for the “retention period” - broadly, six yearsfrom the date of assessmentof an employer’s fringe benefittaxable amount. lf they are not so retained, the taxablevalue of a fringe benefit to which they relate cannot bereduced or, as the case may be, treated as exempt onaccount of the information they contain.

Sub-clause (1) means that, where an employer failsto retain for the retention period statutory evidentiarydocuments which have been given to the employer, they willbe deemed never to have been received.

Sub-clause (2) will apply where an employer failsto retain “relevant car documents” (as defined in‘ sub-clause 136(1)) maintained for the purpose ofdetermining, on the basis of business and privatekilometres travelled, the taxable value of a car fringebenefit on the cost basis under clause 10. In that casethe documents will be treated as never having beenmaintained.

Sub-clause (3) will apply in a similar way wheredocumentary evidence (e.g., a diary record) of smallexpenditures (i.e., each item not exceeding $10) of anemployee provided with an expense payment fringe benefit isnot retained.

Sub-clause (4) will allow a copy of a document tobe treated as the original of that document if the originalhas been lost or destroyed. This is a relieving provisionand is conditional on the loss or destruction being incircumstances beyond the employer’s control. TheCommissioner of Taxation must also be satisfied that allreasonable steps were taken to prevent such a loss. A copywill not be acceptable unless it was in existence when theoriginal was destroyed and properly records all the mattersrequired in the original.

lie.

Sub—clause (5) recognises that the originaldocument may be lost or destroyed in circumstances such asoutlined in sub—clause (4) but where there is no substitutedocument in existence, and it is not practicable to obtainone. In that case, sub-clause (5) overrides sub-clauses(1) , (2) and (3) . This means that those sub-clauses willnot apply to deem the originals not to have been given to,or maintained by, the employer.

Sub—clause (6) will permit statutory evidentiarydocuments to be taken to have been given to and retained byan employer for the retention period, even though they werein fact lost or destroyed beforehand. This will bepermitted only where no substitute document is in existenceand it is not practioable to obtain one.

Sub—clause (7L authorises the amendmentof anassessmentto give effect to clause 123 notwithstanding thegeneral rules contained in clause 74 as to when an amendedassessmentmay be nade.

PART XI - MISCELLANEOUS 4Clause 124 Determination of fringe benefits taxable

amount where insufficient information‘Ibis clause will apply in circumstances where the

Commissioner does not have sufficient information to makean assessmentof the fringe benefits taxable amount of anemployer of a year of tax. In such a case, the amountthat, in the opinion of the Conmissioner, might reasonablybe expected to be the fringe benefits taxable amount shallbe deemed to be the fringe benefits taxable amount for thepurposes of making an assessment.

Clause 125 : Judicial notice of signature 4This clause requires that judicial notice be taken

of the signature of a person who holds or has held theoffice of Conmissioner of Taxation, Second Commissioner ofTaxation or Deputy Commissioner of Taxation where thatsignature is on an official document pertaining to the Bill. 4

119.

Clause 126 Evidence

Sub-clauses (1) to (5) of this clause specify theevidentiary value of certain ducuments and copies ofdocuments issued or given, or purporting to be issued orgiven, under the hand of the Commissioner, a SecondCommissioner or a Deputy Commissioner, while sub—clause (6)applies similarly to a fringe benefits tax return made orsigned by a person.

The rules in sub—clauses (1) to (5) are as follows:

the production of a notice of assessmentordocument purporting to be a copy of such a noticeis conclusive evidence of the due making of theassessmentand that the amounts and allparticulars are correct - except in proceedingsrelating to an objection, reference or appealconcerning an assessment;

the production of a document is prima facieevidence of its being issued or given;

the production of a document purporting to be acopy of, or extract from, a return or notice ofassessment is evidence of the matters in thedocument to the extent that the original documentwould be if produced;

the production of a signed certificate that aspecified sum was due and payable at the date ofthe certificate as tax, an instalment of tax orpenalty tax is prima facie evidence of the matterstated;

the production of a Cazette containing a notice isprima facie evidence that the notice was issued.

The rule in sub—clause (6) is that a fringe benefits taxreturn purporting to be made or signed by or on behalf of aperson is prima facie evidence that the return was made byor on the authority of the person.

Clause 127 : Access to premises, &c.

Sub-clause 127(1) will require that an officerduly authorised by the Commissioner be given entry, at allreasonable times, to land or premises, full and free accessto all books, records and other documentsheld by anyperson, and the right to inspect, examine or make copies orextracts therefrom.

By sub—clause (2), an officer is not entitled toremain on land or premises unless a written authoritysigned by the Commissioner is produced on the request ofthe occupier.

120.

Sub-c1ause(~j will require any occupier of landor premisi~ entered or proposed to be entered by a dulyauthorised officer to provide that officer with allreasonable facilities and assistance to carry out officialduties, The maximum penalty on conviction for failure tocomply is a fine of $1,000.

Clause i2&;commiscioner to obtain Lnfozmation andevidence

This clause, which is similar in operation tosection 264 of the lncone Tax Assessnent Act 1936, willenable the Commissi~j3e~to require, by notice in writing,any Person to furnish information, to attend before him andanswer questions, on oath or otherwise, or to produce anydocuments in the custody or under the control of thatPerson.

Clause 129 Agents and trustees

This clause will apply to a person who acts as anagent for an employer in providing or arranging theprovision of fringe benefits, to an employer in thecapacity of trustee, or to a trustee of the affairs of anemployer where the trustee provides or arranges for theProvision of fringe benefits.

The agent or trustee (called a representative)will be required, in that representative capacity only, tofurnish returns and be liable to pay any tax in respect offringe benefits. The representative will be reguired toretain noneys received as representative sufficient to paythe amount of tax and will to that extent be personallyliable for the amount of tax after it becomesdue andpayable. Clause 129 will indemnify the representative forall payments made in its compliance.

The Commissioner of Taxation will have the sameremedies against attachable property vested in, or underthe control, managementor Possession of, therepresentative as would be available against the propertyof any other person in respect of tax payable by thatperson.

Clause 130 ~ other

0

By the operation of this clause a person who isrequired to pay to the Commissioner an amoumt of taxpayable by another person may recover the amount from thatother person, with costs, or retain or deduct the amountOwing out of money of the other person that is on hand.

121.

Clause 131 : Right of contribution

Clause 131 will apply where two or more personsare jointly or jointly and severally, liable for tax andone of them pays the tax. In that case, the one who paidthe tax may recover from the other person or persons suchpart of the amount as that a court of competent]urisdiction considers just and equitable.

Clause 132 : Records to be kept and preserved

This clause requires an employer to keep recordsthat identify and explain all transactions and actsrelevant for the purpose of ascertaining the enployer’sliability under the proposed Act. An associate who‘ provides benefits to an employer’s enployees is alsorequired to maintain records in respect of thosetransactions. In these cases, the associate is furtherrequired to make available to the employer a copy of therecords not later than 21 days after the end of therelevant year of tax.

The records must be kept in the English languageor, if not in written form (e.g., in computer) , be in aform which is readily accessible and convertible intoEnglish. The records are to be retained for a period of 7years after the completion of the transactions or acts towhich they relate.

The maximum penalty on conviction for failure tocomply with clause 132 is a fine of $2,00C.

An employer (or associate) will not offend againstthis clause where he or she fails to obtain information in‘ relation to a transaction or act engaged in by anotherperson under an arrangement with the employer (orassociate) if the employer (or associate) took allreasonable steps to ascertain details of the transactionand to obtain the information. In a case where thetransaction was engaged in by another person otherwise than‘ under an arrangenent with the employer, the employer willnot be liable if he or she did not know, and could notreasonably be expected to have known, of the information.

Clause 133: Release of employers in cases of hardship

This clause, which will apply in the same way assection 265 of the Income Tax Assessment Act 1936, providesa mechanism for release from payment of tax where serioushardship would result.

Clause 134 Service on partnerships and associations

This clause will deem service of a notice ordocument on a member of a partnership or on the committee

122.

of management of an unincorporated association or otherbody of persons to constitute service of that notice ordocument on each member of the partnership, association orbody.

Clause 135 : Regulations

This clause will authorise the Covernor-Ceneral tomake regulations prescribing matters permitted to beprescribed or necessary or convenient to b-e prescribed foradministering the proposed Act.

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123.

PART XII - INTERPRETATION


Clause 136 contains a number of definitions andinterpretative provisions to facilitate drafting of theoperative clauses of the Bill.

Sub-clause (1) defines the following terms, eachof which is to have the given meaning unless the contraryintention appears. Apart from certain expressions that areself-explanatory, these are -

“agent” includes a person who has management orcontrol in Australia of all or part of abusiness of a person out of Australia and aperson declared by written notice of theCommissioner of Taxation to be an agent of aperson.

“~gpnt’s certificate” is defined as a certificateunder sub-clause 71(1), i.e., a certificateas to the sources of information used toprepare a return.

“airline operator” is a person who carries on abusiness of providing transport on passengeraircraft (principally to outsiders)

“airline transport benefit” means a benefit of thekind mentioned in clause 32.

“airline transport fringe benefit” is an airlinetransport benefit that con~Uitutes a fringebenefit (as defined)

“arrangement” is given an extended meaning, commonto provisions of other taxation laws, so asto include any agreement, arrangement orunderstanding, either expressed or implied,whether or not intended to be enforceableunder law.

“assessable income” will have the same meaning asin the Income Tax Assessment Act 1936.

“assessment” is defined to mean the ascertainmentof an employer’s fringe benefits taxableamount (also a defined tern) and the taxpayable thereon, or the ascertainment ofpenalty tax under Part V1II.

~assooiate”, in relation to a person, is defined tohave the same meaning as that tern has byreason of the definition in section 26AAB of

124.

the Income Tax Assessment Act 1936. Thatdefinition specifics who is an associate inrelation to a natural person, a company, atrustee of a trust estate or a partnershipand, in broad terms, refers to those personswho by reason of family or businessconnections might appropriately be regardedas being associated with a particular person.

“Australia”, in a geographical sense, will includethe external Territories.

“benchmark interest rate”, which is defined inrelation to loan fringe benefits and carfringe benefits, is generally the rate ofinterest offered anywhere in Australiaimmediately before the beginning of a year oftax on a Commonwealth Bank housing loan (adefined term) . Between 2 April 1986 and1 July 1986, the benchmark interest rate isthe Commonwealth Bank housing loan interestrate on offer during that period.

“benefit”, wherever it is used, will include anyright, privilege, service or facility,including a right relating to real orpersonal property, whether provided under anarrangement in relation to -

the performance of work;the provision of entertainment,recreation or instruction, or the use offacilities therefor; orthe conferring of rights, benefits orprivileges for which remuneration ispayable by way of royalty, tribute orlevy, or provided under an insurancecontract or a money-lending arrangement.

“board meal” is defined for the purposes of theboard fringe benefit valuation rulesexplained in the notes on clause 36; themeaning of the term is explained in thosenotes.

“board benefit” means a benefit of the kindmentioned in clause 35.

“board fringe benefit” is a board benefit thatconstitutes a fringe benefit (as defined)

“business journey”, for the purposes ofthe oar fringe benefit rules in Division 2 of

125.

Part Ill, is a journey in a car otherwisethan in applying the car to a private use,and for the purposes of rules that reduce thetaxable value of loan fringe benefits,expense payment fringe benefits, propertyfringe benefits and residual fringe benefits,is a journey undertaken in the course ofproducing assessable income of the holder ofthe car.

“business kilometre” means a kilometre travelled inthe course of a business journey (as defined)

“business operations” is a term defined inrelation to a government body (a definedterm) or non-profit company to include anyoperations or activities of such a body orcompany.

“business premises” means premises or a part ofpremises used wholly or partly for thepurpose of business operations, but does notinclude any part of premises used as aresidence.

“car” is defined for the purposes of the car fringebenefits valuation rules in Division 2 ofPart III, and its meaning is explained in thenotes on that Division.

“car benefit” means a benefit of the kind ‘

mentioned in sub-clause 7(1).

“car fringe benefit” is a car benefit thatconstitutes a fringe benefit.

“car property benefit” means a property fringebenefit (as explained in the motes onDivision 11) which, if the person receivingthe benefit had borne the cost of it, thatcost would have been a car expense in termsof Subdivision F of Division 3 of Part III ofthe Income Tax Assessment Act 1936 (thesubstantiation rules)

“child” includes an adopted child, step-child orex-nuptial child.

“child care facility” is defined to mean a facilitywhere a person may receive 2 or more childrenunder 6 years away from their own homes tomind, care for or educate but not provideresidential care.

] 126.

“Commissioner” means the Commissioner of Taxation.

“Commonwealth Bank housing loan” refers to an arm’slength loan made for housing purposes by theCommonwealthSavings Bank under terms wherebyinterest is calculated on the daily balanceand added monthly to the principal.

“company” is defined to include any corporate orunincorporated body or association, but not apartnership.

“comparison time” takes its meaning accordingto the kind of fringe benefit it applies to.In relation to residual fringe benefits,explained in the notes on Division 12, it isgenerally the time when the benefit isprovided. In relation to a benefit providedduring regular billing periods, it is thecommencement of the billing period, and inrespect of benefits provided over a period,it is the time when the benefit began to beprovided. In respect of an air transportfringe benefit, it is when the benefit isprovided.

“contract of investment insurance” means a lifeassurance contract under which money ispayable if the life assured is alive on aspecified date.

“cost price” is defined in relation to car fringebenefit valuation rules in Division 2 and itsmeaning is explained in the notes on thatDivision.

“current employee” and “current employer” are 1defined to have the same meanings as thoseterms are given for the purposes of the PAIRprovisions of the Income Tax Assessment Act1936. A current employee includes a memberof a State Parliament and a person employedby a State or State authority, and a currentemployer includes a State or a Stateauthority.

“current identical benefit” is defined to modifythe meaning of another defined term,“identical overall benefit” it is theidentical overall benefit insofar as it wasprovided during the year of tax.

“customs d~y” means customs duty imposed under alaw of the Commonwealth or of a Territory.

127.

“daily balance” is defined as the balance of aloan at the end of a day,

“debt waiver benefit” means a benefit of the kindmentioned in clause 14.

“debt waiver fringe benefit” is a debt waiverbenefit that constfEiiEes a fringe benefit (asdefined)

“December quarter” means a quarter of any yearending on 31 December.

“declaration date” is defined in relation tovarious do~umentsthat may need to beobtained or provided to substantiate thebasis of valuing certain fringe benefitsthey must be obtained or provided by the dateof lodgment of the fringe benefits tax returnof an employer of the year of tax to whichthey relate, or such later date as theCommissioner allows.

“deductible entertainment expenditure” meansentertainment expenses witninttre meaning ofsection S1AE of the Income Tax Assessment Act1936 that would be deductible for income taxpurposes, becauseof the operation ofsub-section S1AE(5), if incurred in producingassessable income, except food or drinkprovided to an employee as board or as partof a living-away-from-home arrangement.

“deductible expenses” is defined in relation to aliving-away-from-home allowance benefit asexpenses incurred by an employee which wouldbe an allowable deduction under the incometax law but for section S1AR (entertainmentexpenses) and Subdivisions F (substantiationof expenses) and S (rental property loaninterest) of the Income Tax Assessment Act1936.

“depreciable property”, wherever used, means plantor articles oUthe kind eligible fordepreciation allowances under the income taxlaw.

“fl~ppty Commissioner” means a Deputy Commissionerof Taxation.

128.

“documentary evidence” is defined in relation to anexpense incurred by a person, and means a documentthat would constitute documentary evidence of thatexpense under the income tax iaw if the person whoincurred the expense were a taxpayer within themeaning of that law.

“domestic route” is defined in relation to airlinetransport fringe benefits and means a route wherethe port of embarkation and the port ofdisembarkation are both within Australia.

“dwelling” is defined, in relation to housing fringebenefits, as a unit of accommodationconstitutedby or contained in a building, being a unit thatconsists wholly or substantially of residentialaccommodation,

“economy air fare” is defined in relation to airlinetransport fringe benefits as the standard air fare(other than a preferential fare) charged by acarrier in respect of a scheduled air service or,where a child, student or blind person is eligiblefor a conoessional fare, the concessional airfare. In either case, there must be no specialbooking conditions attached.

“eligible dining facility” is defined to mean a canteen,dining room, cafe, restaurant or similar facilityon the premises of an employer or, if the employeris a company, a related company.

“eligible entertainment expenditure” means deductibleentertainment expenditure (as defined; ornon-deductible entertainment expenditure (asdefined) — broadly, entertainment expenditure thatwould qualify for deduction under the income taxlaw but for the operation of section SlAS of theInoome Tax AssessmentAct 1936.

“eligible family member” is an employee requiredto Live away from home for a period in order tocarry out duties of employment and the spouse andchildren of the employee who live with theemployee during that period. The term also refersto an employee in receipt of a living-away-from-home allowance fringe benefit and theemployee’s spouse and children who live with theemployee and in respect of whom part of the~ allowance benefit isprovided,

“eligible incidental travel expense Payment benpfit”Th an expense payment fringe benefit in the natureof a payment or reimbursement of expenses that aperson might reasonably be expected to have

129.

incurred on accommodation, food and incidentalswhilst undertaking travel away from home, butwithin Australia, in the course of performingduties as an employee.

v rtime meal exmense payment benefit” is ane5qiensepayment fringe bene i. in re of apayment or reimbursementof expenses that a personmight reasonably be expected to have incurred inthe purchase of food or drink in connection withovertime worked by that person.

“eli ible remises” is defined in relation to a meal,or food or rink, provided in respect of theemployment of an employee. It means theemployer’s premises and, if the employer is acompany, premises of a related company. It alsoincludes a location at or adjacent to theemployee’s work site.

“em 1o ee” may mean a current employee, futureemp oyee or former employee.

“y~” correspondingly means a current employer,future employer or former employer, but not theCommonwealthor an authority of the Commonwealththat cannot by Commonwealth law be made liable totaxation by the Commonwealth.

is defined in relation to a person asincluding the holding of an office or appointment,the performance of functions or duties, theengaging in of work or the doing of any act orthing that results in the person being treated asan employee.

“exclusive em lo ee airline transport benefit” is anäifTine transport fringe ene i. , if theemployee provided with the benefit had borne thecost of providing it, that cost would have beenincurred exclusively in gaining or producing thatperson’s salary or wages from the employment thatis the source of the benefit.

“ ye em lo ee expense payment benefit” is anexpense payment ringe enc i heemployee’s expenditure that is paid or reimbursedis incurred exclusively in gaining or producingthat employee’s salary or wages from theemployment that is the source of the benefit.

“ usive em lo ce property benefit” is a propertyfringe beneti w ic , loyee providedwith the benefit had borne the cost of providingit, that cost would have been incurred exclusivelyin gaining or producing that person’s salary orwages from the employment that is the source ofthe benefit.

1 3 0.

“exclusive employee residual benefit” is a residualffinge benefit which, if the employee providedwith the benefit had borne the cost of providingit, that cost would have been incurred exclusivelyin gaining or producing that person’s salary orwages from the employment that is the source ofthe benefit,

“exempt accommodation component” is defined in relationto li~Thg-away-from-home fringe benefits, and itsmeaning is explained in the notes on Division 7 ofPart iii of the Bill.

“exempt food component” is also explained in the notes

on Division 7 of Part III.

“expense payment benefit” is a benefit of a kindmentioned in clause 20.

“expense payment fringe benefit” is an expense paymentbeneffE that constitutes a fringe benefit (asdefined)

“extended travel airline transport benefit” is anairflne ffansport fringe benefit where thetransport —

U) is over an international route; or

(ii) is within Australia, involves thetraveller being away from home for acontinuous period of more than 5 nights,and is not undertaken exclusively ingaining or producing the salary or wagesincome from the employment that is thesource of the benefit.

“extended travel board benefit” is a board fringebendflt ~Kere -

(i) the board meal is in respect of traveloutside Australia; or

(ii) the board meal is in respect of travelwithin Australia requiring the travellerto be away from home for a continuousperiod of more than 5 nights, and thetravel is not undertaken exclusively ingaining or producing the salary or wagesincome from the employment that is thesource of the benefit.

“extended travel expense p~yment benefft” is anexpense payment fringe benefit, other than a carexpense payment benefit, where -

131.

(i) the employee’s expenditure that is paidor reimbursed is incurred in respect oftravel outside Australia; or

(ii) the expenditure is in respect of travelwithin Australia requiring absence fromhome for a continuous period of morethan 5 nights, and the travel is notundertaken exclusively in gaining orproducing the salary or wages incomefrom the employment that is the sourceof the benefit.

“extended travel property benefit” is a property fringebenefit, other than a oar property benefit, where -

(i) the property comprising the benefit isin respect of travel outside Australia;or

(ii) the property is provided in respect oftravel within Australia requiringabsence from home for a continuousperiod of more than 5 nights, and thetravel is not undertaken exclusively ingaining or producing the salary or wagesincome from the employment that is thesource of the benefit.

“extended travel residual benefit” is a residual fringebenefit, other than a car residual benefit, where -

(i) the fringe benefit is provided inrespect of travel outside Australia; or

(ii) the benefit consists of or is in respectof travel within Australia by the personreceiving the benefit requiring absencefrom home for a continuous period ofmore than 5 nights, and the travel isnot undertaken exclusively in gaining orproducing the salary or wages incomefrom the employment that is the sourceof the benefit.

“external non-period residual fringe benefit” is anon-period residual fringe benetit mar. is not anin-house benefit.

“external period residual fringe benefit” is a periodresidual fringe benefit that is riot an in-housebenefit.

“external property fringe benefit” is defined inrelation to an employer as a property fringebenefit that is not an in-house benefit.

132.

“fitt4pa”, as applied to a non-business accessory(a defined term), includes the acquisition of theaccessory.

“food component” means so much of a living-away-from-home allowance as would be concluded is in thenature of compensation for costs of food or drinkof the person provided with the allowance (and,where relevant, the person’s family) whilst livingaway from home.

“fringe benefit” is a term central in determining aliability to fringe benefits tax and its meaninghas been summarised in the introductory note onthe general scheme of the Bill. It is a benefitprovided in respect of an employee in a year oftax that, subject to the application of the rulesin Part III relating to the various categories oftaxable fringe benefits, gives rise to a fringebenefits tax liability of an employer.

A fringe benefit means a benefit provided at anytime during the year of tax, or deemed (byspecific clauses of the Bill) to be so provided tothe employee by the employer, an associate of theemployer or by another person (called thearranger) under an arrangement with the employeror an associate of the employer. P,lternatively,the employer or associate may arrange for a thirdperson to provide the benefit. In all cases, thebenefit must be “in respect of” the employment ofthe employee. That expression is in turn definedto include by reason of, by virtue of, or for orin relation directly or indirectly to, theemployee’ s employment.

A fringe benefit does not include the following:

a payment of salary or wages including salaryor wages exempt from tax under the income taxlaw

an exempt benefit (as defined) 4a benefit under an employee share acquisitionscheme in accordance with section 26AAC ofthe income Tax Assessment Act 1936

contributions to a superannuation fund

eligible termination payments under section27A of the Income Tax Assessment Act 1936 orpayments which would be eligible terminationpayments but for being, broadly, annuities,commutations of pension or payments out ofsuperannuation funds

133.

capital consideration for injury or a legallyenforceable contract in restraint of trade

a payment deemed to be a dividend under theincome tax law

a payment to an associated person that is notan allowable deduction by the operation ofsection 65 of the Income Tax Assessment Aot1936.

“frincls benefits taxable amount” or “tax”, where used inthe Bill, means tax imposed D~ the proposed FringeBenefits Tax Act 1986.

“fringe benefits taxable amount” of a year of taxmeans the ~0~5~ofalLfl1~nqe benefits providedby, or by arrangement with, an employer in respectof his or her employees during the year.

“government body” is defined to mean the Commonwealth,a State, a Territory or an authority of theCommonwealth or a State or Territory.

“housinLbenefit” is a benefit of the kind mentionedin clause 25.

“housing fringe benefit” is a housing benefit thatconstitutes a fringe benefit.

“housing right” means a lease or licence granted to aperson to occupy or use a unit of accommodation,to the extent that the lease or licence ~Soperative at a tine when the accommodation is theperson’s usual place of residence.

“identical benefit” ~5 a benefit the same in allrespects as a residual fringe benefit provided toa person or having minor differences that do notaffect the intrinsic value of the benefit.

“identical overall benefit” is a benefit the same inall respects as a residual benefit provided to aperson during a period or having minor differencesthat do not affect the intrinsic value of thebenefit.

“identical prOperty” is property that is the same inall respects to property to which a propertybenefit relates or having minor differences notdisturbing the value of the property.

“in—house fringe benefit” includes in-house propertyand in-house re5idual fringe benefits.

“hn_housenonPeriod residual fringe benefit” is anin-house residual fringe benefit that is notprovided during a period.

134.

“in-house property fringe benefit” is defined, inrelation to an enployer, to mean a benefit wherethe subject property is tangible property (asdefined) and where the employer (or a relevantassociate) carries on a business that includes theprovision of identical or similar propertyprincipally to outsiders (a defined term meaning,broadly, non-associates and non-employees)

“in-house residual fringe benefit” means a benefitwhere the employer or associate who provided itcarries on a business that includes the provisionof identical or similar benefits principally tooutsiders, but does not include benefits underinvestment insurance contracts.

“industrial instrument” is defined to mean aCommonwealth, State or Territory law or an award,order, determination or industrial agreement inforce under such a law.

“intangible property” is defined in relation toproperty fringe benefits, and means real property,a chose in action and any other property that isnot tangible property (as defined) . It does notinclude a right arising under an insurancecontract or a lease or licence of realty ortangible property.

“international route” is a route other than adomestic route.

“lease” includes a sub-lease.

“leased” means let or hired other than on hire-purchase,and includes any kind of hire described in the 4hire document as a lease.

“leased car value” is a term that applies to a car heldat any time (as explained in the notes on clause162) by a person but not owned by that person. Itis the amount the person could reasonably haveexpected to buy the car for at that time under anarm’s length transaction. The leased car value ofa leased car at the time a person commences tolease it is the “cost price” (a defined term) tothe lessor, provided the lessor purchased it atabout that time.

“liability to the Commonwealth”, where used in thesill, is to be taken as meaning a liability toCommonwealth taxation, i.e., a liability arisingunder a law administered by the Commissioner ofTaxation.

135.

“liquidator” is defined in relation to a company, andmeans a person required by law to carry out thewinding up of the company, whether appointed asliquidator or not.

“1iving~away~from-homeallowance benefit” is a benefitof the kind mentioned in clause 311.

“living-away-from-home allowance fringe benefit” is aliving-away-frOmhOme aflowance benetit tnatconstitutes a fringe benefit.

“Uvin~awa1L~from-home food fringe benefit” can beeither an expense payment tringe~&refit whereexpense is incurred on food or drink, or aproperty fringe benefit where goods in the form offood or drink are provided for an employee (andfamily) where the employee (and family) is livingaway from home in order to perform duties ofemployment.

“loan”, in relation to loan fringe benefits,has an extended meaning which includes an advanceof money, the provision of credit or other formsof financial accomnodation, the payment of anamount on behalf of a person that creates anobligation to repay, or any other form oftransaction which is in substance a loan.

“loan benefit” is a benefit of the kind mentionedin sub-clause 16(1).

“loan fringe benefit” is a loan benefit that constitutesa fringe benelit.

“meal entitlement day” is a term used in the definitionof “board meal” in relation to board fringebenefits. Its meaning is explained in the noteson Division 9.

“motor vehicle” is any motor vehicle (including a4-wheel drive vehicle) in the following categories

a motor car, station wagon, panel van,

utility truck or similar vehicle;

• a motor cycle or similar vehicle; or

• any other road vehicle.

“natural person” does not include a natural person

in the capacity of trustee.“non-business accessory” is an item the cost of which

will be added to the cost price of a car for thepurpose of determining the taxable value of a carfringe benefit. It is an accessory not required

136.

for the particular needs ofthe business operationsserved by the car. An example would be ana ir-conditioner.

“non-deductible entertainment expenditure” meansexpenditure on the provision oTiKE~rtainment thatwould be an allowable deduction under the incometax law (if it were incurred in producingassessable income), except for the generaldisallowance of entertainment expense deductionsby section S1AE of the Income Tax Assessment Actl~36.

“non-deductible exempt entertainment~ sxpenditure” means~expenditure of the kind explainëdThTE~ preceding

definition that is not incurred in producingassessable income.

“non-profit company” has its usual meaning of a companynot carried on for the purposes of profit or gainto its members and which is, by its constituentdocument, prohibited from making any distributionto its members.

“notional value” is the amount a person provided with aproperty benefit or other benefit could reasonablybe expected to have been required to pay to obtainthe benefit under an arm’s length transaction,i.e., on the open market.

“obligation” relates to the payment or repayment of anamount, and includes an obligation not enforceableat law.

“offence against this Act” includes, as well asoffences specified in the proposed Act, offencesunder the Crimes Act 1914 or the TaxationAdministratTon Act l95~. relating to the proposedACt.

“officer” is an officer or employee of the Australian~Public Service. 4

“once-only deduction” is defined in relation toexpenditure to mean a deduction allowable underthe income tax law in one year of income inrespect of all or a part of the expenditure whereno deduction is allowable in another year inrespect of any part of that expenditure.

“original assessment date” is a term used in rules,explained in the notes on Part V, that enableassessments to be amended within specifiedperiods. It is the day on which an assessment(other than an amended assessment) was made, i.e.,the day on which the first assessment in relationto a year of tax is made.

137.

“outsider” is a term used to describe, in relation to abusiness operated by an employer or an associateof the employer, customers of the business who arenot -

employees of the employer or an associate;

employees of another person who provides,under an arrangement made by the employer orassociate, benefits to employees (or theirassociates) of the employer or associate; or

associates of any of those employees.

“~iod residual fringe benefit” is a residual fringebenefit provided duringrperiod (as explained inthe notes on clause 149)

“p~son”, for the purposes of the Bill, includes abody politic, body corporate, partnership, otherunincorporated association or body of persons, anda person in the capacity of trustee.

“p~ce of residence” means a place where a personresides or ~hW~sleeping accommodation, whetherpermanent or temporary, and whether or not on ashared basis.

“p~eferential air fare” is defined as an air fare thatentitles the traveller concerned to benefits thatsome other passengers on the flight are notentitled to e.g., a first class or business classfare.

“private use” is defined in relation to a motor vehicleused by an employee or employee’s associate, andmay apply in relation to car fringe benefits orresidual fringe benefits. It is any use otherthan use exclusively in producing assessableincome of the employee.

“piq~ucing assessable-income”, where used in the Bill,is to be given an ext~fded meaning so as toinclude gaining assessable income or carrying on abusiness for the purpose of gaining or producingassessable income.

“~roperty” is defined to mean both tangible andthf~ngible property.

“p4operty benefit” is a benefit of a kind mentioned inclause 4U hilt not one that would also be a benefitunder Divisions 2 to 10 (inclusive) of Part III.

“property fringe benefit” is a property benefit thatconstitutes a fringe benefit.

138.

“provide” is given an extended meaning in relation tobenefits and property. In relation to a benefit,it includes allow, confer, give, grant or perform,while in relation to property it means dispose ofthe beneficial interest or the legal ownership,whether by sale, gift, declaration of trust orotherwise.

“provider’s published air fare” is a term used inrelation to airline transport fringe benefits asexplained in the notes on Division 8 of Part III.It is either the “qualifying air fare” charged bythe airline over the particular route or one halfof the “qualifying air fare” charge for a returntrip over that route. If the traveller isentitled to a concession on account of being achild, student or blind person, it is the relevantconcessional fare.

“provision time” is the time when property is provided.

“qualifying air fare” is a component of “providers airpublished air fare” as explained above. It is,broadly, the air fare (other than a groupconcession fare) offered in an authorisedpublication of the airline available at its ticketoffices in Australia, to the public, or the airfare so offered in an authorised tariff manualavailable at the ticket offices of the agent ofthe airline in Australia.

“quarter” is a period of 3 calendar months commencingon 1 January, 1 April, 1 July or 1 October.

“recipient”, in relation to a benefit, refersto the person who is provided with the benefit.

“recipient’s allowance” relates to a living-away-from-home allowance fringe benefit, and means that partof the allowance paid that constitutes the fringeben e f i t.

“recipient’s allowance period” is the period to which 4the recipient’s allowance relates.

“recipient’s benefit” is a drafting term thatfacilitates reference to a residual benefitprovided to a person.

“recipient’s contribution” is the amount of anyconsideration paid by an employee or associate ofan employee in return for the provision of anairline transport, property, residual or boardfringe benefit, less any reimbursement of thatconsideration. The term also refers to any amount

139.

paid by the recipient of an expense payment fringebenefit other than a benefit by way ofreimbursement of expenses.

“recipient’s current benefit” is a term that applies toa period residual fringe benefit of a year of tax,and means so much of the benefit as was providedin the year.

“recipient’s current housing riqht” applies in a similarway in relation to a housing fringe benefit. Itmeans the housing right to the extent it wasavailable during the year.

“recipient’s expenditure” is expenditure incurred bya person but paid for or reimbursed by anotherperson so as to constitute an expense paymentfringe benefit.

“recipient’s meal” applies to a residual fringe benefitprovided over a period (as explained in the noteson clause 149) , and is the whole of the benefitprovided over the period, including any periodoutside the particular year of tax.

“recipient’s overall housing right” in relationto a housing fringe nenericts the whole of ahousing right considered from the time when theright is first received until it ceases.

“recipient’s property” is the subject property of aproperty bendfltl.

“recipient’s rent” is a component in the calculationof the taxi5le value of a housing fringe benefitof a year of tax. It is any rent or otherconsideration paid for the housing right duringthe year, less any reimbursement of that rent orconsideration.

“recipient’s transport” is a drafting term thatfacilitates reference to the transport andincidental services that constitute an airlinetransport fringe benefit. -

“recipient’s unit of accommodation” is the unit ofaccommodation by means of ~.ihich a housing fringebenefit is provided.

“recreation” isdefined in relation to “recreationaltacTlTty”: it includes amusement, sport orsimilar leisure-time pursuits, and recreation oramusement provided on, or by means of, vehicles,ships, other vessels or aircraft.

“recreational facility” means a facility forrecreation (as 5ëfined) , but does not includesaccommodation or dining and drinking facilities.

140.

“reimburse” includes any act that has thedirect or indirect effect or result of a

reimbursement.

“relevant car documents” are the two basic recordswhich must be maintained to satisfy certain

substantiation requirements as to business oremployment related kilonetres in a car held by aperson during a year of tax. The first is a logbook or similar document that records thefollowing details of every business journey -

• odometer readings at the start andfinish of the trip;the date the journey began and ended;kilometres travelled;purpose of the journey;the identity of the driver;the date of the entry; andthe name of the person making the entry.

The second document records -

the odometer reading at the start of theyear of tax or, if the car was acquiredduring that year, the reading at thattime;the odometer reading at the end of theyear of tax or, if the car ceased to beheld during the year, the last readingthe date of each entry; andthe name of the person who made theentries.

Both documents must be in English, andentries made either at the end of eachjourney or at the time of the odometerreadings, or as soon as reasonablypracticable thereafter. Each log book entrymust be signed at the time of entry.

“remote area housing fringe benefit” refers to a housingfringe benefit where the accommodation is locatedin a designated remote area of Australia (asdefined).

“rent index number” is a component of the rules forascertaining the statutory annual value of ahousing fringe benefit by reference to annualmovements in the rent sub-group of the ConsumerPrice Index, It is the index number of that rentsub-group published by the Austral4an Statisticianin respect of a quarter for the caNtal city ofthe relevant State or Territory.

“residential fuel” is any form of fuel (includingelectricity) for use for domestic purposes.

141.

“residential benefit” is a benefit of a kind mentionedin clause 4511.e., one that is not a benefitunder Divisions 2 to 11 of Part III.

“residential fringe benefit” is a residential benefitthat constitutes a fringe benefit.

“retention period” is the period for which aperson muslretain a statutory evidentiarydocument (a defined term) . The general rule isthat such a document must be retained for a periodof 6 years beginning on the original date ofassessment of the fringe benefits taxable amountof the year of tax to which the document relates.If, at the end of that 6 year period, there is anobjection or request for amendmentrelevant to the.document that has not been finally disposed -

including where the matter has gone on review orappeal - the 6 year retention period is extendeduntil the matter has been resolved.

“salary or wages” is defined to mean assessable incomethat is salary or wages for purposes of the PAThprovisions of the Income Tax AssessmentAct 1936.

“sales-tax” means sales tax imposed by a Commonwealthlaw.

“small expense payment fringe benefit” is one wherethe relevant expense incurred TJ~ an employee andpaid or reimbursed by the employer is not morethan 310.

“spouse” includes, in relation to a person, anotherperson who, although not legally married to theperson, lives with the person on a bona fidedomestic basis as husband and wife.

“standard year of tax” is the 12 months periodbeginning on 1 April 1987 and each subsequentcorresponding 12 month period.

“stand-by value” is the basis of the taxable valueof an airline transport fringe benefit to whichDivisiOn 8 of Part III applies. There aredifferent rules for calculating stand-by valueaccording to whether the relevant flight is over adomestic or international route.

If over a domestic route, stand-by value will beone of the following -

if the flight is on a scheduled passenger airservice, the specified amount will be 37.5%of the economy air fare (as defined) chargedat that time to members of the public. That

142.

is, for a flight between, say, two capital citiesfor which the economy air fare is $150, thestand-by value would be $56.25.In less common cases, a flight may be providedother than on a scheduled passenger air service.The specified amount in such cases will be,successively -

if the Australian National AirlinesCommission (TAA) operates a scheduled serviceover the route - 37.5% of the economy farecharged by TAA;if a carrier other than TAA operates ascheduled service over the route - 37.5% ofthe lowest economy fare charged bj anycarrier that operates such a service;if a combinatin of scheduled servicesoperated by ThA would equate with the travelundertaken by the person in question - 37.5%of the economy air fares charged by TAA forsuch services as in combination would enablethe person to travel between the ports ofembarkation and disembarkation;’if a combination of scheduled servicesoperated by any carrier or carriers wouldcover the lowest economy air fares chargedfor air services that would in combinationenable the person to travel between the portsof embarkation and disembarkation - 37.5% ofthe lowest combination of economy air faresthen currently being charged by thosecarriers;should none of the above apply - 75% of themarket value of the air transport provided.

If the air transport provided is over aninternational route, the stand-by value will be -

in the common case where the flight is on ascheduled passenger air service in respect ofwhich there is a “providers published airfare” (see earlier notes explaining thatterm) - 37.5% of the lowest providerspublished air fare;if that is not the case, but a carrieroperates a scheduled service over the route -

37.5% of the lowest economy fare charged byany carrier that operates such a service;if neither of the above applies, but acombination of scheduled services operated byany carrier or carriers would cover thetravel undertaken - 37.5% of the lowesteconomy air fares charged for air servicesthat would in combination enable the personto travel between the ports of embarkationand disembarkation;

143.

should none of the above apply - 75% of themarket value of the air transport provided.

“statutory annual rent amount” is a component of theformula in clause 29 for determining the taxablevalue of a remote area housing fringe benefit, andis explained in the notes on that clause,

“statutory food amount” relates to living-away-from-homeallowance benefits, and is 342 per week for aperson who was aged 12 years or more before thebeginning of the year of tax, and $21 for eachyounger person.

“statutory evidentiary document” is an all-embracingterm given to declarations or other documents thatare required to be given to employers under rulescontained in Part III (or relevant definitions)and that are relevant for determining the taxablevalue of fringe benefits or whether a benefit istax exempt. It also applies to relevant cardocuments maintained to verify business andprivate kilometres travelled for the purpose ofthe cost basis of valuing car fringe benefits(clause 10), and to substitute documentaryevidence of small expenses that may reduce thetaxable value of an expense payment fringe benefit(clause 24)

“statutory interest rate” is defined for the purpose ofascertaining the taxable value of a loan fringebenefit of a year of tax. It is, in effect, thebenchmark interest rate (as defined) applicable tothe particular year of tax. If there is more thanone benchmark rate in a year of tax, the statutoryrate will he the lower or lowest of them and, ifthere is no benchmark rate, the statutory ratewill be a rate as prescribed. In relation toloans made before 1 July 1986, a schedule to theBill specifies various statutory rates applicableto loans on or after 1 January 1946. For pre -

1946 loans the statutory rate is generally 3.675%per annum. For loans made after 2 April andbefore 1 July 1986, however, the statutoryinterest rate is the benchmark interest rateprevailing during that period or, if there is morethan one benchmark rate, the lower or lowest ofthem.

“stratum unit” is defined in relation to a dwelling tomean a unit on a registered unit plan under a lawproviding for the registration of titles known asunit or strata titles. Such a unit must comprisea part of a building containing the dwelling,being a flat or home unit, or part of a parcel ofland on which the building is constructed.

144.

“superannuation fund” is a superannuation fund for thepurposes of the income tax law or a schemeconstituted under a Coimnonwealth, State orTerritory law.

“tangible property” is defined as goods and includesanimals, including fish, and gas and electricity.

“tax-exempt body entertainment Cringe benefit” is atax-exempt body entertainment benefit thatconstitutes a fringe benefit.

“taxi” means a notor vehicle licensed as a taxi.

“tenancy period” is the part of a year of tax duringwhich a housing right that is the basis of ahousing fringe benefit exists.

“this Act” includes anything contained in regulationsmade pursuant to clause 135.

“transitional year of tax” is the 9 month periodcommencing on I .July 1986.

“travel agent” is a term relevant to airline transportfringe benefits, and means a person who carries ona business that includes the sale to the public ofairline tickets issued by airlines.

“travel diary” means a diary or similar document (or acopy thereof) in which a person has recordedparticulars, as specified below, of activitiesundertaken whilst travelling where the travellerhas been provided with an expense payment fringebenefit, an airline transport fringe benefit, aproperty fringe benefit or a residual fringebenefit. The diary is to establish the extent towhich expenditure incurred whilst travelling wouldhave been deductible to the traveller under theincome tax law. The relevant entries, to be madeat the time of the activity, or as soon aspracticable thereafter, are to set out thefollowing

• the date the entry was made;the place of the activity;

• the date and approximate time theactivity commenced;the duration of the activity;the nature of the activity;

“trustee” is defined to include the following —

a person made a trustee by consent,court order, or operation of law;

• an executor, or administrator or otherpersonal representative of a deceasedperson;a guardian or committee;

145.

a receiver or receiver and manager;an official manager or liquidator of acompany; orany person who -

- has taken on the administration orcontrol of property affected by anyexpress or implied trust;

- acts in a fiduciary capacity; or— has the possession, control or

managementof property of a personunder a legal disability.

“unincorporated company” is an unincorporatedassociation or other body of persons.

“unit of accommodation” which is a term relevant tohousing fringe benefits, includes -

• a house, flat or home unit;accommodation in a hotel, hostel, motel orguesthouse;

• accommodation in a bunkhouse or any livingquarters;accommodation in a ship, vessel or floatingstructure; anda caravan or other mobile home.

“waive” includes release.

“work-related travel” is travel of an employee betweenthe employee’s home and place of employment or anyother place where the employee performs duties ofemployment. It extends to travel by the employeethat is incidental to travel undertaken in thecourse of performing duties of employment.

“year-of income” has the same meaning as it has underthe income tax law.

“year of tax” is a reference to the 9 month periodbeginning on 1 July 1986 and ending on 31 March1987, to the 12 month period beginning on1 April 1987 and to each corresponding 12 monthperiod thereafter.

Sub-clause 136(2) makesclear that “premises” as usedin the definition of “businss premises” is to be taken toinclude, as necessary, a ship, vessel, floating structure, motorvehicle, aircraft or train.

146.

Clause 137 Salary or wages

For the general purposes of the Bill in determiningwhether or not a fringe benefit has been provided in respect ofthe employment of a person, a person will be treated as anemployee of another person if in receipt of salary or wages (asdefined for the purposes of the PATh provisions of the incometax law) paid by that other person. This clause is asafeguarding measure to ensure that the Bill will apply tofringe benefits provided in circumstances where, although thereis a clear employer/employee relationship of a kind contemplatedby the PATE provisions in existence, the remuneration given tothe enployee is in the form of a non-cash fringe benefit ratherthan “salary or wages” as such.

For that purpose, sub—clause 137(1) will apply where afirst person provides a benefit to a second person or an 4associate of the second person in circumstances such that thebenefit would not be regarded as being provided in respect ofthe employment of the second person.

In such a case, the sub-clause looks to whether if thebenefit were had been provided by the first person to the second 4person as a cash payment, that cash payment would haveconstituted salary or wages. If so, the second person will betreated for the purposes of the fringe benefits tax law as anemployee of the first with the results that the benefit will, asappropriate, be subject to fringe benefit tax.

Sub-clause 137(1) will apply similarly in a case wherethe “employer” arranges for the benefit to be provided by anassociate or third—party arranger.

Sub-clause 137(2) is a technical drafting measure thatspecifies that the relevant definition of “salary or wages” inthe income tax law applies in this Bill as if the referencetherein to an employee is a reference to a current employee.

Clause 138 Couble counting of fringe benefits

Ihis clause is intended to prevent a fringe benefitfrom being counted more than once in ascertaining the fringebenefits taxable amount of an employer or being included in thefringe benefits taxable amount of more than one employer.

By sub-clause 138(1) a benefit provided by an employerto an enployee who is also an employee of an associate of theemployer will not be treated as a fringe benefit in relation tothe associate employer. The same rule applies if the benefit isprovided to an associate of the employee.

147.

if a benefit provided to an employee or an associate ofthe employee would be a fringe benefit in relation to more thanone employer (including non associated employers) , theCommissioner of Taxation is authorised by sub—clause138(2) todetermine which one of those employers is to be liable to thetax (if any) in respect of that benefit.

Where a benefit is provided jointly to an employee andthe employee’s associates, it will be deemed by sub-clause (3)to be provided to the employee only. If a benefit is providedjointly only to associates of the employee, the Commissionerwill be authorised by sub—clause (4) to detersine and nominateone of those associates as the person provided with the benefit.

Clause 139 Date on which return furnished

This clause specifies that, for the purposes of theBill, an employer who furnishes two or more returns on differentdates relating to a year of tax will be taken to have furnishedthe return for that year on the earliest of those dates.

Clause 140 Eligible urban areas

This clause defines what is meant by an eligible urbanarea for the purposes of the Bill, e.g., in determining that aunit of accommodation is not at a location in, or adjacent to,an eligible urban area so as to qualify for the concessionalbasis of valuation applicable to remote area housing fringebenefits under clause 29.

By paragraph (1) (a), an area within Zone A or Zone B,as described in Schedule 2 to the Income Tax Assessment Act1936, that is an urban centre with a census population of notless than 26,000, is an eligible urban area.

‘ An area that is not within Zone A or B but is an urbancentre with a census population of not less than 14,000 is alsoan eligible urban area.

Para9raph (1) (b) stipulates that a location is adjacentto an eligible urban (i.e., not remote) if it is less than 40‘ kilometres by the shortest practicable surface route from thecentre point of an eligible urban area having a censuspopulation of 130,000 or more. As made clear by the definitionof “census population” in sub-clause (3) , the population figuresto be used for these purposes are those published by theAustralian Statistician as a result of the 1981 Census.

Sub-clause (2) specifies how the distance by theshortest practicable surface route from a location to the centrepoint of an eligible urban area is determined . if there isonly one place within the urban area from which distances toother places are measured, it is the distance from that place to

148.

the location in question. If there are two or more such placeswithin the urban area, the principal one is the distancemeasuring yardstick.

Definitions relevant to clause 140 are contained insub-clause (3)

“census population” is the census count of aneligible urban area taken by the AustralianStatistician on 30 June 1981;

“surface route” means a route other than by air; and

“urban centre” is an area described as such in theresultes of the Census taken on 30 June 1981published by the Australian Statistician in“Persons and Dwellings in Local Covernnent Areasand Urban Centres”.

Sub-clause (4) provides against paragraph (1) (a) beingheld to be invalid for any reason. In any such event, insubstitution for that paragraph, an eligible urban area would betaken as an urban centre (as defined) with a census populationon 30 June 1981 of not less than 14,000.

Clause 141 Lousing loans

‘Ihis clause specifies the circumstances in which a loanwill be taken to be a housing loan relating to a dwelling, itis relevant for the rules for calculating the taxable value ofloan fringe benefits (as explained in the notes on clause 16) inrespect of housing loans made before 3 April 1586 and, in tandenwith clause 142, reducing the taxable value (as explained in thenotes on clause 60) of a loan fringe benefit in respect of aremote area housing loan.

Sub-clause 141(1) describes the circumstances in which 4a loan will be treated as a housing loan relating to adwelling. They are the same as those listed in sub-section1SSZC(l) of the Income Tax Assessment Act 1936 purposes of thetax rebate in respect of certain home loan interest. Under theincome tax rebate scheme, however, loan noneys must be used“wholly or partly” for specified housing purposes, whereas underof sub—clause141(1) that they must be used exclusively forthose purposes.

Sub-clause 141(2) also has a parallel in the incone taxhome loan interest rebate provisions — sub-section 1S9ZB(l)That sub-section specifies what is a prescribed interest in landor in a stratum unit and what is a proprietary right in respectof a dwelling. Paragraphs (2) (a) and (b) mirror sub-sectionl59ZE(1) in detailing what constitutes such interests and rightswhich may be the subject of a housing loan.

145.

By paragraph (2) (c) ,. a loan that would otherwise be ahousing loan relating to a dwelling will not be treated as suchif the lender does not keep a separate loan account so as toclearly distinguish between the loan and any other loans made bythe lender to the borrower and any other moneys deposited withthe lender by the borrower that are not to repay the loan or theloan interest.

Sub-clause 141(3) stipulates that in no othercircumstances than those prescribed will a loan be treated as ahousing loan relating to a dwelling.

Clause 142 : Remote area housing

As mentioned in the notes on clause 141, clause 142

defines what is meant by a “remote area housing loan connected~ with a dwelling” for the purpose of applying the 40% discount

authorised by clause 60 to the taxable value of certain loanfringe benefits. It also specifies what is meant by “remotearea residential property” for the purpose of applying the samerate of discount to the taxable value of a property fringe‘ benefit constituted by the provision of residential property ina remote area.

By sub-clause 142(1), a remote area housing loanconnected with a dwelling is one that satisfies the tests ofclause 141 as well as certain other conditions which are broadlysimilar to those that have applied for valuing employees’ remotearea housing benefits under the income tax law. They are that -

the housing is in a designated remote area;

for the part of the year when an employee occupied thehousing, the employee was a current employee of theemployer, the housing was the employee’s usual place ofresidence, and the employee’s usual place of employmentwas in a designated remote area;

it is customary in the particular industry foremployers to provide housing assistance to employees;and

it is necessary for the employer to provide or arrangehousing assistance for employees for the followingreasons:

- the nature of the employer’s business is such thatemployeesare liable to frequent movement from oneresidential location to another;

- in the area in which the employee is employedthere is not sufficient suitable residentialaccommodationotherwise available; or

150.

- because of the custom in the employer’s industryto provide housing assistance to employees.

it is also necessary that the loan be made under an arm’s lengtharrangement, and not to secure the discounted valuationavailable under clause 60.

Sub-clause 142(2) defines the meaning of remote arearesidential property that constitutes a property fringe benefitthe taxable value of which may be reduced under the rulescontained in sub—clause 60(3). Broadly, such property is anestate or interest in land on which there is a dwelling occupiedor used by the employee as a usual place of residence, and wherethe conditions outlined in sub-clause (1) are satisfied.

Sub-clause 142(3) defines the meaning of housingassistance. It is —

• the provision of a right to occupy residentialaccommodation free or at a discount;

• the making of a housing loan at an interest rate belowthe market rate;

reimbursement of interest on a housing loan; or

transferring ownership of residential property for nocost or for less than market value.

Clause 143 Remote area holiday transport

Clause 61 operates to reduce by 50% the taxable valueof an expense payment fringe benefit or a residual fringebenefit where the underlying benefit is the supplying of remotearea holiday transport. Clause 143 specifies the circumstancesin which either of these kinds of benefit will be remote areaholiday transport. They are -

• the recipient of the fringe benefit is a currentemployee of the employer, or the employee’s spouse orchildren;

• the transport is provided during a period of recreation Ileave of not less than 3 days;

the transport is between the employee’s usual place ofemployment (or nearby e.g., the closest airport) andthe place where the employee lived before signing onwith the employer or the capital city nearest to theworkplace;

151.

on completion of the leave, the employee resumes workat the same place as before;

that usual place of work is in a designated remotearea; and

the benefit is provided under an industrial award or anindustrial agreement in force under a law.

Clause 144 Deemed payment

This clause is a technical measure that specifies thatany action of a person by which an obligation of another personto pay an amount to a third person is discharged or extinguishedwill be taken as a payment of that amount by the first person.

~ This measure is relevant for the purposes of applying the fringe~ benefit and fringe benefit taxable value rules in Part lii,

Clause 145 : Consideration not in cash

Where any consideration under a transaction issatisfied by the provision of property, the money value of the

~ consideration will by this clause, be deemed to have been paid.That rule, however, will not affect the determination of whethersomething constitutes the provision of a benefit under the Bill.

Clause 146 Amounts to be expressed in Australian currencl

For the purposes of the Bill, all amounts and valuesare to be expressed in Australian currency.

Clause 147 : Obligation to pay or repay an amount

‘Ibis is a technical measure to deem a person who owesan amount to be under an obligation to pay or repay it whetheror not it has become due for payment.

Clause 146 Provision of benefits

Clause 148 further amplifies the meaning of “in respectof” as that expression applies to fringe benefits provided in

~ respect of the employment of an employee. As mentioned in theP notes on clause 136, “in respect of” employment also includes by

reason of, by virtue of, or for or in relation directly orindirectly to that employment. By sub-clause 148(1), themeaning of the term in relation to a benefit provided in respectof employment is not to be narrowed by any consideration of thefollowing factors:

that a benefit may also be provided in respect of someother matter or thing;

whether the employment is in the present, past orfuture;

152.

that the benefit may be surplus to the needs or wantsof the recipient;

• that the benefit may also be provided to another person;

• that there may be some offsetting inconvenience or

disadvantage;

• whether or not the benefit has a use in connection with

the employment;

whether or not the provision of the benefit is in the

nature of income; and

• whether or not the benefit is a reward for services

rendered. ISub-clause 146(2) has the effect that where a person

other than an employee or associate of the employee is providedwith a benefit under an arrangement between the provider and theemployee (or an associate of the employee) , that person will betreated as an associate of the employee for the purposes of theBill.

Sub-clause 146(3) will apply in a case where a benefitwould be provided in respect of a person’s employment except fora prohibition on the act or thing necessary for providing thebenefit. If, in such a case, the prohibition is notconsistently enforced, the benefit will be taken to be provided.

Sub-clause 148(4) stipulates that a benefit received orobtained by an employee or associate in respect of theemployee’s employment will be taken to have been provided by theprovider in respect of that employment.

Sub-clause 148(4) would operate, for example, where an Iemployer enters into an arrangementwith a storekeeper toprovide goods to an employee. In the absenceof that sub-clauseit might be argued that, although the arrangement was enteredinto by the employer for the purpose of providing a benefit inrespect of the employee’s employment, the benefit is not afringe benefit within the terms of the Bill because thestorekeeper was not providing the property on that basis.

Sub—clause 148(5) is a drafting measure the effect ofwhich is that any provision of the Bill which deems a benefit tobe provided where particular circumstances apply will not limitthe general meaning of “provide” in relation to benefitsprovided in other circumstances.

153.

Clause 149 : Provision of benefit during a period

This clause applies for the purpose of distinguishingbetween a “period” residual fringe benefit and a “non-period”residual fringe benefit. By sub-clause (1) , a benefit will betaken to be provided during a period if it is provided orsubsists over a period of more than one day and is not deemed byany other provision to be provided at a particular time or on aparticular day.

6cr that purpose, sub—clause (2) specifies that abenefit constituted by a lease or licence of property, or inrespect of a loan, will be taken as being provided during theperiod of the lease or licence, or while the person is under anobligation to repay any part of the loan.

Clause 150 Credit cards

The effect of clause 150 is to ensure, broadly, thatbenefits obtained by an employee or an associate through the useof a credit card issued to an employer or an associate will betreated, where appropriate, as taxable fringe benefits.

It will apply where, in respect of the employee’semployment, use is made of such a credit card to obtain goods orservices. The person e.g., a retailer who provides the goods orservices will be taken to have provided the relevant benefit inrespect of the employee’s employment, under an arrangement withthe employer or, if the card was issued to an associate of theemployer, under an arrangement with associate.

In addition, where the employer or associate has bornethe cost of the benefit by paying the issuer of the credit card,the relevant expenditure will be taken to have been incurred tothe actual provider of the benefit e.g., the retailer.

Clause 151 Employee performing services for a Peraonother than an employer

Th5s clause, which applies in cases where a personcontracts with another for work to be done by an employee ofthat other person, has effect in relation to rules in clause 54that treat the provision of certain food and drink provided torecipients of board fringe benefits as exempt benefits. Itsapplication is explained in the notes on that clause.

Clause 152 Provision of entertainment

this clause is a drafting measure that ensures thatwherever in the Bill there is reference to the provision ofentertainment that reference has the same meaning as in sectionSlAB of the Income Tax Assessment Act 1936 which, subject tocertain exceptions, denies income tax deductions for expenditureincurred in the provision of entertainment.

154.

Clause 153 : Residual benefits to include provision ofproperty in certain circumstances

Clause 153 will apply so that a benefit that consistsof the provision of both goods and services will be treated as aresidual benefit only. That will occur if the person providingthe benefit in question is in a business of providing propertyand residual benefits together, e.g., undertaking repairs thatentail the supply of labour and spare parts. Where such acombined benefit is provided the whole of the combined benefitwill be dealt with as a residual benefit only.

Clause 154 Creation of property

This clause is a technical measure that will ensurethat something done by a person that creates property in anotherperson (e.g., the issue of shares by a company) will be treatedon the basis that the property was provided to the other personwhen it came into existence.

Clause 155 Use of property before title passes

By sub—clause 155(1), where a person obtains the use of 4property under conditions where title to the property will ormay pass to the person at the end of the period of use (e.g.,hire purchase) , the property will be treated as having beenprovided to the person at the time when use of it was firstobtai ned

however, sub-clause 155(2) makes clear that if, afterthe period of use, title to the property does not pass to theuser, sub—clause (1) is not to apply and authorises anyamendment that may be necessaryas a consequenceto reverse anyprior application of sub-clause (1)

Clause 156 : Supply of electricity or gas throughreticulation system

This clause stipulates that the supply of reticulatedgas or electricity is not to be treated as the provision ofproperty. The general effect is that a fringe benefitconstituted by the provision of reticulated gas or electricitywill be a residual fringe benefit.

Clause 157 Christmas Island

For the purposes of the Bill, Christmas Island is to betreated as an internal Territory of Australia (sub-clause (1))and anywhere within Christmas Island is not to be treated asbeing in, or adjacent to, an eligible urban area i.e., locationsin Christmas island are to be treated as being in a remote areafor purposes of fringe benefit valuation rules, e.g., housingfringe benefits (sub-clause (2)).

155.

Clause 158 : Belated companies

Clause 158 prescribes the conditions under which onecompany will be treated as being related to another for thepurposes of the Bill.

Sub-clause (1) specifies two tests, either of whichmust be satisfied if a company is to be taken to be related toanother company. These are that one of the companies was asubsidiary of the other company (paragraph (a)) or both of thecompanieswere subsidiaries of the same parent (paragraph (b)).

Sub-clause (2) specifies the circumstances in which acompany is to be taken to be a subsidiary of another company(termed the “holding company”). Under sub-paragraph (2) (a) (i)‘ this relationship is established if all the shares in thesubsidiary company are beneficially owned by the holdingcompany. Sub—paragraph (2) (a) (ii) establishes the relationshipif all the shares in the subsidiary company are beneficiallyowned by a company that is, or two or more companies each ofwhich is, a subsidiary of the holding company. By sub-paragraph(2) (a) (iii) the necessary relationship will also exist if allthe shares in the subsidiary company are owned by the holdingcompany and by a company that is, or two or more companies eachof which is, a subsidiary of the holding company.

Paragraph (2) (b) imposes a further requirement thatthere was no agreement, arrangement or understanding in force byvirtue of which any person was in the position to affect rightsof the holding company or of another subsidiary of the holdingconpany in relation to the particular subsidiary company.

Sub—clause (3) extends the operation of clause 156 byestablishing a qualifying group relationship between companieswhich are part of a wholly—owned chain of subsidiaries of a‘ holding company. Thus, in a corporate structure under which allof the shares in the subsidiary are owned by one or morewholly-owned conpanies that are interposed between a holdingcompany and the end subsidiary company, the qualifying grouprelationship will be found between each of those companies.

‘ Sub—clause (4) qualifies the operation of sub-clause(2). It specifies for the purposes of paragraph (b) of thatsub-clause the circumstances in which a person is to be regardedas being in a position at a particular time to affect the rightsof one company in relation to another company. A person will bein that position if he or she has at the particular time aright, power, or option to acquire any of the rights of thefirst company in its subsidiary or to prevent that company fromexercising rights in the subsidiary for its own benefit.

156.

Clause 159 : Pssociates

Sub-clause 159(1) of this clause will extend thedefinition of “associate” in clause 136 by specifying that anyreference to spouse in the Income Tax Assessment Act 1936 is tobe taken as a reference to a person who is a spouse for thepurposes of the Bill. That means that the definition is to betaken to include a de facto spouse as an associate, which wouldnot be the case if the meaning of associate were to be limited,as specified in clause 136, to the meaning it has in section26AAB of that Act.

By sub-clause 159(2) , the following relationships willbe treated as though between associates:

• companies related to each other (as explained in thenotes on clause 158) are associates of each other;

the Commonwealth is an associate of each of itsauthorities;

each Commonwealth authority is an associate of eachother Commonwealth authority;

a State is an associate of each of its authorities;

each State authority is an associate of each otherState authority;

a Territory is an associate of each of its Authorities;and

each Territory authority is an associate of each otherTerritory authority.

Sub-clause 159(3) has effect so that, where anassociation is established by sub—clause (2) , each associatedperson is treated as a company related to the other for thepurposes of the fringe benefits and fringe benefits taxablevalue rules in Fart III.

Sub—clause 159(4) will extend the meaning of the term“associate” by provi~ing that the definition of that term insection 2EAAB of the Income Tax Assessment Act 1936 is to applyfor the purposes of the Bill as if —

• an associate, in relation to a natural person, includesa partner of the person and a partnership in which theperson is or was a partner (whether or not thepartnership still exists) ; and

157.

an associate, in relation to a company, includes apartner of the company and a partnership in which thecompany is or was a partner (whether or not thepartnership still exists)

An effect of sub—clause (4) is that where a partnership isreconstituted, the new partnership will be treated as anassociate of the old partnership.

Clause 160 : Continuity of employment where businessdisposed of, etc

The basic purpose of clause 160 is to ensure that wherean employer disposes of a business and the new owner of thebusiness continues to provide fringe benefits to persons whowere employed by the former owner, the new employer will beliable for the fringe benefit tax in respect of thosebenefits.By way of background, the legislation is structured onthe basis that an employer is liable for tax in respect offringe benefits provided to employees in respect of employmentwith that employer.

Examples of situations where clause 160 would commonlyhave application include —

• the sale of a business by one legal person (e.g., anatural person, a company or a trustee of a trustestate) to another legal person; and

• a change in ownership of a business by reason offormation or dissolution of a partnership or avariation in the constitution of a partnership.

Sub—clause 160(1) is the operative prevision whichestablishes the liability of a purchaser of a business to

~ account for fringe benefits provided in respect of theV employment of an employee by the former owner. The sub-clause

will apply where —

• an employer (the “former employer”) disposes of abusiness to another person (the “new employer”)(paragraph (a)); and

• under an arrangement relating to the disposal, the newemployer continues to provide fringe benefits inrespect of the employment of a person by the formeremployer (irrespective of whether or not the employeeof the former employer is employed by the new employer).

Where the above conditions are met, paragraphs (c) and(a) specify the consequences that are to follow.

158.

Paragraph (c) has the effect that liability for tax isto be determined as though benefits provided in respect of theemployment of a person by the former employer were provided inrespect of employment with the new employer. That is, liabilityfor the tax is, in effect, to be transferred from the formeremployer to the new employer.

Paragraph (d) applies where the new employer assumesthe rights of the former employer under a loan, lease or licencethat was granted by the former employer in respect of theemployment of a person. In that situation, the Act is to applyas though the loan, lease or licence had been gramted by the newemployer. This will ensure that the benefit will continue to bevalued under the loan fringe benefits valuation rule or thehousing fringe benefits valuation rule, as the case requires.

Sub-clause 160(2) ensures that a business is regarded 4as having been acquired by its new owners at the time of apartial change of ownership, including where that change isassociated with the formation, dissolution or variation of apartnership. If, for example, a partnership of A and B owns abusiness and A sells his partnership interest to C, thepartnership of A and B will be regarded as having disposed ofthe business to the partnership of B and C.

The sub-clause applies to any partial changes ofownership of, or of interests in, property but specificallyincluding changes occurring in connection with -

the formation or dissolution of a partnership(paragraph (a)) ; or

a variation in the constitution of a partnership or inthe interests of the partners (paragraph (b)

by paragraph (c), the person who owned the businessbefore the change will be treated as having disposed ofthe business to the person who owned the business afterthe change.

This will mean that the condition specified inparagraph 160(1) (a) will be satisfied and as a result the newpartnership will be required to account for any fringe benefitsthat are continued to be provided to employees of the formerpartnership under an arrangement relating to the change ofownership of the partnership. By virtue of sub-clause 159(4),the new partnership will also be deemed to be an associate ofthe old partnership.

159.

Under ~aragraph (d) the property in respect of whichownership has changed is deemed to have been sold to the personswho owned the property after the change for a considerationequal to the “notional value” (a defined term) of the property.This notional value of the property will thus be taken to be thecost price of the property to the new partnership for thepurpose of those valuation rules which value benefits byreference to the cost price of the property.

Sub—clause 160(3) deals with the situation where atrustee of a trust estate is an employee. In that situation,the trustees of the trust from time to time are to be taken asconstituting a single employer so that the obligations of thetrust under this Bill will not be affected by changes in thetrustee.

C1&use 161 Business jcurneys in car

Clause 161 applies where there is a requirement underthe Bill to maintain a log book entry of business journeysundertaken in a car. Broadly, this is a requirement where anenplcyer adopts the cost basis of valuing the benefit of a carmade available for the private use of an enployee or where areduction in the taxable value of certain car expense benefitsis being sought under the “otherwise deductible” rule.

Sub—clause 161(1) operates to reduce the number oftimes that log book entries must be made to substantiate carexpenses. It does so by treating any consecutive series ofbusiness journeys undertaken during a day as a single journey.Thus, if the car is used only for business purposes during aday, only one log book entry, as specified in paragraph (a) ofthe definition of “relevant car documents” in sub-clause 131(1),need be made for that day’s journeys.

k Sub—clauses161(2) and (3) operate to ensure that if anentry is not properly made in relation to a particular journey,or the entry is not signed as required, the journey will not betreated as a business journey.

Business journey is defined for these purposes insub-clause 136(1).

clause 162 References to holding of a car

Clause 162 is a drafting measure that facilitates theuse of the shorthand expression “car held by a person” toembrace situations where the car is owned, leased or otherwisemade available to the person by another person.

160.

Clause 163 Application of Act

Sub—clause 163(1) makes it clear that the operation ofthe Bill applies irrespective of whether the acts, omissions,etc giving rise to a liability under the Bill occurred inside oroutside Australia.

Sub-clause 163121 ensures that the Bill can haveapplication to matters occurring before or after itscommencement. Sub—clause (2) will make it clear - for example,that the valuation rules embodied in Division 4 can apply tofree or low interest loans made before the commencement of thePill - although a taxable value will only arise in relation tothe benefit as it subsists on or after 1 July 1926.

Sub-clause 163(21 expresses the intention of the Billthat it bind the crown in right of the States, the NorthernTerritory and Norfolk Island.

Sub-clause 163(41 ensures that the extended operationof the Bill as expressed in sub-clause 163(4) applies similarlyto so much of the Taxation Administration Act 1953 as relates tothe Eill.

Clause 164 Besidence

Clause 164 details the circumstances in which a personis to be taken to he a resident of Australia for the purposes ofthe Bill. Determination of residence is relevant for certain ofthe collection provisions of the Bill. By this clause -

a natural person will be regarded as a resident if heor she resides in Australia or, if not residing inAustralia, is domiciled in Australia and does not havea permanent place of residence outside Australia;

a company will be treated as a resident if the company 4was incorporated in Australia or if it carries onbusiness in Australia and has either its centralmanagementand control here or its voting power iscontrolled by shareholders who are residents;

a partnership or unincorporated company will beregarded as a resident if any of its members areAustralian residents.

Clause 165 Partnerships

This clause contains rules under which partnerships asemployers will be subject to the provisions of the Bill.

Py sub-clause (31, the Bill applies to a partnership asif the partnership were a person i.e. a separate legal entity.

161.

where, as an entity to which the Bill applies, apartnership is subject to an obligation under the Bill,sub—clause (2) stipulates that the obligation is imposed on eachpartner but may be discharged by any one of them.

By sub-clause (3), where an amount is payable under theBill by a partnership, the partners are jointly and severallyliable to pay that amount.

If an offence is deemed to have been committed againstthe Bill by a partnership, by virtue of the application ofsub-clause (1) , each partner will by sub-clause (4) be deemed tohave committed the offence.

Sowever, by sub-clause (5) it will be a defence againsta prosecution for such an offence deemed to have been committedp by a partner if the partner proves that he or she did not, aid,abet, counsel or procure the particular act or omission of thepartnership and was not in any way directly or indirectlyknowingly concerned in, or party to, that act or omission.

Sub—clause (6) makes clear that a reference in clause165 to the proposed Fringe Benefits Tax Assessment Act includesa reference to provisions of the taxation Administration Ac~1953 relating to prosecutions and offences to the exent thaIthose provisions relate to the Bill.

C1~nse 166 Unincorporated companies

Clause 166 applies in relation to unincorporatedcompanies in the same way as clause 165 applies in relation topartnerships, and each member of the committee of managementassumes the obligations of the unincorporated company in thesame way as each partner assumes those of a partnership.

(~Taise 167 Offences by governnent bodies

This clause makes clear that, regardless of anyobligation that may be imposed by the Bill on a government body,such a body will not be capable of committing an offence againstthe Bill.

162.

FRINGE BENEFITS TAX DILL l98~

This Bill will formally impose tax liability onthe taxable amount of fringe benefits provided by employersto their employees in respect of their employment, asdetermined under the Fringe Benefits Tax AssessmentBill1986. The Bill will aTF~bdeclare the rate of tax that isto apply to employers liable to pay the tax.

NOTES ON CLAUSES

Clause 1 Short title

This clause provides for the Act to be cited as

the Fringe Benefits Tax Act l%6.

Clause 2 Commencement 4By this clause the Act is to come into operation

on the same day as the proposed Fringe Benefits TaxAssessment Act. As explained in the explanatory notesrelating to that proposed Act, this will be the day onwhich it receives the Royal Assent. 4

But for this clause the Act would come intooperation on the twenty-eighth day after Royal Assent byvirtue of sub-section 5(lA) of the Acts Interpretation Act1901.

Clause 3 IncorporaUcn

This clause requires the two complementary Billsthe Fringe Benefits Tax Assessment Bill and the FringeBenefits Tax Dill - to be incorporated and read as oneThis mirrors the position under the income tax law andother taxation laws where there are related assessmentandrating Acts.

Clause 4 Imposition of tax

By this clause is formally imposed tax in respectof the fringe benefits taxable amount of an employer of ayear of tax,

The term “fringe benefits taxable amountTM isdefined in sub—clause 136(1) of the Fringe Benefits TaxAssessment Dill as explained earlier in the notes on thatBill. Briefly, it is the total of the taxable values ofall fringe benefits provided by an employer to his or heremployees during a “year of tax”.

Clause 5 Rates of tax

The standard “year of tax” for the purposes offringe benefits tax is the 12 month period commencing on 1April each year - see the definition of that term in

163.

sub—clause 136(1) of the Fringe Benefits Tax AssessmentBill. As explained in the introductory section of thismemorandum, however, the first tax year - referred to asthe transitional year of tax - will be the 9 month periodfrom 1 July 1986 to 31 March 1927.

Liability to fringe benefits tax is to be assessedannually on the fringe benefits taxable amount of anemployer as referred to in the notes on clause 4.

For the transitional year of tax, tax will beimposed on that amount at the rate of 46% (p~ragraph 5(a)).

For the year of tax commencing on 1 April 1987 andfor subsequent years the rate of tax is to be 49%(paragraph 5(b)).

Clause 6 Severability

Section 114 of the Constitution precludes theimposition by the Commonwealth of a tax on the property of

a State.

Liability for fringe benefits tax is to be imposedon all employers - including State governmentsand theiragencies — who provide taxable fringe benefits to theiremployees. Against any possibility that this could be heldto constitute in any circumstance the imposition of a taxcontrary to section 114, clause 6 expresses that it is theintention of the Parliament that the imposition of taxunder clause 4 should be given effect as if it did notimpose tax on the property of a State.

164.

Fh TNGE. BENEFITS TAX jAflUCAnOIL TO JU-~~r~CLFThC..MwEALTfj)

BILL 1926 - -- —-

Introductory Note

This Bill is designed to ensure that ConirconwealthDepartments have the same obligations in relation to fringebenefits provided to Commonwealthenplcyees as are imposedon employers generally, Accordingly, the Hill providesthat the proposed Fringe Benefits Tax Assessment Act 1586is to apply to Commonwealth Departments as though eachLepartment were a company which employed those employeesofthe Commonwealth whose remuneration is paid out of theannual appropriation for the Department. Zn addition, anemployee whose remuneration is paid out of moneyappropriated under a standing appropriation will be treatedas being an employee of the Department for which he or sheperforms duties.

NOnS CC CLAUSES

Clause 1 : Short title 4By this clause, the proposed Act is to be cited as

the Fringe Benefits Tax (Application to the Cnmm~jnwc~jj~}-)Act ntru. -

Clause 2 : Commencement

By clause 2, it 15 Proposed that the Bill willcome into operation at the same time as the Frinje Benefits

!~ssmen_~t 1 98 6.

Clause 3: Interpretation

‘ibis clause contains measures to assist ini n t e rp ret a t i a n.

Sub-clause 3(1) defines various expressions usedin the Bill. Each expression is to have the given meaning,unless the ccntrary intention appears: 4

“Assessment Act” means the Fringe Benefits Tax

Assessment Act 1586.

‘Commonwealth employee’ means an employee of theCommonwealth. By virtue of sub-clause 3(2),the term “employee” has the same meaning asin the Assessment Act and thus encompassesperscns who, eirher currently or in the past,have been treated as employees of theCommonwealthfor the purposes of the FAflprovisions of the income tax law.

165.

“Department” is a term used in the Bill toidentify the Commonwealth erganisatiens thatunder the Bill will be treated as though theywere corporate eaployers with consequentobligations in respect of fringe benefits.As is the case under the Audit Act 1901, theterm Department is defined to mean -

(a) a Department of State;

(b) a Department of the Parliament; or

(c) a branch of the Australian Public

Service headed by a person who hasstatutory powers of a departmentalSecretary.

~responsible Department” is a term used in the Billto identify, in relation to a particularCommonwealth employee, the Department that isto be responsible for accounting for fringebenefits provided to the employee. In thecase of an employee whose remuneration is

paid out of an annual appropriation, theresponsible Department is defined to be theone whose appropriation is charged with thatremuneration (~~~agraph (a)) . Where theremuneration of the employee concerned ispaid out of a standing appropriation (e.g.,remuneration of a statutory officeholder thatis paid out of money appropriated by theReguneraticn Tribunals Act 1973), theresponsible Department will generally he theone for which the employee performs duties

(sub-paragraph (b) (i) ) however, if theemployee concerned (e.g., a member of theFederal Parliament) does not perform dutiesfor a Department, the responsible Departmentwill he the one that administers that part ofthe Act under which mcney is appropriated forthe payment of the employee’s salary(sub-paragraph (b) (ii)). The Department ofthe Special Minister of State will be theresponsible Department in the case ofemployees (e.g., Ministers) whoseremuneration is paid out of moneyappropriated by the Constitution (paragrapj~(c))

~ause3(2) is a drafting measure thatprovides that an expression used in the Bill is to have thesame meaning as is ascribed to that expression in theAssessment Act, unless the contrary intention appears.

166.

Clause 4 : Application of Assessment Art ~n re-l.ation tocolrimonwealth employment

Clause 4 will operate to make the provisions ofthe Assessment Act, with appropriate variations applicablein respect of fringe benefits provided to Commonwealthemployees.

S’~hi1e public servants and other Commonwealthemployees are, in practice, assigned to Departments, theyare, as a matter of law, employed by the Commonwealth.Accordingly, sub-clause 4(1) provides that the AssessmentAct is to appTI~ as though a Commonwealth employee wereemployed by the responsible Department (and not by theCommonwealth) and that Department were a separate legalidentity, viz., a company.

In addition, the Assessment Act is to apply as ifeach responsible Department were related to each otherDepartment and authority of the Commonwealth. This measureparallels the rules in the AssessmentAct which treatcompanies under common ownership and control as beingrelated companiesand is relevant to a number of theexemption and valuation rules contained in the AssessmentAct.

The broad effect of the application of theprovisions of the Assessment Act is that responsibleDepartments will be required to calculate and remit amountsfor fringe benefits tax on the same basis as corporateemployers are required to pay the tax. ResponsibleDepartments will also be subject to the same ancillaryobligations as apply to corporate employers. Inparticular, they will be required to lodge annual returnsand remit quarterly instalments.

The effect of paragraph 4(l)(çj is that certain 1provisions of the Assessment Act relating to governmentbodies (mainly provisions concerning offences) will applyto responsible Departments. By virtue of paragr~fl4(1) (d), responsible Departments will have the same rightsof objection as other employers but will not have appealrights.

Clause 5 Application of Act to cert-ain Cnmrnonwealthautnorat les

Clause 5 is a technical measure which providesthat if any authority of the Commonwealth cannot, by a lawof the Commonwealth, be made liable to taxation by theCommonwealth, it is to be treated as a Department and thussubject to the provisions of this Bill rather than theFringe Benefits Tax Assessment Bill 1986.

167.

rla,icp 6 Exemption of certain benefits provided under theDefence Services homes Act

This clause has the effect that a loan author isedunder the Defence Services Bones Act is to be an exemptbenefit where the Loan was made by virtue of an employee’swar service.

Clause 7 Directions by Minister for Finance

This clause authorises the Minister for Finance togive directions to Departments concerning theimplementation of the provisions of the Bill and, inparticular, to give directions in relation to the transferof money within the public account.

Clause 8 : Annual report

By this clause, the Commissioner of Taxation willbe required to report on the operation of the proposedlegislation in the annual report that the Commissioner willbe required to furnish under the proposed Er~ng Benef itsTax Assessment Act 1986. Any breaches of the proposedlegislation may be reported on by the Commissioner.

Clause 9 Regulations

By thip clause, formal authority is given for themaking of any regulations necessary for carrying out orgiving effect to the proposed Act.

168.


This Bill proposes amendments to certain Acts thatare consequential upon the principal legislation to imposefringe benefits tax on employers.

NOTES ON CLAUSES

Clause 1 Short title

By this clause the proposed Act is to be cited asthe Fringe Benefits Tax (Miscellanecue Prnvisions) Act 1986.

Clause 2 Commence~nt

Under sub-clause 2(11, the proposed Act, except as 4provided in sub-clause 2(2), is to come into operation atthe same time as the Fringe Benefits Tax Assessment Act1986.

By sub-clause ZIZ1, the amendment proposed by thisBill to ins&iFsection 82KZK in the Income Tax AssessmentAct 1936 will come into operation on the day on which theTaxation Laws Aniendment1~ct 1986 comes into operation ift1~t day is after the day on which the Fringe Benefitsi&~,Assessment Act 1986 comes into operation. Thiscommencement date reflects the fact that new section 82KZErelates to provisions concerning rental propertyinvestments which are proposed to be inserted by theTaxation Laws Amendment Bill 1986.

Clause 3 Amendmenta

By this clause the Acts specified in the Schedule

to the Bill will be amended as set out in that Schedule. 4Clause 4 Application of amendments

This clause specifies the years of income inwhich, or the dates from which, the various amendmentsproposed in the Bill to the Income Tax Assessment Act 193Swill first apply. An explanation of the applicationprovisions is contained in the notes en the clauses towhich each of the sub—clauses of clause 4 apply.

NOTES ON SCHEDULE

An explanation of the amendments to various Actsproposed in the Schedule to the Bill is contained in thefollowing notes.

169.

ADMiNiSTRATiVE DECISIONS (JUDiCIAL REVIEW) ACT 1977

The Bill viii amend the Administrative Decisions(Judicial Review)Act 1977 to exclude from review under that

Act decisions of the Commissioner of Taxation related toliability for the fringe benefits tax (which will bereviewable instead under separate objection and appealprovisions contained in the proposed Fringe Benefits TaxAssessment Act 1986)

CRIMES (TAXATION OFFENCES) ACT 1960

The Crimes Liaxation Offences) Act 1980 came intooperation on 4 December 1980 and provides criminalsanctions against persons who engage in stripping‘ transactions designed to ensure that a company or trust isrendered incapable of paying income tax or sales tax. Suchschemes became known as “bottom of the harbour” schemes.

The Bill will include fringe benefits tax withinthe categories of taxes subject to the Crimes (TaxationOffences) legislation. This will mean that it will be anoffence to enter into an arrangement with a purpose ofsecuring that a company or trustee will he, or will belikely to be, unable to pay fringe benefits tax that isthen payable, or that will or may reasonably be expected tobecome payable in the future.

INCOME TAX ASSESSMENTACT 1936

Interpretation

The Bill will insert new sub—section 6(1B) in theIncome Tax Assessment Act 1936. The new sub—section ~5 aninterpretative measure that provides that references in‘ that Act to benefits, or fringe benefits, within themeaning of the proposed Fringe Benefits Tax Assessment Act1986 are to be taken as including references to things thatwould be such benefits, or fringe benefits, if theCommonwealth were an employer subject to the fringebenefits tax legislation. The need for this measure arises‘ because benefits provided by the Commonwealth to itsemployees are to be dealt with under the proposed FringeBenefits lax (Application to the Commonwealth) Act 1986.

Exemptian nf_oertain benefits in the nature of income

The Bill will insert new section 23L in the IncomeTax Assessment Act 1936 which will apply in relation beyears of income commencing on or after 1 July 1966. Theeffect of the new section will be that employment-relatedfringe benefits which are dealt with under the proposedfringe benefits tax legislation will be treated as exemptincome in the hands of the employee. This will mean thatthe income will not be assessable to the employee by virtueof sub-section 25(1) which provides, broadly, that the

170.

assessable income of a taxpayer is to include gross incomethat is not exempt income. Complementary measures willamend paragraphs 26(e) and 26(ea) to provide that employeeswill not be assessed on the fringe benefits in question byvirtue of these provisions.

The categories of benefits to which the exemptionwill apply are specified in paragraphs (a) and (b) of newsection 23L.

Paragraph (a,L will apply to benefits which are“fringe benefits” within the meaning of the proposed ~flj~geBenefits lax Assessment Act l9ES. Broadly, the expression“tringe benefits” refers to those employment-relatedbenefits that are taxable to the employer in accordancewith the valuation rules specified in the proposed fringebenefits tax legislation. 4

Faragraph (k1 will apply to benefits which are“exempt benefits” within the meaning of the proposed Fri~pg~

Benef its Tax Assessment Act iSk&. Under that Act, certainICHids of benefits (e.g., benefits provided to ministers ofreligion im connection with their religious activities) aredefined to be exempt benefits. ?~ith one exception, abenefit that is an “exempt benefit” under the fringebenefits tax legislation will be exempt from income tax inthe hands of employees. The exception relates to certainreimbursements of car expenses which will be exempt fromfringe benefits tax but, by virtue of proposed paragraph26(eaa) , will be included in the assessable income of theemployee (see later notes on paragraph 26(eaa)).

Certain items of assessable income

The Bill will amend section 26 of the Income laxAssessment Act 1936 which provides that the assessableincome of a taxpayer is to include the items specified inthe section.

Paragraph 26J~I requires the inclusion in ataxpayer’s assessable income of the value to the taxpayerof allowances and benefits granted to the taxpayer inrespect of his or her employment. Similarly, paragraph26(ea) requires that the value to a member of the DefenceForce of allowances and benefits granted in respect ofservice as such a member be included in his or herassessable income.

Both paragraphs 26(e) and (ea) are being amendedso that they do not apply to those categories ofemployment-related fringe benefits to which the fringebenefits tax legislation applies.

The Bill will insert a new paragraph - paragr4p~26(eaa) - in section 26 which will provide that theassessable income of an employee is to include an amount

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received, in respect of his or her employment, by way ofreimbursement of car expenses where that amount is anexempt fringe benefit by virtue of section 22 of theproposed Fringe Benefits Tax Assessment Act 1966. For acar expense reimbursement to be exempt from the fringebenefits tax and consequently assessable to the employee,it is necessary that -

the reimbursement be paid in respect of carexpenses incurred by the employee in relationto a car owned by, or leased to, the employee(i.e., the provision does not apply to anyamount received by way of reimbursement ofexpenses (e.g., petrol) incurred by theemployee in relation to a car owned by his orher employer); and

the reimbursement must be calculated byreference to the distance travelled by thecar (in the typical case, on a cents perkilometre basis).

The effect of new paragraph 26(eaa) will be thatcar kilometre reimbursements received by an employee willbe treated in a similar manner to car allowances. That is,the amount received will be included in the employee’sassessable income and claims for deductions will be subjectto the substantiation requirements of the income tax law.The proposed amendments to section 26 will, by virtue ofsub—clause 4(1), apply in relation to assessments for the1986/87 and later income years.

Employees’ housing

The Bill proposes to repeal two sections -

sections 26AAAA and 26AAAB - of the Income Tax AssessmentAct 1936 which specify rules for determining the assessablevalue to an employee of residential accommodation providedin respect of his or her employment. Such benefits will bewithin the scope of the fringe benefits tax andaccordingly, sections 26AAAA and 26 AAAB will be repealedwith effect from 1 July 1986.

Losses and outgoings

The proposed amendment of section 51 of the IncomeTax Assessment Act 1936 — the general deduction provision —

by the Bill to insert new sub-section 511(4) will mean thatfringe benefits tax payable by an employer is not anallowable deduction for income tax purposes.

Deductions not allowable for entertainment expenses

Section 51AE of the Income Tax Assessment Act 1936provides that, subject to a number of exceptions,entertainment expenses incurred after 19 September 1985 arenot deductible for income tax purposes.

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The Bill proposes to insert two new sub—sections —

sub-sections (5A) and (SB) - into section SlAt to excludefrom the general prohibition certain expenses incurred byemployers in respect of meals provided to employees (andtheir families) under board or living-away—from-homearrangements.

New sub-section (5A) specifies the additionalclasses of losses and outgoings which it is proposed toexclude from the general prohibition.

By paragraph (5A) (a), losses or outgoings incurredin respect of the provision of meals which constitute boardfringe benefits within the meaning of the proposed ~j~thg~Benefits Tax Assessment Act 1986 will not be precluded fromdeduction. Instead, such meals will be valued under clause36 of that Bill and, where appropriate, the employer willbe recuired to pay fringe benefits tax on the value of themeals.

Paragraph (5A) (~ applies where an employee (or amember of his or her family) who is provided with mealsunder a board arrangement is also provided with incidentalfood or drink (not being a meal) . In these circumstances,the provision of the food or drink will be exempt fromfringe benefits tax (see notes on clause 54 of the FringeBenefits lax Assessment Bill) and the cost of providing thefood or drink will not be subject to disallowance undersection 51AE.

By virtue of paragraph SA(c) the cost of providingfood or drink to am employee who is required to live awayfrom his or her usual place of residence in order toperform the duties of his or her employment will beexcluded from the disallowance under section SlAt. Thisparagraph applies where meals of an employee who is livingaway from home (as distinct from travelling in the courseof his or her employment) are provided by way of fringebenefits other than the provision of board fringe benefits(e.g., where the employee is reimbursed for expensesincurred by the employee in respect of meals) . As will bethe case for board fringe benefits, living-away—from—homefood benefits will attract fringe benefits tax (see noteson clause 63 of the Fringe Benefits Tax Assessment Bill)and the disallowance measure will not apply.

By new sub-section S1AL(SB), the exclusions fromthe general prohibition on deductions for entertainmentexpenses contained in proposed sub-section S1AE(SA) willapply with effect from 19 September 1985 (the commencementdate of the prohibition).

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Deductions not allowable where expenses incurred by~jJeyeeare reimbursed

The Bill will insert new section SlAb in theIncome Tax Assessment Act 1936 to deny a deduction forexpenses incurred by an employee in circumstances whore ihcexpenses are, in effect, paid by the employer.

The section complements the provisions of thePringe Benefits Tax Assessment Bill dealing with “expensEpayment benefits”. Under those provisions, an expensepayment benefit will arise where expenditure is incurred ~yan employee and the employer either -

makes a payment direct to the payee todischarge the employee’s liability; or

in a case where the employee pays the account- reimburses the employee for the expensespaid.

Pihere an expense payment is made by the employer, theamount paid is treated as a fringe benefit under the friiug~benefits tax legislation and correspondingly is notrequired to he included in the assessable income of theemployee.

New section SlAb will ensure that any deduction towhich the employee would otherwise he entitled in respectof losses or outgoings incurred by the employee is reducedby the amount of the payment or reimbursement made by theemployer.

Deduction in respect of living-away-from-home allowancoc

Section 51A of the Income Tax Assessment Actauthorises a deduction to an employee where aliving-away-from-home allowance is included in theassessable income of the employee. Asliving—away—from-home allowances will be dealt with underthe fringe benefits tax legislation and correspondinglyexempt in the hands of employees, section SlA will nolonger be relevant. Accordingly, the Bill proposes torepeal section SIA and remove a reference to that sectionin section 82KA with effect from 1 July 1986.

Rental property income to include taxable values of curta iii

fringe benefits

The Bill will insert new section C2KZK inSubdivision C of Division 3 of Part Ill of the Income TaxAssessment Act 1936. The Subdivision limit deductions forinterest on money borrowed to finance rental propertyinvestments made after 17 July 1985. Section 82KZK willensure that, where an employer provides a fringe benefit toan employee in the form of a lease of property to which

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Subdivision G applies, the interest deduction limit will beincreased by the amount of the taxable value of the fringebenefit.

Sub—section 82K2K(l) provides that, where theconditions set out in the paragraphs of the sub—section aresatisfied, the taxable value of the relevant fringe benefitis treated as rental property income of the employer - forthe purpose of calculating the interest deduction limitunder section 82KZD.

Paragraph (a) requires that the employer hasprovided a housing fringe benefit (sub-paragraph (i)) or aresidual fringe benefit (sub—paragraph (ii)) in relation toa year of tax ending in the year of income by leasingproperty to the employee. The fringe benefits and relatedtaxable values referred to in the sub-section are dealtwith in Divisions 6 and 12 respectively of the FringeBenefits Tax Assessment Bill 1986 and explained in thenotes on that Bill. The term “year of tax” is alsoexplained in the notes on that Bill.

Paragraph (b) ensures that the section does not 4apply where the property is land that is not withinSubdivision C because it is used to provide residentialaccommodation for employees at or adjacent to the site ofnining operations or a timber-felling area.

Paragraph (c) mirrors the conditions set out insub-paragraphs (a) (i) and (ii) of the definition of “rentalproperty income” in sub-section 82KZC(l) for the inclusionof rent in rental property income.

Sub—section 82KZK(2) is a drafting measure whichascribes to terms used in section 82KZK the same meaning asthose terms have in the Fringe Benefits Tax AssessmentBill1986.

Amendment of assessments

Section 170 of the Income Tax Assessment Act 1936sets time limits on the power of the Commissioner ofTaxation to amend an assessment. Those time limits,however, do not apply for the purpose of giving effect tothe provisions specified in sub—section 170(10). The Billwill amend sub-section 170(10) to include proposed sectionSlAB in the list of specified provisions.

Liquidators, etc.

Section 215 of the Income Tax Assessment Act 193�is being amended to include fringe benefits tax within thecategories of taxes for which a liquidator or a receiver ofa company must, out of assets available for the payment ofordinary debts, make provision.

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Inte rpretation

Section 22lA of the Income Tax Assessment Act 1936defines a number of terms that are used throughout theprovisions of the income tax law dealing with the

collection by instalments of income tax payable byemployees on salary and wage income. Consequential uponthe proposal to deal with living-away-from-home allowancesunder the fringe benefits tax legislation, the definitionof “salary or wages” in section 221A is being amended toexclude living-away-from-home allowances. Similarly, it isproposed to omit sub-section 22lC(6) which sets out theamount of a living-away-from-home allowance that is to betaken into account for the purpose of calculating PAYFdeductions.

Sub-sections 221C(4) and (5) provide that the FA?Eprovisions are to apply where an employee receives from hisor her employer meals, sustenance or the use of premises orquarters in addition to salary and wages. As such benefitswill be subject to the fringe benefits tax, it is proposedto omit sub-sections 22lC(4) and (5).

PAYROLL TAX (TERRITORIES) ASSESSMENTACT 1971

SALES TAX ASSESSMENTACT (No. 1) 1930

The Bill will amend the abovementioned Acts toinclude fringe benefits tax within the categories of taxesfor which a liquidator or a company must, out of assetsavailable for the payment of ordinary debts, make provision.

TAXATION ADMINISTRATION ACT 1953

The Bill proposes two purely technical amendmentsto the Taxation Administration Act 1953 to extend the listsof provisions of various taxation laws contained insub-sections 8.3(2) and 8ZE(3) of that Act to includereferences to the corresponding provisions in the fringebenefits for legislation.

TAXATION (INTEREST OF OVERPAYNENTS) ACT 1983

This Act gives authority to the Commissioner topay interest on certain refunds of tax.

The effect of the amendments proposed by the Billwill be to authorise the payment of interest on amounts offringe benefits tax refunded by the Commissioner ofTaxation.

Eollowing a successful objection or appeal byan employer against a fringe benefits taxassessment; or

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where the Commissioner decides of his ownmotion to amend a fringe benefits taxassessment to reduce an employer’s liability.

TOBACCOCHARGESASSESSMENTACT 1955

HOODTAX (ADMINISTRATION) ACT 1964

The Bill will also amend the abovementiomed actsto include fringe benefits tax within the categories oftaxes for which a liquidator or a receiver of a companymust, out of assets available for the payment of ordinarydebts, make provision.

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Documents

1985—86 OF AUSTRALIA FRINGE BENEFITS TAX ASSESSMENT … · GENERAL OUTLINE Fringe Benefits Tax Assessment Bill 1986 ... Australian source. Subject to what follows, all employers