Deputy Prime Minister and Treasurer
3 December 2007 - 27 June 2013
Fringe Benefits Tax (FBT) - Integrity Measures
The Treasurer announced tonight that the Government will make a number of changes to improve the integrity of the FBT law.
With effect from 7.30 pm tonight, the current exemptions under the FBT law for eligible work-related items and property consumed on an employer's premises will be tightened.
The FBT exemption for eligible work-related items will be amended to limit the exemption to items used primarily for work-related purposes. Affected items include: laptop computers, personal digital assistants, briefcases, and tools of trade. In a related measure, the Government will also disallow employees from claiming a deduction for depreciation of such items. This will end a double benefit that was previously available.
The FBT exemption for property consumed on an employer's premises will be amended to remove 'meal card arrangements' from the exemption.
These exemptions have allowed some employees to enter into salary sacrifice arrangements to acquire items for private consumption out of their pre-tax income. This is inequitable when compared to other taxpayers who acquire these items from their post-tax income.
As an additional integrity measure, the Government will amend the FBT law to ensure that FBT applies appropriately to employee arrangements involving jointly held investment assets. This will overcome the Federal Court's decision in National Australia Bank Ltd v Federal Commissioner of Taxation 93 ATC 4919 that resulted in an anomaly in the FBT law which also gave rise to salary sacrifice opportunities in relation to jointly held investment properties.
These changes will restore the original intent of the FBT law and improve equity in the treatment of employee remuneration. The combined effect of the measures will raise approximately $1.2 billion over the forward estimates.
Full details of the changes are contained in the Attachments.
13 May 2008
Fringe Benefits Tax (FBT) Exemption for Eligible Work-Related Items
The FBT exemption that currently applies to certain work-related items will be tightened to ensure that it only applies to items that are provided by an employer to an employee for work purposes. The list of eligible work-related items currently includes:
- laptops or similar portable computers;
- mobile phones;
- tools of trade;
- protective clothing;
- computer software;
- electronic diaries;
- personal digital assistants or similar items; and
- certain portable printers.
The FBT exemption will be limited to one item of each type per employee, per FBT year unless it is a replacement item.
The list of FBT-exempt work-related items will also be clarified to deal with advances in technology. This amendment will extend the exemption to all work-related portable electronic devices, including those with multiple functions. New technology has resulted in the availability of a number of new work-related electronic items (for example, GPS receivers). There has also been a convergence of technologies (for example, a mobile phone that also has email, internet, diary, photographic and GPS functionality).
New and convergent technologies have resulted in uncertainty for the Australian Taxation Office and industry as to whether electronic devices with multiple functions fall within the FBT exemption.
The changes will restore the original intent of the legislation. The current FBT exemption for eligible work-related items was introduced in 1995 to reduce compliance costs. The relevant Explanatory Memorandum states 'the type of benefits that will be exempt are employment-related and generally any private use of these benefits by employees is incidental to their employment use'.
With the exception of mobile phones, computer software and protective clothing, the current FBT exemption for work-related items is available without any requirement that their actual use be work-related.
Technological advances have dramatically increased access to, and the appeal of, such items for personal use so that, in many cases, personal use is no longer incidental to business use. However, employees have still been able to enter into salary sacrifice arrangements to acquire such items for private consumption out of their pre-tax income.
The income tax law will also be amended to disallow employees from claiming depreciation for the work-related percentage of FBT-exempt items. Claiming depreciation in these circumstances has provided taxpayers with a double benefit.
The changes to the FBT exemption for work-related items will apply to items purchased after 7.30 pm (AEST) on 13 May 2008.
The changes that disallow depreciation for FBT-exempt items will take effect as follows:
- For items purchased after 7.30 pm (AEST) on 13 May 2008, this measure will take effect from that time.
- For items purchased before 7.30 pm (AEST) on 13 May 2008, employees will be denied depreciation for the 2008-09 and later income years.
The measures will increase certainty for taxpayers and increase the fairness and integrity of the tax system.
Fringe Benefits Tax (FBT) — Meals on an Employer's Premises
The FBT exemption for private use of business property will be tightened by excluding meals provided as part of a salary sacrifice arrangement.
Some employers and employees are currently exploiting the existing FBT exemption for property consumed on an employer's premises through meal card type arrangements.
Under these arrangements, an employer pays for an employee's meals, provided by a third party (for example, a café or catering service) located on, or delivered to, the employer's premises. The integration of meal facilities into business premises, such as cafés and 'food court' outlets in large office blocks, has facilitated the promotion of these arrangements.
The FBT exemption for property consumed on an employer's premises was originally intended to exempt benefits provided from an employer to an employee that were modest in amount. This rationale does not apply to meal card arrangements which allow employees to enter into arrangements to purchase meals out of their pre-tax income.
The change will restore the original policy intent of the exemption and ensure equity with other employees who have to purchase meals out of their post-tax income.
The changes will take effect from 7.30 pm (AEST) on 13 May 2008.
Existing balances on meal cards as at 7.30 pm (AEST) on 13 May 2008 will remain eligible for the FBT exemption provided they are used by 31 March 2009. Any supplementation of existing balances after 7.30 pm (AEST) on 13 May 2008 will be subject to FBT.
The measure will not affect subsidised canteens that are provided to all staff and that are not part of a salary sacrifice arrangement.
Fringe Benefits Tax (FBT) and Jointly Held Assets
The Government will amend the FBT law to ensure it applies appropriately where an employer provides an employee and their associate with a fringe benefit in relation to a jointly held investment asset (for example, a low interest loan or reimbursement of expenses related to a rental property or shares).
The Federal Court considered the 'otherwise deductible rule' in National Australia Bank Ltd v Federal Commissioner of Taxation 93 ATC 4919 (the NAB decision). This rule applies to reduce the taxable value of a fringe benefit where the asset provided is an income earning asset and, if not provided as a fringe benefit, where associated expenses such as interest would have been deductible to the employee.
The Federal Court decided that where an employer provided low interest loans jointly to an employee and their spouse, the employer had no FBT liability arising from the provision of the loan fringe benefit to both the employee and their spouse because the otherwise deductible rule applies to reduce the taxable value of the whole benefit.
The Federal Court decision resulted in an anomaly in the FBT law which means that if an employer provided the benefit solely to an associate, there would be no reduction in their FBT liability. This anomaly has led to taxpayers entering into inappropriate arrangements, such as salary sacrificing of expenses related to a jointly held investment property. Under such an arrangement, a spouse with a higher income is able to effectively claim 100 per cent of all the expenses related to a jointly held investment property.
The Government will amend the FBT law to overcome the NAB decision to ensure that the otherwise deductible rule applies appropriately in the case of jointly held assets; that is, the rule does not apply to reduce the taxable value of the associate's share of the expenses from that time.
The measure will re-establish the principle that income and deductions arising from jointly held assets should be allocated between joint owners according to their legal interests and restore equity of treatment between taxpayers who incur expenses on jointly held investment properties.
The measure will take effect as from 7.30 pm (AEST) on 13 May 2008 with respect to new arrangements.
Employees who have already entered into salary sacrifice agreements with their employer involving a reimbursement of expenses related to the investment will be able to utilise current arrangements until 31 March 2009 (i.e. the end of the FBT year). This will provide time for employers and employees to renegotiate salary packages to avoid incurring a FBT liability.
Transitional arrangements for employees who have entered into a loan arrangement (such as the arrangement that was the subject of the NAB case) with their employer will be the subject of consultation.