The Gillard Government today announced a number of measures as part of the Mid-Year Economic and Fiscal Outlook that build on ideas discussed at last month's Tax Forum.
Fringe benefits tax (FBT) reform – Living-away-from-home allowance and benefits
The Government will introduce reforms to stop individuals from being able to exploit the tax exemption for living-away-from-home allowance and benefits.
This tax exemption is being increasingly misused by a narrow group of people, particularly highly-paid executives and foreign workers, at the expense of Australian taxpayers.
Rorting of this tax exemption was one of the issues raised at the Tax Forum, and has seen the total amount of tax-free living-away-from-home allowance reported by employers to the Australian Taxation Office increase from $162 million in 2004-05 to $740 million in 2010-11.
Under reforms announced today:
- access to the tax exemption for temporary residents will be limited to those who maintain a residence for their own use in Australia, which they are living away from for work purposes, such as 'fly-in fly-out' workers; and
- individuals will be required to substantiate their actual expenditure on accommodation and food beyond a statutory amount.
No permanent resident legitimately using this tax exemption for accommodation and food expenses will lose any entitlements.
These reforms will not affect other tax concessions, such as those that apply to travel and meal allowances, and remote area fringe benefits.
The reforms will apply from 1 July 2012. This start date will enable the Government to undertake an extensive consultation process on these reforms, so appropriate transitional arrangements can be put in place, including in regional Australia.
These changes will ensure that a level playing field exists between temporary residents and permanent residents, and that Australian taxpayers are not funding the unfair exploitation of concessions.
This reform progresses recommendation 9(c) of the Australia's Future Tax System Review, and will provide savings of $683.3 million over the forward estimates.
Personal income tax reform – Dependent Spouse Tax Offset
The Government will further reduce outdated workforce participation disincentives for spouses without dependent children to take up paid employment by restricting the Dependent Spouse Tax Offset to those with spouses born before 1 July 1952. This reform will not affect people whose spouse is an invalid or a carer, or who receive the zone, overseas forces or overseas civilian tax offsets.
A taxpayer's entitlement to the Dependent Spouse Tax Offset is reduced by $1 for every $4 of income which their dependent spouse earns above $282 per year. This means that the effective tax rate on the first $10,000 earned by a dependent spouse without children is around 25 per cent.
This measure builds on the reform announced in the 2011-12 Budget, which progressed recommendation 6(a) of the Australia's Future Tax System Review, and will provide savings of $370.0 million over the forward estimates.
Responsible economic management
As part of its commitment to responsible economic management and returning the budget to surplus in 2012-13, the Government will defer four previously announced tax reforms by one year.
The start date of the standard deduction for work related expenses will be deferred until 1 July 2013.
The start date of the 50 per cent tax discount for interest income will be deferred until 1 July 2013, allowing more time for consultation with stakeholders on issues previously raised by industry.
The start date of the phase down in interest withholding tax for financial institutions will be deferred until 2014-15.
The start date of the new tax system for managed investment trusts will be deferred until 1 July 2013, allowing more time for consultation with stakeholders about how to best implement the elements of the package.
Together the deferral of these four measures will provide savings of $2.1 billion over the forward estimates.
The Government emphasised its commitment to fiscal discipline in the lead up to the Tax Forum, and remains committed to these important tax reforms.