HOUSE OF REPRESENTATIVES TAXATION LAWS AMENDMENT … · cited as the Taxation Laws Amendment...

1987

THE PARLIAMENT OF THE COMMONWEALTH

OF AUSTRALIA ~

HOUSE OF REPRESENTATIVES

TAXATION LAWS AMENDMENT(FRINGE BENEFITS

AND SUBSTANTIATION) BILL 1987

EXPLANATORYMEMORANDUM

PART B

(Circulated by authority of the Treasurer,

the Hon. P.J. Keating, M.P.)

161 27/87 Cat. No. 87 52093

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Printed by Authority by the Commonwealth Government Printer

FOREWORD

Part A of the Explanatory Memorandum, whichcontains an outline and broad explanation of each of themeasures of the Bill, was circulated on the introduction ofthe Bill into the House of Representatives.

This Part - Part B - contains a clause by clauseexplanation of the Bill.

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PART I - PRELIMINARY

Clause 1 : Short title

This clause provides for the amending Act to becited as the Taxation Laws Amendment (Fringe Benefits andSubstantiation) Act 1987.

Clause 2 : Commencement

By this clause, the amending Act is to come intooperation on the day on which it receives the RoyalAssent. But for clause 2, the amending Act would, byreason of subsection 5(1A) of the Acts Interpretation Act1901, come into operation on the twenty-eighth day afterthe day on which it receives the Royal Assent.

PART II - AMENDMENTOF THE FRINGE BENEFITSTAX ASSESSMENTACT 1986

Clause 3 : Principal Act

This clause facilitates references to the FringeBenefits Tax Assessment Act 1986 in Part II of the Bill.In that Part, the Act is referred to as the “Principal Act.

Clause 4 Exempt car benefits

Clause 4 amends section 8 of the Principal Act

which exempts certain car benefits from fringe benefits tax.

Paragraph (a) of clause 4 liberalises the

exemption contained in subsection 8(2).

The existing subsection 8(2) exempts car benefitsrelating to taxis, panel vans, utilities and othercommercial vehicles if an employee’s private use of such avehicle during the year of tax consists solely of“work-related travel. The term “work-related travel” isdefined in subsection 136(1) of the Principal Act to meantravel to and from work or use that is incidental to travelin the course of the employee’s duties of employment.

The proposed amendment will extend the exemptionso that it will now also apply where private use of the carconsists solely of non-work-related private use by theemployee (or an associate) that is minor, infrequent andirregular. In addition, the exemption will now apply whereprivate use of the car consists solely of work-relatedtravel by the employee plus other private use of the car bythe employee (or an associate) that is minor, infrequentand irregular. By way of example, the exemption will now

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apply where the only private use by an employee of autility consists of work-related travel and occasional useof the vehicle to remove domestic rubbish.

Paragraph (b) of clause 4 inserts a new subsection- subsection (3) - in section 8. New subsection 8(3)exempts car benefits if the car is unregistered throughoutthe period it is held by the employer during the year oftax and is used during that period wholly or principally inconnection with the business operations of the employer (ora related company).

For the purpose of this exemption, new section162N specifies that a car that may be driven on a publicroad without contraven,ing any law shall be taken as beingregistered.

Clause 5 Taxable value of car fringe benefits -

statutory formula

Clause 5 will amend section 9 of the Principal Actwhich specifies how the taxable value of car fringebenefits are calculated using the statutory formula method.

Paragraph (a) of clause 5 is a drafting measureconsequential upon the proposed insertion of new sections65B and 65C.

Paragraphs (b), (c) and (d) of clause 5 amendparagraph 9(2(e of the Principal Act which specifies thebasis for determining the amount to be deducted incalculating the taxable value of car fringe benefits usingthe statutory formula method to take account of anypayments by the employee in respect of the benefit. Thisamount is referred to in section 9 as the “recipient’spayment’.

By virtue of existing subparagraph 9(2(e(ii,the recipient’s payment includes any car expenses incurredby the employee provided the employer is provided with“documentary evidence” (e.g., receipts, invoices, etc) ofthe expenditure.

The effect of paragraphs (b, (c) and (d) ofclause 5 is that, in the case of fuel or oil expenses, theevidence required to be provided to the employer can nowtake the form either of a declaration from the employee inrespect of those expenses or, as at present, receipts, etc.The declaration is to be in a form approved by theCommissioner of Taxation. The Commissioner has providedemployers examples of formats that would be acceptable forthis purpose should the proposed amendment be enacted.

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Clause 6 : Taxable value of car fringe benefits — cost basis

Clause 6 will amend section 10 of the PrincipalAct which specifies how the taxable value of car fringebenefits are calculated using the operating cost method.

Paragraphs (a) to (c) and (e) to (g), newsubsections 10(3B) and 10(3C) being inserted byparagraph (m) and paragraph (n), give effect to the revisedcar log book rules explained earlier in the main featurespart of these notes.

Paragraphs (a) and (b) and (e) to (g) aretechnical drafting changes. Paragraph (c) replaces theformula in subsection 10(2) by which the taxable value of acar fringe benefit under the operating cost methodisderived. The new formula reflects the revised log bookrules contained in new sections bA, lOB and bC.

The effect of the new formula - as with the old -

is to reduce the operating cost of the relevant car by thebusiness percentage applicable to the car and deduct fromthat reduced value (which represents the private proportionof the operating costs) any amount paid by an employee forthe operating cost of the car or as consideration for theuse of the car.

The business percentage is now to be determinedhaving regard to the rules in new sections 1OA and lOB. Ifunder those rules the employer is not entitled to areduction on account of business use of the car, thebusiness percentage for the purposes of the formula isnil. Where a percentage has been specified in theemployer’s return in accordance with section bOA or lOB —

generally on a basis established by log book records keptin the year of tax or in a previous year — that percentageis reflected in the calculation of the taxable value of thecar fringe benefit.

If the year is a “log book year of tax’ (e.g.,because it is the first year of tax in which fringebenefits are provided in respect of the car — see the noteson new section 162G), the business percentage applicable tothe formula is a reasonable estimate of the actual businesspercentage of kilometres travelled (the “underlyingbusiness percentage” being inserted in subsection 136(1) byclause 48) during the period in the year when the car washeld by the employer for use in providing fringe benefits.

If the year is not a log book year of tax, andthere has not been a substantial reduction (i.e., by morethan 10 percentage points) in the business percentage fromthat established by log book records in a log book year,the appropriate business percentage is that established bythe log book records.

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If the particular year is the first in which therehas been a reduction of more than 10 percentage points inthe business percentage from that established by log bookrecords in an earlier year, the business percentage to beutilised in the formula is a reasonable estimate of the“underlying business percentage”. Log books would need tobe maintained in the following year of tax if the employerwished to continue to use the operating cost method (i.e.,the following year would be a “log book year of tax’).

Where the car is one with a business usage of5,000 or fewer kibometres per annum (a ‘low businesskilometre car” being inserted in subsection 136(1) byclause 48), the business percentage for the purposes of theformula is the lesser of the business percentageestablished in the relevant log book year and a reasonableestimate of the “underlying business percentage” for thatyear. In the event that the difference exceeds10 percentage points the following year would become a “logbook year of tax”.

Paragraph (d) of clause 6 excludes from theoperating cost of a car “insured repair expenses”. Theterm ‘insured repair expense” is being defined by newsubsection 1O(3A) (see notes on paragraph (m) ofclause 6). Broadly, the effect of paragraph (d) ofclause 6 is that a car repair expense incurred as a resultof a car accident will not be included in the employer’scost of operating the car where the expense is met by theemployer’s insurer or by the person who was legallyresponsible for the damage to the car.

Paragraphs (h), (1) and (k) of clause 6 will amendparagraph 1O(3)(c) of the Principal Act which specifies thebasis for determining the amount to be deducted incalculating the taxable value of car fringe benefits usingthe operating cost method to take account of any paymentsby the employee in respect of the benefit. This amount isreferred to in section 10 of the Principal Act as the“recipient’s payment”.

By virtue of existing subparagraph lO(3)(c)(ii),the recipient’s payment includes any car expenses incurredby the employee provided the employer is provided with“documentary evidence” (e.g., receipts, invoices, etc.) ofthe expenditure.

The effect of paragraphs (h), (j) and (k) ofclause 6 is that, in the case of fuel or oil expenses, theevidence required to be provided to the employer can nowtake the form either of a declaration from the employee inrespect of those expenses or, as at present, receipts, etc.

Paragraph (m) of clause 6 inserts new subsections— subsections (3A), (3B), (3C) and (3D) - in section 10 ofthe Principal Act. Proposed subsection (3A) defines the

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term “insured repair expense” for the purpose of theproposed exclusion of such expenses from the operating costof a car.

By new subsection (3A), a car repair expense willbe treated as an “insured repair expense’ to the extentthat:

the employer incurs the repair expense butreceives an amount by way of insurance in respectof the repairs (subparagraph (a)(i));

the employer incurs the repair expense but theexpense is paid by the insurer(subparagraph (a)(ii));

the employer incurs the repair expense butreceives an amount by way of compensation from theperson legally responsible for the damage to thecar (subparagraph (a)(iii));

the employer incurs the repair expense but theexpense is paid by the person legally responsiblefor the damage to the car (subparagraph (a)(iv));or

the repair expense is incurred by the employer’sinsurer or by the person legally responsible forthe damage to the car (paragraph (b)).

New subsection (3B) applies where, in accordancewith new subsection 162K(2) - see later notes — an employernominates a car as a replacement for an existing car toenable the taxable value of car fringe benefits relating tothe new car to be calculated on the basis of the businesspercentage established by log book records of the replacedcar. If the replaced car is not disposed of, the effect ofsection 162K is that it is treated as a different car(except for the purposes of calculating depreciation andinterest costs) from the time of replacement.

Subsection (3B) enables the operating cost of thereplaced car during a year when there is a replacement tobe properly apportioned between the periods up to and afterthe changeover.

New subsection (3C) applies in a similar way inrelation to any recipient’s payment made in respect of thecar in a changeover year.

New subsection (3D) ensures that registration, carinsurance and car leasing expenses may be properlyattributed to a period before and after a replacementnomination is made under subsection 162K(2), and also wherea car that is re-acquired after having been disposed of istreated as a different car by the operation of section 162M- see later notes on that section.

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Paragraph (n) of clause 6 inserts new subsections10(5) and 10(6) in place of the existing subsections.

These subsections operate so that the statutoryformula basis of calculating the taxable value of a carfringe benefit will apply where it results in a lowertaxable value than under the operating cost method undersection 10. The subsections will be of particularrelevance where, as the result of an audit undertaken bythe Australian Taxation Office, the operating costcalculation is adjusted such that the taxable value underthat method would otherwise exceed what would apply underthe statutory formula method.

Clause 7 : New sections bOA to bC

Clause 7 proposes to insert new sections bOA to1OC in the Principal Act to specify the basis for reducingthe operating cost of a car under the formula in section 10on the basis of a business percentage established by logbook and odometer records maintained by or on behalf of anemployer. Section bOA details the basis for reduction in alog book year of tax, and section lOB in a non—log bookyear. Section 1OC contains rules for reducing the relevantbusiness percentage where an employer nominates anexcessive percentage or maintains reliance on anestablished log book percentage despite a reduction in theactual business percentage.

Section bOA : No reduction of operating cost in a lop bookyear of tax unless log book records andodometer records are maintained

This section specifies the requirements to besatisfied for a reduction to be made in the operating costof a car under the formula in section 10 where a car fringebenefit is provided in a “log book year of tax” (see laternotes on new section b62G).

Under paragraph bOA(a), reduction in the operatingcost is conditional on the employer specifying in his orher return an estimate of the actual business percentage ofthe use of the car during the year when it was held for usein providing fringe benefits (see the definition of“nominated business percentage” being inserted insubsection 136(1) of the Principal Act by clause 48).Paragraph bOAa) applies where the employer commenced tohold the car during the last 12 weeks of the year of tax orthe Commissioner is satisfied that it would be unreasonableto expect log book and odometer records to have beenmaintained. Log books need not be kept in these cases, butbecause the next year would become a log book year, logbooks would generally be required in that subsequent year.

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If neither of those conditions applies,paragraph 1OA(b) requires that “log book records” and“odometer records” be maintained for the “applicable logbook period” (see the notes on new section b62H beinginserted by clause 60), usually a minimum of 12 consecutiveweeks. The terms “log book records” and “odometerrecords”, which are being inserted in subsection 136(1) byclause 48, collectively serve the same purpose as theformer definition of “relevant car documents” being deletedby that clause.

The log book records and odometer records must begiven to the employer, who must nominate in his or herfringe benefits tax return an estimate of the actualbusiness percentage of the use of the car in the yearduring the period when it was used to provide fringebenefits. That nominated percentage must not exceed thebusiness percentage established in the log book period, asexplained in the notes on new section 162J.

Section bOB : No reduction of operating costin a non-log book year of tax unless bc book

records and odometer records are maintainedin a log book year of tax

This section specifies the requirements to besatisfied for a reduction to be made in the operating costof a car under the formula in section 10 where a car fringebenefit is provided in a non-log book year of tax.

Paragraph 1OB(a) contains the general conditionthat odometer records must be maintained which, broadly,must record the odometer readings at the beginning and endof the year of tax (or, if the car was not held for thepurpose of providing fringe benefits for the whole year, atthe beginning and end of the period it was so held).

Under paragraph 1OB(b), it is a further conditionthat the employer specify in his or her fringe benefits taxreturn the relevant business percentage. That willnormally be the business percentage established in the lastlog book year and specified in the return for that year.

However, if the car is a “low business kilometrecar” (as explained in the notes on the amendments tosection 10 being made by clause 6) or there has been areduction by more than 10 percentage points from thebusiness percentage established and specified in the lastlog book year, the employer is required to specify apercentage that represents an estimate of the actualbusiness percentage during the year when the car was heldfor the purpose of providing fringe benefits.

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Section bOC : Nominated business percentageto be reduced if it exceeds business

percentage established during applicablelog book period or if it is unreasonable

New subsection 1OC(l) complements the operation ofsections bOA and lOB in circumstances where an employer hasspecified a business percentage in respect of a car that isgreater than the maximum permissible in a log book year andhas carried that nominated percentage through to lateryears.

In a log book year of tax, if the nominatedpercentage is more than the lesser of a reasonable estimateof the actual business percentage and the businesspercentage established in the log book period, the employerwill be deemed to have specified that correct lesserpercentage. This ensures that the reduction in operatingcosts for the purposes of calculating the taxable value ofa car fringe benefit under section 10 is based on the -

applicable maximum percentage. Similarly, in a subsequentnon-log book year, the employer will be deemed to havespecified the lower percentage if the excessive percentagespecified in the log book year has been specified again.

Subsection 1OC(2) ensures that, in a case where anemployer knowingly fails to specify a reduced percentagewhere there has been a substantial reduction (i.e., by morethan 10 percentage points) in the percentage of businessuse in a year subsequent to the establishment of anominated business percentage, the employer is deemed tohave made such a specification. In the absence ofsubsection bOC(2), the employer would be treated as nothaving satisfied the relevant requirements of section bOBand, accordingly, would not be entitled to any reduction inoperating costs in determining the taxable value of the carfringe benefit.

Clause 8 : Calculation of depreciation and interest

Section lb of the Principal Act specifies thebasis for calculating amounts of depreciation and interestdeemed to have been incurred in a year of tax for thepurpose of ascertaining the operating cost of a car.

New subsections bb(bA) and bl(lB) will enablethose amounts to be appropriately apportioned to relate toa period during a year of tax when the car was held for usein providing fringe benefits. The subsections interactwith the special meaning assigned to the holding of a carby new subsections 162(2) being inserted in the PrincipalAct by clause 59.

Clause 9 : Taxable value of debt waiver fringe benefits

Clause 9 is a drafting measure consequential uponthe proposed insertion of new sections 65B and 65C.

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Clause 10 : Exempt loan benefits

Clause 10 amends section 17 of the Principal Actwhich exempts certain loan benefits from fringe benefitstax.

Paragraph (a) of clause 10 makes a minor draftingcorrection to subsection 17(3) to make it clear that theexemption authorised by that subsection of short-termadvances to meet employment-related expenses does not applyunless the expenses in question relate to the employee’semployment with the employer who makes the advance..

Paragraph (b) of clause 10 inserts a newsubsection - subsection (4) - in section 17. -

In broad terms, proposed subsection 17(4)- willexempt an advance made by an employer to an employee who isrelocated if the advance is made solely for the purpose ofenabling the employee to pay a security deposit inconnection with temporary accommodation paid for by theemployer.

In more detail, an advance will be exempt wherethe conditions specified in paragraphs (a) to (e) aresatisfied. These are:

the advance is made by the employer to theemployee (paragraph (a));

the sole purpose of the advance is to enable theemployee to pay one or more security deposits inrespect of accommodation, including a rental bondor a deposit required for the connection of anelectricity, gas or telephone service(paragraph (b));

the employee is required to repay the advancewithin a maximum of 12 months of the advance beingmade (paragraph (c));

a benefit relating to a lease or licence inrespect of the accommodation (e.g., reimbursementof rent) is provided to the employee(paragraph (d)); and

that accommodation benefit is exempt by reasonthat the employee is living away from his or herusual place of residence in order to performemployment duties (subparagraph (e)(i)) or thetaxable value of the benefit is reduced by reasonthat the employee is required to change his or herusual place of residence in order to performemployment duties (subparagraph (e)(ii)).

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Clause 11 : Taxable value of loan frince benefits

Clause 11 omits subsection 18(2) of the PrincipalAct consequential upon the proposed insertion in subsection136(U of the two definitions presently contained insubsection 18(2).

Clause 12 : Reduction of taxable value - “otherwisedeductible” rule

Clause 12 proposes a number of amendmentstosection 19 of the Principal Act which applies, broadly, toreduce the taxable value of a loan fringe benefit to theextent to which interest that would otherwise have beenpayable on the loan would have been allowable as an incometax deduction to the employee.

The proposed amendments will:

modify the “otherwise deductible” rule for loanfringe benefits to ensure that the amount of thereduction in taxable value is equal to theadditional deduction that would have beenallowable to the employee if he or she hadincurred additional interest equal to the netvalue of the loan fringe benefit (i.e., thetaxable value of the loan fringe benefit afterreduction for interest actually accrued on theloan). This measure parallels similar amendmentsbeing made to the “otherwise deductible” rulesthat apply to a number of other categories offringe benefits. A detailed explanation of thispackage of measures is provided in the “MainFeatures” section of Part A of this memorandum;

provide that an existing rule which denies a 4reduction in taxable value where any interestexpense would otherwise be subject to the incometax “negative gearing” rules will now not apply inrelation to the fringe benefits tax yearcommencing on 1 April 1987 or subsequent years;

dispense with the requirement to obtain loandeclarations in specified circumstances; and

modify the operation of section 19 in relation toloans applied to purchase a car or pay carexpenses to reflect revised car substantiationrules.

Paracraph (a) of clause 12 proposes the omissionof existing paragraph l9(l)(b) and the substitution of twonew paragraphs - paragraphs 19(l)(b) and (ba).

Existing paragraph l9(l)(b) establishes thegeneral pre-condition for application of the “otherwisedeductible” rule. That condition is that a deduction would

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have been allowable for income tax purposes if the employeehad incurred interest (of an unspecified amount) in respectof the loan.

The re-drafted paragraph b9(l)(b) makes it acondition that a deduction (referred to in the legislationas the “gross deduction”) would have been allowable forincome tax purposes if the employee had incurred interestof an amount equal to the notional amount of interest(i.e., the amount of interest that would have accrued onthe loan if the interest were calculated on the dailybalance of the loan at the statutory rate). For thispurpose the exclusion of expenses that would otherwise besubject to the income tax negative gearing rules that iscontained in the former paragraph (b) is removed witheffect from the fringe benefits tax year which commenced on1 April 1987.

New paragraph b9(l)(ba) makes it a furthercondition that the gross deduction exceeds the deductionallowable to the employee in respect of the interest (ifany) that actually accrued on the loan. In cases where theinterest that actually accrued on the loan was intended tocover the private element of the benefit, the deductionallowable to the employee in respect of that interest willbe determined after applying the provisions of proposedsection 51AJ of the Income Tax Assessment Act- 1936 (seenotes on clause 66). -

The amount by which the gross deduction exceedsthe deduction allowable to the employee is called the“notional deduction” and represents the additionaldeduction that the employee would have been entitled to hadhe or she paid interest at the statutory rate. By virtueof the amendment proposed by paragraph (e) of clause 12,the taxable value of a loan fringe benefit will generallybe reduced by the notional deduction.

Paragraph (b) of clause 12 proposes the omissionof paragraph 19(1)(c) of the Principal Act and the -

substitution of two new paragraphs - paragraphs b9(l)(c)and (ca).

The existing paragraph b9(1)(c) makes it acondition for application of the “otherwise deductible’rule that the employee gives to the employer a declarationsetting out particulars of the use to which the loan wasput.

The re-drafted paragraph 19(l)(c) provides thatthe general requirement for the employee to give adeclaration to the employer is not to apply in two casesThese are where:

the loan benefit is an “employee credit loanbenefit” (a defined term proposed to be insertedin subsection 136(1) of the Principal Act by

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clause 48). Broadly, a loan will qualify as an‘employee credit loan benefit’ if the loanconsists of the provision of credit by theemployer in relation to a sale of goods orservices to the employee and the goods or servicesare for use exclusively in the course of theemployee’s employment with the employer (e.g.,where an employer sells tools of trade to anemployee on interest-f ree credit terms); or

the loan benefit is an “employee share loanbenefit” (a defined term also proposed to beinserted in subsection 136(1) of the Principal Actby clause 48). Broadly, a loan will be treated asan ‘employee share loan benefit” where the loanwas made for the sole purpose of enabling theemployee to acquire shares in the employer (or anassociated company) and the shares werebeneficially owned by the employee throughout theperiod in the fringe benefits tax year that theloan was outstanding.

New paragraph 19(bHca) applies in the case of acar loan benefit and contains the requirement that therevised car log book rules in new Division 15 beinginserted by clause 42 have been complied with, that theemployee has given the employer a “car substantiationdeclaration” and, where those revised rules require logbook records and odometer records to be maintained, thatthe declaration is accompanied by a copy of thosedocuments. (A “car substantiation declaration” - which isbeing inserted in subsection 136(1) of the Principal Act byclause 48 - is one approved by the Commissioner of Taxationfor the purposes of paragraph l9(l)(cai).

Paragraph (c) of clause 12 amends existingparagraph 19(l)(d) which contains requirements thatemployees lodge one of two declarations with an employerwhere the loan has been used to purchase a car that is usedby the employee for income-producing purposes. Theamendment will have the effect of extending thoserequirements to cases where a loan is used, instead ofpurchasing a car, to pay a car expense (e.g., leasecharges), i.e., where the loan fringe benefit is a “carloan benefit” in terms of the definition being inserted insubsection 136(1) of the Principal Act by clause 48.

Paragraph (d) of clause 12 is a minor draftingmeasure.

Paragraph (e) of clause 12 modifies the rules forcalculating the amount of the reduction of taxable valuewhere all the requirements for application of the“otherwise deductible” rule have been satisfied.

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Under the revised rules, the taxable value of aloan fringe benefit (other than a car loan benefit) isreduced by the notional deduction.

In the case of a car loan benefit to which newparagraph 19(l)(ca) applies - i.e., where the revised carlog book rules have been complied with - the taxable valueof the loan fringe benefit is reduced by the appropriatecar deduction percentage established under those rules(subparagraph (f)(i)). Where, however, the employer hasmade an adjustment in the interest charged on the loan toallow for expected business use of the car, the amount ofthe reduction is the car deduction percentage multiplied bythe notional amount of interest, i.e., the business

Spercentage of the taxable value of the benefit beforemaking any reduction for interest paid by the employee(subparagraph (f)(ii)).

In the case of a car loan benefit where therevised car log book rules have not been complied with, thetaxable value is reduced by the lesser of the notionaldeduction (as explained above) and the amount by which thetaxable value would be reduced under new paragraph (l)(f)if the car deduction percentage was 33 1/3 per cent (newparagraph 19(l)(g)).

However, if in such a case the employee’sdeclaration shows that the average number of businesskilometres travelled by the car during the year while itwas in use in income producing activities exceeded 96kilometres per week, the amount of the reduction iscalculated as if the car deduction percentage was 33 1/3per cent (new paragraph b9(1)(h)).

The substitute subsection 19(2) being inserted byparagraph (f) of clause 12 is a technical one consequentialupon the change being implemented by paragraph (c).

New subsection 19(3), also being inserted byparagraph (f), applies so that the amount to be deductedunder section 19 in relation to a car loan benefit wherethe revised log book rules have been complied with is neverless than would be deducted under alternative declarationarrangements reflected in paragraphs 19(l)(g) and 19(l)(h).

Clause 13 : Exempt accommodation expense payment benefits

Clause 13 makes a number of drafting amendmentstoexisting section 21 of the Principal Act so that theprovisions being amended will be consistent with similarprovisions being inserted by the Bill.

Clause 14 : Exempt car expense payment benefits

Under section 22 of the Principal Act, where anemployer reimburses an employee on a cents per kilometrebasis for expenses of operating a car that is owned by, or

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leased to, the employee, the reimbursement is generallyexempt from fringe benefits tax. A complementary provisionin the income tax law - paragraph 26(eaa) of the Income TaxAssessment Act 1936 - ensures that reimbursements exemptunder section 22 of the Principal Act are treated asassessable income of the employee. Relevant deductions forexpenses incurred by the employee are available under theincome tax law to the extent that they are incurred ingaining or producing the employees income.

These rules do not, however, apply toreimbursements in respect of remote area holidaytransport. By virtue of existing paragraph 22(c), suchreimbursements are excluded from the exemption from fringebenefits tax.

Clause 14 proposes the omission of existingparagraph 22(c) and the substitution of four new paragraphs- paragraphs 22(c, (ca), (cb) and (cc).

The effect of the new paragraphs is that areimbursement on a cents per kilometre basis will not be 4exempt under section 22 (and consequently will not betreated as assessable income of the employee) if thereimbursement relates to:

relocation transport (this kind of transport isdefined in proposed section b43A);

transport for the purpose of attending anemployment interview or selection test (this kindof transport is defined in proposed section 143D);

transport for the purpose of attending a -

work-related medical examination, work—relatedmedical screening, work-related preventative 4health care, work-related counselling or migrantlanguage training (this kind of transport isdefined in proposed section b43E);

holiday transport (whether or not from a remotearea); or

transport undertaken after the employee has ceasedemployment with the employer who paid thereimbursement.

Such reimbursements will be treated as taxablefringe benefits but, in the case of a reimbursementrelating to relocation transport, an employment interview,a work-related medical examination, etc., remote areaholiday transport or overseas employment holiday transport,the taxable value of the fringe benefit may be reducedunder existing section 61 or proposed sections 60A, 6lA,61B, 61E or 6lF, as appropriate.

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Clause 15 : Taxable value of in-house expense paymentfringe benefits

Clause 15 proposes the insertion of a new section- section 22A - in Subdivision B of Division 5 of Part IIIof the Principal Act which establishes the valuation rulesfor expense payment fringe benefits.

Broadly, an expense payment fringe benefit ariseswhere expenditure incurred by an employee is paid orreimbursed by the employer. All expense payment fringebenefits are presently valued in accordance with section 23of the Principal Act which provides that the taxable valueof an expense payment fringe benefit is the amount of the

S payment or reimbursement. By clauses 15 and 16, differentvaluation rules will now apply according to whether anexpense payment fringe benefit is “in-house” or “external”.

Proposed section 22A will establish concessionalvaluation rules for what are termed “in-house expense‘ payment fringe benefits”. An “in-house expense paymentfringe benefit” is being defined to mean an “in-houseproperty expense payment fringe benefit” or an “in-houseresidual expense payment fringe benefit”. Definitions ofthese terms are being inserted in subsection 136(1) of thePrincipal Act by clause 48.

Subsection 22A(l) will prescribe the valuationrules that are to apply to an “in-house property expensepayment fringe benefit”.

Broadly, that term refers to an expense paymentfringe benefit where the expenditure incurred by theemployee (or an associate) was in respect of the purchase‘ of goods of a kind sold by the employer (or an associate)in the ordinary course of business. For example, where anemployer is a manufacturer who markets his or her productsthrough independent retailers and the employees of thatemployer purchase those products from retailers at full

retail

price but subsequently receive a reimbursement fromthe employer of part of the purchase price, thatreimbursement will Constitute an “in—house property expensepayment fringe benefit” which will be valued undersubsection ~2A(l).

The taxable value of an in-house property expensepayment fringe benefit is to be equal to the amount thatwould have been the taxable value under section 42 of thePrincipal Act if the sale of the goods to the employee (orassociate) by the vendor had constituted the provision ofan in-house property fringe benefit and the purchase pricehad been equal to the expenditure incurred by the employee(or associate) reduced by the amount of the reimbursementor payment from the employer. The effect of this valuationrule is that the taxable value is calculated as though the

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staff discount had been provided directly as a propertyfringe benefit (i.e., the sale of goods at a discount)rather than indirectly as an expense payment fringe benefit.

Subsection 22A(2) will prescribe the valuationrules that are to apply to an “in-house residual expensepayment fringe benefit”.

By virtue of the proposed definition of that term,subsection 22A(2) will apply to an expense payment fringebenefit where the expenditure incurred by the employee (orassociate) was in respect of the purchase of a service orother residual benefit of a kind supplied by the employer(or an associate) to members of the public in the ordinarycourse of business.

In these cases, the taxable value is to be equalto the amount that would have been the taxable value undersection 48 or 49 of the Principal Act if the provision ofthe service, etc., to the employee (or an associate) by theprovider of that service, etc., had constituted theprovision of an in-house residual fringe benefit and theconsideration paid for the service had been equal to theexpenditure incurred by the employee (or associate) reducedby the amount of the reimbursement or payment from theemployer.

The effect of these rules will be thatirrespective of whether a staff discount is provideddirectly as a property or residual fringe benefit orindirectly as an expense payment fringe benefit, thetaxable value will be the same.

Subsection 22A(3) is a technical drafting measurethat is relevant to new subsection 22A(2).

Subsection 22A(4) is a safeguard which ensuresthat where the amount of an employee’s expenditure isreimbursed by an employer in instalments, the aggregate ofthe reimbursements will be taken into account in applyingthe “in—house” valuation rules.

Proposed subsection 22A(5) authorises an amendmentat any time for the purpose of giving effect to newsubsection 22A(4).

Clause 16 : Taxable value of external exoense oavm~ntfringe benefits -

Section 23 of the Principal Act provides that thetaxable value of an expense payment fringe benefit is theamount of the payment or reimbursement. By clause 16, thisvaluation rule will now apply only to what are termed“external expense payment fringe benefits”. These areexpense payment fringe benefits that do not qualify asin-house expense payment fringe benefits.

17.

Clause 17 : Reduction of taxable value — “otherwise

deductible’ rule

Clause 17 proposes a number of amendments tosection 24 of the Principal Act which applies, broadly, toreduce the taxable value of an expense payment fringebenefit to the extent to which the expenditure incurred by-the employee would have been deductible to the employee forincome tax purposes if it had not been paid or reimbursedby the employer.


modify the “otherwise deductible” rule for expensepayment fringe benefits to ensure that the amountof the reduction in taxable value is equal to theadditional deduction that would have beenallowable to the employee if he or she had paidadditional expenditure equal to the net value ofthe expense payment fringe benefit (i.e., in thecase of an external expense payment fringebenefit, so much of the expenditure incurred aswas paid or reimbursed by the employer). Thismeasure parallels similar amendments being made tothe “otherwise deductible” rules that apply to anumber of other categories of fringe benefits. Adetailed explanation of this package of measuresis provided in the “Main Features” section ofPart A of this memorandum;

provide that an existing rule which denies areduction in taxable value where any expenditurepaid by the employee would otherwise be subject tothe income tax “negative gearing” rules will nownot apply in relation to the fringe benefits taxyear commencing on 1 April 1987 or subsequentyears;

permit “undocumentable expenses” to be evidenced- by petty cash entries; - -

permit fuel or oil expenses to be evidenced by adeclaration from the employee; and

modify the operation of section 24 in relation toexpense payment fringe benefits where the expensesare car expenses relating to the operation of theemployee’s car to reflect revised carsubstantiation rules.

Paragraph (a) of clause 17 proposes the omissionof existing paragraph 24(l)(b) and the substitution of twonew paragraphs - paragraphs 24(l)(b), and (ba).

Existing paragraph 24(l(b establishes thegeneral pre-condition for application of the “otherwisedeductible” rule. That condition is that a deduction would

18.

have been allowable for income tax purposes if the employeehad paid the whole of the expenditure incurred by theemployee and had not been reimbursed for any part of it.

The re-drafted paragraph 24(l)(b) specifies thatdifferent conditions are to apply according to whether theexpense payment fringe benefit is “in-house” or “external”.

In the case of an in-house expense payment fringebenefit, the condition is that a deduction (referred to inthe legislation as the “gross deduction”) would have beenallowable for income tax purposes if the employee hadpurchased the relevant goods or services for an amountequal to the gross taxable value of those goods or services(i.e., the gross value of the goods or services, beforededucting any employee contribution, calculated inaccordance with the relevant in-house valuation ruleembodied in section 42, 48 or 49, as the case requires, ofthe Principal Act).

In the case of an external expense payment fringebenefit, the condition is that a deduction (also called the“gross deduction”) would have been allowable for income taxpurposes if the employee had paid the whole of theexpenditure incurred by the employee and had not beenreimbursed for any part of it.

In each case, the exclusion of expenses that wouldotherwise be subject to the income tax negative gearingrules that is contained in the former paragraph (b) isremoved with effect from the fringe benefits tax year whichcommenced on 1 April 1987.

New paragraph 24(l)(ba) makes it a furthercondition that the gross deduction exceeds the deduction(if any) allowable to the employee in respect of theexpenditure incurred by the employee. It is noted that theamount of the deduction allowable to the employee inrespect of the expenditure that he or she incurred will bedetermined after applying the provisions of section 51AH ofthe Income Tax Assessment Act 1936 which operates, broadly,to reduce the deduction otherwise allowable to the employeeto reflect the fact that the whole or a part of theexpenditure incurred was paid or reimbursed by the employer.

The amount by which the gross deduction exceedsthe deduction allowable to the employee is called the“notional deduction” and, in the case of external expensefringe benefits, represents the additional deduction thatthe employee would have been entitled to had he or she paidthe whole of the expenditure incurred and not beenreimbursed for any part of it. By virtue of the amendmentproposed by paragraph (m) of clause 17, the taxable valueof the expense payment fringe benefit will generally bereduced by the notional deduction.

19.

Paragraphs (b), (c), (d) and (e) of clause 17propose a number of amendmentsto paragraph 24(l(c) of thePrincipal Act which prescribes the general substantiationrules that are to apply if the reduction rule embodied insection 24 is to apply.

The proposed amendments will enable appropriatepetty cash entries to be accepted as proof of what aretermed “undocumentable expenses”. By virtue of proposedsubsection 24(3A), the term “undocumentable expense” means,broadly, an expense that, by its nature, is not capable ofbeing readily evidenced by receipts (e.g., train fares).

In addition, expenditure on fuel or oil for a

S motor vehicle owned by or leased to an employee will now beable to be evidenced by a declaration, in an approved form,by the employee in lieu of receipts, etc., or petty cashentries.

Paragraphs (f) to (k) of clause 17 will makeamendmentsthat, broadly, reflect revised car log bookrules being implemented by the Bill. Paragraph (g) insertsa substantive new provision, paragraph 24(l)(ea) which setsout the conditions for reducing the taxable value of anexpense payment fringe benefit in respect of car expensesincurred by an employee in operating his or her own carwhere the revised car log book rules in new Division 15(being inserted by clause 42) have been complied with.They are that the employee has given the employer a carsubstantiation declaration (see notes on newparagraph b9(l)(ca) being inserted by clause 12) and, wherethe revised rules require log book records and odometerrecords to be maintained, the declaration is accompanied bya copy of those documents.

Paragraph (m) of clause 17 modifies the rules forcalculating the amount of the reduction of taxable value.Under the revised rule, the taxable value of the relevantexpense payment fringe benefit is generally reduced by theamount of the notional deduction. However, special rulesapply in the case of car expenses.

In the case of a car expense payment benefit towhich new paragraph 24(b)(ea) applies - i.e., where therevised car log book rules have been complied with - thetaxable value of the benefit is reduced by the appropriatecar deduction percentage established under those rules(subparagraph (h)(i)). Where, however, the payment orreimbursement made by the employer reflects a businesselement of the employee’s expense, the amount of thereduction is the car deduction percentage of the employee’sexpense i.e., the business percentage of the unreimbursedamount expended by the employee. If, in such a case, thebenefit is an in-house expense payment fringe benefit, theamount of the reduction is the car deduction percentage ofthe amount that would have been its taxable value but forany contribution by the employee (subparagraph (h)(ii)).

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In the case of a car expense payment benefit wherethe revised car log book rules have not been complied with,the taxable value is reduced by the lesser of the notionaldeduction and the amount by which the taxable value wouldbe reduced under new paragraph (l(h if the car deductionpercentage was 33 1/3 per cent (new paragraph 24(l)(1)).

However, if in such a case the employee’sdeclaration shows that the average number of businesskilometres travelled by the car during the year while itwas in use in income producing activities exceeded 96kilometres per week, the amount of the reduction iscalculated as if the car deduction percentage was 33 1/3per cent (new paragraph 24(l)(k)).

Paragraph (n) of clause 17 proposes the insertionof a new subsection - subsection (3A) - in section 24. Newsubsection 24(3A) defines the circumstances in which anexpense payment fringe benefit will be treated as an“undocumentable expense payment fringe benefit” for thepurpose of the substantiation rules embodied in paragraph24(l)(c). That term is explained in the earlier notes onthe amendments proposed by paragraphs (b), (c), (d) and (e)of clause 17.

Paragraph (p) of clause 17 proposes the insertionof 3 new subsections - subsections (6), (7) and (8) - insection 24.

New subsection 24(6) is a drafting measure that isrelevant to new paragraph 241(b (see earlier notes).

New subsection 24(7) applies so that the amount tobe deducted under section 24 in relation to a car expensepayment benefit where the revised log book rules have beencomplied with is never less than would be deducted underalternative declaration arrangements reflected inparagraph 24(U(f) and 24(l)(j).

New subsection 24(8) ensures that an amendementmay be made at anytime to give effect to new subsection (7).

Clause 18 : Taxable value of non-remote housing fringebenefits

Clause 18 proposes a number of amendments tosection 26 of the Principal Act which establishes the rulesfor valuing housing fringe benefits other than those thatqualify for the concessional remote area valuation rulesprovided in section 29.

Paragraph (a) of clause 18 is a drafting measureconsequential upon the proposed insertion of new “reductionof taxable value” provisions in new Division 14 of Part IIIof the Principal Act.

21.

Paragraph (b) of clause 18 is a minor draftingcorrection which amends paragraph 26(b)(b) to make it clearthat the valuation rules embodied in that paragraph applywhere a housing fringe benefit consists of accommodation ina caravan or mobile home. The effect of the amendment isthat where accommodation is provided in a caravan or mobilehome, the taxable value of the housing fringe benefit willgenerally be equal to the market value of the right tooccupy the accommodation less any rent paid. If, apartfrom being a housing fringe benefit, such a benefit wouldbe an “in-house residual fringe benefit” - broadly,services supplied by an employer whose business is toprovide similar or identical services to the public - thetaxable value is reduced to 75% of the market value, lessthe employee’s rent.

Paragraph (c) of clause 18 proposes the insertionof new paragraph 26(3)(aa) which specifies thecircumstances in which a year of tax is to be treated as abase year of tax. The general rules embodied in section 26‘ are that, in the case of a base year of tax, the statutoryannual value of a housing fringe benefit is the marketvalue of the right to occupy the accommodation for the yearand that indexation arrangements apply in the following 9years.

Under proposed new paragraph 26(3)(aa), anemployer may elect to treat any year of tax as a new baseyear of tax. Where such an election is made, the taxablevalue of the housing fringe benefit for that year will bebased on the current market value of the unit ofaccommodation in lieu of its indexed value and theindexation arrangements for the following years will bebased on the new base year.

Paragraph (d) of clause 18 specifies that anelection to adopt a new base year of tax is to be lodged inwriting with the employer’s annual fringe benefits taxreturn or such later date as the Commissioner of Taxationapproves (see definition of “declaration date” insubsection 136(1) of the Principal Act).

Clause 19 : Indexation factor for valuation ourposes -

non-remote housing

Clause 19 proposes a technical amendment tosection 28 of the Principal Act which establishes theindexation factor that is to apply to a particular year oftax for the purposes of the indexation arrangements thatapply where the taxable value of a housing fringe benefitis determined in accordance with paragraph 26(l)(c).

The amendment proposed by clause 19 will make itclear that the indexation rules embodied in section 28apply only for the purposes of section 26. The amendment

22.

is made necessary by the proposed introduction of newindexation arrangements that are to apply for the purposesof valuing housing fringe benefits under paragraph 29(l)(a.

Clause 20 : Taxable value of remote area accommodation

Clause 20 proposes to amend section 29 of thePrincipal Act which specifies the valuation rules that areto apply to accommodation that is located in a designatedremote area and that satisfies certain other eligibilitycriteria.

Paragraph (a) of clause 20 will omit existingsubsections 29(1), (2) and (3) and insert 4 new subsections— subsections 29(1, (2), (3) and (3A).

The subsections being omitted operate, broadly, to:

discount by 40% the value of accommodation

determined on a market rental value basis;

give an employer the right to elect to valueremote area housing fringe benefits using astatutory formula instead of a market rental valuebasis; and

restrict the right of election to a once-onlyacross—the-board election for all remote areahousing of a particular employer.

The new subsections will apply to:

increase the existing remote area discount from40% to 50%;

replace the present statutory formula by astatutory amount (after applying the new 50%discount of $60 per week per unit ofaccommodation or $15 per week for single person’squarters, those values to be indexed annually inline with movements in the rent sub-group of thenational Consumer Price Index; and

permit the election to use the statutory values tobe made annually for each unit of accommodation.

New subsection 29(1) specifies the alternativemethods of calculating the taxable value of remote areaaccommodation.

Paragraph 29(l)(a will apply where an employerelects to value a remote area housing fringe benefit inaccordance with a statutory amount.

Under this method, the calculation of the taxablevalue of a remote area housing fringe benefit involves thefollowing 3 steps.

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First, the relevant annual statutory amount isdetermined. The legislation defines two annual statutoryamounts according to the nature of the accommodation.

The “single quarters statutory amount” applieswhere the accommodation is-

shared accommodation in a house, flat or home unitif that accommodation is ordinarily shared by atleast 4 employees (proposed section l42C definesthe kind of accommodation which will qualify underthis category);

accommodation in a bunkhouse, dormitory or similarliving quarters; or

accommodation in an employees’ hostel if thataccommodation does not include cooking facilitiesor more than one bedroom (proposed section 142Ddefines the kind of accommodation which willqualify under this category).

For any other accommodation, the “standard statutoryamount” applies.

The value of each statutory amount is specified innew subsection 24(3A). For the transitional year of tax,the single quarters statutory amount is $780 ($15 per week)and the standard statutory amount is $3,120 ($60 perweek). For subsequent years, these values will be indexedin line with movements in the rent sub-group of thenational Consumer Price Index.

Second, the relevant annual statutory amount isapportioned according to the number of days in the year oftax in which the employee’s housing right existed - becausethe transitional year of tax is a period of 9 months only,an apportionment will be required in all cases for thatyear.

Third, the amount of rent paid by the employee isthen deducted to arrive at the taxable value of the benefit.

Paragraph 29(1i(b) will apply where theaccommodation is provided in a hotel, motel, hostel,guesthouse, caravan or mobile home by a person carrying ona business of providing such accommodation to the publicand the employer does not elect to adopt the statutoryamount method of valuation. In these circumstances, thetaxable value is 50% of the market value of the right tooccupy the accommodation, less any rent paid.

Paragraph 29(1(c will apply to the provision ofother accommodation that the employer has not elected tovalue using the statutory amount. In these cases, the

24.

taxable value is 50% of the amount determined under themarket rental value basis specified in paragraph 26(l)(c)for non-remote accommodation, less any rent paid.

New subsection 29(2 gives employers the right toelect to adopt the statutory amount method. The electionmust be made in relation to all housing fringe benefitsprovided in a particular year of tax in relation to aparticular unit of accommodation. Thus, if a particularunit of accommodation is occupied successively by a numberof employees in a year of tax, the accommodation benefitsprovided to those employees in that year must either all bevalued under the statutory amount method or all be valuedunder the 50% of market rental value method. The employercan, however, choose different methods for different unitsof accommodation, and in relation to a particular unit ofaccommodation, alter the method each year.

New subsection 29(3) provides that an electionmust be made in writing by the “declaration date” (adefined term in subsection 136(1) of the Principal Act -

see also subclause 61(8)) for transitional measuresrelating to the commencement of amendments proposed by thisBill.

New subsection 29(3A) specifies the value of eachstatutory amount (see earlier notes).

Paragraph (b) of clause 20 is a draftingsimplification measure.

Clause 21 : Indexation factor for valuation purposes —

remote area accommodation

Clause 21 establishes the indexation factor thatis to apply in relation to a particular year of tax for thepurposes of the indexation arrangements that are to applyunder new subsection 29(3A) in relation to the statutoryannual amounts for remote area accommodation.

Clause 22 : Living-away-from-home allowance benefits

Clause 22 makes a minor drafting correctionsimilar to that proposed under paragraph (a) of clause 10.

Clause 23 : Taxable value of living-away-from-homeallowance fringe benefits

This clause is a drafting measure consequentialupon the proposed insertion of new “reduction of taxablevalue” provisions in new Division 14 of Part III of thePrincipal Act.

25.

Clause 24 : Reduction of taxable value — “otherwise

deductible” rule

Clause 24 proposes amendmentsto section 34 of thePrincipal Act which applies, broadly, to reduce the taxablevalue of an airline transport fringe benefit to the extentto which any expenditure that would otherwise have beenincurred by the employee on the transport would have beendeductible for income tax purposes.

Paragraphs (a) and (c) of clause 24 modify the“otherwise deductible” rule for airline transport fringebenefits to ensure that the amount of the reduction oftaxable value is equal to the additional deduction that

~ would have been allowable to the employee if he or she hadincurred additional expenditure equal to the net value ofthe airline transport fringe benefit (i.e., the taxablevalue of the airline transport fringe benefit afterreduction for the fare paid by the employee). This measureparallels similar amendments being made to the “otherwise‘ deductible” rules that apply to a number of othercategories of fringe benefits. A detailed explanation ofthis package of measures is provided in the “Main Features”section of Part A of this memorandum.

Paragraph (b) of clause 24 is a minor draftingmeasure.

Clause 25 : Reduction of taxable value — “otherwisedeductible” rule

Clause 25 proposes amendments to section 37 of thePrincipal Act which applies, broadly, to reduce the taxablevalue of a board fringe benefit to the extent to which any‘ expenditure that would otherwise have been incurred by theemployee in obtaining the meal would have been deductiblefor income tax purposes.

Paragraphs (a), (b) and (d) of clause 25 modifythe “otherwise deductible” rule for board fringe benefitsto ensure that the amount of the reduction of taxable valueis equal to the additional deduction that would have beenallowable to the employee if he or she had incurredadditional expenditure equal to the net value of the boardfringe benefit (i.e., the taxable value of the board fringebenefit after reduction for any amount paid by the employeeto obtain the meal). This measure parallels similaramendments being made to the “otherwise deductible” rulesthat apply to a number of other categories of fringebenefits. A detailed explanation of this package ofmeasures is provided in the “Main Features” section ofPart A of this memorandum.

Paragraph (c) of clause 25 is a minor draftingmeasure.

26.

Clause 26 : Taxable value of tax-exempt body entertainment

fringe benefits

This clause is a minor drafting measure.

Clause 27 : Reduction of taxable value - “otherwisedeductible” rule

Clause 27 proposes amendments to section 44 of thePrincipal Act which applies, broadly, to reduce the taxablevalue of a property fringe benefit to the extent to whichany expenditure that would otherwise have been incurred bythe employee in acquiring the relevant property would havebeen immediately deductible for income tax purposes.


modify the “otherwise deductible” rule forproperty fringe benefits to ensure that the amountof the reduction of taxable value is equal to theadditional deduction that would have beenallowable to the employee if he or she hadincurred additional expenditure equal to the netvalue of the property fringe benefit (i.e., thetaxable value of the property fringe benefit afterreduction for any consideration paid by theemployee). This measure parallels similaramendments being made to the “otherwisedeductible” rules that apply to a number of othercategories of fringe benefits. A detailedexplanation of this package of measures isprovided in the “Main Features” section of Part Aof this memorandum.

provide that an existing rule which denies areduction in taxable value where any expenditureincurred by the employee would otherwise besubject to the income tax “negative gearing” ruleswill not now apply in relation to the fringebenefits tax year commencing on 1 April 1987 orsubsequent years;

modify the operation of section 44 in relation toproperty provided in respect of an employee’s carto reflect revised car substantiation rules in asimilar way to the modifications explained in thenotes on clause 12.

Clause 28 : Exempt residual benefits

Clause 28 makes a number of amendments to section47 of the Principal Act which exempts certain residualbenefits from fringe benefits tax.

Paragraph (a) of clause 28 makes a minor draftingcorrection of the kind explained in the notes onparagraph (a) of clause 10.

27.

Paragraphs (b) and (c) of clause 28 liberalise the

exemption contained in existing subsection 47(3).Under existing subsection 47(3, the use by an

employee on a working day of property that is located onbusiness premises of the employer (or a related company)and is used wholly or principally in the businessoperations of the employer (or a related company) is exemptfrom fringe benefits tax. For this purpose, employeeamenities are, by virtue of existing subsection 47(4),treated as being used in the business operations of theemployer.

The amendmentproposed by paragraph (b) of clause~ 28 will extend the exemption to include the use of the

employer’s property on non-working days. The exemption isalso being extended to include an employee’s use ofproperty (other than motor vehicles) away from theemployer’s business premises provided the equipment, etc.,is ordinarily located on the business premises.

Paragraph (c) of clause 28 proposes the insertionof a new subsection - subsection (4A) - in section 47. Byvirtue of new subsection 47(4A), a building site,construction site or any similar place where an employercarries on business operations will, for the purposes ofthe exemption contained in subsection 47(3), be treated asbusiness premises of the employer.

Paragraph (d) of clause 28 makes a minor draftingcorrection of the kind explained in the notes onparagraph (a) of clause 10.

Paragraph (e) of clause 28 modifies the exemptioncontained in existing subsection 47(5).

By existing subsection 47(5), a residual benefitthat consists of a lease of residential accommodationgranted to an employee who is required to live away fromhis or her usual place of residence in order to performemployment duties is exempt from fringe benefits tax. Arequirement for exemption under subsection 47(5) is thatthe employee gives to the employer a declaration 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 effect of the proposed amendmentis that therequirement to obtain a declaration from the employee isnot to apply where the accommodation is provided under whatis commonly known as a “fly-in fly-out” arrangement. Forthis purpose, it is provided that a declaration is notrequired where the employee is provided with transportbetween his or her usual place of residence and the worksite and the provision of that transport is, by virtue ofexisting subsection 47(7), exempt from fringe benefitstax. Existing subsection 47(7 applies to exempt the

28.

provision of transport for employees who work in a remotearea or on an oil rig or other installation at sea and areprovided with residential accommodation at or near the worksite on working days and are returned to their usual placeof residence on days off.

Paragraphs (f), (g) and (h) of clause 28 willamend existing subsection 47(6).

The existing subsection 47(6) exempts residualbenefits consisting of the provision or use of a motorvehicle of a kind that is not subject to the valuationarrangements for car benefits if the employee’s private useof the vehicle during the year of tax consists solely of“work-related travel”. The term “work-related travel” isdefined in subsection 136(1) to mean travel to and fromwork or use that is incidental to travel in the course ofthe employee’s duties of employment.

Because taxis and other short—term hire cars leton hire to an employer are, by virtue of existingsubsection 7(7, excluded from the car rules, a benefitconsisting of the provision or use of such a car is aresidual benefit which may qualify for exemption underexisting subsection 47(6). Such an application of theexemption to an ordinary passenger cars is inconsistentwith the corresponding exemption in subsection 8(2) whichis restricted to commercial vehicles.

The amendments proposed by paragraphs (f) and (g)of clause 28 will make the two exemptions consistent byproviding that taxis let on hire to the employer and carsdesigned principally to carry passengers are not eligiblefor the exemption under subsection 47(6). This amendmentwill not apply to the transitional year of tax or, byvirtue of subclause 61(7), to a benefit provided in thefirst standard year of tax on or before 29 October 1987,the date of introduction of the amending Bill.

The amendment proposed by paragraph (h) ofclause 28 will, consistent with the proposed amendment tosubsection 8(2), liberalise the exemption contained insubsection 47(6) so that the exemption will now also applywhere private use of the motor vehicle consists solely of:

non-work-related private use by the employee (oran associate) that is minor, infrequent andirregular; or

work-related travel by the employee plus otherprivate use of the vehicle by the employee (or anassociate) that is minor, infrequent and irregular.

Paragraph (1) of clause 28 inserts 2 newsubsections - subsections (6A) and (6B) - in section 47.New subsection 47(6A) exempts a residual benefit consistingof the provision or use of a motor vehicle if the vehicle

29.

is unregistered throughout the period it is held by theemployer during the year of tax and is used during thatperiod wholly or principally in connection with thebusiness operations of the employer (or a relatedcompany). For this purpose, new subsection 47(6B) providesthat a motor vehicle will treated as being held by anemployer if it is owned by, leased to, or otherwise madeavailable to, the employer.

Clause 29 : Reduction of taxable value — “otherwisedeductible” rule

Clause 29 proposes amendments to section 52 of thePrincipal Act which applies, broadly, to reduce the taxablevalue of a residual fringe benefit to the extent to whichany expenditure that would otherwise have been incurred bythe employee in acquiring the relevant benefit would havebeen immediately deductible for income tax purposes.

The proposed amendmentswill:

modify the “otherwise deductible” rule forresidual fringe benefits to ensure that the amountof the reduction of taxable value is equal to theadditional deduction that would have beenallowable to the employee if he or she hadincurred additional expenditure equal to the netvalue of the residual fringe benefit (i.e., thetaxable value of the residual fringe benefit afterreduction for any consideration paid by theempboyeei. This measure parallels similaramendmentsbeing made to the “otherwisedeductible” rules that apply to a number of othercategories of fringe benefits. A detailedexplanation of this package of measures isprovided in the “Main Features” section of Part Aof this memorandum;

provide that an existing rule which denies areduction in taxable value where any expenditureincurred by the employee would otherwise besubject to the income tax “negative gearing” ruleswill not now apply in relation to the fringebenefits tax year commencing on 1 April 1987 orsubsequentyears;

modify the operation of section 52 in relation toresidual benefits provided in respect of anemployee’s car to reflect revised carsubstantiation rules in a similar way to themodifications explained in the notes on clause 12.

Clause 30 : Heading to Division 13 of Part III

This clause changes the heading to Division 13 ofPart III of the Principal Act.

30.

Clause 31 : Exempt benefits - employees of religious

institutions

This clause amends section 57 of the Principal Actwhich exempts benefits provided by a religious institutionto certain employees in respect of their religious duties.The categories of employees in respect of whom theexemption presently applies are:

a minister of religion;

a full-time member of a religious order; and

a student at a college conducted solely fortraining persons to become members of religiousorders.

The effect of clause 57 is to extend the exemptionto include an employee who is training to become a ministerof religion.

Clause 32 : Exempt benefits - public benevolent institutions

Clause 32 proposes the repeal of section 57A ofthe Principal Act and the substitution of a new section 57A.

The existing section 57A exempts benefits providedby a public benevolent institution to an employee of theinstitution. This provision is technically deficient in anumber of respects. For example, the exemption does notpresently apply if the benefit is provided to the employeeby a third party by arrangement with the public benevolentinstitution or if the benefit is provided to a member ofthe employee’s family. In addition, the exemption is notexpressly limited to benefits provided in respect of theemployee’s employment with the institution.

To overcome these technical deficiencies, theexemption for public benevolent institutions has beenre-drafted and is contained in proposed newsubsection 57A( 1).

Proposed subsection 57A(2) will apply to exemptbenefits provided in respect of an employee’s employmentwith a “government body” if the employee performs his orher employment duties exclusively in, or in connectionwith, a public hospital that is a public benevolentinstitution. Benefits provided to employees employeddirectly by a public hospital are presently exempt fromtax. Under existing subsection 136(1), a “government body”means the Commonwealth, a State or Territory or anauthority of the Commonwealth or of a State or Territory.

31.

Clause 33 : Exempt benefits - live-in residential care

workers

Clause 33 proposes a number of amendments to

section 58 of the Principal Act.

Existing section 58 exempts the provision ofresidential accommodation to employees of governmentbodies, religious institutions or non—profit companies wholive with and care for disadvantaged persons.

The exemption is being extended so that it willalso apply where elderly persons (i.e., persons aged 60years or over) are provided with similar care.

The range of benefits that qualify for exemptionis being extended to include meals on the premises for theemployees (or family members who live with them) and otherfood or drink such as morning and afternoon tea.

Clause 34: New sections 58A to 58V

Clause 34 proposes the insertion of 20 newsections — sections 58A to 58V - in Division 13 of Part IIIof the Principal Act which contains a number ofmiscellaneous exemptions.

Section 58A : Exempt benefits - employment interviewsand selection tests

Proposed section 58A will exempt from fringebenefits tax a “benefit in respect of an employmentinterview or selection test”.

That term is defined in proposed section l43D andmeans, broadly, a benefit which meets travel costs incurredby an employee (including a future employee) for thepurpose of attending an interview or selection test inconnection with an application by the employee foremployment with a new employer or a promotion or transferin the employee’s existing employment.

Where a qualifying benefit takes the form of anexpense payment benefit, a condition of exemption is thatthe employee supplies the employer with documentaryevidence of the expenditure.

The exemption does not apply to a benefit whichtakes the form of a reimbursement on a cents per kilometrebasis of car expenses incurred by the employee (suchreimbursements qualify for concessional treatment underproposed section 61E).

32.

Section 58B : Exempt benefits - removals andstorage of household effects as a result

of relocation

Proposed section 58B will exempt from fringebenefits tax benefits which meet removal and storage costsincurred by an employee who moves from one locality toanother in the course of employment or in order to commenceemployment.

Subsection 58B(b) provides that a benefit will beexempt where the conditions set out in paragraphs (a) to(f) are satisfied. -

Paragraph (a) specifies the kinds of benefitseligible for exemption. These are an expense paymentbenefit or a residual benefit where the underlying benefitis the “removal or storage of household effects of theemployee”. Interpretation provisions which assist indetermining whether a benefit meets this requirement arecontained in subsection 58B(2).

Paragraph (b) makes it a condition that theremoval or storage is required solely because the employeeis required to:

live away from his or her usual place of residencein order to perform employment duties;

return to his or her usual place of residence atthe end of a period during which the employeelived away from that place in order to performemployment duties; or

change his or her usual place of residence inorder to perform employmentduties.

Paragraph (C) stipulates that the removal orstorage must be necessary to enable the employee to resideat the new locality. In more detail, the test applies asfollows:

in a case where the employee is required to liveaway from, or change, his or her usual place ofresidence - the removal or storage is necessary toenable the employee (or family member) to take upresidence, or to continue to reside, at the newlocality. This requirement would be met wherehousehold effects are moved to the new locality atthe commencement of the relocated- employment orwhere they are removed from a temporary residenceat the new locality to another residence at thenew locality; or

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in a case where the employee is required to returnto his or her usual place of residence at the endof a period during which the employee lived awayfrom that place - the removal or storage isnecessary to enable the employee (or familymember) to resume residence at the usual place ofresidence.

Paragraph (d) applies in a case where the employeechanges his or her usual place of residence in order toperform employment duties. In these cases, the exemptionwill not apply if -the benefit was provided under anon—arm’s length arrangement or the removal or storageoccurred more than 12 months after the employee commencedemployment at the new locality.

Paragraph (e) provides that in the case of anexpense payment benefit, documentary evidence of theexpenditure incurred by the employee must be supplied tothe employer.

Paragraph (f) stipulates that the exemption willnot apply in circumstances where the employee isundertaking travel in the course of performing employmentduties. The “otherwise deductible” rules may apply wherebenefits are provided to an employee in such circumstances.

Subsection 58B(2) contains two interpretationprovisions relevant to paragraph 58B(l)(a).

Paragraph (2)(a) provides that the expression“household effects of an employee” is to mean goods(including pets) kept primarily for the personal use of theemployee or his or her spouse or children.

Paragraph (2)(b) makes it clear that wherehousehold effects are removed or stored any benefits inrespect of the transport, packing, unpacking or insuranceof those effects in connection with the removal or storageare eligible for the exemption.

Section 58C : Exempt benefits - sale or acquisition ofdwelling as a result of relocation

Proposed section 58C will exempt from fringebenefits tax benefits which meet incidental costs incurredin the sale and/or purchase of a home (e.g., stamp duties,legal fees and agents’ commissions) by an employee whochanges his or her usual place of residence in the courseof employment or in order to commence employment.- Theexemption will also apply to benefits which meet the costsof re-connecting gas, electricity and telephone services toa home purchased at the new locality.

Subsection 58C(l) establishes the generalpre-condition for application of both the exemptionrelating to costs incidental to the sale of a home

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(subsection 58C(2)) and the exemption relating to costsincidental to the purchase of a new home (subsection58C(3)). Broadly, the pre-condition is that the employeeowned a home at the former locality that is sold as aresult of the employee’s relocation. In more detail, thetests set out in paragraphs (a) to (e) must be satisfied.These are:

the employee or an associate owned propertyconsisting of a prescribed interest in land or ina stratum unit or a proprietary right in respectof a flat or home unit (paragraph (a)).Subsection 141(2) of the Principal Act specifieswhat is a prescribed interest in land or in astratum unit and what is a proprietary right inrespect of a flat or home unit;

that property was sold solely because the employeechanged his or her usual place of residence inorder to perform employment duties (paragraph (b));

the employee or associate owned the property atthe time that the employer notified the employeethat he or she was to work at the new locality(paragraph (c));

at the time of such notification, the employeeoccupied, or proposed to occupy, the property ashis or her usual place of residence(paragraph (d)); and

the contract for the sale of the property wasentered into within 2 years of the employeecommencing duty at the new locality(paragraph (e)).

Under subsection 58C(2), benefits relating to thecosts of selling a property to which subsection (1) applieswill be exempt where the further tests specified inparagraphs (a) to (e) are satisfied. These are:

the benefit is an expense payment benefit or aresidual benefit that meets costs incidental tothe sale of the property (paragraph (a)).Interpretation provisions which determine whethera benefit satisfies this requirement are containedin proposed section l4lA;

in a case where the exemption would otherwiseapply in relation to the sale of more than oneproperty in respect of the employee’s relocation,the employer nominates only one such property asthe one to which the exemption is to apply(paragraphs (b) and (c)). This rule could apply,

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for example, -where an employee is reimbursed thecosts involved in selling both his or her currenthome and a block of land on which a new home wasbeing constructed;

in the case of an expense payment benefit,documentary evidence of the expenditure incurredby the employee is supplied to the employer(paragraph (d)); and

the benefit is not provided under a non—arm’slength arrangement (paragraph (e)).

Under subsection 58C(3, benefits relating to thecosts of buying a property will be exempt where a propertyto which subsection (1) applies has been sold and the testsspecified in paragraphs (a) to (h) in relation to theacquisition of the new property are satisfied. These are:

the employee or an associate purchases aprescribed interest in land or in a stratum unitor a proprietary right in respect of a flat orhome unit (paragraph (a));

that property was acquired solely because theemployee changed his or her usual place ofresidence in order to perform employment duties(paragraph (b));

the contract for the purchase of the property wasentered into within 4 years of the employeecommencing duty at the new locality(paragraph (c));

upon completion of the acquisition, the employeeoccupied the property as his or her usual place ofresidence (paragraph (d));

the benefit is an expense payment benefit or aresidual benefit that:

meets costs incidental to the acquisition ofthe property (subparagraphs (e)(i) and(ii)). Interpretation provisions whichdetermine whether a benefit satisfies thisrequirement are contained in proposed sectionl4lA;

meets the cost of connecting or re-connectinga telephone service to the property(subparagraphs (e)(iii) and (iv)); or

meets the cost of re-connecting a gas orelectricity service to the property(subparagraphs (e)(v) and (vi));

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in a case where the benefit relates to theconnection or re-connection of a telephone service- the employee had a telephone service connectedto his or her home at the former usual place ofresidence (paragraph (f));

in the case of an expense payment benefit,documentary evidence of the expenditure incurredis supplied to the employer (paragraph q)); and.

the benefit is not provided under a non-arm’slength arrangement (paragraph (h)).

Subsection 58C(4) stipulates that an election madefor the purposes of paragraph 58C(2)(b) must be in writingand lodged with the Commissioner of Taxation by the“declaration date” (a defined term under existingsubsection 136(1) of the Principal Act).

Section 58D: Exempt benefits - connection orre-connection of certain utilities as a result

of relocation

Proposed section 58D will apply to exempt abenefit from fringe benefits tax in a case where theemployee moves from one locality to another in the courseof employment or in order to commence employment and thebenefit meets the cost of re-connecting a telephone, gas orelectricity service to the employee’s accommodation at thenew locality. As proposed section 58C will generally applyto exempt benefits in respect of the cost of re-connectinga telephone, gas or electricity service to a home purchasedat the new locality, the main purpose of new section 58D isto exempt benefits which meet the cost of re-connectingsuch a service to accommodation that is leased by theemployee at the new locality (whether on a temporary orlong-term basis).

Under subsection 58D(l), a benefit relating to atelephone service will be exempt where the conditionsspecified in paragraphs (a) to (e) are satisfied. Theseare:

the benefit is in respect of the installation orre-connection of a telephone service to a unit ofaccommodation (paragraph (a));

the accommodation is for the employee or his orher spouse and children (paragraph (b));

the accommodation is required solely because theemployee is required to live away from, or change,his or her usual place of residence in order toperform employment duties (paragraph (c));

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in a case where the employee changes his or herusual place of residence, the benefit is notprovided under a non—arm’s length arrangement, theconnection or re-connection occurred within12 months of the employee commencing duty at thenew locality and the employee had a telephoneservice connected to his or her home at the formerusual place of residence (paragraph (e)).

Under subsection 58D(2), a benefit relating to agas or electricity service will be exempt where theconditions specified in paragraphs (a) to (e) aresatisfied. These are:

the benefit is in respect of the re-connection ofgas or electricity to a unit of accommodation(paragraph (a));

the accommodation is for the employee o; his orher spouse and children (paragraph (b));

the accommodation is required solely because theemployee is required to live away from, or change,his or her usual place of residence in order toperform employment duties (paragraph (c));


in a case where the employee changes his or herusual place of residence, the benefit is notprovided under a non-arm’s length arrangement andthe re-connection occurred within 12 months of theemployee commencing duty at the new locality(paragraph (e)).

Section 58E : Exempt benefits - leasing of householdgoods while living away from home

Proposed section 58E compliments the exemptionscontained in existing section 21 and subsection 47(5) inrespect of the provision of accommodation for an employeewho is required to live away from his or her usual place ofresidence in order to perform employment duties.

Under new section 58E, benefits which meet thecost of leasing furniture and other household goods for usein such exempt accommodationwill also be exempt.

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A benefit will be exempt where the conditionsspecified in paragraphs (a) to (d) are satisfied. Theseare:

the benefit is an expense payment benefit or aresidual benefit in respect of a lease or licencein respect of goods (paragraph (a));

the goods are for domestic use in accommodationfor the employee and his or her spouse andchildren (paragraph (b));

an expense payment benefit or a residual benefitis provided to the employee in respect of theright to occupy that accommodation(paragraph (c)); and

that accommodation benefit is exempt underexisting section 21 or subsection 47(5 of thePrincipal Act (paragraph (d)).

Section 58F : Exempt benefits - relocation transoort 4Proposed section 58F will exempt from fringe

benefits tax ~benefits in respect of relocation transport”other than benefits that take the form of a reimbursementof car expenses incurred by an employee on a cents perkilometre basis (such reimbursements qualify forconcessional treatment under proposed section 61B).

The circumstances in which a benefit will betreated as a “benefit in respect of relocation transport”are specified in proposed section 143A. Broadly, such abenefit is one that is provided to an employee who movesfrom one locality to another in the course of employment orin order to commence new employment where the benefit meetstravel costs (i.e., transport costs and accommodation andmeals en route) incurred by the employee (or a familymember) for the purpose of taking up residence in thelocality of the new work place.

Where a benefit in respect of relocation transporttakes the form of an expense payment benefit, a conditionof exemption is that the employee supplies the employerwith documentary evidence of the expenditure.

Section 58G : Exempt benefits - motor vehicle oarkina

Proposed section 58G exempts from fringe benefitstax benefits constituted by the provision of parkingfacilities for a motor vehicle or the payment orreimbursement of expenses incurred in respect of suchfacilities. The exemption does not extend to the paymentof parking fines.

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Section 58H : Exempt benefits - newspapers and

periodicals used for business purposes

Proposed section 58H exempts from fringe benefitstax benefits which meet the cost of providing a newspaperor periodical to an employee where the newspaper orperiodical is for use by the employee for work-relatedpurposes. To ensure that the exemption does not applywhere work-related use is minimal or insignificant,subsection 58(H)(2) provides that, for the purposes of theexemption, use of a newspaper or periodical for a merelyincidental purpose is to be disregarded.

Section 58J : Exempt benefits - compensablework-related trauma

Proposed section 58J operates, broadly, to exemptfrom fringe benefits tax workers’ compensation benefits.The exemption extends both to benefits provided in respectof a work—related injury actually suffered by an employee(subsection (1)) and benefits constituted by insurancecover under a workers’ compensation insurance policy(subsection (2)).

Subsection 58J(l) applies to exempt a benefitwhere the conditions specified in paragraphs (a) and (b)are satisfied.

By paragraph (a) it is condition that the benefit(e.g., the payment of hospital or medical costs orassociated ambulance, travel and accommodation costs) isprovided in respect of “compensable work—related trauma”suffered by an employee. A benefit provided in respect ofcompensable work-related trauma will be eligible forexemption irrespective of whether the benefit is providedby the employer or another person (e.g., the employer’sinsurance company) and irrespective of whether the benefitis provided to the employee or an associate of the employee.

The term “compensable work-related trauma” isbeing defined under amendments proposed by clause 48 tomean, broadly, an injury or disease related to theemployment of the employee where the employee is entitledto receive compensation or other benefits in respect of theinjury or disease under a workers’ compensation law. Wherean employee’s employment is not covered by a workers’compensation law, a work-related injury (or disease) willbe treated as compensable if it would have been compensableunder any Australian workers’ compensation law if such lawshad extended to the employee’s employment.

Under paragraph (b) it is a condition that thebenefit is either:

provided under a “workers compensation law” (adefined term proposed to be inserted in subsection136(1) of the Principal Act by clause 48); or

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if the benefit is not provided under such a law,the provision of the benefit is reasonable havingregard to the value of the benefit and the natureand effects of the injury.

Subsection 58J(2) applies to exempt a benefitconstituted by a contingent right, under a contract ofinsurance, to receive benefits in respect of compensablework-related injuries. For -this exemption to apply, it isa requirement that the only benefits payable under theinsurance contract relate to compensable work-relatedinjuries of the employee (or other employees). This testwould not be met, for example, in the case of a generalhealth insurance policy that may, coincidentally, providefor benefits in respect of work-related injuries.

Section 58K : Exempt benefits - in-house health carefacilities

Proposed section 58K will exempt from fringebenefits tax the provision of medical services and other“health care” benefits to an employee (or an associate)where they are provided in an “in-house health carefacility” of the employer. The exemption also applieswhere health care is provided away from the in-house healthcare facility by a member of the facility’s staff (e.g., ahome visit by a company doctor).

For these purposes, the term “health care” isbeing defined by amendments proposed by clause 48 to mean,broadly,- any test or form of care related to a person’shealth. The exemption will thus extend to a wide range ofhealth-related services including -

the services of medical practitioners, dentists,nurses, optometrists, physiotherapists, first-aidattendants, speech therapists, dieticians,chiropodists, psychologists, etc.;

the provision of diagnostic services andfacilities;

accommodation and care in the in-house health care

facility (e.g., a mini-hospital); and

counselling and advisory services.

The provision of drugs, first-aid items and otherproperty in connection with the test or care will also beexempt.

The term “in-house health care facility” is alsobeing defined by amendments proposed by clause 48 and willmean, broadly, a clinic or other medical facility that isoperated wholly or principally for providing health care inrespect of compensable work-related injuries suffered byemployees of the employer (or a related company) and which

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is located on premises of the employer (or a relatedcompany) or at or adjacent to, a site (e.g., a constructionsite) -at which employees of the employer perform duties oftheir employment.

It is noted that while the facility must beoperated principally for the treatment of compensablework-related injuries suffered by employees, the exemptionwill extend to the incidental use of the facility for thetreatment of injuries suffered by the employee that are notrelated to work or for the treatment of injuries sufferedby an associate of the employee.

Section 58L : Exempt benefits - certain travel to obtainmedical treatment

Proposed section 58L will exempt from fringebenefits tax benefits which meet travel costs incurredwhere an employee working in a prescribed foreign countryis required to travel away from the work place in order toobtain suitable medical treatment. The exemption will alsoapply where the spouse or a child of the employee who liveswith the employee at the overseas work place is required totravel away from that place in order to obtain suitablemedical treatment. In addition, where it is necessary forthe employee (or family member) receiving treatment to beaccompanied or visited by a family member or to be escortedby another person, the travel costs of the escort orvisitor fall within the scope of the exemption.

Under subsection 58L(l), a benefit provided inrespect of the employment of an employee will be exemptwhere the conditions set out in paragraphs (a) to (k) aresatisfied.

By paragraphs (a) and (b), it is a condition thatthe benefit relates to the provision of transport,accommodation or meals for a person (“the traveller”) whoundertakes travel.

Paragraph (c) stipulates that the traveller mustundertake the travel solely because either the traveller oranother person (e.g., a family member) requires medicaltreatment.

Under paragraph (d), that medical treatment mustbe provided at a time when the employee’s usual place ofemployment is in a prescribed foreign country. It isproposed that the foreign countries to be prescribed forthe purposes of this exemption will be developing countries.

Paragraph (e) specifies that the travel must bebetween the overseas work place and the place at which themedical treatment is provided.

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Paragraph (f) requires that the person receivingthe medical treatment is either the employee or the spouseor a child of the employee who lives with the employee atthe overseas work place.

Paragraph (g) applies in a case where thetraveller is not the person receiving the medicaltreatment. In these circumstances, it is a condition that -

the traveller escorts the patient for medicalreasons or because the patient is a child; or

the traveller is a -member of the patient’s familyand accompanies or visits the patient incircumstances where the nature of the patient’scondition is such that visits by family membersare customary.

Paragraph (h) applies where the benefit relates tomeals or accommodation. Such benefits will be eligible forexemption where the meals or accommodation are provided tothe traveller en route. They will also be eligible for 4exemption if the meals or accommodation are provided duringany period that it is necessary for the traveller to stayat the treatment place for purposes related to the medicaltreatment. However, accommodation and meals provided tothe patient as part of hospital care are not eligible forexemption.

Paragraph (1) makes it a condition that the placeat which the medical treatment is provided is either theplace nearest to the overseas work place at which medicaltreatment suitable for the patient could be provided or isthe place at which such treatment could be obtained at theleast cost.

Finally, paragraph (k) provides that in the caseof an expense payment benefit, documentary evidence of theexpenditure incurred by the employee must be supplied tothe employer.

Subsection 58L(2) provides that the term “medicaltreatment” is to mean any act or thing where a payment forthat act or thing would constitute a medical expense underthe medical expense rebate provisions of the income tax law.

Section 58M : Exempt benefits - work-related medicalexaminations, work-related medical screening.

work—related preventative health care.work-related counselling, migrant lancuace

training.

Under subsection 58Ml the following kinds of

benefits will be exempt from fringe benefits tax:

Work-related medical examinations

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An expense payment benefit or a residual benefitwill be exempt from tax wherethe underlying benefit is theprovision of a “work-related medical examination” of theemployee. For this purpose, the term “work-related medicalexamination” is being defined under amendments proposed byclause 48 to mean, broadly, an examination or test carriedout by a medical practitioner, nurse, dentist, optometristor audiometrist where the employee is required to undergothe examination or test in order to commencenewemployment, to transfer to a different job with the sameemployer or to gain entry to a superannuation fund.

Work—related medical screening

An expense payment benefit or a residual benefitwill be exempt from tax where the underlying benefit is the“work—related medical screening” of the employee. For thispurpose, the term “work-related medical screening” is beingdefined under amendments proposed by clause 48 to mean,broadly, an examination or test carried out by a medicalpractitioner, nurse, dentist, optometrist or audiometristfor the purpose of determining whether the employee issuffering from an injury or illness related to theemployee’s employment. It is also a requirement forexemption that the examination or test is carried out aspart of a screening program which applies generally toemployees with similar work-related risks.

Work-related preventative health care

An expense payment benefit or a residual benefitwill be exempt from tax where the underlying benefit is theprovision of “work—related preventative health care” of theemployee. For this purpose, the term “work—relatedpreventative health care” is being defined under amendmentsproposed by clause 48 to mean, broadly, any form of careprovided by a medical practitioner, nurse, dentist oroptometrist for the purpose of preventing the employee fromsuffering from an injury or illness related to theemployee’s employment. It is also a requirement forexemption that the care is provided as part of a screeningprogram which applies generally to employees with similarwork—related risks. The provision of drugs, vaccines orother medical preparations in connection with thepreventative health care will also be exempt.

Work-related counselling.

Benefits in respect of the “work-relatedcounselling” of an employee will be exempt. For thispurpose, the term “work-related counselling” is beingdefined under amendments proposed by clause 48 to mean,broadly, individual or group counselling (e.g., a seminar)related to matters such as safe work practices, stressmanagement, fitness, drug or alcohol abuse or retirementproblems. It is also necessary that the benefit is

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provided by the employer in order to improve or maintainthe efficiency of employees or to prepare them forretirement and not as a form of remuneration.

Migrant language training

Benefits in respect of the “migrant languagetraining” of an employee will be exempt from tax. For thispurpose, the term “migrant language training” is beingdefined to mean, broadly, an English language courseprovided to a person who is an immigrant or intendingimmigrant to Australia.

Subsection 58M(2) ensures that certain benefitswhich meet travel costs incurred in attending work-relatedmedical examinations, work-related medical screening,work—related preventative health care, work-relatedcounselling and migrant language training will be exempt.The benefits which qualify for this exemption are definedin proposed section 143E.

The exemption does not apply to a benefit whichtakes the form of a reimbursement of car expenses on acents per kilometre basis (such reimbursements qualify forconcessional treatment under proposed section 6bF).

Section 58N : Exempt benefits - emergency assistance

Proposed section 58N will exempt from fringebenefits tax benefits provided to an employee (or anassociate) by way of “emergency assistance”.

The term “emergency assistance” is being definedin amendmentsby clause 48 to mean, broadly, assistancegranted to a victim of an emergency solely in order toprovide immediate relief. For this purpose, an “emergency” 4is being defined by amendments proposed by clause 48 tomean an emergency involving a natural disaster, an armedconflict, a civil disturbance, an accident, a seriousillness or any similar matter.

Reflecting the requirement that the assistance beby way of immediate relief, the definition of emergencyassistance specifies that the assistance must be in respectof:

first aid or other emergency health care;

emergency meals, food supplies, clothing,

transport, accommodation or use of household goods;

temporary repairs; or

any similar matter.

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This test would not be met by long-term benefits such asthe provision of a new house or car to replace onedestroyed as a result of an emergency.

Where emergency assistance takes the form ofmedical treatment or other kinds of “health care” (adefined term), the exemption is limited to treatmentprovided:

by an employee of the employer (or a relatedcompany); or

on premises of the employer (or a related company)or at, or adjacent to, a site at which employeesof the employer perform duties of their employment.

This means, for example, that the exemption will not applyif the employer pays for an accident victim’s hospitalcosts. However, if the victim is given emergency treatmentby a company doctor at the accident site and emergencytransport is provided to the hospital, the provision ofthat treatment and transport will be eligible for exemption.

Section 58P : Exempt benefits - minor benefits

New section 58P exempts benefits that can, by thetests specified therein, be characterised as minor.

The exemption will not extend to airline transportbenefits or other in-house fringe benefits the taxablevalues of which are in any case reducible by $500 per annumunder the rules contained in section 62. Nor will it applyto minor entertainment benefits provided to employees etc.of tax-exempt organisations unless they are incidental tothe provision of entertainment to persons who are neitheremployees of the employer nor associates of employees but,in any case, will not apply to meals or benefits providedin connection with meals.

This

latter exclusion would not prevent minorentertainment benefits provided by a tax exemptorganisation to recognise a special achievement of anemployee from being exempt under section 58P as long asthey were provided on the employer’s premises or where theemployee performs his or her employment duties. Forexample, a meal given to the family of a professionalfootballer in the club’s dining room to mark a milestonesuch as selection in a representative team or being awardedbest and fairest player, may be exempt under this rule.

Apart from those exceptions, a benefit will betreated as an exempt minor benefit if the “notional taxablevalue” of the benefit - broadly, the amount that would bethe taxable value if the benefit were treated as a fringe

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benefit - is small and, having regard to various specifiedmatters, it would be unreasonable to treat it as a fringebenefit. Those specified determinants are:

the infrequency and irregularity with whichsimilar or identical benefits to the minor benefit(or to benefits given in connection with the minorbenefit) are provided, i.e., the more frequentlyand regularly small benefits of a similar kind areprovided, the less likely they are to qualify asminor benefits;

the amount that would be the sum of the taxablevalues of the minor benefit and other similar oridentical benefits if they were treated as fringebenef its. As with the previous test, the greaterthe cumulative value of small benefits, the lesslikely it is they may be treated as exempt minorbenefits;

similarly, it is necessary to assess the likelytotal taxable values of the minor benefit andother associated benefits i.e., those provided inconjunction with the minor benefit e.g.,accommodation, board, electricity and telephonebenefits provided as part of an accommodation“package”;

the practical difficulty in determining what wouldbe the taxable value of the benefit and anyassociated benefits. This would includeconsideration of the difficulty for the employerin keeping the necessary records in relation tothe benefits; and

the circumstances in which the minor benefit andany associated benefits were provided. Inconsidering this issue, regard is to be had towhether the benefit was provided as a result of acontingency (e.g., unexpected overtime) andwhether or not it could be regarded principally asbeing in the nature of remuneration.

Some guidance as to how new section 58P wouldapply in practice might be obtained by reference toparticular examples.

It is common practice for employers to giveemployees gifts at Christmas time. A single gift to eachemployee of, say, a bottle of whiskey or perfume would bean exempt minor benefit provided the value of each wasmodest. However, if some employees were given a range ofgifts of which only some were of modest value, e.g.,expensive art works, and food hampers and wine, it would benecessary to determine the application of section 58P byreference to the package of associated benefits rather thaneach individual item.

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Employers may provide employees with transport toand from work on an occasional basis because of particularcontingencies, e.g. taxis for employees who work backlate. In those circumstances, the exemption authorised bynew section 58P would apply where the transport is providedto employees required to work late on an ad hoc basis toclear backlogs or meet particular deadlines. Such casesare distinguishable from regular transport provided toshift workers or others whose duties of employment are suchthat they regularly work late hours in the normal course ofevents.

The occasional use of an employer’s vehicle by anemployee for a special purpose such as rubbish removal or

Sto travel from home to work during a transport strike wouldbe exempt benefits provided the employee in question didnot have a general entitlement to use the vehicle forprivate purposes. However, in some cases, the benefitwould be of sufficient value to override considerations ofirregularity or lack of frequency. A “one-off” loan of a‘ four-wheel drive vehicle to enable an employee to travelcross country during an extended annual holiday break maynot be exempt under section 58P because the value of such abenefit is not small.

Subject to that basic condition being satisfied,section 58P is likely to apply to exempt the followingkinds of benefits

stationery that an employee is permitted to usefor private purposes;

a short-term advance to help an employee payunexpected debts;

the recovery of overpaid salary by instalmentarrangements;

the use of office staff to type essays orassignments; and

- permitting staff to have waste or left-overmaterials of a business such as packing cases orfabric remnants.

Section 580 : Exempt benefits - long service awards

Section 58Q will exempt certain “long-serviceaward benefits”. To qualify for exemption, the benefitmust be solely as an award to acknowledge a “recognisedlong service period” of the employee of not less than 15years, but not be salary or wages, nor provided under anon—arm’s length arrangement or one entered into for thepurpose of enabling the employer to benefit from theexemption rather than to genuinely recognise long service.

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For the purposes of the exemption, a recognisedlong service period will be the period by which longservice leave is determined under industrial awards orspecified conditions of employment or service or, if thereare no such conditions, the actual employment period or anylonger period by which long service leave entitlement mightreasonably be determined.

Section 58Q applies so that, if the long serviceperiod being awarded is 15 years or more and there has notbeen an award granted to the employee for a shorter longservice period, the benefit will be exempt provided the“notional taxable value” of the benefit - as explained inthe notes on new section 58P — is not more than $500 plus$50 for each year more than 15 that is being recognised.

For example, if the award is for 20 years’ serviceand there has not been an award for a shorter period, itwill be exempt if it does not exceed $750 i.e., $500+($50 x (20—15)).

If there has been an award for a shorter period, 4the notional taxable value of the award must not exceed $50per annum f or each year of service in excess of 15 that isbeing recognised by the additional award.

Section 58R : Exempt benefits - safety awards

This section will exempt fringe benefits in theform of a safety award benefit where the “notional taxablevalue” of the benefit - as explained in the notes on newsection 58P - is not more than $200 in a year of tax. Toqualifty for exemption, a “safety award benefit” must beprovided solely as an award to recognise specialachievements of an employee in occupational health oroccupational safety matters, but not be salary or wages, or 4provided under a non-arm’s length arrangement or oneentered into for the purpose of enabling the employer tobenefit from the exemption rather than to genuinelyrecognise safety achievements.

Section 58S : Exempt benefits - trainees enaa~edunder Australian Traineeship System

New section 58S has the effect of exemptingcertain benefits that are provided to an employee who is atrainee under the Australian Traineeship System. Benefitsin the form of accommodation, food or drink will be exemptunder this section whether provided as housing, board,reimbursement of expenses, meals etc. A condition ofexemption is that the benefit be provided under anindustrial agreement or established industry custom.

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Section 58T : Exempt benefits - live-in domesticworkers employed by religious institutions or

by religious practitioners

The exemption to be provided by new section 58T iscomplementary to the existing exemption (in section 57) ofbenefits provided by a religious institution to ministersof religion, members of reli~ious orders and personstraining for religious orders. The kinds of employees towhom section 58T will apply are employees of a religiousinstitution or “religious practitioner” i.e., a minister ofreligion, a member of a religious order or a persontraining to become a minister or a member of a religiousorder. Benefits provided to such employees will be exempt

Sif their employment duties are principally to providedomestic or personal services to a religious practitioner(or practitioners) and any relatives who normally residewith the religious practitioner, the employee lives in thehouse of the religious practitioner or in accommodationlocated within the same grounds, and lives in thatparticular accommodation through having to provide thoseservices. (By virtue of amendments proposed by clause 48,“domestic services” would include child care, gardening,home renovations, repairs or maintenance, house cleaning,nursing care and the preparation of meals. “Personalservices” would include services as a chauffeur orsecretary.)

If those conditions are satisfied, benefits in theform of accommodation, household fuel (includingelectricity), meals and other food and drink provided tothe employee and his or her family who also live in theaccommodation will be exempt benefits.

Section 58U : Exempt benefits - live-in help for- - elderly and disadvantaged persons

A similar kind of exemption to that provided bysection 58T will be authorised by the operation of proposed

new

section 58U in circumstances where a person’semployment duties consist principally of care for one ormore “elderly persons” (i.e., persons of 60 or more years)or “disadvantaged persons” (i.e., intellectually,psychiatrically, or physically handicapped persons, orpersons in necessitous circumstances), or for children ofsuch persons who live with them. The exemption will applywhere the employee lives in the same unit of accommodationas the person being cared for and does so. through having toperform the particular duties of employment.

Section 58V : Exempt benefits - food and drink fornon-live—in domestic employees.

New section 58V will exempt benefits in the formof food and drink provided to non-live-in domesticemployees e.g., a baby sitter caring for children in theirhome who shares lunch with them.

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The conditions of exemption are that the employeris a natural person or religious institution, the employeeis not provided with residential accommodation, and theduties of employment consist principally of rendering“domestic services” - as explained in the notes on section58T - for the employer, or relatives who live with theemployer, or one or more “religious practitioners” — alsoexplained in the notes on section 58T - or relatives wholive with the religious practitioner(s).

Clause 35 : Reduction of taxable value - remote arearesidential fuel

Clause 35 amends section 59 of the Principal Actwhich confers concessional treatment on the supply ofelectricity and other fuels to certain remote arearesidential accommodation.

Under existing subsections 59(1) and (2), thetaxable value of any fringe benefit arising from the supplyof electricity or other fuel to a unit of accommodation isdiscounted by 40% if the employer has provided either a 4housing fringe benefit in respect of the accommodation or afringe benefit relating to a loan used by the employee toacquire the accommodation and that fringe benefit qualifiesfor such a discount. Subsections 59(1) and (2) are beingamended by clause 35 to increase the discount forresidential fuel fringe benefits to 50%.

Clause 35 will also insert a new subsection —

subsection (3- in section 59. Proposed subsection 59(3)will apply where the employer has provided assistance byway of rent reimbursement or actual payment of rentincurred by the employee in respect of a unit of remotearea accommodation. Consistent with the proposed 50%discount for such rent assistance, the taxable value of any 4fringe benefit arising from the supply of electricity orother fuel to such accommodation will also be discounted by50%.

Clause 36 : Reduction of taxable value - remote area housing

Clause 36 amends section 60 of the Principal Actwhich applies, broadly, to discount by 40% the taxablevalue of a fringe benefit relating to the provision ofassistance to enable an employee to acquire a unit ofremote area accommodation.

The existing 40% discount is being increased byclause 36 to 50%.

Clause 36 will also insert a new subsection -

subsection (2A)- in section 60. Proposed subsection 60(2A)will apply where the employer has provided assistance byway of rent reimbursement or actual payment of rentincurred by the employee in respect of a unit of remotearea accommodation. By new subsection (2A), the taxable

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value of such an expense payment fringe benefit will bereduced by an amount equal to 50% of the gross rentincurred by the employee in respect of the accommodation.

Clause 37 : Reduction of taxable value — remote areaholiday transport fringe benefits sublect toceiling

Clause 37 proposes the insertion of a new section- section 6OA - in the Principal Act.

Proposed section 6OA will apply to reduce thetaxable value of certain “remote area holiday transportfringe benefits”. The term “remote area holiday transport

Sfringe benefit” is defined in section 143 (as proposed tobe amended). Broadly, it refers to a benefit that meetsthe costs of holiday transport (or meals and accommodationen route) and is provided, in accordance with an award orindustry custom, to an employee who works in a remote area.

Where remote area holiday transport fringebenefits are provided to an employee, new section 60A willapply to those fringe benefits if they do not relate totravel between the work locality and either the city fromwhich the employee was engaged to work or the capital cityof the State in which the work place is located. (Suchtravel is subject to discount under section 61 of thePrincipal Act, as proposed to be amended by this Bill.)

By subsection 60A(l), the aggregate taxable valueof remote area holiday transport fringe benefits thatrelate to a particular holiday by the employee (or a familymember) at a place other than the pre-engagementplace orthe relevant capital city is reduced by 50%, subject to aspecified ceiling. This ceiling limits the reduction to anamount equal to 50% of the “benchmark travel amount”.

The term “benchmark travel amount” is defined forthese purposes in proposed new subsection 143(3). Broadly,it means the usual cost of return travel between the work

locality

and the capital city of the State in which thework place is located (i.e., normally the return economyair fare). This cost is determined at the commencementofthe employee’s holiday.

Under subsection 60A(2), an expense payment fringebenefit will not qualify for the concession unless eitherdocumentary evidence of the expenditure incurred by theemployee or a declaration by the employee in respect of theexpenditure is supplied to the employer.

Subsection 6OA(3) applies where qualifying fringebenefits in respect of a particular holiday are provided inmore than one fringe benefits tax year. In thesecircumstances, the benchmark travel amount applicable to

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the holiday is apportioned between the years in which thefringe benefits were provided according to the taxablevalues of those fringe benefits.

The effect of subsection 6OA(4) is that where areimbursement of car expenses on a cents per kilometrebasis exceeds the prescribed rate, the full amount of theexcess is taxable (i.e., the excess does not qualify forthe 50% discount).

Clause 38 : Reduction of taxable value - remote areaholiday transport fringe benefits not sublectto ceiling

Clause 38 amends section 61 of the Principal Actwhich applies to reduce by 50% the taxable value of certainfringe benefits in respect of remote area holiday transport.

Paragraph (a) of clause 38 proposes the insertionof a new subsection - subsection (lA) - in section 61. Newsubsection 61(1A) specifies that the existing 50% discountavailable under section 61 is to apply only in cases wherethe fringe benefits in respect of remote area holidaytransport relate to travel between the work locality andeither the city from which the employee was engaged to workor the capital city of the State in which the work place islocated. This amendment is consequential upon proposedamendments to section 143 which will extend the meaning of -

remote area holiday transport to include travel from thework locality to any other destination. Fringe benefitsrelated to such other travel are dealt with in proposedsection 60A.

Paragraphs (b), (c) and (d) of clause 38 providethat, in the case of an expense payment fringe benefit, theexpenditure incurred by the employee may now be evidenced 4by a declaration from the employee rather than receipts,etc.

Paragraph (e) of clause 38 permits a higher centsper kilometre rate to be prescribed in respect of cartransport where more than one family member travels in thecar. The prescribed rate is used to determine the extentto which a reimbursement of holiday car expenses on a centsper kilometre basis will qualify for the 50% discount.

Paragraph (f) of clause 38 extends the 50%discount to property fringe benefits which, by virtue ofthe proposed amendments to section 143, now qualify for theconcession.

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Clause 39 : New sections 6lA to 6bD

Section 6bA : Reduction of taxable value - overseas

employment holiday transport

Proposed new section 61A applies to reduce by 50%the taxable value of “fringe benefits in respect ofoverseas employment holiday transport”, subject to anannual ceiling on the total reduction allowable in respectof such benefits.

The term “fringe benefit in respect of overseasemployment holiday transport” is defined in proposed

S section b43C. In broad terms, it refers to a fringebenefit that meets the costs of holiday transport (or mealsand accommodation en route) where the benefit is providedunder an award or industry custom to an employee who isworking for an extended period in a country outside thecountry where he or she usually resides.

By subsection 61A(1), the aggregate taxable valueof all qualifying holiday travel fringe benefits providedto the employee in the fringe benefits tax year is reducedby 50%, subject to a specified ceiling. This ceilinglimits the total reduction to an amount equal to 50% of the“benchmark travel amount”.

The “benchmark travel amount” is defined for thesepurposes in proposed new section l43C. Broadly, it meansthe usual cost of return travel between the overseasemployment place and the employee’s usual place ofresidence (i.e., normally the return economy air fare).This cost is determined at the commencement of eachqualifying holiday trip undertaken by the employee. If the

employee undertakes more than one qualifying holiday tripduring the fringe benefits tax year, a separate benchmarktravel amount will be determined f or each of these tripsand the highest one will be the ceiling that is to applyfor that year.

Subsection 61A(3) provides that, in specifiedcircumstances, a benchmark travel amount higher than thatdetermined in accordance with proposed section 143C willapply. The effect of subsection 6lA(3) is that where theemployee actually travels to his or her home country for aholiday, the benchmark travel amount will be equal to theactual cost of travel (i.e., the “home country holidayamount” as defined in subsection 6lA(4)) if this exceedsthe benchmark travel amount determined in accordance withproposed section b43C. Typically, this would occur wherethe employee travels to the home country on a first classflight.

The effect of these rules is that if an employeeundertakes only one holiday trip during a fringe benefitstax year and that trip is to his or her home country, the

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taxable value of qualifying fringe benefits will be reducedby 50% and this reduction will not be limited by theceiling.

The rules described above also apply wherequalifying holiday travel fringe benefits are provided tothe spouse or a child of the employee.

Under subsection 61A(2, an expense payment fringebenefit will not qualify for the concession unlessdocumentary evidence of the expenditure incurred by theemployee is supplied to the employer. If the fringebenefit takes the form of a reimbursement of car expenseson a cents per kilometre basis, the employee must supply adeclaration containing details of the type of vehicle andthe number of kibometres travelled.

The effect of subsections 6lA(3) and (4) isexplained in the notes on subsection 61A(l).

The effect of subsection 61A(5 is that where a 4reimbursement of car expenses on a cents per kilometrebasis exceeds the prescribed rate, the full amount of theexcess is taxable (i.e., the excess does not qualify forthe 50% discount).

Section 6lB : Reduction of taxable value ofcertain expense payment fringe benefits

in respect of relocation transport

Proposed section 61B applies to reduce the taxablevalue of an expense payment fringe benefit in respect ofrelocation transport where the benefit takes the form of areimbursement on a cents per kilometre basis of carexpenses incurred by the employee (or an associate). 4

The circumstances in which a fringe benefit willbe treated as a “benefit in respect of relocationtransport” are specified in proposed section 143A.Broadly, a reimbursement on a cents per kilometre basis ofcar expenses incurred by an employee will qualify as abenefit in respect of relocation transport where theemployee moved from one locality to another in the courseof employment or in order to commence new employment andthe car expenses were incurred for the purpose of taking upresidence in the locality of the new work place.

Under new section 6bB, the taxable value of aqualifying car expenses reimbursement will be reduced by somuch of the reimbursement as does not exceed a statutoryamount. The statutory amount is the reimbursement thatwould have been paid if it had been calculated at the rateper kilometre that would apply to the car if income taxdeductions were being claimed on a cents per kilometrebasis for the number of kibometres travelled, increased, ina case where more than one family member travels in thecar, by such additional rate as is prescribed.

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Section 6bC : Reduction of taxable value - temporaryaccommodation relating to relocation

Proposed section 61C applies to reduce the taxablevalue of fringe benefits which meet costs of temporaryaccommodation (including costs of hiring furniture) for anemployee who changes his or her usual place of residence inthe course of employment or in order to commence employment.

Subsection 6bC(b) sets out the conditions thatmust be satisfied for application of either the reductionrule relating to temporary accommodation at the formerlocality (subsection 6lC(2)) or the reduction rule relating

S to temporary accommodation at the new locality (subsection6lC(3n. These conditions are set out in paragraphs (a) to

Paragraph (a) specifies the kinds of fringebenefits which are eligible for application of thereduction rule. These are:

an expense payment benefit, a housing benefit or aresidual benefit that relates to a lease orlicence in respect of a unit of accommodation thatis used for the temporary accommodation of theemployee (or family members); or

an expense payment benefit or a residual benefitthat relates to a lease or licence in respect ofhousehold goods for use in a unit of accommodationthat is used for the temporary accommodation ofthe employee (or family members).

Paragraph (b) makes it a condition that thetemporary accommodation is required solely because theemployee is required to change his or her usual place ofresidence in order to perform employment duties.

Paragraph (c) applies where the temporary

accommodation is provided at the employee’s former usualplace of residence. In these circumstances, it is acondition that the temporary accommodation is necessarybecause the employee’s home at the former locality becomes

unavailable or unsuitable for residential use due tofurniture removal or other arrangements relating to theemployee’ s relocation.

Paragraph (d) applies where the temporaryaccommodation is provided at the new locality. In thesecases, it is a condition that, as soon as reasonablypracticable after commencing duty at the new locality, theemployee begins to make sustained and reasonable efforts topurchase or lease a unit of accommodation that the employeeintends to use as a long-term place of residence.

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By paragraph (e), the reduction rule is not toapply to a benefit provided under a non-arm’s lengtharrangement.

Under subsection 61C(2, the taxable value of aqualifying fringe benefit in respect of temporaryaccommodation (or furniture hire) at the former localitywill be reduced to the extent that the taxable value isattributable to the subsistence of the lease or licenceduring the period of 21 days ending on the day on which theemployee commences work at the new locality.

By subsection 6lC(3), the taxable value of aqualifying fringe benefit in respect of temporaryaccommodation (or furniture hire) at the new locality willbe reduced to the extent that the taxable value isattributable to the subsistence of the lease or licenceduring a specified qualifying period.

In the normal case where the employee’s sustainedefforts to find a long-term home result in the employeeentering into a contract to purchase or lease such a home,the qualifying period begins 7 days prior to the day onwhich the employee commenced work at the new locality andends on the date on which the employee could reasonably beexpected to have commenced to occupy the home purchased orleased. The qualifying period is however, subject to aspecified maximum period which ends either 6 months or12 months after the employee commenced work at the newlocality. The 12 months maximum will apply only where theemployee owned his or her home at the former locality, soldthat home within 6 months of commencing work at the newlocality and, during that period, attempted to purchase ahome at the new locality. In any other case, the 6 monthsmaximum will apply.

If an employee ceases to make sustained andreasonable efforts to find a bong term home before enteringinto a contract to purchase or lease such a home, thequalifying period will, subject to the abovementionedmaximum periods, end on the day on which the employeeceased those efforts. -

For the second standard year of tax and subsequentyears, the reduction rule embodied in subsection 6lC(3)will not apply unless the employee either commences tooccupy a long-term home within 4 months of commencing workat the new locality or, in the event that the periodextends beyond 4 months, gives a declaration relating tohis or her efforts to find such a home to the employerbefore the “declaration date” (as defined in subsection136(1) of the Principal Act).

Subsections 61C(4) and (5) are provisions whichassist in the interpretation of section 61C

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Section 61D : Reduction of taxable value of temporary

accommodation meal fringe benefitsProposed section 61D will apply in circumstances

where temporary accommodation in a hotel, motel, hostel orguesthouse is provided to an employee who is required tochange his or her usual place of residence in order toperform employment duties and that temporary accommodationis, in effect, exempt by virtue of proposed section 6lC.In these circumstances, new section 61D will operate toreduce the taxable value of meals provided to the employee(or family member) while staying at the hotel, etc., to theextent that the otherwise determined value of the mealexceeds $2.00 ($1.00 if the recipient is under 12).

The conditions for application of the reduction intaxable value are specified in paragraphs (a) to (e) ofsubsection 61D(l). These are:

- an expense payment benefit or a residual benefitis provided in respect of a meal (paragraph (a));

the meal was provided to the employee or thespouse or a child of the employee at a time whenthe person was accommodated in a hotel, motel,hostel or guesthouse (paragraph (b));

an expense payment benefit, a housing benefit or aresidual benefit is provided to the employee inrespect of the right to occupy that accommodation(paragraph (c));

the taxable value of that accommodation benefit isreduced under new section 61C in relation to aparticular period and the meal is provided duringthat qualifying period (paragraph (d)); and

the value of the meal benefit otherwise determinedexceeds $2.00 or, if the meal is for a childyounger than 12, $1.00 (paragraph (e)).

Section 6bE : Reduction of taxable value of certainexpense payment fringe benefits in respect of

employment interviews or selection tests

Proposed section 61E applies to reduce the taxablevalue of an expense payment fringe benefit in respect of anemployment interview or selection test where the benefittakes the form of a reimbursement on a cents per kilometrebasis of car expenses incurred by the employee.

The circumstances in which a fringe benefit willbe treated as a “benefit in respect of an employmentinterview or selection test” are specified in proposedsection l43D. Broadly, a reimbursement on a cents perkilometre basis of car expenses incurred by an employeewill qualify as such a benefit where the car expenses were

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incurred by the employee for the purpose of attending aninterview or selection test in connection with anapplication by the employee for employment with a newemployer or a promotion or transfer in the employee’sexisting employment.

Under new section 61E, the taxable value of aqualifying car expenses reimbursement will be reduced by somuch of the reimbursement as does not exceed a statutoryamount. The statutory amount is the reimbursement thatwould have been paid if it had been calculated at the rateper kilometre that would apply to the car if income taxdeductions were being claimed on a cents per kilometrebasis for the number of kibometres travelled.

Section 6lF : Reduction of taxable value of certainexpense payment fringe benefits associated with

work-related medical examinations,work-related medical screening, work—related

preventative health care, work-relatedcounselling or migrant language training

Proposed section 6lF applies to reduce the taxablevalue of various kinds of expense payment fringe benefitswhere the benefit takes the form of a reimbursement of carexpenses on a cents per kilometre basis.

The circumstances in which a fringe benefit willbe eligible for this concession are specified in proposedsection l43E. Broadly, a reimbursement on a cents perkilometre basis of car expenses incurred by an employee(or, in appropriate cases, by an associate) will qualifyfor the concession where the car expenses were incurred forthe purpose of attending a work-related medicalexamination, work-related medical screening, work—relatedpreventative health car, work-related counselling ormigrant language training.

Under new section 6bF, the taxable value of aqualifying car expenses reimbursement will be reduced by somuch of the reimbursement as does not exceed a statutoryamount. The statutory amount is the reimbursement thatwould have been paid if it had been calculated at the rateper kilometre that would apply to the car if income taxdeductions were being claimed on a cents per kilometrebasis for the number of kibometres travelled, increased, ina case where more than one family member travels in the carfor the purpose of attending work-related counselling ormigrant language training, by such additional rate as isprescribed. -

Clause 40 : Reduction of aggregate taxable value of certainfringe benefits

Clause 40 amends section 62 of the Principal Actwhich provides that the first $200 of the aggregate taxablevalue of in-house fringe benefits (including airline

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transport fringe benefits) given to an employee in astandard year of tax is exempt from fringe benefits tax.For the transitional year of tax, the amount of theexemption is $150.

By clause 40 the amount of the annual exemption isbeing increased to $500 ($375 for the transitional year oftax).

Clause 41 : Reduction of taxable value ofliving-away-from-home food fringe benefits

- Clause 41 proposes technical amendments to section63 of the Principal Act consequential upon the proposed

S insertion of new sections 65B and 65C and the proposedmeasures relating to in—house expense payment fringebenefits.

Clause 42 : -New sections 65A to 65H

Section 65A : Reduction of taxable value - education ofchildren of overseas employees

Proposed section 65A applies to reduce the taxablevalue of certain fringe benefits which meet the costs ofthe education of children of overseas employees.

The term “overseas employee” is being defined inproposed section b43B and means, broadly, an employee whois required to live away from his or her home country inorder to perform the duties of his or her employment at anoverseas employment place.

To qualify for exemption, the benefit must beprovided in accordance with an award or industry custom andrelate to the full-time education of the child at a school,college or university or from a tutor. In the case of anexpense payment fringe benefit, documentary evidence of theexpenditure incurred by the employee must be supplied tothe employer.

The taxable value of a qualifying fringe benefitwill be reduced to the extent that it is attributable tothe education of the child during a specified qualifyingperiod. In general, the qualifying period begins at thecommencement of the school term during which the employeecommenced his or her posting and ends on the last day ofthe school term during which the employee ceased his or herposting.

Section 65B : Reduction of taxable value of certainfringe benefits - section 23AF of the Income Tax

Assessment Act 1936

Proposed section 65B applies to reduce the taxablevalue of a fringe benefit provided in respect of overseas

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employment where the employee’s salary from that employmentis partially exempt from income tax under section 23AF ofthe Income Tax Assessment Act 1936.

Section 23AF exempts from Australian income taxincome derived by an Australian resident from theperformance by that person of personal services outsideAustralia on an approved project, for a continuous periodof 12 months or more, where the income is not taxed in thecountry where the services are performed. Where theservices are performed over a period of between 3 and 12months, a proportionate exemption is allowed. For example,if an employee is located overseas for 9 months 75% of hisor her salary or wages from that overseas employment isexempt income.

The effect of subsection 65B(b) is that thetaxable value of a fringe benefit (not being a car fringebenefit) provided exclusively in respect of an employee’speriod of employment on an approved project will be reducedif the employee’s salary or wages from that employment ispartially exempt from income tax by virtue of section23AF. In these circumstances, the taxable value will beproportionally reduced by the percentage of the employee’ssalary or wages that is exempt from income tax.

Subsection 65B(2) provides that the taxable valueof car fringe benefits are to be reduced on a similarbasis. Reflecting the fact that the taxable value of carfringe benefits are defined on a per car basis rather thanper employee basis, subsection (2) allocates the aggregatetaxable value of car fringe benefits for a particular carbetween the employees who were provided with those fringebenefits. The amount allocated to each employee is thenproportionally reduced by the percentage of the employee’ssalary or wages that is exempt from income tax.

By virtue of proposed subsection 124A(U, where anemployee is still engaged on overseas service at the timethe employer lodges his or her fringe benefits tax return,the employee’s prospective service can be anticipated forthe purpose of determining the taxable value of fringebenefits for the year concerned.

Section 65C : Reduction of taxable value of certainfringe benefits - section 23AG of the Income Tax

Assessment Act 1936

Proposed section 65C applies to reduce the taxablevalue of a fringe benefit provided in respect of overseasemployment where the employee’s salary from that employmentis partially exempt from income tax under section 23AG ofthe Income Tax Assessment Act 1936.

Section 23AG provides an exemption from Australianincome tax for salary or wages earned overseas by anAustralian resident during a continuous period of service

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of at least 12 months provided the salary or wages issubject to tax in the country of source. A proportionateexemption applies where the period of service is from 3 to12 months. These exemptions apply to salary or wagesderived on or after 1 July 1987.

The effect of subsection 65C(1) is that thetaxable value of a fringe benefit (not being a car fringebenefit) provided on or after 1 July 1987 exclusively inrespect of overseas employment in circumstances where theemployee’s salary or wages from that employment ispartially exempt from income tax by virtue of section 23AGwill be proportionally reduced by the percentage of theemployee’s salary or wages that is exempt from income tax.

Subsection 65C(2) provides that the taxable valueof car fringe benefits are to be reduced on a similarbasis. (See notes on proposed subsection 65B(2).)

By virtue of proposed subsection 124A(b), where anemployee is still engaged on foreign service at the timethe employer lodges his or her fringe benefits tax return,the employee’s prospective services can be anticipated forthe purpose of determining the taxable value of fringebenefits for the year concerned.

Division 15 - Car Substantiation Rules for OtherwiseDeductible Provisions

This Division, which comprises new sections 65D to65H, contains the rules that need to be complied withbefore the taxable value of a loan fringe benefit, expensepayment fringe benefit, property fringe benefit or residualfringe benefit provided in relation to an employee’s owncar may be reduced to reflect the percentage of businessuse of the car. They thus apply, for example, where anemployer pays the expenses of an employee operating his orher own car to determine the reduction under the “otherwisedeductible” rule (e.g., under section 24 of the PrincipalAct as proposed to be amended by clause 17) for thebusiness use component of the expenses.

The rules are similar to those relating to carfringe benefits contained in new sections 1OA to lOC beinginserted by Clause 7, which are explained in the notes onthose sections and are summarised in the notes on the mainfeatures of the Bill.

Scheme of operation of new log book rules for fringebenefits other than cars

As with the new log book rules relating to carfringe benefits, it is first necessary to determine whetheror not the particular year of tax is a log book year forthe car (e.g., because no fringe benefits were provided in

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relation to the car in a previous year). The circumstancesin which a year will be treated as a log book year of taxare detailed in proposed new section 162G.

The conditions that need to be satisfied if thetaxable value of the relevant fringe benefit (loan, expensepayment, etc.) is to be reduced in a log book year to takeaccount of the business percentage of the use of the carare detailed in proposed new section 65E. Where one ofthose conditions is that log books and odometer records bekept for a minimum period, the period during which thoserecords must be maintained is detailed in the definition ofapplicable log book period which is contained in proposednew section l26H being inserted by clause 60.

Proposed new section 6SF specifies therequirements that must be satisfied before the taxablevalue of a fringe benefit may be reduced in a non—log bookyear to take account of the business percentage of the useof the car by reference to log book records kept in anearlier year.

The relevant business percentage for thesepurposes - called the “car deduction percentage” - isdetermined in accordance with the rules in proposed newsection 65G.

Section 65D : Car substantiation rules

This section sets out the object of Division 15.

Section 65E : No compliance with substantiation rules inlog book year of tax unless log book records

and odometer records are maintained.

This section, which corresponds with section bOAin relation to car fringe benefits, specifies thecircumstances in which the substantiation rules will betaken to be complied with in relation to a car owned orleased by an employee during a log book year of tax or thatpart of such a year when it was for use in the course ofproducing assessable income of the employee.

By paragraph 65E(a), those rules will be compliedwith if the employer specifies, in his or her fringebenefits tax return for the relevant year, a percentageestimated to be the actual business percentage of the useof the car by the employee during that period. Such anestimated percentage may be specified either if theemployee began to hold the car for income producingpurposes during the last 12 weeks of the year of tax or theCommissioner is satisfied it would be unreasonable toexpect log book and odometer records to have beenmaintained. Log books need not be kept in these cases, butbecause the next year would become a log book year logbooks would generally be required in that subsequent year.

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If these conditions do not apply, paragraph 65E(b)requires that “log book records” and “odometer records” bemaintained for the “applicable log book period” (see thenotes on new section 162H being inserted by clause 60,usually a minimum of 12 consecutive weeks) and the employermust nominate in his or her fringe benefits tax return anestimate of the actual business percentage of theemployee’s use of the car in the year during the periodwhen it was for use in the course of producing assessableincome. That percentage must not exceed the businesspercentage established in the “log book period”, asexplained in the notes on new section 162J.

Section 65F : No compliance with substantiation rules innon—log book year of tax unless be book

records kept in previous log book year of tax.

This section, which corresponds with section lOBin relation to car fringe benefits, specifies thecircumstances in which the substantiation rules will betaken to be complied with in relation to a car owned orleased by an employee during a non-log book year of tax orthat part of such a year when it was for use in the courseof producing assessable income.

Paragraph 65F(a) contains the general conditionthat odometer records must be maintained which, broadly,must record the odometer readings at the beginning and endof the year of tax (or, if the car was not held for use inthe course of producing assessable income for the wholeyear, at the beginning and end of the period it was soheld).

Under paragraph 65F(b), it is a further conditionthat the employer specify in his or her fringe benefits taxreturn the relevant business percentage. That willnormally be the business percentage established in the lastlog book year and specified in the return for that year.However, if the car is a “low business kilometre car” (as

explained

in the notes on the amendments to section 10being made by clause 6) or there has been a reduction bymore than 10 percentage points from the business percentageestablished and specified in the last log book year, theemployer is required to specify a percentage thatrepresents an estimate of the actual business percentageduring the year when the car was for use by the employeefor the purpose of producing assessable income.

Note that in the latter case log books would needto be maintained in the following year of tax (i.e., thefollowing year of tax would be a “log book year of tax”)unless reductions in taxable value were taken in thefollowing year under one of the alternative methodsprovided in, for example, proposed new paragraph 24(l)(k).In the case of a “low business kilometre car”, thefollowing year would become a “log book year of tax” if the

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estimated actual business kibometres were less by more than10 percentage points than those established in thepreceding log book year.

Section 65G : Car deduction percentage

This section specifies the percentage - called thecar deduction percentage - that applies for the purposes ofreducing the taxable value of a loan fringe benefit,expense payment fringe benefit, property fringe benefit orresidual fringe benefit to reflect the percentage ofbusiness use of an employee’s car where the benefit hasbeen provided in relation to that car. The car deductionpercentage is applied under amendmentsbeing made tosections 19, 24, 44, and 52 of the Principal Act by clauses12, 17, 27, and 29.

Generally, that percentage is as specified in theemployer’s return in accordance with the rules contained insections 65E or 6SF, whichever is applicable. However,section 65G applies to ensure that the correct deductiblepercentage applies in the event that an incorrectpercentage is specified by the employer.

Accordingly, in a log book year or in any year inwhich the car is a low business kilometre car, theappropriate percentage is a reasonable estimate of theactual percentage of business use of the car while it washeld by the employee for use in deriving assessable income.For other than low business kilometre cars in a non—logbook year, the car deduction percentage for the purpose ofsection 19, 24, 44 or 52 is the percentage specified on thebasis of the log book records unless the estimate of theactual percentage of business use in the year is less bymore than 10 percentage points. In this case the deductionpercentage is based on the actual business use estimate.

Section 65H : Nominated business percentage to bereduced if it exceeds business percentage

established during applicable log book periodor if it is unreasonable

This section, which corresponds with section 1OCin relation to car fringe benefits, complements theoperation of sections 65E and 65F in circumstances where anemployer has specified a business percentage in respect ofan employee’s car that is greater than the maximumpermissible in a log book year and has carried thatnominated percentage through to later years.

In a log book year of tax, if the nominatedpercentage is more than the lesser of a reasonable estimateof the actual business percentage and the businesspercentage established in the log book period, the employerwill be deemed to have specified that correct lesserpercentage. This ensures that the reduction in the taxablevalue of the fringe benefit on account of the employee’s

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business use of the car under section 19, 24, 44 or 52 isbased on the applicable maximum percentage. Similarly, ina subsequent non—log book year, the employer will be deemedto have specified the lower percentage if the excessivepercentage specified in the log book year has beenspecified again.

Subsection 65H(2) ensures that, in a case where anemployer knowingly fails to specify a reduced percentagewhere there has been a substantial reduction (i.e. by morethan 10 percentage points) in the percentage of businessuse of an employee’s car in a year subsequent to theestablishment of a nominated business percentage, theemployer is deemed to have made such a specification. Inthe absence of subsection 65H(2), the employer would betreated as not having satisfied the relevant requirementsof section 65F and, accordingly, would not be entitled to areduction in the taxable value of the fringe benefit onaccount of the car deduction percentage in accordance withsection 19, 24, 44, or 52.

Clause 43 : Application of payments of instalments of tax

This clause makes a technical amendmentto section104 of the Principal Act, which requires the Commissionerof Taxation to successively credit payments of instalmentsof tax against the tax assessed for the tax year and anyother liability of the employer to the Commonwealth, and torefund the balance.

The effect of the amendmentwill be that anemployer’s entitlement to a credit or refund in respect ofan instalment paid is reduced to the extent that theemployer has received a payment that is in the nature of arefund of the instalment e.g. in anticiption of a reductionin the employer’s liability to pay an instalment arisingout of Government announcementsof 26 August 1986 and 29October 1986 of proposed changes to the law.

Clause 44 : Notional tax amount

This clause amends section 106 of the PrincipalAct which contains the rules for calculating the 2instalments of tax that were payable in the transitionalyear of tax that ended on 31 March 1987. Under thatsection, the general rule is that the amount payable as aquarterly instalment is equal to the tax that would bepayable in respect of the transitional year if the quarterwere itself the transitional year.

Paragraph (a) of clause 44 makes an exception tothat general rule in relation to revised car log book rulesbeing inserted by various clauses of the Bill.

Paragraph (b) specifies how section 106 appliesfor the purposes of those rules. The effect is that

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the first quarter is treated as if it were thetransitional year and therefore as a log book yearof tax as specified in new section 162G;

the second quarter is treated as if it were thefollowing year so that, if log book records werekept in the first quarter, it is not a log bookyear;

special applications of revised car log book rulesfor low business kilometre cars do not apply incalculating quarterly instalments;

matters required to be specified or nominated in afringe benefits tax return - the nominatedbusiness percentage, the applicable log bookperiod etc. - in relation to the car log bookrules may be included in a later document. Forexample, if log book records were kept in the -

first transitional quarter and hence that quarterwas treated as a log book year of tax, theemployer may specify the applicable log bookperiod (as required by new section 162H) and thenominated business percentage (as required by newsection bOA) for that quarter in a return of alater year of tax;

both quarters are treated as one continuous periodin ascertaining a 12 week period during which logbook records may be kept;

the requirements under new sections lOB and 6SFthat odometer records be maintained in a non-logbook year do not apply;

matters required to be done by the date of 4bodgment of a fringe benefits tax return e.g.giving log book and odometer records to theemployer, may be done by 28 days after the Billcomes into operation or such further time as theCommissioner allows.

Paragraph (C) of clause 44 ensures thatsubstantiation documents required to be obtained under the“otherwise deductible” principle to reduce the taxablevalue of a fringe benefit in a transitional quarter do notinclude documents relating to the revised car log bookrules. That is, documents such as odometer recordsrelevant to a log book year of tax need not be provided toan employer in relation to a transitional quarter. Theywould need to be provided in relation to the relevant yearof tax, however.

The effect of paragraph (d) of clause 44 is that adeclaration given to an employer, e.g. under the “otherwisedeductible” rules or in relation to a living—away-from—homeallowance, in the first transitional quarter may be treated

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as a valid declaration in relation to the same, orsubstantially the same, benefit provided in the secondtransitional quarter.

Paragraph (e) is a technical drafting change thatreflects amendments to section 29 of the Principal Actbeing inserted by clause 20.

Paragraph (g) relates to the $200 per annumexemption for safety award benefits being provided by newsection 58R. In relation to the first and secondtransitional quarters, the exemption will apply as long asthe combined notional taxable values of any such benefitsprovided in those quarters does not exceed $200.

Paragraph (h) of clause 44 deletes subsection106(2) which is made redundant by other provisions of theBill.

The “car substantiation rules” - broadly, newprovisions being inserted by the Bill to give effect torevised car log book rules - are defined in new sub-section106(5) being inserted by paragraph (-D. They relate to theoperation of paragraph (b) as outlined above.

Clause 45 : Penalty tax for over—estimating businesspercentage applicable to car

Clause 45 inserts new section bl5A into thePrincipal Act which will impose penalty tax where anemployer specifies an excessive business percentage inrelation to a car under the proposed new car log book rulesdescribed in the notes on new sections lOA and lOB beinginserted by clause 7 and on new sections 65D to 65H beinginserted by clause 42.

Subsection lb5A(l applies where an employerspecifies in his or her return for a year of tax apercentage as required by proposed new section 1OA or lOB

(see earlier notes clause 7) that purports to be thebusiness percentage applicable to a car held by theemployer during the year. If the percentage so specifiedis more than the percentage on which the taxable value ofthe relevant car fringe benefit is correctly calculable,the employer may be liable to penalty tax.

In these cases, if the tax properly payable by theemployer exceeds the tax that would be payable if thetaxable value were calculated on the basis of the incorrectbusiness percentage specified by the employer, the employerwill be liable to the usual rate of penalty tax of doublethe excess. The normal remission powers conferred bysection 117 of the Principal Act will apply.

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Subsection 115A(2) will apply in a similar mannerto subsection (1) in a case where an employer specifies anexcessive percentage in relation to an employee’s car underthe rules specified in section 65E and 65F.

Clause 46 : Retention of statutory evidentiary documents

Clause 46 of the Bill amends section 123 of thePrincipal Act which deals with the consequencesof afailure to retain statutory evidentiary documents e.g. carlog books and other documentary evidence relevant for thepurpose of determining the taxable value of a fringebenefit, or whether a fringe benefit is exempt from tax.The amendmentsreflect changes made elsewhere in the Billto implement revised car log book rules and alternativedeclaration arrangements to verify car fuel and oilexpenses.

Clause 47 : Assessment on assumption

Clause 47 inserts a new section - section 124A -

in the Principal Act.

Proposed section 124A is set against thebackground that, under a number of exemption and reductionof taxable value provisions, the question whether a benefitwill be exempt from fringe benefits tax or whether thetaxable value of a fringe benefit will be reduced by aparticular amount will, in some cases, depend on whethercertain circumstances occur after the time when theemployer lodges his or her return for the year of taxconcerned.

The effect of subsections 124A(l), (2) and (3) isto enable the employer to anticipate certain circumstanceswhen the employer self-assesses his or her tax liability bylodging a fringe benefits tax return. Similarly, theCommissioner of Taxation can anticipate those circumstancesat the time of making an assessment. Examples ofsituations where section 124A might apply are given in thenotes on proposed sections 65B and 65C.

Subsection 124A(4) authorises the amendment of anassessment at any time if an anticipated circumstance doesnot eventuate.

Clause 48 : Interpretation

Clause 48 amends section 136 of the Principal Actwhich defines various terms used in the legislation. Theamendments made by clause 48 will amend or omit a number ofexisting definitions as well as inserting a number ofdefinitions of new terms that are used in the operativeprovisions of the Bill. Explanations of significant newterms are contained in the notes on the relevant operativeclause.

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By paragraph (1) of clause 48, the existingexclusion of benefits provided under an employee shareacquisition scheme to which section 26AAC of the Income TaxAssessmentAct applies is being extended to include shareacquisitions by a relative of an employee, consistent withthe operation of section 26AP~C.

Clause 49 : New sections l38A to 138C

Clause 49 inserts 3 new sections - sections b38A,b38B and l38C - in the Principal Act. The new sections aretechnical interpretation provisions to facilitate draftingof the operative clauses of the Bill.

Clause 50 : Housing loans, prescribed interests in land orstratum units and proprietary rights in respectof dwellings

Clause SO is a drafting measure consequential uponthe proposed insertion of new section 58C.

Clause 51 : Benefits incidental to acquisition or sale ofprescribed interests in land or stratum unitsand proprietary rights in respect of dwellings

Clause 51 inserts a new section - section 141A -

in the Principal Act.

Proposed section 58C will operate to exempt anexpense payment benefit or a residual benefit in respect ofcosts incidental to the sale and/or purchase of a home byan employee who is relocated.

Proposed section l4bA specifies the circumstancesin which either of these kinds of benefit will be treatedas being in respect of incidental costs.

In broad terms, an expense payment benefit willqualify where the expenditure incurred by the employee is

in respect of stamp duty, advertising, legal fees, agent’scommission, discharge of a mortgage, expenses of borrowingor any similar matter and is expenditure of a capitalnature that is incidental to the acquisition or sale of theproperty. A residual benefit which meets such costs willalso qualify.

Clause 52 : Remote area housing

Clause 52 proposes to insert a new subsection —

subsection (lA) - in section 142 of the Principal Act whichcontains interpretation provisions relevant to certainremote are concessions.

New subsection 142(bA) will define what is meantby “remote area housing rent connected with a unit ofaccommodation” for the purpose of applying the 50% discountauthorised by proposed subsection 60(2A).

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Remote area housing rent connected with a unit ofaccommodation is rent or other consideration payable inrespect of a lease or licence in respect of a “unit ofaccommodation” (a defined term under subsection 136(1) ofthe Principal Act) where certain conditions are satisfied.These conditions are, broadly, the same as those that applyto other forms of housing assistance eligible for a 50%discount.

Clause 53 : New sections 142A to 142D

Section l42A : Benefits relating to transoort

Proposed section l42A contains interpretationprovisions relevant to a number of exemptions and otherconcessions relating to transport costs.

Subsection l42A(l) has the effect that anexemption or other concession relating to transport costswill extend to incidental costs including accidentinsurance, departure tax, a passport, a visa or avaccination relating to the transport.

Subsection 142A(2) is a technical drafting measurewhich makes it clear that where travel between two placesis undertaken in consecutive stages, a benefit provided inrespect of one stage will be taken to be provided inrespect of travel between the starting place of the tripand the final destination. This measure is relevant to theconcessions for remote area holiday transport and overseasemployment holiday transport.

Section l42B : Employee’s new place of emolovment

Proposed section b42B is a drafting measure thatis relevant to a number of provisions relating to 4relocation costs. Those provisions contain a number ofreferences to an employee’s “new place of employment”. Newsection 142B makes it clear that such a reference does notimply that the employee was employed at his or her formerusual place of residence.

Section 142C : Eligible shared accommodation in a hcmse,flat or home unit

Proposed section l42C will define what is meant by“eligible shared accommodation in a house, flat or homeunit”. Under the proposed valuation rules for remote areahousing fringe benefits, an employee is entitled to valuesuch accommodation using the “single quarters statutoryamount” and an explanation of the effect of section 142C iscontained in the notes on clause 20.

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Section l42D: Eligible accommodation in an

employees hostel

Proposed section l42D defines what is meant by“eligible accommodation in an employees hostel”. Wheresuch accommodation qualifies as a remote area housingfringe benefit, it can be valued using the “single quartersstatutory amount”. The effect of proposed section 142D isexplained in the notes on clause 20.

Clause 54: Remote area holiday transport

Clause 54 will amend section 143 of the PrincipalAct which specifies the circumstances in which a fringebenefit will be treated as being in respect of remote areaholiday transport for the purpose of applying the 50%discount authorised by existing section 61 to the taxablevalue of the fringe benefit. Section 143, as proposed tobe amended is relevant for determining the taxable value ofsuch transport under both section 61 and proposed newsection 60A (see notes on clauses 37 and 38).

The amendmentsproposed by paragraph (a) to (f) ofclause 54 will liberalise the rules for determining whethera fringe benefit qualifies as being in respect of remotearea holiday transport.

Under the existing section 143, it is arequirement that the transport is between the employee’splace of employment and either the place where the employeelived before moving to the work locality or the capitalcity of the State or Territory in which the workplace islocated. This requirement is being relaxed in two ways.First, travel to any other destination will now be treatedas qualifying travel. Secondly, in a case where the spouseor a child of the employee does not live with the employeeat the work locality, (e.g., where the child is attendingboarding school), travel by the spouse or child for thepurpose of meeting the employee will now qualify (e.g.,where the child travels directly from the locality of theboarding school to the holiday destination).

It is also a requirement under the existingsection 143 that holiday travel by an employee’s spouse andchildren must be undertaken while the employee is onrecreation leave. This requirement is being removed. Itwill now be sufficient if the travel by the spouse or childis for the purpose of having a holiday for a period of notless than 3 days. However, travel by the spouse or childwill not qualify in circumstances where the spouse or childaccompanies the employee while the employee is undertakingtravel in the course of performing the duties of his or heremployment.

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The kinds of benefits eligible for the concessionare also being extended to include a property fringebenefit in respect of meals en route and a residual fringebenefit in respect of accommodation en route.

Paragraph (g) of clause 54 proposes the insertionof three new subsections - subsections (2), (3) and (4) -

in section 143.

Proposed subsection 143(2) is a measure tofacilitate drafting.

New subsection 143(3) applies where a qualifyingfringe benefit relates to travel undertaken by the employee(or family member) that did not consist wholly of transportby the most direct practicable route between the employee’splace of employment and either the place where the employeelived before moving to the work locality or the capitalcity of the State in which the work place is located. Inthese cases, new subsection 143(3) specifies the rules forcalculating the ‘benchmark travel amount’ in relation tothe fringe benefit. The benchmark travel amount is thebasis for calculating the ceiling that will apply to thereduction in taxable value available under proposedsection 60A (see notes on clause 37).

In broad terms, the benchmark travel amount is theusual cost of travel between the employment place and thecapital city of the State in which the work place islocated. That cost is determined at the time that theparticular trip by the employee (or family member)commenced.

In more detail, the rules for calculating thebenchmark travel amount applicable to a fringe benefitprovided in respect of a particular qualifying trip by theemployee (or family member) are set out in thesubparagraphs (i) to (iv) of paragraph l43(3)(c). Underthese rules, the benchmark travel amount will be:

- in the common case where, under the aware orindustry custom pursuant to which the travelassistance is provided, the employee could havereceived assistance for travel to the capital cityof the State in which the work place is located -

the cost of a return economy air fare for a flightof the kind ordinarily provided to thatdestination under the terms of the award orindustry custom plus any incidental costsordinarily met by the employer under the terms ofthe award or industry custom in connection withsuch air travel (subparagraph (i));

if that is not the case, but a return scheduledpassenger air service is operated between theemployment place and the capital city of the State

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in which the work place is located - the lowestreturn economy air fare charged by any carrierthat operates such a service (subparagraph (ii));

if neither of the above applies, but a combinationof scheduled services operated by any carrier orcarriers would enable the employee to fly to thecapital city of the State in which the work placeis located - the lowest return economy air farescharged for air services that would in combinationenable such travel; and

should none of the above apply - the lowest returnfares for any mode of transport that would enablethe employee to travel to the capital city of theState in which the work place is located. -

New subsection 143(4) provides that, for thepurposes of the remote area holiday transport concession,Adelaide is to be treated as the capital city of theNorthern Territory and Perth is to be treated as thecapital city of the Territory of Christmas Island.

Clause 55 : Insertion of new sections 143A to 143E

Section 143A : Relocation transport

Proposed section 58F (see notes on clause 34)operates to exempt from fringe benefits tax certainbenefits relating to transport assistance where the benefitis provided to an employee who is relocated in the courseof employment or in order to commence new employment.Where the benefit takes the form of a reimbursement of carexpenses on a cents per kilometre basis, proposed section6lB (see notes on clause 39) operates to reduce the taxablevalue of the benefit.

Benefits that qualify for these concessions arereferred to in the Bill as “benefits in respect of

relocation transport”. The circumstances in which abenefit will be treated as a “benefit in respect ofrelocation transport” are set out in paragraphs (a) to (g)of proposed section b43A.

Paragraph (a) sets out the initial condition thatthe benefit must be in respect of the provision oftransport or accommodation or meals en route.

By paragraph (b), the transport, accommodation ormeals must be for the employee or his or her spouse orchildren.

Paragraph (c) makes it a condition that thetransport is required solely because the employee isrequired:

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to live away from his or her usual place of

residence in order to perform employment duties;

to return to his or her usual place of residenceat the end of a period during which the employeelived away from that place in order to performemployment duties; or

to change his or her usual place of residence inorder to perform employment duties.

Paragraph (d) stipulates that the transport mustbe provided to enable the employee to take up residence atthe new locality. In more detail, the test applies asfollows:

in a case where the employee is required to liveaway from, or change, his or her usual place ofresidence - the transport is necessary to enablethe employee (or family member) to take upresidence at the new locality. This test ensuresthat the exemption does not apply, for example, totransport costs incurred in respect of visits tothe former locality (e.g., for family reunions ormedical treatment) or to transport costs incurredat the new locality after residence has been takenup; or

- in a case where the employee is required to returnto his or her usual place of residence at the endof a period during which the employee lived awayfrom that place — the transport is necessary toenable the employee (or family member) to resumeresidence at the usual place of residence.

Paragraph (e) applies where the transport is forthe spouse or a child of the employee. In such a case, itis a condition that the transport is not provided to enablethe spouse or child to accompanythe employee while theemployee is undertaking travel in the course of performingthe duties of his or her employment. This test is designedto ensure that employers who are exempt from income tax arenot entitled to an exemption from fringe benefits tax incircumstances where a taxable employer would, by virtue ofsection 51AG of the Income Tax Assessment Act 1936, bedenied an income tax deduction for the travel costs.

Paragraph (f) provides that where the transport isfor the employee, it must not be provided while theemployee is undertaking travel in the course of performingemployment duties. In such cases, the “otherwisedeductible” rules will generally apply to reduce thetaxable value of the benefit provided any applicablesubstantiation requirements are satisfied.

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Paragraph (g) applies in a case where the employeeis required to change his or her usual place of residence.In these cases, a benefit provided under a non-arm’s lengtharrangement will not qualify for concessional treatment.

Section l43B : Overseas employees

Proposed section l43B defines the terms “overseasemployee”, “overseas posting period” and “overseasemployment place”. These terms are relevant for thepurposes of the proposed concessions relating to theholiday travel costs (new section 6lA and education costs(new section 65A) of overseas employees.

For the purposes of these concessions, an employeeis to be treated as an “overseas employee” where:

the employee’s usual place of residence is in aparticular country (the “home country”);

the employee performs his or her employment dutiesat a place outside the home country; and

the employee is required to live outside the homecountry in order to perform those duties at theoverseas employment place.

The “overseas posting period” will be the periodthat begins when the employee first commences work at anoverseas post and ends when he or she ceases working atsuch a post. The overseas posting period can thusencompass a number of consecutive overseas postings.

Section 143C: Overseas employment holiday transport

By virtue of proposed section 6lA (see notes onclause 39), the taxable value of fringe benefits in theform of holiday transport assistance provided to employeesposted overseas will be reduced by 50%, subject to aspecified ceiling on the total reduction permitted in anyparticular fringe benefits tax year.

Fringe benefits that qualify for this discount arereferred to in the legislation as “fringe benefits inrespect of overseas employment holiday transport”.

Proposed section 143C specifies the circumstancesin which a fringe benefit will be treated as being inrespect of overseas employment holiday transport. It alsodefines the terms “benchmark travel amount” and “homecountry fringe benefit” which are relevant to thecalculation of the ceiling on the reduction in taxablevalue.

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The circumstances in which a fringe benefit willbe taken to be in respect of overseas holiday transport areset out in paragraphs (a) to (m) of subsection l43C(l).These are:

the fringe benefit is in respect of the provisionof transport or accommodation and meals en route(paragraph (a));

the transport, accommodation or meals is for theemployee or the spouse or a child of the employee(paragraph (b));

the transport is provided for the purpose ofenabling the employee or family member to have aholiday of not less than 3 days (paragraph (c));

when the travel commenced, the employee was an“overseas employee” (a defined term — see newsection 143B) and had been serving overseas for atleast 28 days (paragraph (d));

in the case of transport provided to the employee,it is provided during a period of recreation leaveof not less than 3 days and, on completion of thatleave, the employee resumes duty at the overseaspost (paragraph (e));

the transport is to or from the overseasemployment place (i.e., there is no restriction onthe holiday destination) or, in the case oftransport for a spouse or a child who does notreside at the overseas employment place (e.g.,where the child is attending boarding school inthe home country), the transport is to or from aplace where the spouse or child meets the employee(e.g., at the holiday destination) (paragraph (f));

the fringe benefit does not qualify for the remotearea holiday transport concession (paragraphs (g),(h) and (1));

in the case of transport provided to the spouse ora child of the employee, the transport is notprovided to enable the spouse or child toaccompany the employee while he or she isundertaking travel in the course of performingemployment duties (paragraph (k)). This test isdesigned to ensure that employers exempt fromincome tax do not enjoy the benefit of a 50%concession in circumstances where a taxableemployer would, by virtue of section 51AG of theIncome Tax Assessment Act 1936, be denied adeduction for the travel costs; and

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the benefit is provided under an industrialinstrument or in accordance with industry custom(paragraph (m)).

Paragraph (n) provides that where the conditionsspecified in paragraphs (a) to (m) are satisfied, thefringe benefit is to be treated as being in respect ofoverseas employment holiday transport.

Paragraph (p) specifies the rules for calculatingthe “benchmark travel amount” in relation to the particularfringe benefit. The benchmark travel amount is the basisfor calculating the ceiling that will apply to the totalreduction in taxable value available under proposed section6 1A.

In broad terms, the benchmark travel amount is theusual cost of travel between the overseas employment placeand the employee’s usual place of residence. That cost isdetermined at the time that the particular trip by theemployee (or family member commenced). If the employee (orfamily member) is provided with fringe benefits in respectof more than one qualifying holiday trip during the fringebenefits tax year, a separate benchmark travel amount willbe determined in respect of the fringe benefits provided inrespect of each trip. In such cases, section 61A providesthat the highest of the various benchmark travel amounts isto be the basis for calculating the ceiling.

In more detail, the rules for calculating thebenchmark travel amount applicable to a fringe benefitprovided in respect of a particular qualifying trip by theemployee (or family member) are set out in subparagraphs(i) to (iv) of paragraph l43ClH~p. Under these rules,the benchmark travel amount will be:

in the common case where, under the award orindustry custom pursuant to which the travelassistance is provided, the employee could havereceived assistance for travel to his or her usualplace of residence - the cost of a return economyair fare for a flight of the kind ordinarilyprovided to that destination under the terms ofthe award or industry custom plus any incidentalcosts ordinarily met by the employer under thoseterms in connection with such air travel(subparagraph (i));

if that is not the case, but a return scheduledpassenger air service is operated between theoverseas employment place and the employee’s usualplace of residence - the lowest return economy airfare changed by any carrier that operates such aservice (subparagraph (ii));

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if neither of the above applies, but a combinationof scheduled services operated by any carrier orcarriers would enable the employee to fly back tohis or her usual place of residence - the lowestreturn economy air fares charged for air servicesthat would in combination enable such travel(subparagraph (iii)); and

should none of the above apply - the lowest returnfares for any mode of transport that would enablethe employee to travel to his or her usual placeof residence (subparagraph (iv)).

Paragraph (g) of subsection 143C(1) specifies thecircumstances in which a fringe benefit in respect ofoverseas employment holiday transport will be treated as a“home country holiday fringe benefit”. By virtue ofproposed subsection 6lA(3, the benchmark travel amountwill, in certain cases, be increased where home countryfringe benefits are provided to an employee (e.g., to thecost of first class travel where this is the class oftravel actually undertaken). 4

A fringe benefit which qualifies as a fringebenefit in respect of overseas employment holiday transportwill be treated as a home country holiday fringe benefit ifthe travel undertaken by the employee (or family member)was travel by the most direct practicable route between theoverseas employment place and a place in the employee’shome country.

Subsection 143C(2) contains provisions to assist

in interpretation.

Section 143D : Employment interviews and selection tests

Proposed section 58A (see notes on clause 34) willexempt from fringe benefits tax benefits which meet travelcosts incurred by an employee for the purpose of attendinga job interview or selection test. Where the benefit takesthe form of a reimbursement of car expenses on a cents perkilometre basis, proposed section 6bE (see notes onclause 39) operates to reduce the taxable value of thebenefit.

A benefit which qualifies for either of theseconcessions is referred to in the Bill as a “benefit inrespect of an employment interview or selection test”. Thecircumstances in which a benefit will be treated as a“benefit in respect of an employment interview or selectiontest” are specified in paragraphs (a) to (d) of proposedsection l43D. These are: -

the benefit is in respect of transport oraccommodation and meals en route (paragraph (a));

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the transport, accommodation or meal is providedto the employee (paragraph(b)). Travel costs ofan associate are not eligible for the concessions;

the travel is undertaken solely for the purpose ofenabling the employee to attend an interview orselection test in connection with an applicationby the employee for new employment or a promotionor transfer in his or her existing employment(paragraph (c)). In the case of an applicationfor new employment, the exemption will applyirrespective of whether the benefit is provided bythe future employer (as will usually be the case)or by a former employer (as may occur where theemployee becomes redundant); and

the benefit is not provided under a non-arm’slength arrangement (paragraph (d)).

Section 143E : Work-related medical examinations,work-related medical screening, work-related

preventative health care, work-relatedcounselling, migrant language training

Proposed subsection 58M(2) (see notes on clause34) will exempt from fringe benefits tax benefits whichmeet travel costs incurred by an employee for the purposeof attending a work-related medical examination,work—related medical screening, work—related preventativehealth car, work-related counselling or migrant languagetraining. Where the benefit takes the form of areimbursement of car expenses on a cents per kilometrebasis, proposed section 61F (see notes on clause 39)operates to reduce the taxable value of the benefit.

Proposed section l43E specifies the circumstancesin which a benefit will be eligible for concessionaltreatment under subsection 58M(2) or section 61F. Theseare:

the benefit is in respect of transport oraccommodation and meals en route (paragraph (a));

the transport is required solely because theemployee attends a work-related medicalexamination, work-related medical screening,work-related preventative health care,work-related counselling or migrant languagetraining or an associate of the employee attendswork-related counselling or migrant languagetraining (paragraph (b)); and

the transport, accommodation or meals is for theemployee or the associate, as the case requires(paragraphs (c) and (d)).

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Clause 56 : Residual benefits to include provision ofproperty in certain circumstances

This clause amends section 153 of the PrincipalAct which provides that, in specified circumstances, abenefit that consists of both goods and services will betreated as a residual benefit only. By clause 56, thisrule will not apply in a case where the goods concerned arefood or drink. The effect of this modification is that thefood or drink component of a combined benefit will be dealtwith as a property benefit. This change facilitates thedrafting of certain provisions contained in the Bill, suchas new section 61D, which authorise concessional treatmentof certain benefits relating to meals.

Clause 57 : Associates and relatives IThe effect of clause 57 is to extend the meaning

of “re1ativ~è” (as defined by the proposed definition beinginserted in subsection 136(1) of the Principal Act) toinclude a de facto spouse.

___ness -lourneys in car

This clause omits subsections 161(2) and (3) ofthe Principal Act which ensured that if an entry in a logbook was not properly made in relation to a particularjourney or the entry was not signed as required, thejourney would not be treated as a business journey. Thosesubsections are made redundant by other provisions of theBill whereby a car’s business percentage may be establishedby reference to log book entries made during a minimumcontinuous 12 week period and by the operation of newsection 162E in relation to those provisions.

Clause 59 : Holding of car -

Existing section 162 of the Principal Actfacilitates the use of the shorthand expression “car heldby a person” to embrace situations where the car is owned,leased or otherwise made available to the person by anotherperson.

The amendments to section 162 by clause 59 willmodify the meaning of that expression in its application tocar fringe benefits calculated under the section 10operating costs method, and to loan fringe benefits,expense payment fringe benefits, property fringe benefitsand residual fringe benefits where such benefits relate toan employee’s own car.

In the former application, the car will be “held”only if it is for use in providing car fringe benefits and,in the latter, if it is owned or leased by the employee inthe course of producing assessable income. The effect isthat if a car is not used by an employer throughout theyear to provide fringe benefits or, in a relevant case, by

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an employee throughout the year for income producingpurposes, the operating costs of the car for calculatingthe taxable value of a section 10 car fringe benefit willbe those applicable to the period when it was so used, andthe relevant business percentage of the employee’s car willbe based on business use during that lesser period.

Clause 60 : New sections b62B to b62N

Section l62B : When car used for the ouroose ofproducing assessable income

This section is a technical provision whichensures than any consideration of whether a car is used by

San employee for the purpose of producing assessable incomeis to be determined as it would for the purposes of theincome tax law. The measure relates to amendments beingmade to sections 19,24, 44 and 52 (e.g. new paragraphs19(l)(f), (g) and (h)) by clauses 12, 17, 27 and 29.

Section b62C : Holding period of car

New section 162C makes clear that any referencein the Principal Act to a period in a year during which aperson held a car is a reference to the total period duringthe year when it was so held.

Section 162D : Deemed specification of matters inemployer’s return

The effect of new section 162D is that an employerwho inadvertently fails to specify matters in his or herfringe benefits tax return that are required to bespecified as a condition for the application of the revisedcar log book rules in section bOA, lOB, 65E or 65F - thenominated business percentage, applicable log period,details of a replacement car, etc. - will be treated ashaving fulfilled that condition if the matters are

specified

at a later date in a document lodged with andaccepted by the Commissioner of Taxation. In relation tothe transitional year of tax, failure to comply need nothave been inadvertent for section 162D to apply.

Section 162E : Unsigned or fraudulent entriesin bog book records

The effect of section 162E is that entries in alog book which are either not signed as required by thedefinition of log book records or are false or misleadingin a material way (e.g. if ordinary journeys to and fromwork are misdescribed as business journeys) will not beusable for determining the pattern of use of the car. Anyjourneys relating to such unsigned or false or misleadingentries may not be treated as business journeys.

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Section l62F : Reasonableestimate of underlying

business percentage

This section specifies that a reasonable estimateof the “underlying business percentage” of a car (i.e. thepercentage calculated by dividing the number of businesskilometres travelled by the car in a particular period bythe total number of kibometres travelled by the car in thesame period) must take into account all relevant matters,including log book, odometer and other records maintained,and any variations in the pattern of use. The section isrelevant, for example, to section lOB where in a non-logbook year, a determination needs to be made as to whether abusiness percentage specified in relation to a car in anearlier year is more than 10 percentage points more than areasonable estimate of the underlying business percentageof the car for the current year. The term “underlyingbusiness percentage” is being inserted in subsection 136(1)of the Principal Act by clause 48.

Section 162G : Log book year of tax

New section l62G sets out the circumstances inwhich a year of tax will be a log book year of tax inrelation to a car that is used to provide car fringebenefits to employees etc., or in relation to an employee’scar where fringe benefits (loans, expense payments etc.)are provided in relation to the car. The meaning isrelevant for the application of the revised car log bookrules contained in new sections lOA to lOC and 65D to 65Hwhich enable the business use percentage of a carestablished by log book records maintained for a continuous12 week period in a log book year to apply in future yearsprovided there is no substantial fall in the business ofthe car.

Subsection 162G(l) specifies the variousconditions in which a year of tax (referred to as the“current year of tax”) will be a log book year of tax inrelation to car fringe benefits; they are that

the current year is the transitional year of tax(paragraph (a));

the employer elects to treat the current year as alog book year (paragraph (b));

the statutory formula basis under section 9 w~sused to calculate the taxable value of fringebenefits relating to the car in the preceding year(paragraph (c));

the car was not held in the preceding year(paragraph (d));

the car was held, but not used to provide fringebenefits in the preceding year (paragraph (e));

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the preceding year was a log book year but thecircumstances were such that either there was norequirement to keep log books (e.g. the car wasfirst held in the 12 weeks of the year) orrelevant conditions were not satisfied (e.g. logbook and odometer records were not maintained)(paragraph (f));

the preceding year was not a log book year but theemployer failed to keep odometer records in thatyear, or did not specify the appropriate businesspercentage applicable to the car for that year, orin that year there was a substantial fall in thebusiness use of the car from that established bylog book records in an earlier year(paragraph (g));

the Commissioner of Taxation, by causing writtennotice to be served on the employer, requires theemployer to treat the current year as a log bookyear (paragraph (h)).

Subsection 162G(2) applies in a broadly similarway to subsection (1) in relation to an employee’s car inrelation to which fringe benefits other than car benefitsare provided.

Section l62H : Applicable log book period

Section l62H in effect defines the period during ayear of tax when log book records will need to be kept inrelation to a car in order to satisfy conditions necessaryto reduce the operating cost of a car under the formula insection 10, or before the taxable value of a loan fringebenefit, expense payment fringe benefit, property fringebenefit or residual fringe benefit provided in relation toan employee’s own car may be reduced to reflect thepercentage of business use of the car.

If the car is held for less than 12 weeks (see thenotes on new subsections 162(2) and (3) concerning what ismeant by the holding of a car) during the year of tax, theapplicable log book period is the holding period. If it isheld for 12 weeks or more, the applicable log book periodis 12 weeks during the holding period.

Section 162J : Business percentage establishedduring log book period

Section b62J is a technical provision that definesthe business percentage established during a 12 week periodwhen log book and odometer records are kept in relation toa car. That percentage is equal to what would be theunderlying business percentage (see the notes on newsection 162F) for the year of tax (or lesser period if thecar was not held throughout the year) did not vary from thepattern of use shown by the log book and odometer records.

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The determination of this percentage is relevant todetermining the maximum business percentage that may beadopted in relation to a car in a log book year of tax,e.g., under paragraph lOA(b) or 65E(b).

Section 162K : Replacement cars - car fringe benefits

This section enables an employer to treat one caras a replacement for another without having to re-establisha nominated business percentage by keeping new log bookrecords etc., e.g., if a car is sold and replaced by a newcar or if a car that is used to provide fringe benefitsceases to be used for that purpose and another carcommences to be so used.

To treat a car as a replacement car, the employermust nominate in his or her fringe benefits tax return forthe relevant year both the original and replacement cars byreference to their make, model and registration numbers,and specify the replacement date. In that case, theoriginal car is treated from that date as a different carfor the purposes of the revised log book rules contained insections bA to bC, whereas the replacement car is treatedfor those purpose as if it were the original car. Thisartificial change of identity of a car does not apply forthe purposes of calculating the operating cost of a car inascertaining the taxable value of a car fringe benefitunder section 10 of the Principal Act.

Section 162L : Replacement cars - otherwise deductibleprovisions

New section l62L applies in a similar way tosection 162K where an employee’s car in respect of whichfringe benefits are provided is replaced by the employee.The section is relevant to cases where the taxable value of 4the fringe benefit may be reduced to reflect the businessuse of the car by the employee as established by log bookrecords kept under the rules contained in new sections 6SDto 65H being inserted by clause 42. In such a case, thebusiness percentage established by log book records kept inrelation to a car may be transferred to a replacement carwithout the need to keep fresh log book records as long asthere is not a substantial fall in business use from thatestablished for the original car.

Section l62M : Re-acquisition etc. of cars

Section 162M prevents an employer from relying oncar log book records kept in an earlier period as the basisfor calculating the taxable value of a car fringe benefitunder the section 10 operating costs method where a carpreviously owned or leased has been re—acquired. Wherethat occurs, the car is treated as a different car. Itapplies similarly if a car used for providing car fringebenefits ceases to be held for that purpose but is at alater time again used for that purpose. Section 162M also

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applies in a case where an employee’s car which haspreviously been owned or leased is re-acquired or where,for a time, it ceases to be used in the production of theemployee’s income but at a later time commences to be usedfor that purpose. These rules will not affect thecalculation of the depreciation and interest components ofthe operating costs of a car for the purposes of section 10if it has not been disposed of.

Section 162N : Registration of motor vehicle

Section 162N relates to new subsection 8(3) beinginserted in the Principal Act by clause 4 to exempt carbenefits where the car is unregistered. For the purposesof that exemption a car that may be driven on a public roadwithout contravening any law is treated as being registered.

Clause 61 : Application of Amendments

This clause, which will not amend the PrincipalAct, contains application provisions relating to theoperation of various amendments contained in the Bill. Forreference purposes, the Principal Act as amended by theBill is called the “amended Act” (subclause (1)). Thegeneral application rule expressed in subclause 61(2) isthat the amendments apply with effect from the commencementof the Principal Act. As such, the various exemptions andconcessions being introduced by the amending Bill willapply from the date of introduction of the fringe benefitstax law.

The remaining provisions of clause 61 vary-thegeneral application arrangements in specific circumstances.

Subclause 61(3) has the effect that new sectionll5A (see notes on clause 45), which imposes penalty taxwhere an employer specifies an excessive businesspercentage in relation to a car under revised car log bookrules, applies only to fringe benefits tax returnsfurnished after the date on which the Bill was introduced.

New subsection 17(4) being inserted in thePrincipal Act by clause 10 exempts a loan benefit by way ofan advance made solely to enable an employee to payasecurity deposit in connection with temporary accommodationthat is exempt under section 21 or subsection 475 becausethe employee is living away from home. The effect ofsubclause 61(4) is that such an advance will be exemptnotwithstanding that the related accommodation benefit mayhave ceased to be provided before the Principal Act cameinto operation.

By the operation of subclause 61(5) declarationsthat were approved for the purposes of paragraph l9(l)(c)for loan fringe benefits or paragraph 47(5)(d) for residualfringe benefits by way of accommodation provided to an

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employee living away from his or her usual residence remainin effect for the purposes of those paragraphs as amendedby the Bill.

Subclause 61(6) will enable forms approved by theCommissioner for other purposes of the amended Act to betreated as though they were approved at the commencementofthe Principal Act.

Subclause 61(7) prevents new paragraph 47(6)(aa)which removes an exemption for the use of hire cars andtaxis for travel to and from work - from operatingretrospectively to the detriment of an employer by havingit apply in these circumstances from the date ofintroduction of the amending Bill.

The “declaration date” in relation to thetransitional year of tax i.e. the date of lodgment of thefringe benefits tax return of that year or such later dateas the Commissioner of Taxation allows, is being generallyextended by subclause 61(8) where a return for that yearhas been lodged prior to 28 days after the Bill receivesRoyal Assent. The extension will apply where provisions inthe Bill require matters relating to the transitional yearto be done by the declaration date.

Subclause 61(9) is a transitional measure thatwill apply to an employer who has not satisfied therequirements of new section bA or lOB of keeping a recordof opening and closing odometer readings for the periodsspecified in those sections in relation to the transitionalyear of tax or the first standard year of tax. It willenable the employer to make a record that sets outreasonable estimates of those readings as at the requireddates and times. If another car has been nominated as areplacement for the car in accordance with new paragraph 4162K(2~b, estimated readings relating to the replacementand the end of the year (or earlier time when the carceased to be used for providing fringe benefits) shouldalso be included. If the employer declares in the documentthat, to the best of his or her knowledge and belief, theestimates are reasonable, it will be treated as therelevant odometer records.

Subclause 61(10) applies in a similar way tosubclause (9) in relation to odometer records of thetransitional year of tax and first standard year where suchrecords have not been kept of an employee’s car inaccordance with the requirements of new section 65E or 65F.

Subclause 61(11) operates to ensure that anapproved declaration given by an employee to an employer inrespect of the employee’s car in accordance with the“otherwise deductible” provisions of the Principal Act onor before the date of introduction of the Bill will betreated as a car substantiation declaration for thepurposes of those provisions as amended.

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Subclause 61(12) is a non-detriment provision thatensures that various amendments to the Principal Act tocorrect drafting deficiencies — having effect in generalfrom 1 July 1986 - do not apply to benefits provided on orbefore the date of introduction of the Bill if thatapplication would increase the liability of the employer tofringe benefits tax in respect of the benefit e.g., theinsertion of new paragraph 60(2)(d) by clause 36 to ensurethat the 50% reduction of taxable value of certain fringebenefits related to remote area housing is available onlywhere the benefit is provided under arm’s lengtharrangements not entered into for the purpose of obtainingthe benefit of the reduction. Subclause 61(13) willprevent amendmentsmade by the Bill that create anobligation for documentary evidence of an expense to beobtained and given to an employer from applying to benefitsprovided on or before the date of introduction of the Bille.g. documentary evidence of a relocation transport expenserequired by new sub-paragraph 58F(c)(ii).

Clause 62 : Amendment of assessments

Clause 62 will give the Commissioner of Taxationauthority to amend a fringe benefits tax assessmentmadebefore the Bill becomes law should this be necessary forthe purpose of giving effect to the amendmentsproposed bythe Bill.

PART III - AMENDMENT OF THE INCOME TAX

ASSESSMENT ACT 1936

Clause 63 : Principal Act

This clause facilitates references to theIncome Tax AssessmentAct 1936 which, in this part of theBill is referred to as the ‘Principal Act’.

Clause 64 : Deductions not allowable for entertainmentexpenses

Clause 64 will amend section 51AE of the PrincipalAct which provides that, subject to a number of exceptions,entertainment expenses incurred after 19 September 1985 arenot deductible for income tax purposes.

By virtue of existing subsection 51AE(5A), thegeneral prohibition does not apply to certain expensesincurred by employers in respect of meals or other food ordrink provided to employees (and their families) underboard or living-away-from-home arrangements. The food ordrink to which this provision applies is either subject tothe fringe benefits tax on a concessional basis orspecifically exempted from the fringe benefits tax.

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The amendments proposed by paragraphs (a), (b) and(c) of clause 64 will extend the classes of losses andoutgoings which, under subsection 51AE(5A), are excludedfrom the general prohibition. The broad effect of theamendments is that the disallowance measurewill not applyto the cost of providing meals or other food or drink to anemployee (or family member) where the provision of thatmeal, etc constitutes an exempt benefit or is otherwisegiven concessional treatment under the proposed amendmentsto the Fringe Benefits Tax Assessment Act 1986.

Paragraph (d) of clause 64 will insert a newsub-section - subsection (SC) - in section S1AE.

The main effect of new subsection 51A(SC) is thatwhere the provision of food or drink would constitute anexempt benefit under the fringe benefits tax legislation byreason of both a specific exempting provision and thegeneral exemption for minor benefits under proposed newsection 58P (see notes on clause 34), section 58P is to bedisregarded. This means that, for the purposes ofsubsection 51AE(5A), the benefit will be treated as exemptsolely by reason of the specific exempting provision andthus qualify for the exclusion from the prohibition ondeductions for entertainment expenses. It is noted thatthe exclusion from the general prohibition will not applyto the cost of providing a benefit that is exempt solely byreason of section 58P unless the benefit is either a boardbenefit or a living-away-from-home food benefit that ispresently excluded by virtue of paragraph 51AE(5A)(a) or(c).

Clause 65 : Deductions not allowable where expensesincurred by employee are reimbursed

Clause 65 will amend section 51AH of the Principal 4Act which operates to reduce any deduction to which anemployee would otherwise be entitled in respect of anoutgoing incurred by the employee by so much of thatoutgoing as is paid or reimbursed by the employee’semployer. In effect, the payment or reimbursement by theemployer is applied against the business component of theexpense.

The rule embodied in existing section S1AHcomplements existing section 24 of the Fringe Benefits TaxAssessment Act 1986. Under existing section 24, thetaxable value of the fringe benefit constituted by thepayment or reimbursement by the employer is reduced by thebusiness component of the expenditure incurred by theemployee.

While the above rules are appropriate where theemployer’s reimbursement in fact relates to the businesscomponent of the expense, they are not appropriate wherethe reimbursement relates to the gross expenditure incurred

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by the employee (i.e., where the reimbursement would havebeen the same even if there had been no business componentof the expenditure). To remedy such inappropriatetreatment, the Bill proposes to amendboth section SlAM ofthe Principal Act and section 24 of the Fringe Benefits TaxAssessmentAct 1986. These amendmentsare part of apackage of measures which are explained in detail in the‘main features’ section of Part A of this memorandum.

The effect of the proposed amendments to section51AH is that where the reimbursement by the employer wouldhave been the same even if the employee’s expense had notbeen incurred in producing assessable income of theemployee (i.e., where the component borne by the employeris not directly related to the business component), theamount of the deduction allowable to the employee is to becalculated on the basis that he or she had incurredexpenditure equal to the net amount incurred (i.e., theexpenditure actually incurred reduced by the amount of thereimbursement by the employer). The existing operation ofsection SlAB will not be disturbed in cases where thereimbursement by the employer relates to the businesscomponent of the expense.

Clause 66 : Deductions not allowable for private componentof contributions for fringe benefits etc

Clause 66 will insert a new section - section 51AJ- in the Principal Act.

Proposed section 51AJ will ensure that an employeeis not entitled to an income tax deduction for acontribution to a fringe benefit to the extent that thecontribution is, in effect, a payment for the privateelement of the benefit. In this, it complements theoperation of section 51AH, as proposed to be amended byclause 65.

Subsection 51AJ(U is the operative provision andapplies where the circumstances set out in paragraphs (a)to (f) exist. These are:

one of the following categories of fringe benefitis provided to an employee of an employer - anairline transport benefit, a board benefit, a loanbenefit, a property benefit or a residual benefit(paragraphs (a) and (b));

the employee made a contribution for the benefit,i.e. he or she incurred consideration for thebenefit or, in the case of a loan benefit,incurred interest on the loan (paragraphs (c)and (d));

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it would be concluded that, in calculating theamount of the employee’s contribution, theemployer made an allowance for the fact that thebenefit would be used by the employee forwork-related purposes (paragraph (e)); and

- because the employer made that allowance, theemployee’s contribution was less than it wouldotherwise have been (paragraph (f)).

Where the above circumstances apply, theemployee’s entitlement to a deduction for his or hercontribution is governed by paragraphs (g) and (h).

Paragraph (g) applies where the actual businessuse of the benefit turns out to be less than the levelallowed for by the employer in calculating the amount ofthe employee’s contribution. In these cases, paragraph (g)ensures that the employee is not entitled to any deductionin respect of his or contribution.

Paragraph (h) applies where the actual businessuse of the benefit turns out to be more than the levelallowed for by the employer in calculating the amount ofthe employee’s contribution. In these circumstances,paragraph (h) ensures that the deduction otherwiseallowable to the employee in respect of his or hercontribution is limited to so much of that contribution asrelates to the amount by which the actual business use ofthe benefit exceeds the business use allowed for by theemployer. This ceiling on the deduction allowable to theemployee is determined in accordance with the formula D-A,where:

D is the deduction that would have been allowable tothe employee had he or she incurred considerationf or the benefit equal to the amount ofconsideration that would have been payable but forthe allowance made by the employer for businessuse of the benefit; and

A is the amount of the allowance for business use.

Clauses 67 to 73 : Substantiation of certain exoensesIntroductory note

Clauses 67 to 73 will amend the provisions ofSubdivision F of Division 3 of Part III of the PrincipalAct. That Subdivision specifies rules requiringsubstantiation of employment-related expenses of employeesand car and travel expense claims by employees andself-employed persons.

Subject to a number of specific exclusions, thoserules make it a requirement for deduction that appropriatedocumentary evidence be maintained to substantiate relevantemployment-related, car and travel expense claims. For car

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expense claims, it is also a requirement that a log bookrecording business journeys be kept for a minimumcontinuous period of 12 weeks, although alternativearbitrary deduction rules are also available. -

The amendments proposed by the Bill provide thatclaims within the limits of certain transport allowances(or reimbursements of car expenses on a cents per kilometrebasis) are to be excluded from the substantiationrequirements. Under the new exclusion, substantiation willnot apply to claims within the limits of allowances paid toemployees for fares, car expenses and other transport costsincurred in the course of performing their employmentduties where the allowances are payable pursuant to anaward or other industrial instrument and are not higher inamount than was payable pursuant to the award, etc., as at29 October 1986.

In addition, relief from the substantiationrequirements will also be provided in circumstances where ataxpayer does not obtain or keep documentary evidence of anexpense because he or she expects a specified exclusionfrom the substantiation requirements to apply but, becauseof an unforeseen special circumstance, the exclusion doesnot apply.

Clause 67: Interpretation

Clause 67 proposes a number of amendments tosection 82KT of the Principal Act which containsdefinitions of certain expressions used in Subdivision F ofDivision 3 of Part III of the Act and a number of othermeasures to assist in its interpretation.

Paragraphs (a) and (b) of clause 67 will insert anew paragraph - paragraph (c) - in the definition of“eligible expense” in subsection 82KT(l).

By virtue of new paragraph (c) of that definition,an “eligible expense”, in relation to an “eligibletransport payment”, will mean a transport expense (asdefined - see below) to the extent that it is related tothe eligible transport payment. Proposed section 82KTAAspecifies how much of a transport expense is to be treatedas relating to an eligible transport payment in cases wherethe expense does not relate exclusively to the eligibletransport payment.

By the operation of proposed section 82KZBA, thesubstantiation provisions will not apply to deductionsclaimed for eligible expenses, in relation to eligibletransport payments, where the total amount claimed does notexceed the total of the eligible transport payments.

Paragraph (c) of clause 67 will insert S newdefinitions in sub-section 82KT(l).

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“Car expense reimbursement payment” is beingdefined to mean a payment made by an employer to anemployee to compensate the employee on a cents perkilometre basis for expenses of operating a car that isowned by, or leased to, the employee in respect of travelundertaken by the employee while performing duties as anemployee of the employer. This definition is relevant tothe following definition of “eligible transport payment”.

“Eligible transport payment” is a term used in theBill to identify the kind of transport allowances, etc., inrespect of which the exclusion from substantiation underproposed section 82KZBA is to apply.

A payment will qualify as an eligible transportpayment if the conditions set out in paragraphs (a) to (d)of the definition are satisfied.

By paragraph (a) of the definition, the paymentmust be a “transport allowance payment” or a “car expensereimbursement payment”.

Paragraph (b) of the definition stipulates thatthe transport allowance payment or the car expensereimbursement payment was paid to the employee pursuant toan award or other industrial instrument that was in forceon 29 October 1986.

Paragraph (c) of the definition makes it acondition that the total amount paid (whether in a singlesum or otherwise) in respect of the travel to which theallowance or reimbursement relates does not exceed theamount that would have been payable in respect of thetravel if the industrial instrument as it existed on 29October 1986 had not been altered. This means that if theindustrial instrument is altered after 29 October 1986 to 4increase the amount of the allowance, the allowance payableat the higher rate will not qualify as an “eligibletransport payment”. The operation of paragraph (C) is,however, subject to proposed subsection 82KT(1A) whichprovides that where an industrial instrument is alteredafter 29 October 1986 pursuant to an application forvariation of the instrument made on or before that date,the alteration is to be treated as having been made on 29October 1986.

Paragraph (d) of the definition applies where thetotal amount paid in respect of the travel exceeds theamount that would have been payable if the allowance orreimbursement had been calculated at the rate applicable on29 October 1986. In these circumstances, if the allowanceis to be treated as an eligible transport payment, it is arequirement that the excess is attributable to increasesthat were specified in the industrial instrument on 29October 1986. This requirement would be met where theindustrial instrument as it was in place on 29 October 1986contained clauses which provided for an increase in the

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allowance from a specified future date and the preciseamount of the increase was specified in those clauses. Onthe other hand, the requirement would not be met where anaward as it was in place on 29 October 1986 containedclauses which provided for future variations determined byreference to matters external to the award (e.g., changesin the Consumer Price Index).

The definition of “substantiation sections” liststhose sections in Subdivision F which containsubstantiation requirements. These sections will not applyin respect of a claim by a taxpayer for a deduction foreligible expenses where the requirements of proposedsection 82KZBA are satisfied.

A “transport allowance payment” is defined to meaneither:

an allowance paid by an employer to an employeefor the sole purpose of enabling the employee toincur, in respect of travel undertaken in thecourse of performing duties as an employee of theemployer, outgoings in respect of fares, carexpenses or other transport costs; or

if an allowance is not paid for the sole purposeof incurring such costs but is paid principallyfor that purpose — so much of the allowance as ispaid for that purpose. For example, if anemployer provided an employee with an allowance,90 percent of which was to cover the cost of carexpenses while travelling in the course ofemployment duties and the balance was expected tocover out of pocket expenses of the employee whileundertaking this travel e.g., telephone calls,extra meal costs, only 90 percent of the allowancepayment would be treated as a transport allowancepayment.

A “transport expense” is defined as an expenseincurred in connection with transport (e.g., train fares,car expenses, etc.,) and includes depreciation in respectof property used in connection with transport (e.g.,depreciation of a car). To ensure that the term “transportexpense” is restricted to the costs of providing transport,the definition specifically excludes expenses incurred onaccommodation, food or drink or incidentals.

Paragraph (d) of clause 67 proposes the insertionof a new subsection - subsection (1A) - in section 82KT.

New subsection 82KT (lA) contains a number ofinterpretation provisions that are relevant to the proposeddefinition of “eligible transport payment”.

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By paragraph (a) of subsection 82KT(1A), anindustrial instrument which comes into force insubstitution for another industrial instrument is treatedas a continuation of that instrument. But for paragraph(a), a payment made under a substituted instrument thatcomes into force after 29 October 1986 would not satisfythe test in paragraph (b) of the definition of “eligibletransport payment” which requires that the payment be madeunder an industrial instrument that was in force on29 October 1986. Paragraph (a) ensures that allowancesmade under a substituted award will continue to be excludedfrom the substantiation requirements provided that thesubstituted award does not increase the amount of theallowance.

Under paragraph (b) of subsection 82KT(bA), wherean industrial instrument is altered after 29 October 1986pursuant to an application made on or before that date thatsought increases in transport allowance payments or carexpense reimbursement payments, that alteration will betreated as having been made on 29 October 1986. This rulewill not apply, however, if the application was revisedafter 29 October 1986 and, as a result, increases greaterthan those originally sought were achieved.

The effect of new paragraph 82KT(1A)(b) is thatwhere an application for an increase in the amount of atransport allowance or car expense reimbursement was madeprior to 29 October 1986 but the decision by the relevanttribunal was not made until after that date, the employeesconcerned will continue to be entitled to relief from thesubstantiation requirements in respect of claims within thelimits of the increased allowance or reimbursement.

Paragraph (c) of subsection 82KT(1A) applies wherethe amount of a transport allowance or car expensereimbursement is retrospectively increased as a result ofan alteration to the award, etc., made after 29 October1986 (other than an alteration which, by virtue ofparagraph (b), is treated as having been made on thatdate). In these circumstances, payments paid at the oldrate in respect of travel undertaken prior to the date onwhich the award was varied will continue to be treated aseligible transport payments if they would have so qualifiedbut for the retrospective adjustment (i.e., the paymentmade to compensate for the difference between the old rateand the new rate for the retrospective period is not to beadded to the original payment at the old rate for thepurposes of determining whether the condition inparagraph (c) of the definition of “eligible transportpayment” is satisfied for that period).

The effect of new paragraph 82KT(1A(c is that ifthe employees concerned were entitled to relief from thesubstantiation requirements prior to the retrospectiveaward variation, they will continue to be entitled to such

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relief in respect of claims related to travel undertakenprior to the date of the retrospective award variationprovided those claims are within the limits of theallowance or reimbursement payable at the old rate.

Paragraph (e) of clause 67 inserts a reference to“transport expense” in subsection 82KT(3). This means thatwhere a transport expense is depreciation in respect of ayear of income, the depreciation expense will be deemed tohave been incurred on the last day of that year.

Paragraph (f) of clause 67 inserts a newsubsection - subsection (5A) - in section 82KT. The newsubsection is a technical drafting measure.

Clause 68 : Definition of ‘eligible expense’ - extent towhich transport expenses relate toeligible transport payments

Clause 68 will insert a new section -

section 82KTAA - in Subdivision F of Division 3 of Part IIIof the Principal Act.

New section 82 KTAA applies where a taxpayerincurs a transport expense that relates partly to travel towhich an eligible transport payment relates and partly toother travel. This situation will usually arise where thetransport expense is a car expense. In these cases, thetransport expense will be treated as being related to theeligible transport payment to the extent that it would havebeen allowed as a deduction under the general deductionprovisions of the law if none of the other travel had beenin the course of producing assessable income of thetaxpayer.

Clause 69 : Log book year of income

Clause 69 will insert a new paragraph — paragraph(j) - in section 82KTG of the Principal Act which sets outthe circumstances in which a year of income will be a logbook year of income in relation to a car that is used by ataxpayer for the purpose of producing assessable income.

New paragraph 82KTG(j) extends the circumstancesin which a year of income will be a log book year of incomeconsequential on the introduction of the new transportpayment provisions.

Under new paragraph 82KTG(j), the current year ofincome will be treated as a log book year of income if inthe preceding year car expenses in relation to eligibletransport payments were claimed, free of substantiationrequirements under proposed section 82KZBA and the taxpayerdid not use the log book method to claim deductions for carexpenses in respect of business travel that was not relatedto eligible transport payments. The general effect is that

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the taxpayer would be required to keep log books (for aminimum twelve week period) in the event that deductionsfor car expenseswere being sought in that year under thelog book method.

Clause 70 : Deduction for car expenses where income- producing use does not exceed 5,000kilometres - statutory formula

Clause 70 will amend section 82KX of the PrincipalAct which authorises an arbitrary cents per kilometre basisof deduction in relation to a car that is used by ataxpayer for the purpose of producing assessable income.The arbitrary basis is available where the number of‘business’ kilometres travelled by a car in a year ofincome is less than 5,000.

Section 82KX presently specifies that where a rateper kilometre basis of deduction applies, no separatededuction is allowable in respect of actual car expenses.The proposed amendment will modify this rule so that itdoes not apply where a taxpayer claims deductions for carexpenses in relation to eligible transport payments underproposed section 82KZBA. In such a case, the taxpayer willbe entitled to claim a deduction for car expenses inrespect of travel that is not related to the eligibletransport payments on a cents per kilometre basis as wellas claiming a deduction for car expenses that relate to theeligible transport payments.

Clause 71 : Elections

This clause corrects a drafting error in section

82KY of the Principal Act.Clause 72 : Aggregate claims not exceeding a certain amount

Clause 72 corrects a drafting error in section82KZB of the Principal Act by omitting a reference tosection 82KV in subsection 82KZB(2) and substituting areference to sections 82KVA, 82KUB, 82KUC and 82KUD.

Clause 73 : New Sections 82KZBA and B2KZBB

Clause 73 will insert 2 new sections -

sections 82KZBA and 82KZBB - in Subdivision F of Division 3of Part III of the Principal Act.

Section 82KZBA : No substantiation required for eligibleexpenses relating to transport payments in certain

circumstances

Proposed section 82KZBA will exclude from thesubstantiation requirements certain expenses incurred whereeligible transport payments are paid to an employee.

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By subsection 82KZBA(1), an employee is entitledto relief from substantiation where the conditionsspecified in paragraphs (a) and (b) are satisfied. Theseare:

eligible transport payments are paid to theemployee in a year of income (paragraph (a)); and

the total amount of deductions claimed by theemployee for transport expenses that relate tothose eligible transport payments does not exceedthe total of those payments (paragraph (b)).

Where the above conditions are met, the relievingprovisions specified in paragraphs (c) to (f) apply unlessthe employee elects to claim deductions under the generalsubstantiation requirements (such an election might bemade, for example, where the employee has kept a log bookrecording all business journeys (including those relatingto the eligible transport payments) for the necessary 12week period and wishes to claim deductions based on thebusiness percentage established by the log book).

Paragraph (c) provides that the substantiationrequirements do not apply to the amount claimed fortransport expenses that relate to those eligible transportpayments.

Paragraph (d) provides that those transportexpenses are not to be taken into account for the purposesof determining whether section 82KZB applies. Section82KZB obviates the requirement to substantiateemployment-related expenses, car expenses or travelexpenses incurred by an employee in producing salary orwages income, where the total amount of these expensesclaimed as deductions does not exceed $300. The effect ofparagraph (d) is that where an employee claims transportexpenseswithin the limits of the eligible transportpayments, he or she will be entitled to claim other workexpenses up to the $300 threshold without the need fordetailed substantiation documents.

Paragraphs (e) and (f) apply where the transportexpenses which the employee is not required to substantiateconsist of or include car expenses. In such a case, thecar concerned may be used by the employee not only for thetravel that relates to the eligible transport payments butalso for other travel in the course of producing assessableincome of the em~boyee.

In these circumstances, paragraphs (e) and (f)specify that the employee, in addition to being entitled toclaim deductions, free of substantiation requirements, for -

car expenses to the extent that they relate to eligibletransport payments, is also entitled to claim deductionsfor car expenses to the extent that they relate to otherbusiness travel (i.e., business travel that is not related

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to the eligible transport payments). However, the claim inrespect of other business travel must be made under eitherthe log book method (existing section 82KUD) or, ifapplicable, the cents per kilometre basis (existingsection 82KX).

For the purpose of calculating the deductionallowable under either method, the travel by the car thatrelates to the eligible transport payments is not to betreated as travel in the course of producing assessableincome of the employee. This means, for example, that ifthe other business travel was less than 5,000 kilometres, adeduction for that travel may be claimed on a cents perkilometre basis under section 82KX irrespective of thenumber of kilometres travelled in relation to the eligibletransport payments.

Subsection 82KZBA(2) deals with situations where ataxpayer incurs a transport expense during a year of incomebut the eligible transport payments will be paid to thetaxpayer in a later year of income. This could occur, forexample, where the taxpayer is paid a reimbursement of carexpenses on a cents per kilometre basis.

In these circumstances, the Commissioner ofTaxation will be authorised to make an assessment based onthe assumption that the exclusion from substantiation willapply in relation to the transport expense even though atthe time of making the assessmentan eligible transportpayment had not been paid.

Subsection 82KZBA(3) provides that where theCommissioner has made an assessmentunder subsection (2) onthe assumption that certain circumstances will at a latertime exist and those circumstances do not eventuate, thenthe Commissioner may amend the assessment at any time forthe purposes of ensuring that the substantiation provisionsapply on the basis that the circumstances did not exist.

Section 82KZBB : Relief from certain substantiationrequirements where a taxpayer had a reasonable

expectation that substantiation would not be required

New section 82KZBB will provide relief from thesubstantiation requirements in circumstances where ataxpayer intended to rely on a specified exclusion from thesubstantiation requirements but, because of anunanticipated change in circumstances, the exclusion doesnot apply.

In broad terms, subsection 82KZBB(l) authorisesrelief from the substantiation requirements in thefollowing situations:

where a taxpayer does not obtain or keepdocumentary evidence of a car expense because heor she expects to be entitled to claim a deduction

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for car expenses on a cents per kilometre basisunder section 82KX of the Principal Act on thebasis that the car will travel less than 5,000business kilometres in the income year but, as aresult of an unforeseen special circumstance(e.g., the taxpayer commences a new job whichinvolves much greater business travel in the car),the car travels more than 5,000 businesskilometres;

where a taxpayer does not obtain or keepdocumentary evidence of an employment-relatedexpense because he or she expects to claim adeduction for employment—related expenses, free ofsubstantiation requirements, under section 82KZBof the Principal Act on the basis that the totalof such expenses for the income year will be lessthan $300 but, as a result of an unforeseenspecial circumstance, the total exceeds $300; or

where a taxpayer does not obtain or keepdocumentary evidence of a transport expensebecause he or she expects to claim a deduction forthe expense, free of substantiation requirements,under proposed section 82KZBA but, as a result ofan unforeseen special circumstance (e.g., thetaxpayer subsequently commences to use the car forbusiness travel not related to eligible transportpayments), the taxpayer chooses not to claimdeductions under section 82KZBA.

Subsection 82KZBB(2) will allow a taxpayer to makean estimate, rather than an actual recording, of anodometer reading at the commencementof a year of income incircumstances where the taxpayer intended to claimdeductions for car expenses under a specified exclusionfrom the substantiation requirements but, because of anunforeseen special circumstance, the exclusion does notapply. This provision will, in appropriate cases, enable ataxpayer to prove his or her claim for petrol and oilexpenses by reference to odometer records notwithstanding afailure to record the opening odometer reading.

Clause 74 : Application of amendments

This clause, which does not amend the Principal

Act, contains application provisions.

By subclause (1), the amendments excluding certainoutgoings from the general prohibition on deductions forentertainment expenses will apply with effect from theincome year in~ which 20 September 1985 (the commencementdate of the prohibition) occurred.

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Under subclause (2), the amendments relating tothe deduction allowable to an employee for expenditureconnected with the provision of a fringe benefit will applywith effect from the income year commencing on 1 July 1986(the commencement date of the fringe benefits tax).

By subclause (3), the amendments relating to thesubstantiation requirements will apply with effect from theincome year commencing on 1 July 1986 (the date ofcommencement of the substantiation requirements).

Clause 75 : Amendment of assessments

Clause 75 will give the Commissioner of Taxationauthority to re—open an income tax assessment made beforethe Bill becomes law should this be necessary for thepurpose of giving effect to the amendments proposed by theBill.

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