• taxable government grants and specified other government payments

• sales of real property, shares (including options and warrants) and units in managed funds

• sales through merchant debit and credit services

• managed investment trust and partnership distributions, company dividend and interest payments and

• transactions reported to the ATO by the Australian Transaction Reports and Analysis Centre.[11]

Schedule 1—Modernising work-related car expenses

Four existing methods for calculating motor vehicle deductions

Taxpayers can claim deductions for the expense of running a motor vehicle used to earn assessable income.

Currently, work related car expenses are claimed by 3.8 million taxpayers each year.[12]

The actual costs of running a motor vehicle are difficult to calculate and the work-related components are difficult to allocate with accuracy. For instance, one element of the cost, the cost of fuel, can vary over time and place of purchase. In its 2014 car expenses survey, NRMA observed:

Predicting fuel cost for the next 12 months is difficult with the impact of larger global events, hurricanes or conflict and the widespread campaigns of fuel discounting particularly in the larger cities. The cost of fuel can fluctuate wildly depending on where and when you buy fuel...

For example if the price of unleaded petrol changes from $1.50 to $1.55 per litre for a Micro Car Class Vehicle add 0.31 cents per kilometre or $0.90 to the weekly running costs.[13]

The ATO therefore currently allows running costs to be approximated by applying one of four methods, only the first two of which will remain in place under this Bill:

• cents per kilometre – for fewer than 5,000 kilometres of travel for work-related purposes
• logbook
• 12 per cent of original value or
• one-third of actual expenses.[14]

Two methods removed by the Bill

Currently, the ‘12 per cent of original value’ method and the ‘one-third of actual expenses’ methods may be used where more than 5,000 kilometres are travelled in a year for work-related purposes.[15]

Taxpayers using ‘one-third of actual expenses’ method are required to keep written evidence of expenses, but not log book records. Taxpayers using ‘12 per cent original value’ method are not obliged to maintain written evidence, log book or odometer records.[16] The latest available data for 2012–13 shows that these two methods are used in about two per cent of claims each year.[17] The Bill will remove these two options.

Following the amendment, taxpayers travelling fewer than 5,000 kilometres for work-related purposes will be able to use the cents-per-kilometre method or the logbook method depending on their needs.[18]

Under the logbook method, actual work related travel is recorded in a log and all relevant expenses (including depreciation if any) incurred in operating a vehicle for those journeys—such as petrol, oil, tyres, registration, servicing costs, lease charges, interest on a car loan, necessary car parking expenses and car washing costs—are claimable as deductions. Written records must be kept of expenses.[19]

Those travelling more than 5,000 kilometres for work-related purposes will use the logbook method only.

Changes to the cents per kilometre method

The Bill will also change the cents-per-kilometre method from one with three tiers based on vehicle engine size to one amount for all vehicles.

The current rates per km, by engine capacity and engine type, are in the following table.

Table 1: Rates per km for motor vehicle expense claims

Source: ATO[20]

The new rate, in the first year, will be 66 cents per kilometre for all motor vehicles. The Commissioner of Taxation will have the power to determine a different rate each year to reflect the most up-to-date running costs for motor vehicles.

Financial implications

In the 2015–16 Budget, the Government stated that revenue gains for this measure would be $845 million over the forward estimates starting 2016–17, including $270 million in the first year.[21]

Will these savings be realised?

Some savings may arise from claimants moving from the abandoned methods to the cents-per-kilometre method.

However, it seems likely that the main savings will come from the substitution of a single rate only slightly above the existing lowest rate for the three rates per kilometre.  

In the most recent tax year for which data is available, 2012–13, total work-related vehicle expenses deductions were approximately $8,026 million.[22] Of this amount, approximately $5,096 million was claimed by the per kilometre method.

The amount claimed for the two biggest engine sizes will reduce by at least 10 cents per kilometre or about 13.5 per cent. Assuming that half of the vehicles used for cents per kilometre claims have engine capacity greater than 1.6 litres,[23] all other things being equal, those claimants will reduce their claim by 13 per cent resulting in savings of nearly $330 million.[24] So the estimate of the saving appears plausible, even conservative.

Schedule 2—Better targeting of the Zone Tax Offset  

What is a tax offset?

A tax offset is an amount that is deducted from a taxpayer’s tax liability if the relevant eligibility conditions for that offset are met.

A refundable tax offset is one that is available in full even if it exceeds the tax liability of the taxpayer.

A non-refundable tax offset is available only up to the amount of the person’s tax liability.

For example, if a person has a tax liability of $500, and is entitled to a hypothetical tax offset of $600, they would have the benefit of all of the offset and would be entitled to a refund of $100 if the tax offset were refundable but would have their tax liability reduced to zero, with no refund, if the offset were non-refundable.

The Zone Tax Offset

The ZTO is a non-refundable tax offset. It was introduced in 1945 in recognition of the difficulties of living in some more remote parts of Australia. It is intended to compensate people for living in particular locations in difficult conditions like isolation, adverse climate and with high living costs.

The ZTO is available if a person resides (in the sense required by the legislation) in one of defined geographic zones. The ZTO arrangements are long-standing:

This offset and its predecessors have been around since just after the Second World War and have not significantly changed based on regions since 1981.[25]

The rate of the ZTO depends on which of the defined geographic zones that a person is resident in. The specified remote areas of Australia covered by the ZTO are Zone A and Zone B.

Zone A comprises those areas where the unfavourable factors are more pronounced than Zone B. The tax offset for ordinary Zone A residents is accordingly higher than for ordinary Zone B residents. A special category of zone allowances is available to taxpayers residing in particularly isolated areas (‘special areas’) within either zone.

The areas covered by Zone A and Zone B are generally in the west, north and centre of Australia. Zone B covers the islands forming part of Australia that are adjacent to the coastline of the mainland and Tasmania.

Some places (but not islands) are eligible for a higher basic ZTO if, by the shortest practical land or sea route, they are more than 250 kilometres from the centre of an urban area (whether or not that urban area is within an eligible zone) with a 1981 census population of over 2,499. The 1981 census is used only if the taxpayer is not disadvantaged by it.[26] 

Eligibility for ZTO restricted

Currently, to be eligible for this tax offset, a taxpayer must reside or work in a specified remote area for more than 183 days in an income year.

The current test for ZTO eligibility can be met by those for whom it was not necessarily intended. For instance, a person who lives in Sydney but who flies into a zone to work 16 consecutive days every month would reside in the zone for 192 days per year and satisfy the test even though their normal residence is in Sydney. 

Changes proposed by the Bill

The Government announced in the 2015–16 Budget that FIFO and DIDO workers would be excluded from the ZTO where their normal residence is not within a designated zone. [27] Those FIFO workers who live in one zone, but work in a different zone, will have their ZTO entitlement unchanged.

The measure is designed to target the ZTO to taxpayers who have taken up genuine residence within the zones. This was to align the tax offset with the original intent of the policy which was to support genuine residents of zones.[28]

Background to the proposed changes

The measure follows an inquiry in 2013 by the House of Representative Standing Committee on Regional Australia (the Committee) into the use of FIFO and DIDO workforce practices in regional Australia.[29] 

In its findings, the Committee observed that the use of ‘FIFO/DIDO presents two very different faces depending on whether the perspective is from a ‘host’ or ‘source’ community’.[30] For host communities, concerns were raised about access to medical services, availability of accommodation and the security implications of a large influx of young men. [31]

On the other hand, remote work practices and conditions suit many people making FIFO and DIDO arrangements more advantageous than living in the zone full time. For example, people can earn relatively high wages by being FIFO or DIDO workers. Consequently, a substantial proportion of them live in urban areas, outside the designated zones but enjoy the ZTO benefit.[32]

The Committee acknowledged that ‘labour and skills shortages mean that employers need to offer a range of work practices, including FIFO and DIDO in order to attract employees’.[33] The findings of the inquiry were that the prevalent work practices ‘are necessary and appropriate for operations in remote areas and the labour intensive construction phase of resource projects’.[34]

Given the complexity of the effects on the host community, the Committee suggested that ‘FIFO/DIDO should not be utilised as the primary work practice where it undermines the liveability of regional Australia. In some areas liveability is becoming so eroded that the choice to ‘live-in’ rather than FIFO or DIDO is simply not available’.[35] Recommendation 14 of the inquiry report was that the Commonwealth Government ‘review the Zone Tax Offset arrangements to ensure that they are only claimable by permanent residents of a zone or special area’.[36]

In the 2012-13 income year, more than half a million Australian residents (with taxable income) claimed ZTO of $284.3 million.[37] It is estimated that around 20 per cent of all claimants do not actually live full-time in the zones.[38]

Financial implications

In the 2015–16 Budget, the Government stated that revenue gains for this measure would be $325 million over the forward estimates starting 2016–17, including $105 million in the first year.[39]

Schedule 3—Limiting fringe benefit tax concessions on salary packaged entertainment benefits

Fringe benefits tax (FBT) is paid by employers on certain benefits provided to their employees, employee’s family or other associates. The benefit may or may not be part of their salary or wages package.

Some benefits are exempt from fringe benefits tax or receive concessional treatment. Specific exemptions and concessions apply to some non-profit organisations.

Fringe benefits tax exemptions are primarily used by Public Benevolent Institutions (PBIs), health promotion charities, public and not-for-profit (NFP) hospitals, and public ambulance services. The FBT rebate is used by other charities and certain other income tax exempt employers, to provide salary packaging benefits in order to attract and retain employees. FBT concessions are also used to compensate for funding shortfalls in the NFP sector.

In the 2015–16 Budget the Government announced a limit of $5,000 per year, per employee, for the value of fringe benefits exempt for  FBT purposes :

• salary sacrificed meal entertainment expenses and
• salary sacrificed entertainment facility leasing expenses.[40]

Accordingly the Government proposes in this Bill a separate single grossed-up cap of $5,000 for salary sacrificed meal entertainment and entertainment facility leasing expenses (meal entertainment benefits) for employees. Meal entertainment benefits exceeding the separate grossed-up cap of $5,000 can also be counted in calculating whether an employee exceeds their existing FBT exemption or rebate cap. All use of meal entertainment benefits will now become reportable fringe benefits in the Business Activity Statement (BAS) for those enterprises that are registered for GST or the Instalment Activity Statement (IAS) for those who are not registered for GST.

The current annual cap for FBT exempt benefits of public benevolent institutions and health promotion charities is $30,000 per employee. The cap for public and NFP hospitals and public ambulance services is $17,000 per employee.[41]

Generally these caps apply on a per employer basis, and as a consequence, some of those employees who work for multiple eligible employers can avail themselves of multiple caps. On top of that there is no pro-rata entitlement to the cap based on days of service, so new employees, who start working after the start of FBT year, can use the annual cap amount even if they have only worked for the eligible employer for a short period during the year.

Currently there are no limits on meal entertainment expenses; they are all exempt from FBT for employees of these organisations. Under the proposed measure all use of meal entertainment benefits will be reportable.

Employees of ‘for profit’ organisations

All entertainment fringe benefits provided by a for-profit employer, including meals, are subject to FBT. There is no FBT exemption limit for benefits provided to employees of these entities.

The reason for these rules

The material in the following two sections is taken from the Parliamentary Library Budget Review 2015-16.[42]

The limits on FBT exemptions for employees of health related not-for-profit (NFP) institutions arise under subsection 5B(1E) of the Fringe Benefits Tax Assessment Act 1986.[43] Initially these employees had been exempt from FBT. Subsection 5B(IE) was inserted by the A New Tax System (Fringe Benefits) Act 2000.[44] The Explanatory Memorandum to the A New Tax System (Fringe Benefits) Bill 2000 noted:

The FBT capping measure will stop the overuse of the FBT exemption for PBIs [public benevolent institutions] and the concessional FBT treatment for certain non-profit, non-government organisations, which are currently open‑ended, by capping the exempt or concessional treatment to $25,000 of the tax-inclusive value of an employee's fringe benefits. However, the threshold is $17,000 where the employee of the s57A employer or rebatable employer works in a hospital. This measure goes some way towards the ideal position where employees earning the same remuneration are taxed the same, while ensuring that PBIs and certain non-profit organisations retain a cost advantage over other employers.[45]

The annual limit of $25,000 was later increased to $30,000 as the result of a Government Senate amendment, arising from negotiations between the then Government and the Democrats.[46] These limits have not changed since 2000, so their real value has decreased. The FBT concessions available to the NFP sector at that time were aimed at helping these organisations attract and retain staff.[47]

The proposed measure is to commence from 1 April 2016, to coincide with the start of the FBT year and is projected to produce a revenue gain of $295 million between 2015–16 and 2018–19.[48]

Effectiveness of these concessions

While the FBT concessions were implemented to allow health-related NFP organisations to offer competitive salaries to attract staff, two questions remain. Are these FBT incentives still effective? Do they place ‘for-profit’ organisations at a disadvantage? In a 2010 study the Productivity Commission found:

... in a small number of areas, notably hospitals, FBT arrangements confer advantage to both not for profits (NFP) and public hospitals. The concession allows them to offer staff, often considerable, FBT benefits that commercial hospitals cannot, despite facing the same funding arrangements. In relation to hospitals, the FBT benefits do impact on competitive neutrality. More generally, these arrangements are not an ideal method of providing support to those NFPs that the government wishes to assist as FBT rates have been frozen, eroding the benefit conferred; and FBT exemptions are complex and costly to administer for both the [Australian Taxation Office] and NFPs.[49]

The Commission concluded:

[g]iven the distortions, the significant transactions costs associated with salary packaging, and the lack of a clear public benefit justification, the FBT concession does not appear to be very effective, efficient or equitable. In the case of public hospitals, it also provides a non-transparent Commonwealth subsidy to state and territory public hospitals.[50]

A 2013 study by a Treasury Working Group reported that the FBT concession was:

... primarily used by PBIs, health promotion charities, public and NFP hospitals, and public ambulance services ... to provide salary packaging benefits in order to attract and retain employees. FBT concessions are also used to compensate for funding shortfalls in the NFP sector.[51]

This study also found:

The uncapped access to meal entertainment and entertainment facility leasing benefits has raised concerns about the legitimacy of such concessions, especially since the rest of the community are not able to access such concessions or claim a deduction for such expenses. The benefit of this concession is also not evenly spread among NFP employees, tending to be more highly utilised by eligible employees on higher salaries.[52]

Reform priorities

Since the inception of the salary packaging benefits, some employers have been actively promoting the use of meal entertainment cards for dining. The extension of the concession to entertainment facility leasing, which includes both domestic and overseas holiday accommodation, has reportedly been exploited by some employers.[53]

The Productivity Commission preferred that assistance to not-for-profits be provided in a more transparent manner, such as direct government funding, and the gradual phase out of these concessions.[54] The Henry Tax Review recommended that the FBT concessions be phased out and replaced with direct government funding.[55]  The Treasury Working Group recommended that the FBT concessions be removed and proposed ‘an alternative support payment to employers, possibly through the tax system, to replace the FBT concessions provided through salary packaging’.[56]

These uncapped concessions were viewed as resulting in inequitable outcomes, particularly for employers who are able to access a generous FBT exemption cap or rebate. According to the independent review of the regime, the benefit of this concession was not evenly spread among NFP employees, but more highly utilised by eligible employees on higher salaries. The policy intent was that this concession would help registered charities and public hospitals attract staff and reduce their costs of employment.[57]

Schedule 3 to the Bill introduces a limit for concessional treatment of salary package entertainment. There are three features of such changes:

• it ensures salary packaged meal entertainment and entertainment facility leasing expense benefits will always appear as part of an employee’s reportable fringe benefits total which is included on their payment summaries 
• it removes access to elective valuation rules to prevent unintended and excessively concessional values being applied to those benefits and  
• it introduces  a cap on the total amount of salary packaged entertainment benefits that employees can be provided by exempt employers (covered by section 57A of the FBTAA 1986) and rebatable employers (covered by section 65J of the FBTAA 1986) that are exempt from or subject to a reduced amount of FBT.[58]

Financial implications

In the 2015–16 Budget, the Government stated that revenue gains for this measure would be $295 million over the forward estimates starting 2015–16, including $20 million in the first year.[59]

Schedule 4—Third party reporting

Since 1986–87, Australia’s income tax system has largely operated on a self-assessment basis for individuals. This means that it is the individual taxpayer who is obliged to self-assess their income tax affairs and to report relevant information to the ATO. For most people this means preparing and lodging an annual income tax return.[60]

In order to make the self-assessment of individual tax returns an easy option, the ATO commenced a pre-filling service in 2007. The ATO uses the information from third parties to provide this service. According to ATO, this service has reached a point where most taxpayers can now fill a simple tax return on the basis of third party information so collected.[61] In essence, the ATO provides its pre-filling service by using the information it has received for compliance purposes and adding it directly to the relevant tax return label or providing additional information in a summary form.[62]

The information so collected used to pre-fill simple tax returns includes:

• wage and salary data from employers
• government welfare payments from Centrelink and other providers
• interest income from financial institutions
• dividend income from share registries and
• Medicare levy surcharge and private health insurance policy details from private health insurers.[63]

Under the present arrangements, the ATO receives relevant information from third parties for the purposes of post lodgement compliance activities. This is done by the Commissioner under his general information collection power.

Third party reporting—ATO experience

Prior to the introduction of formal interest reporting in the late 1980s, it was estimated that more than $4 billion in interest income was omitted by individuals each year. In 2012, financial institutions reported to the ATO in excess of $24.2 billion in interest paid to individuals. When matched to income tax returns, only $175.9 million, or 0.7 per cent, was not returned voluntarily in tax returns.[64]

Consequently, the previous Labor Government proposed the measure ‘Tax compliance: improving compliance through third party reporting and data matching’ in the in the 2013–14 Budget.

The measure was intended to establish new, and strengthen existing, reporting systems for:

• taxable government grants and specified other government payments
• sales of real property, shares and units in managed funds
• sales through merchant debit and credit services
• managed investment trust and partnership distributions, company dividend and interest payments, and
• transactions reported to the ATO by the Australian Transaction Reports and Analysis Centre.[65]

At the time, the Government said that the information provided to the ATO would also improve the pre-filling of tax returns, making the exercise simpler for taxpayers.[66] The changes were proposed to broadly apply to transactions occurring on or after 1 July 2014.

The measure is aimed at improving compliance and providing a level playing field for Australian taxpayers by enabling the ATO to expand its data matching with third party information.[67]

On 6 November 2013, the Coalition government announced its intention to proceed with this measure.[68]

Reporting obligations in relation to transfers of real property (reported by states and territories) and ASIC market integrity data (reported by ASIC) apply to transactions happening after 30 June 2016, and other third party reporting obligations apply to transactions happening after 30 June 2017.[69]

Under the proposed streamlined measure, the below transactions will be reported by relevant third parties to the ATO:

• government related entities, other than local government bodies, to report on government grants
• government related entities to report on consideration they provide for services
• states and territories to report on transfer of real property in their jurisdiction
• ASIC market participants and trustees of trusts with an absolutely entitled beneficiary to report on transactions relating to shares and units of unit trusts
• listed companies to report on transactions relating to their shares
• trustees of unit trusts to report on transactions relating to their trust units and
• administrators of payment systems to report on electronic business transactions.[70]

On 10 July 2015 Treasury released an exposure draft and explanatory memorandum.[71]

The Government however acknowledged that the introduction of the proposed legislative amendments would involve a policy trade-off between the compliance benefits to taxpayers of improved ATO data-matching capabilities and the compliance costs imposed on third party reporters. The existing reporting entities that already collect relevant information in the ordinary course of their business or through other activities, or integrate the obligation into existing natural business systems are not expected to face extra compliance costs. However, the Government has advised the Commissioner to streamline the process and avoid duplication.[72]

Rationale for proposed measure

The existing legislative obligations for entities to report information to the ATO are spread throughout the tax legislation. For example, regulation 56 of the Income Tax Assessment Regulations 1936 requires various investment bodies to provide an annual investment income report to the ATO (this report allows the ATO to pre‑fill, amongst other things, an individual’s dividend and bank interest payments) and Division 410 of Schedule 1 to the TAA 1953 contains the structural framework for the taxable payments annual report that applies to payments in the building and construction industry.[73]

There may be legislative synergies if these regimes were to be co-located in Schedule 1 of the TAA 1953.[74]

Given the breadth of the proposed reporting regimes, as well as the fact that there is currently no consistent legislative approach for third party reporting, the Government introduced this new legislative framework within Schedule 1 of the TAA 1953 specifically to support this type of reporting. This could, over time, allow for further third party reporting obligations to be established within a consistent framework. Of note, the Government has enacted a treaty-status Intergovernmental Agreement with the United States of America (US) to comply with the US Foreign Account Tax Compliance Act (FATCA) to enable the financial sector to comply with US FATCA reporting rules.[75] This, in effect, requires the development of a similar third party reporting regime for entities in the financial sector.[76]

Financial implications

In the Explanatory Memorandum, the Government states that revenue gains for this measure would be $123.0 million over the forward estimates starting 2017–18, including $36.6 million in the first year.[77]

Committee consideration

Senate Standing Committee for the Scrutiny of Bills

On 11 November 2015, the Senate Standing Committee for the Scrutiny of Bills commented on the Bill by stating:

The amendments made by both of these schedules [Schedule 1 and Schedule 2] will apply in relation to the 2015-16 income year, that is, they will apply retrospectively from 1 July 2015 (Schedule 1, item 45; Schedule 2, item 15). Beyond noting that these measures were announced in the Budget, the explanatory memorandum does not address the retrospective application of these schedules.[78]

Senate Selection of Bills Committee

In its most recent report, dated 12 November 2015, the Committee recommended that the Bill not be referred to any Committee.[79]

Policy position of non-government parties/independents

On 20 May 2015, the Labor Opposition pledged to support the changes to work-related car expense deduction methods  and the ZTO measures (in Schedules 1 and 2 to the Bill) as contained in the 2015–16 Budget.[80] Labor stated that ’it will support excluding “fly-in, fly-out” workers from a zone tax offset to save $325m over three years and support changes to employee deductions for car expenses to recoup $845m over three years’.[81]

In a media report, the Brisbane Courier-Mail reported on 21 May 2015:

Mr Bowen said yesterday Labor would support five measures including a planned tax hike for backpackers on working holiday visas, cuts to zonal tax perks for FIFO workers, reductions to tax deductions for car expenses and an end to the large family bonus.[82]

The proposed measure concerning FBT for salary sacrificed meal entertainment and entertainment facility leasing expenses for the NPF sector (in Schedule 3 to the Bill) was not initially supported by the Opposition.[83] However, a deal was reportedly reached between the Government and the Opposition in the first week of June this year to clear the measure in the Parliament. [84]

Since the third party reporting measure contained in this Bill was an initiative of a previous Labor Government, it could be expected that it would be supported by the Opposition.

Position of major interest groups

On the proposed changes to the method of calculating car expense deductions (Schedule 1), analysts have cautioned motorists that they would lose $85 a year with the new car-expense claim measure:

Motorists who use their own cars for work will lose about $85 a year in tax claims when the Australian Taxation Office updates its mileage rates from July 1. Under a Budget measure set to save $845 million over the next four years, workers who drive less than 5000km will no longer claim per-kilometre rates depending on the size of their car engine.

At the moment, about four million Australians who claim work-related car expenses in their annual tax return claim 65c a km in petrol and running costs for a small car, and 76c  and 77c respectively for medium and large cars. But one flat rate of 66c will come into effect on July 1, delivering a boost to those who drive small cars, but stinging those with larger models. Those who believe their costs are higher, or who drive more than 5000km a year for work, will be able to claim the former rates, but only if they keep a detailed logbook.[85]

On the proposed changes to ZTO eligibility (Schedule 2), Steve McCartney, the WA Secretary of the Australian Manufacturing Workers Union, said that the measure was unfair because those affected were spending a substantial proportion of their time in those zones.[86]

On the question of fairness of FBT concession changes for the NFP sector (Schedule 3), the Institute of Public Accountants (IPA) noted:

Whilst we support the introduction of a cap for salary sacrificed meal entertainment and entertainment facility leasing expenses, the proposed threshold of a grossed up amount of $5,000 may be deemed too low for cash strapped NFP trying to attract and retain employees. The introduction of a cap will remove the exploitation of the concession and ensure that it is not unevenly used by employees on higher salaries. However if the cap is struck at a level which is too low, it can place undue pressure on small NFP employers trying to compete with commercial remuneration packages. Some research should be conducted on the impacts of the proposed threshold will have particularly for small NFP organisations.[87]

In a submission to the Treasury, the Tax Institute suggested that the Government needs to reconsider the salary cap of $5,000 for the NFP Sector as proposed in the Bill. The Institute argued:

We consider that the current proposed cap of $5,000 will unduly impact lower income earners who are provided these types of salary-packaged benefits in lieu of more competitive salaries their non-profit employers may not otherwise be able to offer. The proposed measure does not compensate non-profit employers for the impact the cap will have on their ability to attract employees and offer competitive salary packages comparable to private sector salaries. In our view, a higher cap of $15,000 strikes a better balance between preserving the position under the current law for many lower income employees while at the same time preventing excessive salary packaging of these benefits by higher income earners and therefore still achieving ‘fairness’ as intended by the Government upon introducing this measure.[88] 

Statement of Compatibility with Human Rights

As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Schedule 1, Schedule 2 and Schedule 3 to this Bill are compatible as they do not raise human rights issues.[89]

However, the proposed third party reporting regime in Schedule 4 to this Bill raises human rights issues.[90] The Explanatory Memorandum says:

The amendments made by this Schedule engage the prohibition on arbitrary or unlawful interference with privacy contained in Article 17 of the International Covenant on Civil and Political Rights (ICCPR) as third parties will need to provide a range of personal information to the Commissioner that they collect in the ordinary course of business.[91]

The Government argues that these reporting obligations are compatible with the prohibition, as they are neither arbitrary nor unlawful. In addition, the mechanisms of reporting are effective and proportionate means to minimise the cost compliance burden of tax payers requiring only the minimum amount of information necessary to identify relevant taxpayers and transactions.[92] Further, safeguards already exist to maintain the privacy of the taxpayers. The ATO data record system ensures that taxpayer information held by the ATO is not disclosed or recorded by officials unless a specific legislation exemption applies.[93]

On the basis that its engagement of the right to privacy will neither be unlawful (including by virtue of the amendments to Australia’s taxation legislation set out in the Bill) nor arbitrary, the Government has determined the Bill to be consistent with Article 17 of the ICCPR.[94]

Parliamentary Joint Committee on Human Rights

The Parliamentary Joint Committee on Human Rights considers that the Bill does not raise human rights concerns.[95]

Key issues and provisions

Schedule 1—Modernising work-related car expenses

Item 1 of Schedule 1 of the Bill will amend ITAA 1997 to repeal subsection 28-25(1) which will remove the three rates which are set according to the engine capacity of the vehicle, and will insert a new formula to calculate car expenses based on a single rate of cents per kilometre in the income year.

Item 2 of Schedule 1 insert proposed subsections 28-25(4) and 28-25(5) to allow the Commissioner to determine a rate of cents per kilometre for vehicles for an income year having regard to the average operating costs of the vehicles.

Item 3 of Schedule 1 proposes to repeal Subdivisions 28­D and 28-E of ITAA 1997 to remove the ‘12 per cent of original value’ method and the ‘one-third of actual expenses’ methods. Individual taxpayers who travel less than 5,000 business kilometres in a year will now have a choice of using the cents per kilometre method or the logbook method, a discretion they can use based on the appropriateness of the cost of running their vehicles.

Items 4 to 20 of Schedule 1 are minor consequential amendments to the FBTAA 1986 to, among other things, remove references to the two methods to be repealed.

Item 45 of Schedule 1 stipulates the transitional provision that will bring changes to the FBTAA 1986 effective from 1 April 2016. Item 46 proposes that the 66 cents per kilometre method will be applicable for the 2015–16 income year, and allows the Commissioner to change the rate for later income years. 

Schedule 2—Better targeting of the Zone Tax Offset

The proposed amendments in the ITAA 1936 are intended to ensure that the ZTO is appropriately targeted to people genuinely living in the designated geographical Zones by limiting access to ZTO to those people whose usual place of residence in within a Zone.

Items 1 to 14 of Schedule 2 propose changes to the provisions of the ITAA 1936 in order to restrict people living outside designated zones from accessing the ZTO.

Item 15 stipulates that the measure will apply from the 2015–16 income year.  

Schedule 3—Limiting fringe benefits tax concessions on salary packaged entertainment benefits

The amendments in the Bill to the FBTAA 1986 are targeted to apply a separate grossed up cap of $5,000 for salary sacrificed meal entertainment and entertainment facility leasing expenses for certain employees of NFP organisations. It will also ensure that all use of these salary sacrificed benefits become reportable.

Items 1, 2 and 7 of Schedule 3 propose to repeal a number of provisions from the FBTAA 1986, which are currently inoperative. The amendments will remove subsection 5B(1) (which applies to tax years prior to April 2000); step 3, paragraph (a) of the method statement in subsection 5B(1E); and step 2, paragraph (a) of the method statement in subsection 65J(2B)). The repeal will have no substantive effect on the operation of the law. The provisions will also substitute steps 3 and 4 and add step 5 in subsection 5B(1E) with a new measure that will help calculate an employer’s aggregate non-exempt amount for the year of tax.

Item 3 inserts proposed subsection 5B(1M) of the FBTAA 1986 that will determine the benefit provided under a salary packaging arrangement if the benefit is constituted by the provision of meal entertainment or the benefit is wholly or partly attributable to entertainment facility leasing expenses.

Items 4 and 5 amend paragraphs 5E(3)(a) and (c) to change the definition of excluded fringe benefit to remove the provision of meal entertainment (as currently defined in section 37AD) and entertainment facility leasing expenses (as currently defined in subsection 136(1)) that are provided under the salary packaging arrangement at the moment.   

Items 6, 10 and 11 introduce provisions that will prevent Division 9A of Part III and section 152B of FBTAA 1986 from making any valuation of salary packaged entertainment benefits. Currently these two provisions allow employers to access elective valuation rules for meal entertainment benefits and for entertainment facility leasing expenses respectively under salary sacrifice arrangements.

Items 7 and 8 propose to amend subsection 65J(2B) and insert 65J(2J) in order to limit the existing concession by increasing the existing capping threshold by the lesser of $5,000 and an employee’s total grossed-up taxable value of salary packaged entertainment benefits.

Item 9 of Schedule 3 amends subsection 136(1) to make changes to the definition of ‘salary packaging arrangement’ in order to ensure that it captures both benefits provided to employees and benefits provided to associates of an employee where the employee has reduced their salary and wages in return for the benefit.

Item 12 of Schedule 3 provides that the amendments made by this Schedule apply in relation to the 2016–17 FBT year.

Schedule 4—Third party reporting

The Bill proposes to insert proposed Subdivision 396-B (information about transactions that could have tax consequences for tax payers) into Schedule 1 of the TAA 1953 to create a new third party reporting regime. The ATO will use this information to pre-fill tax returns and to undertake compliance activities.

Item 1 of Schedule 4 adds proposed Subdivision 396-B, which explains in detail the third party reporting regime, and the transactions on which the reporting entities have to report to ATO.

Item 2 of Schedule 4 inserts three definitions into the Dictionary at subsection 995-1(1) in the ITAA 1997 in order to clarify the market integrity rules under the new arrangement for the Australian Securities and Investments Commission (ASIC). Currently under section 798G of the Corporations Act 2001, financial markets are required to report information to ASIC on transactions that take place on their market.[96] The participants are also required to provide information that assists identification of the person who provided instructions to place an order to enter into a transaction. Under the amended rules, ASIC will have to provide information collected under those rules to the Commissioner – see table item 4 of the table in proposed section 396-55 of the TAA 1953, at item 1 of Schedule 4. These new definitions facilitate the operation of that requirement.

Item 2 to 15 and 22–26 of Schedule 4 make consequential amendments to section 995-1 of the ITAA 1997 in order to define the ASIC and standardise that definition throughout Schedule 1 to TAA 1953 and the Tax Agent Services Act 2009.[97]

Members, Senators and Parliamentary staff can obtain further information from the Parliamentary Library on (02) 6277 2500.

[1].         Income Tax Assessment Act 1997 (Cth) and Fringe Benefits Tax Assessment Act 1986 (Cth), both accessed 22 October 2015.

[2].         Income Tax Assessment Act 1936 (Cth), accessed 22 October 2015.

[3].         Taxation Administration Act 1953 (Cth), accessed 22 October 2015.

[4].         Australian Government, Budget measures: budget paper no. 2: 2015–16, pp. 22, 25 and 27, accessed 9 November 2015.  

[5].         Australian Government, Budget measures: budget paper no. 2: 2013–14, p. 44, accessed 9 November 2015.

[6].         J Hockey (Treasurer) and A Sinodinos (Assistant Treasurer), Restoring integrity in the Australian tax system, joint media release, 6 November 2013, accessed 9 November 2015.

[7].         Explanatory Memorandum, Tax and Superannuation Laws Amendment (2015 Measures No. 5) Bill 2015, p. 7, accessed 25 November 2015. 

[8].         Australian Government, Budget measures: budget paper no. 2: 2015–16, op. cit., p. 27.

[9].         Ibid., p. 25.

[10].      Ibid., p. 22.

[11].      Australian Government, Budget measures: budget paper no. 2: 2013–14, op. cit.

[12].      K O’Dwyer (Assistant Treasurer), ‘Second reading speech: Tax and Superannuation Laws Amendment (2015 Measures No. 5) Bill 2015’, House of Representatives, Debates, 15 October 2015, p. 11307, accessed 23 October 2015.

[13].      NRMA, ‘About 2014 car operating costs’, NRMA website, accessed 9 November 2015.

[14].      Explanatory Memorandum, Tax and Superannuation Laws Amendment (2015 Measures No. 5) Bill 2015, p. 3, accessed 26 October 2015.

[15].      CCH Australia, Australian master tax guide 2015, 56th edn, Wolters Kluwer, Sydney, January 2015, pp. 926–927.

[16].      Ibid., p. 227.

[17].      ATO, ‘Taxation Statistics 2012–13, Table 1: Individuals: Selected items, for income years 1978–79 to 2012–13’, ATO website, accessed 26 October 2015.

[18].      Explanatory Memorandum, op. cit., p. 11.

[19].      Australian master tax guide 2015, op. cit., p. 919. See also ATO, ‘Keeping a logbook’, ATO website, accessed 10 November 2015.

[20].      ATO, ‘Income and deductions for business, cents per kilometre’, ATO website, accessed 26 October 2015.  

[21].      Australian Government, Budget measures: budget paper no. 2: 2015–16, op. cit., p. 27.

[22].      ATO, ‘Taxation Statistics 2012–13, Table 1: Individuals: Selected items, for income years 1978–79 to 2012–13’, data.gov.au website, accessed 29 October 2015.

[23].      This is probably a very conservative estimate, as the average fuel consumption of passenger vehicles in 2014 was 10.7 litres per 100 kilometres. Australian Bureau of Statistics Survey of motor vehicle use, cat. no. 9208.0, ABS, Canberra, October 2015, accessed 29 October 2015.

[24].      This estimate is based on 13.5 per cent being the average reduction in the per km rate multiplied by 50 per cent representing the number of vehicles assumed here to be in the top two tiers multiplied by $5,046 million, being the value of deductions using the cents-per-kilometre method.

[25].      R Donelly (Chief Adviser, Personal and Retirement Income Division, Treasury), Evidence to Joint Select Committee on Northern Australia, Inquiry into the development of northern Australia, House of Representatives, Hansard, 21 March 2014, p. 45.

[26].      ATO, Taxation Ruling, TR 94/27, p. 4, accessed 17 November 2015.

[27].     Australian Government, Budget measures: budget paper no. 2: 2015–16, p. 25.

[28].     Ibid.

[29].     House of Representatives, Standing Committee on Regional Australia, Inquiry into the use of ‘fly-in, fly-out’ (FIFO) and ‘drive-in, drive-out’ (DIDO) workforce practices in regional Australia: final report, House of Representatives, Canberra, February 2013, ch. 1, p. 2, accessed 26 October 2015.

[30].      Ibid.

[31].     Ibid.

[32].     Ibid.

[33].      Ibid., p. 2.

[34].      Ibid., p. 2.

[35].     Ibid., p. 2.

[36].     Ibid., p. 124.

[37].     ATO, ‘Taxation Statistics 2012–13, Table 11: Selected items, by residency status, taxable status and taxable income, 2012–13 income year’, ATO website, accessed 29 October 2015.

[38].     Australian Government, Budget measures, budget paper no. 2: 2015–16, op. cit., p. 25.

[39].      Ibid.

[40].      Ibid., p. 22.

[41].      Ibid, pp. 22–23. Slightly higher limits apply in the first year due to the Temporary Budget Repair Levy. Further, these values are ‘grossed up’, meaning that the value of the limit is calculated to take into account benefits provided with a taxable value that included the FBT paid by the employer.

[42].      L Nielson, ‘Tightening fringe benefit tax on not-for-profit organisations’, Budget Review 2015–16, Research paper series, 2015–16, Parliamentary Library, Canberra, 2015, p. 165, accessed 11 November 2015.

[43].      Fringe Benefits Tax Assessment Act 1986 (Cth).

[44].      A New Tax System (Fringe Benefits) Act 2000 (Cth).

[45].      Explanatory Memorandum, A New Tax System (Fringe Benefits) Bill 2000 and A New Tax System (Medicare Levy Surcharge - Fringe Benefits) Amendment Bill 2000, p. 24, accessed 29 October 2015.

[46].      R Kemp,  A New Tax System (Fringe Benefits) Bill 2000, A New Tax System (Medicare Levy Surcharge—Fringe Benefits) Amendment Bill 2000, Senate, Debates, 10 May 2000, p. 14267 and p. 14277; J Woodley, A New Tax System (Fringe Benefits) Bill 2000, A New Tax System (Medicare Levy Surcharge—Fringe Benefits) Amendment Bill 2000, Senate, Debates, 10 May 2000, p. 14268.

[47].      J Singer, Battle looming over FBT in health industry, The 7.30 Report, transcript, Australian Broadcasting Commission, 17 December 1999, accessed 26 October 2015.  

[48].      Explanatory Memorandum, Tax and Superannuation Laws Amendment (2015 Measures No. 5) Bill 2015, p. 5, accessed 10 November 2015.

[49].      Productivity Commission, Contribution of the not-for-profit sector, January 2010, p. XXXI.

[50].      Ibid., p. 216.  

[51].      Not-For-Profit  Sector Tax Concession Working Group, Fairer, simpler and more effective tax concessions for the not-for-profit sector: final report, report prepared for Treasury, The Treasury, Canberra, May 2013, p. 7, accessed 27 October 2015.  

[52].      Ibid.

[53].      Institute of Public Accountants (IPA), Submission to Treasury, Limiting fringe benefits tax concessions on salary packaged entertainment benefits—Exposure Draft, 21 August 2015, p. 2, accessed 17 November 2015.

[54].      Contribution of the Not-for Profit Sector, op. cit., pp. XLVIII–XLIX and p. 213.

[55].      K Henry (Chair), Australia’s future tax system, Part 2 Detailed analysis, December 2009, Vol. 1, p. 211, accessed 27 October 2015.

[56].      Fairer, simpler and more effective tax concessions for the not-for-profit sector: final report, op. cit., p. 7.

[57].      Ibid. 

[58].      T Hayes (ed.), ‘FBT Concessions on salary packaged entertainment benefits’, Weekly Tax Bulletin, 44, 2015, para [1634].

[59].      Australian Government, Budget measures: budget paper no. 2: 2015–16, op. cit., pp. 22–23.

[60].      The Treasury, ‘Improving tax compliance — enhanced third party reporting, pre-filling and data matching’, Discussion paper, February 2014, p. 2, accessed 28 October 2015.

[61].      K O’Dwyer (Assistant Treasurer), ‘Second reading speech’, op. cit.

[62].      The Treasury, ‘Improving tax compliance — enhanced third party reporting, pre-filling and data matching’, Discussion paper, op. cit.

[63].      Ibid.

[64].      Australian Taxation Office (ATO) ‘Third party reporting’, Annual report 2012–13, ATO, Canberra, 2013, accessed 28 October 2015.

[65].      Australian Government, Budget measures: budget paper no. 2: 2013–14, op. cit. p. 44.

[66].      Ibid.

[67].      The Treasury, ‘Improving tax compliance — enhanced third party reporting, pre-filling and data matching’, Discussion paper, op. cit. p. 15.

[68].      J Hockey (Treasurer) and A Sinodinos (Assistant Treasurer), Restoring integrity in the Australian tax system, joint media release, 6 November 2013, accessed 9 November 2015.

[69].      Explanatory Memorandum, op. cit., p. 76.

[70].      Thomson Reuters, Weekly Tax Bulletin, Vol No. 44, [1634], p. 1534.

[71].      Treasury, ‘Improving tax compliance — enhanced third party reporting, pre-filling and data matching’, Exposure draft, 10 July 2015, accessed 18 November 2015.

[72].      K O’Dwyer (Assistant Treasurer), Second reading speech, op. cit.

[73].      The Treasury, ‘Improving tax compliance — enhanced third party reporting, pre-filling and data matching’, op. cit., p. 13.

[74].      Ibid.

[75].      Agreement between the Government of Australia and the Government of the United States of America to Improve International Tax Compliance and to Implement FATCA, done at Canberra 28 April 2014, [2014] ATS 14 (entered into force 30 June 2014).

[76].      ATO, ‘Foreign Account Tax Compliance Act’, ATO website, accessed 30 October 2015.

[77].      Explanatory Memorandum, Tax and Superannuation Laws Amendment (2015 Measures No. 5) Bill 2015, op. cit. p. 7.

[78].      Senate Standing Committee for the Scrutiny of Bills, Alert digest, 12, 2015, The Senate, 11 November 2015, accessed 24 November 2015.

[79].      Senate Selection of Bills Committee, Report, 14, 2015, The Senate, 12 November 2015, accessed 24 November 2015.

[80].      C Bowen (the Shadow Treasurer), ‘Labor and the economy: owning the future’, speech delivered at the National Press Club, 20 May 2015, accessed 12 November 2015.  

[81].      D Crowe, ‘ALP to back $2.4bn in cuts and tax increases’, The Australian, 21 May 2015, p. 4, accessed 12 November 2015.

[82].      ‘Labor to back $2.4b in savings’, Courier-Mail, 21 May 2015, p. 4, accessed 28 October 2015.

[83].      P Coorey, ‘Spouses and doctors lose tax break’, Australian Financial Review, 9 June 2015, p. 1, accessed 28 October 2015.

[84].      Ibid.

[85].      J Marszalek, ‘Motorists lose $85 after ATO’s rate move’, Courier-Mail, 12 May 2015, p. 7, accessed 12 November 2015. 

[86].      L Gartry, ‘Budget 2015: AMWU slams move to exclude FIFOs from zone tax offset as attack on workers’, ABC News, (online edition), 13 May 2015, accessed 12 November 2015.  

[87].      Institute of Public Accountants (IPA), Submission to Treasury, Limiting fringe benefits tax concessions on salary packaged entertainment benefits– Exposure Draft, 21 August 2015, p.4, accessed 12 November 2015.

[88].      The Tax Institute, Submission to Treasury, Limiting Fringe Benefits Tax concessions on salary packaged entertainment benefits–Exposure Draft, 26 August 2015, p. 2, accessed 12 November 2015.

[89].      The Statements of Compatibility with Human Rights for each Schedule of the Bill can be found at pages 15, 20, 49 and 78 of the Explanatory Memorandum to the Bill.

[90].      Ibid., p. 79.

[91].      Ibid., p. 79.

[92].      Ibid.

[93].      Ibid., p. 80.

[94].      Ibid.

[95].      Parliamentary Joint Committee on Human Rights, Thirtieth Report of the 44th Parliament, The Senate, Canberra, 10 November 2015, p. 2, accessed 25 November 2015. 

[96].      Corporations Act 2001, accessed 25 November 2015.

[97].      Tax Agent Services Act 2009, accessed 25 November 2015.

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