Chapter 1
Schedule 5 of Tax Laws Amendment (2011 Measures No. 5) Bill 2011
Referral of the bill
1.1
Tax Laws Amendment (2011 Measures No. 5) Bill 2011 (the bill) was
introduced into the House of Representatives on 2 June 2011. On 15 June 2011,
on the recommendation of the Selection of Bills Committee, the Senate referred
the provisions of Schedule 5 of the bill to the Economics Legislation Committee
(committee) for inquiry and report by 21 June 2011.[1]
Schedule 5 of this omnibus bill proposes amendments to the Fringe Benefits
Tax Assessment Act 1986 to reform the car fringe benefits tax (FBT) rules.[2]
Background to Schedule 5
Australia's Future Tax System
Review
1.2
In its report to the Treasurer in December 2009, the Australia's
Future Tax System review (the tax review) noted that:
...[i]n some cases, existing tax and transfers settings are
inconsistent with broader environmental objectives.[3]
1.3
The tax review went on to cite the current statutory formula for valuing
car fringe benefits as an example of an existing tax setting with the potential
to create incentives for individuals to travel additional distances, in turn
increasing pollution and congestion.[4]
In citing this particular example, the tax review recommended:
9(b) The current formula for valuing car fringe benefits
should be replaced with a single statutory rate of 20 per cent, regardless of
the kilometres travelled.[5]
The 2011-12 federal budget
1.4
In the 2011-12 federal budget the government announced that it would
reform the car fringe benefit rules to implement the recommendation of the tax
review.[6]
In announcing the reform, the government detailed that the changes would only
apply to new vehicle contracts entered into after 7:30pm AEST on 10 May 2011
(budget night) and would be phased in over four years.
1.5
In making this announcement, the government specified that existing
contracts would be grandfathered and therefore subject to existing
arrangements.[7]
1.6
At the time of its announcement, the measure was identified as having
the following effects:
Compared to the current statutory rates, a single rate of 20
per cent will:
- increase the tax concession provided for vehicles
driven less than 15,000 kilometres a year;
- maintain the current tax concession provided for
vehicles driven between 15,000 and 25,000 kilometres a year; and
- decrease the tax concession provided for vehicles
driven more than 25,000 kilometres a year.[8]
1.7
The government also identified that those people who use their vehicle
for a significant amount of work-related travel would still be able to use the
'operating cost' (or 'log book') method to ensure their car fringe benefit
excludes any business use of the vehicle.[9]
Revenue implications
1.8
The 2011-12 budget detailed that the proposed changes would not only
result in an ongoing revenue gain of $970 million over the forward estimates,
but would also increase goods and services tax payments to the states (by $50
million), while decreasing government expenditure (by $33.9 million).[10]
Scrutiny of bills committee
1.9
The Scrutiny of Bills Committee considered TLAB 5 of 2011 in its Alert
Digest No. 5 of 2011. The committee noted that it:
...has regularly been prepared to accept amendments proposed
in the Budget will have some retrospective effect when the legislation is
introduced, though this is usually limited to publication of a draft bill
within 6 calendar months after the date of that announcement. Given that this
measure was announced in the 2011 Budget the Committee leaves to the Senate
as a whole the question of whether this measure should be given retrospective
operation as proposed.[11]
[emphasis in original]
1.10
The Scrutiny of Bills Committee made no further comment on the approach
taken in Schedule 5 of the bill.
Conduct of the inquiry
1.11
The committee was referred this inquiry on 15 June and asked to report
by 21 June. On 15 June, the committee wrote to a number of stakeholders
inviting submissions by 20 June. Time did not permit for the advertising of the
inquiry in the national press.
1.12
The committee received five submissions; a list of submitters to the
inquiry is set out in Appendix 1. (Submitters were generally supportive of the
amendments proposed by Schedule 5.) Public hearings were not held due to the
limited time for the inquiry.
1.13
The committee thanks those organisations who made submissions to the
inquiry and acknowledges the tight timeframes in which these contributions were
made.
Structure of the report
1.14
This report is comprised of two chapters. Chapter 2 addresses the issues
raised by stakeholders during the inquiry process.
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