OTHER TAXES

Fringe benefits tax – reform of the car fringe benefits rules

The Government will reform the current ‘statutory formula’ method for determining the taxable value of car fringe benefits by replacing the current statutory rates with a single rate of 20 per cent that applies regardless of the distance travelled. This reform will remove the current incentive for people to drive salary sacrificed and employer provided vehicles further to increase their tax concession. This reform will apply to new contracts entered into after 7:30pm (AEST) on 10 May 2011, and will be phased in over four years as shown below:

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.
• People who use their vehicle for a significant amount of work-related travel will 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.

BDO Comment

BDO recognises there are some genuine environmental benefits to reducing the concessions based on the kilometre based concession. However, for those individuals genuinely required by the nature of their job to drive for long distances, they may now be faced with the additional compliance burden of using the operating cost method.

Fringe benefits tax exemption for Australian residents working in remote areas overseas under fly-in, fly-out arrangements

The Government will extend the fringe benefits tax (FBT) exemption for domestic fly in fly out arrangements to cover Australian residents working in remote areas overseas. This measure will apply from 1 July 2009.

Currently, transport from an employee’s usual place of residence to their usual place of employment for employees working in remote areas of Australia under fly in fly out arrangements is exempt from FBT.

In line with the current arrangements, the expanded exemption will only apply where employees cannot live anywhere other than in employer provided accommodation at or near the work site, and no reasonable alternative accommodation is available.

Indirect Tax

The Government has proposed to introduce a number of minor changes to our indirect taxes regime. These proposed changes aim to clarify and simplify a number of areas in our indirect tax regime, including changes to:

• Goods and Services Tax (GST)
• Luxury Car Tax (LCT)
• Excise and excise-equivalent customs duty.

GST changes

A number of minor and clarifying changes have been proposed for GST. 

GST treatment of new residential premises

In the recent Federal Court decision Commissioner of Taxation v Gloxinia Investments (Trustee) [2010] FCAFC 46, it was held that the sale by developers of certain newly constructed residential premises to owner occupiers and investors was input taxed rather than taxable. This was not the intended policy intent of the GST law. As such, the Government is proposing to amend the GST law to protect the GST revenue base and to ensure the law applies appropriately to supplies of new residential premises by treating such supplies as taxable. This measure restores the policy intent of applying GST to the value added to real property by developers constructing new residential premises.

In particular, the amendments will ensure that:

• From 3 October 2007, new residential premises constructed under development lease arrangements are treated as taxable supplies
• From 1 July 2000, the granting of individual strata lot leases over newly constructed residential premises is not sufficient by itself to make future supplies of the premises input taxed
• From 1 July 2000, any change in property title arrangements will not result in the premises once again becoming new residential premises.

Transitional arrangements will apply to ensure that taxpayers who entered into arrangements on a basis consistent with the Court’s findings, prior to the Government’s announcement on 27 January 2011, are not disadvantaged.

The GST treatment of property in possession of a mortgagee

The Government will amend the GST law to clarify that Division 105 (supplies in satisfaction of debts) operates to the exclusion of Division 58 (representatives of incapacitated entities) where a mortgagee in possession or control sells the property of a corporation. This measure is intended to provide certainty and to reduce compliance costs for entities in the mortgage lending sector by allowing mortgagees in possession or control of property of corporations to continue to report and account for their GST obligations under a single registration.
This measure will apply from 1 July 2012.

The GST treatment of certain supplies made to health insurers

Following the decision of the Full Federal Court in Commissioner of Taxation v Secretary to the Department of Transport (Victoria) [2010] FCAFC 84, the Government will amend the GST law to ensure that certain supplies made to health insurers in the course of settling health insurance claims will be GST free with effect from 1 July 2000. It is not expected that this measure will have any revenue impact as this amendment restores the status quo.

Government response to the Board of Taxation report

The Government has announced the deferral of a number of measures announced in the 2009/10 Budget which were to implement the Board of Taxation recommendations relating to the administration of GST. The measures were to commence on 1 July 2011. The measures that are to be deferred are:

• Adopting of the income tax self assessment regime for indirect taxes and refresh the period of review
• Reforming the change of use adjustments
• Allowing adjustments for pre-registration acquisitions
• Clarifying the treatment of tax law partnerships
• Simplifying the GST grouping membership rules, including grandfathering of current membership rules, and allowing grouping of non-operating holding companies and trusts
• Amending indirect tax sharing agreement provisions
• Introducing a reverse charge for supplies of going concerns and farmland.

The revised start date will be the first quarterly tax period after Royal Assent, or, where appropriate, a later quarterly tax period after Royal Assent.

In addition, the Government has also announced that it will not proceed at this stage with the 2009/10 Budget measure to provide an option to treat certain business-to-business supplies as taxable, which was scheduled to take effect on 1 July 2010. The deferral is intended to enable more extensive consideration of the possible wider use of reverse charging or GST-free business-to-business transactions.

Instalment system for small businesses

The current legislation does not allow a business that is in a net refund position to pay GST by instalments. As such, the Government will extend the current GST instalment system to allow access for small businesses that are in a net refund position. This measure is intended to allow small businesses in a net refund position to choose to access the GST instalments system, with an instalment amount each quarter of zero. Any refunds or liability due to the taxpayer will be reconciled in their annual GST return.

LCT changes

The Government will amend the luxury car tax legislation to allow eligible entities, such as endorsed public museums and art galleries, to import cars free from the luxury car tax.
This measure is intended to ensure consistent treatment of imports by these entities which are currently able to import works of art or collectors’ pieces free from Customs duty and GST. Allowing imports of museum pieces by these entities to be free of all import taxes will bring Australia fully into line with its international treaty obligations.

Excise and customs changes

The Government has confirmed its January 2011 announcement that it would delay the introduction of excise and excise-equivalent customs duty on alternative fuels until 1 December 2011 in response to representations from industry to allow additional time to implement the tax changes.

The Government has also stated that it will simplify the arrangements by applying transitional tax rates to gaseous fuels and biodiesel at the scheduled effective tax rates during the transition to 2015/16, instead of imposing tax at the final rate and providing offsetting production grants.

The Budget papers also indicate that it will make several other minor changes, including revising the unit of measurement of compressed and liquefied natural gas for taxation purposes from cents per litre to cents per kilogram, consistent with general industry practice.

BDO Comment

The Government has proposed to make a number of changes to our indirect taxes regime, with most of these changes impacting GST. BDO welcomes these changes as they aim to clarify and simplify the law.  However, BDO feels that these changes are tinkering around the edges of an overly complex indirect taxes regime. If the Government is serious about reforming taxation in Australia, BDO considers that GST has be included in the upcoming National Tax Summit.