Government responds to report on reducing regulatory burdens on business
September 2006
On 15 August 2006 the Federal Treasurer released the Government's final response to the Taskforce report Rethinking Regulation: Report of the Taskforce on Reducing Regulatory Burdens on Business(the Report). The Taskforce delivered its Report to the Government on 31 January 2006.
The Report, guided by the views of representatives of industry, small business, consumers and government, made 178 recommendations on ways to reduce red tape. The Report also made other recommendations concerning regulatory gate keeping and how to improve the way in which regulations are made.
The Report included recommendations about tax, including fringe benefits tax (FBT), goods and services tax (GST), superannuation, and the harmonisation of State taxes and tax administration across jurisdictions. The Government had already accepted a number of the recommendations by the Taskforce, and the response sets out the Government’s final position on the Taskforce’s Report.
We highlight several of the key tax related recommendations, and the Government’s response, in the upcoming tables.
"FBT reporting" is the obligation of the employer to report the value of certain fringe benefits on the payment summary for an employee (or "group certificate" as it was once called) at the end of each financial year. The purpose is to ensure reportable fringe benefits are taken into account when determining the employee’s liability for various obligations (eg Medicare levy surcharge) and entitlement to tax offsets and rebates.
The Taskforce recommended that the Government should limit reporting of fringe benefits to remuneration benefits only, and if this recommendation were not accepted, the threshold for FBT reporting should be increased from $1000 to $2000, with a wider range of benefits being exempted from reporting.
The Government announced in the 2006-2007 Federal Budget that it had accepted the recommendation to increase the reportable fringe benefits exclusion threshold from $1000 to $2000. This change will take effect from 1 April 2007. Legislation has now been introduced into Parliament to give effect to this measure - see article in this month’s TaxTalk on New tax legislation introduced.
With respect to exempting a wider range of benefits from the fringe benefits reporting requirement, the Government agrees in principle to a reporting exclusion for pooled or shared vehicles (that is, vehicles that are used by more than one employee), with details to be finalised through consultation.
FBT minor benefits
Minor benefits are exempt from FBT, subject to a threshold, if they are "irregular" and "infrequent". The Taskforce recommended that there be an increase in the minor fringe benefits exemption threshold from $100 to $300.
The Taskforce recommended that the Australian Taxation Office (ATO) should review and clarify its guidelines about what the ATO considered to be "irregular" and "infrequent" for the purposes of the FBT minor benefits exemption.
The Government has agreed to the increase in the minor fringe benefits exemption threshold and the change will take effect from 1 April 2007. Legislation has now been introduced into Parliament to give effect to this measure - see article in this month’s TaxTalk on New tax legislation introduced.
The ATO is reviewing its existing guidelines and will provide further clarification about what is considered "irregular" and "infrequent".
FBT on road tolls
The Taskforce recommended that the ATO should examine and implement administrative solutions to further reduce the compliance costs of calculating FBT on road tolls and better publicise the work it has already done.
The Government has previously agreed to the recommendation and the ATO is reviewing the current administrative solutions which reduce the compliance costs of FBT in this area.
We understand the ATO are releasing a fact sheet on road tolls for comment.
Interaction between FBT and GST
There is a complex interaction between FBT and GST. The Type 1 aggregate fringe benefits taxable amount (which is the aggregate amount of fringe benefits where the provider is entitled to an input tax credit for GST) is grossed up by 2.0647. The Type 2 aggregate fringe benefits taxable amount (which is the aggregate amount of fringe benefits where the provider is not entitled to an input tax credit for GST) is grossed up by 1.8692.
The Taskforce recommended that the Government review the interaction between FBT and GST with a view to reducing compliance costs.
The Government has rejected this recommendation as it considers the interaction between FBT and GST appropriate to deliver the necessary tax outcomes.
FBT treatment of car parking
The Taskforce recommended that the Government review the FBT treatment of car parking with a view to reducing compliance costs.
The Government considers that a standard valuation method for car parking would add to compliance costs and would raise equity issues, and so should not be pursued. However, the Government will consider any suggestions to reduce car parking compliance costs where the valuation methods proposed result in a reasonable approximation of the cost of the benefit provided.
Optional group FBT returns
The Taskforce had recommended that entities be given the option of submitting group FBT returns.
The Government view is that providing grouped entities with a legislative option to lodge a single FBT return would not reduce compliance costs overall, and would in fact increase compliance costs. The Government is considering whether such an option could be provided in some circumstances through non-legislative means.
Allow employers the same extension to lodge FBT returns as tax agents
The Taskforce had recommended that employers be given the same extension to lodge FBT returns as tax agents.
The Government has rejected this recommendation. The ATO provides tax agents with extensions in recognition of their role in preparing and lodging FBT returns on behalf of many clients. The vast majority of companies use a tax agent and would access an extension already. In addition, the ATO has power to grant extensions in appropriate cases.
The Taskforce recommended that the Federal, State and Territory Governments agree to raise the threshold for compulsory GST registration from $50,000 to $75,000.
The Federal Government has agreed to consider this proposal further in the context of the change to the definition of small business announced in the 2006-2007 Federal Budget.
Promote BAS policy for capital items worth $1,000 or less
The Taskforce recommended that the ATO promote its policy to allow items with a purchase price of $1,000 or less to be reported on the business activity statement (BAS) as non-capital items.
The Government has previously agreed to this recommendation. The ATO is promoting its policy to allow items with a cost of $1,000 or less to be reported on the BAS as non-capital. This policy applies to acquisitions that would otherwise have to be recorded at item G10 on a BAS if the business does not record capital acquisitions separately and expects its annual turnover to be less than $1 million. The revised and updated GST Business Activity Statement Instructions were published on 1 July 2006. They contain advice regarding the reporting of low cost capital items.
For further information, please contact:
Ken Fehily, Partner
PricewaterhouseCoopers Tax
Goods and Services Tax
Phone: +61 3 8603 6216
Kevin O’Rourke, Partner
PricewaterhouseCoopers Tax
Goods and Services Tax
Phone: +61 2 8266 3114
Incorporate the Medicare levy into personal income tax rates
The Taskforce recommended that the Australian Government incorporate the Medicare Levy into personal income tax rates and abolish the Medicare Levy Act 1986.
The Australian Government has rejected the recommendation on the basis that incorporating the Medicare levy into personal income tax rates would disadvantage taxpayers that are currently exempt from the levy, such as low income earners (in our view this is a largely fallacious argument). The Government also alleges that incorporating the levy into personal income tax rates in a way that avoids disadvantaging specific groups would add complexity and not significantly reduce compliance costs for businesses as only 4 of the 33 current ATO Pay-As-You-Go (PAYG) withholding schedules relate to Medicare levy adjustments and exemptions.
Increase the PAYG withholding threshold for quarterly remitters
The Taskforce recommended that the Government increase the PAYG withholding threshold for quarterly remitters from $25,000 to $40,000.
The Government rejected this proposal because it would result in a significant deferral of revenue.
Align and rationalise definitions in tax law
The Taskforce recommended that the Government take steps to align and/or rationalise different definitions in the tax law including "small business”, "employee”, "salary and wages”, and "associate”.
The Government has agreed in principle to the recommendation to align definitions in the tax law.
In the 2006-2007 Federal Budget, the Government announced a number of measures designed to improve the tax system for small businesses by streamlining definitions and reducing complexity and compliance costs. The measures include improving the alignment of eligibility thresholds for small business concessions and increasing access to the simplified tax system and small business capital gains tax concessions.
The concepts of "salary and wages” and "employee” are already standardised in the income tax, fringe benefits tax and superannuation law, as they all use the common law meaning of the terms.
However, the scope of these common law concepts is extended in slightly different ways in different contexts. The Government will examine possibilities to specify more clearly the various obligations of employers under the income tax, fringe benefits tax and superannuation law and the reasons, if any, for their difference. The Government will also consult the State and Territory Governments to determine the extent to which these concepts may be applied in state and territory laws.
The Government took steps to standardise the definition of "associate” in the 1997 rewrite of the Income Tax Assessment Act. It has continued that process of law improvement by removing some duplicated definitions in its recent project to repeal inoperative provisions.
Align definitions of "employee” and "contractor”
The Taskforce recommended that the Government align the definitions of "employee” and "contractor” used for superannuation guarantee and PAYG withholding purposes.
The Government rejected the recommendation as it would reduce superannuation guarantee coverage and may reduce superannuation guarantee compliance.
Harmonise payroll tax administration across states and territories
The Taskforce recommended that the Council of Australian Governments (COAG) should develop measures to harmonise the tax base and administrative arrangements of payroll tax regimes across the States and Territories.
The Government agreed to this recommendation. While the nature of the tax base and the administration of state and territory payroll tax is the responsibility of State and Territory Governments, the Federal Government would support any move to harmonise these across States and Territories.
The Government will seek to progress this through the Council of Australian Governments, as well as the harmonisation of the administration of similar taxes and charges across the State and Territory Governments.
Harmonise stamp duty administration across States and Territories
The Taskforce recommended that COAG should encourage the elimination of stamp duties included in the Inter-Governmental Agreement (IGA) and should develop measures to harmonise the administration of any remaining stamp duty regimes.
The Government has agreed with the States on a schedule for the abolition of the majority of taxes listed for review in the IGA. Inefficient state taxes such as stamp duty on mortgages, leases, and credit and rental arrangements will be abolished, as was originally intended under the IGA. This means taxpayers will pay less tax to hire a video, hire a car or take out a loan to buy a home. The abolition of these taxes is expected to save taxpayers approximately $4.4 billion over a four year period from 1 July 2006. The Government will also continue to pursue the abolition of stamp duty on business conveyances of real property. This is the last remaining tax listed in the IGA.
Standardise tax administration across jurisdictions
The Taskforce recommended that COAG develop measures to standardise tax administration across the States and Territories and the Federal Government.
The Government agreed with the recommendation and has proposed that the Council of Australian Governments and the Ministerial Council for Commonwealth-State Financial Relations should develop measures to harmonise the administration and tax base of like taxes across the Australian, State and Territory Governments.
The Taskforce recommended that the superannuation guarantee exemption threshold be increased from $450 to $800 per month, that there be a periodic review of the threshold and that employers be allowed to use a quarterly exemption threshold (equal to the monthly exemption threshold multiplied by three).
The Government rejected this recommendation because of its negative impact on low income employees’ retirement savings.
The Taskforce recommended that businesses be allowed to account for superannuation contributions which have been paid on a cash or accruals basis to be consistent with the way they treat other expenses.
Due to the cost to revenue, the Government rejected this recommendation.
The Taskforce recommended that the superannuation tax rules be simplified.
The Government accepted this recommendation to simplify superannuation tax rules and announced a plan for this in the 2006-2007 Federal Budget.
