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Wednesday, 1 June 1994
Page: 1125

Senator WATSON (7.13 p.m.) —Tonight I wish to briefly address an issue that was raised yesterday during question time in the House of Representatives relating to the fringe benefits tax. The question and the minister's natural response show the dilemma faced by many employers today in complying with the nation's tax laws where there are just so many grey areas.

  Unfortunately, the minister attempted to paint it as a black and white situation. That is where he fell into error. The minister made a knee-jerk response, which I suppose is not unusual in the House of Representatives. That knee-jerk response would have been made by most business people today.

  However, the tax office often takes a different view and, when it does, it advises people accordingly. The question is: who are we to believe? I believe it is now up to the tax office to issue a determination to clarify the position.

  This debate also affords me the opportunity to mention a further dilemma faced by business people. The term `wages and employment' is used in different ways across a number of taxing jurisdictions, including ordinary pay, fringe benefits and the superannuation guarantee levy. There is a different definition of employee for fringe benefit purposes from the definition for the superannuation guarantee levy, which has a much wider scope.

  I remind the Senate that shortly after the superannuation guarantee levy came in even the tax office got its calculation wrong because it did not realise the implication of having visiting advisers running particular schools or sessions within the tax office.

  Let us look at the sorts of problems that people face. The superannuation guarantee levy, for example, includes bonuses, award payments and shift loadings but excludes overtime, payments in lieu of notice and payments for domestic work under 30 hours per week. These sorts of things are somewhat different when we are looking at fringe benefits tax. I also remind the Senate of some of the horrific increases that have occurred in what employers have to pay for. For example, a fringe benefit for a loss company can be something like 193 per cent of the tax cost. That is an incredible amount. I am saying that the after-tax cost varies considerably from taxpayer to taxpayer, which is quite inequitable. It depends on the status under which people choose to operate an entity.

  Rather than seeking that black and white simplistic response provided by Assistant Treasurer Gear, as the minister responsible for the tax office his answer should have focused on the nature of the employment arrangement, because that is the criteria that determines whether the fringe benefits tax applies. The purpose of the question was to clear up this grey area. This answer demonstrates how impossible it is for businessmen to get it right when the minister responsible for the tax office makes a knee-jerk, simplistic, black and white response. He should have responded to the question: what was the nature of the employment arrangement?

  One circumstance where the fringe benefits tax would be payable is when an employee uses the boss's car park within a kilometre of a commercial car park where the employment relationship was deemed to have existed. I doubt whether the minister would now be bold enough to ask the tax office to issue a public ruling or determination on the basis of his response yesterday. He should because his response has further confused the law. Why should people have to accept directives from the tax office contrary to the advice given in the parliament? I call upon the minister to ask the tax office to issue a public ruling or a determination on the basis of the response yesterday.

  Most people welcomed his response because they thought it clarified the law. If it did clarify the law, so be it. But I remind Mr Gear that if he does this it will open up a pandora's box of tax avoiding schemes which he seemed to condemn in another answer to my colleague Mr Scott in the other House. So it was bad in one case so far as the farmer was concerned when he had to pay thousands of dollars in fringe benefits tax, but he failed to acknowledge the loophole that he was opening up in terms of the type of response that he gave yesterday.

  So I use this opportunity to remind the Assistant Treasurer that he perhaps should have used a more cautionary approach. Such a cautionary approach is certainly adopted by the minister who represents him in this place. It is very difficult to get an answer out of Senator Cook; he takes all questions on notice and comes back with a considered response. But I am not really condemning Mr Gear at all; I actually sympathise with the dilemma he had to face when trying to respond immediately and positively to only one of the hundreds of grey areas in taxation law which, I remind the Senate, the government itself created.

  Under self-assessment, taxpayers have to get it right the first time. If they do not get it right the first time there are big penalties, culpability penalties, which range from 20 per cent up to 200 per cent with a start at 40 per cent if it is deemed to be a second offence. On top of that we have the interest component. Mr Gear has promised a review of the cost to business of compliance. I remind the Senate that the cost in terms of the FBT often far exceeds the revenue raised, but he said he will not make any changes that will diminish the amount of revenue so I wonder how cosmetic those changes will be.

  I remind the Senate that in this year's budget the government expects to increase the revenue from fringe benefits tax by 131 per cent over that extracted from taxpayers last year. The government's own agencies in this area have a very real problem when trying to comply with and get the law itself right. If we are to accept Mr Gear's response literally, as he literally accepted the question that was thrown to him, then it would be easy to avoid liability by providing a whole host of cash benefits, accommodation, meals and transport. He is opening up a pandora's box.

  Mr Gear's view is somewhat inconsistent in view of what he is going to do with the poor old public benevolent agencies. As we know, at the moment they are one of the few groups that are excluded, but Mr Gear will put a cap on the fringe benefits payable by these people. I remind the Senate, however, that other groups and bodies such as religious institutions, scientific, charitable or public education institutions, community service organisations, trade unions and hospitals get a 48 per cent rebate from their fringe benefits.

  I point out that this is an issue that I believe needs clarification at the appropriate level. If Mr Gear is right, he must issue a tax determination to clarify it. I think it is perhaps up to the tax office to refund that money which it took by default from other people who paid tax when the law was obviously wrong. All these rules and grey areas create administrative nightmares for employers. (Time expired)