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Tax Laws Amendment (2012 Measures No. 4) Bill 2012

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2010-2011-2012

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

Tax Laws Amendment (2012 Measures N o . 4) Bill 2012

 

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

 

(Circulated by the authority of the

Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)

 



Table of contents

Glossary.............................................................................................................. 1

General outline and financial impact............................................................ 3

Chapter 1               Reform of the living-away-from-home allowance and benefit rules         7

Chapter 2               GST supplies by representatives who are creditors..... 31

Chapter 3               Consolidation...................................................................... 37

Index................................................................................................................. 45

 

Do not remove section break.



 

The following abbreviations and acronyms are used throughout this explanatory memorandum.

Abbreviation

Definition

ATO

Australian Taxation Office

Commissioner

Commissioner of Taxation

FBT

fringe benefits tax

FBTAA

Fringe Benefits Tax Assessment Act 1986

GST

goods and services tax

GST Act

A New Tax System (Goods and Services Tax) Act 1999

ITAA 1936

Income Tax Assessment Act 1936

ITAA 1997

Income Tax Assessment Act 1997

LAFH

living-away-from-home

TAA 1953

Taxation Administration Act 1953



 

Reform of the living-away-from-home allowance and benefit rules

Schedule 1 to this Bill amends the Fringe Benefits Tax Assessment Act 1986 and the Income Tax Assessment Act 1997 to reform the taxation treatment of living-away-from-home (LAFH) allowances and benefits to:

•        generally treat LAFH allowances as part of an employee’s assessable income rather than as fringe benefits;

•        better target the concessional treatment by allowing an income tax deduction:

-       for reasonable expenses incurred and substantiated for accommodation and food and drink (beyond ‘ordinary weekly food and drink expenses’);

-       to employees who maintain a home in Australia for their own personal and immediate use and enjoyment at all times while required to live away from home for their work; and

-       for a maximum period of 12 months in respect of an individual employee for a particular work location; and

•        tax employers on:

-       LAFH allowances to the extent they relate to ‘ordinary weekly food and drink expenses’ of employees who satisfy the requirements to claim an income tax deduction and have provided their employer with a declaration; and

-       LAFH benefits (that is, the provision of accommodation, food and expense payments) provided to employees who would not be eligible to claim an income tax deduction had they incurred the expenses directly. 

Date of effect The reforms will apply from 1 October 2012.

Transitional rules apply to permanent residents who have employment arrangements for LAFH allowances and benefits in place prior to 7.30 pm (AEST) on 8 May 2012.  These employees will not be required to maintain a home in Australia for their own personal and immediate use and enjoyment at all times and the concession will not be limited to a maximum period of 12 months until the earlier of 1 July 2014 or the date a new employment contract is entered into, or the existing contract is altered. 

Transitional rules also apply to temporary residents who are maintaining a home in Australia for their own personal and immediate use and enjoyment at all times that they are required to live away from and have employment arrangements for LAFH allowances and benefits in place prior to 7.30 pm (AEST) on 8 May 2012.  These employees will have until the earlier of 1 July 2014 or the date a new employment contract is entered into or the existing contract is altered before the concessional treatment is limited to a maximum period of 12 months.

Proposal announced :  These amendments were announced in the 2011-12 Mid-Year Economic and Fiscal Outlook (MYEFO) and the 2012-13 Budget.

Financial impact The reforms have the following fiscal impact over the forward estimates:

2011-12

2012-13

2013-14

2014-15

2015-16

-$0.5m

$204.5m

$434.9m

$590.6m

$659.4m

Human rights implications :  Schedule 1 to this Bill is compatible with the recognised human rights and freedoms.  See Statement of Compatibility with Human Rights — Chapter 1, paragraphs 1.94 to 1.101.

Compliance cost impact Medium.  Employers will have some compliance costs in familiarising themselves with the reforms and making systems changes, particularly during the transitional period.  There will be some on-going compliance costs for employers in line with their existing obligations under the fringe benefits tax law and the pay as you go system.

GST supplies by representatives who are creditors

Schedule 2 to this Bill amends the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) to ensure that in circumstances where a representative of an incapacitated entity is a creditor of that entity, the correct provision of the GST Act is applied.

Date of effect :  This measure applies from the first quarterly tax period on or after Royal Assent.

Proposal announced This measure was announced in the 2011-12 Budget.

Financial impact This measure is expected to be revenue neutral.

Human rights implications :  This measure does not raise any human rights issue.  See Statement of Compatibility with Human Rights — Chapter 2, paragraphs 2.21 to 2.24.

Compliance cost impact Low.

Consolidation

Schedule 3 to this Bill amends Schedule 3 to the Tax Laws Amendment (2012 Measures No. 2) Act 2012 to ensure that:

•        no interest is payable if an overpayment of income tax arises because of a deduction under the pre-rules in Part 1 of Schedule 3 to that Act (which apply, broadly, to corporate acquisitions in the period before 12 May 2010); and

•        no shortfall interest or administrative penalty is payable if additional tax becomes payable because an amendment to an assessment is made, to the extent that the amendment is attributable to a deduction under the pre-rules in Part 1 of Schedule 3 to that Act or under the interim rules in Part 2 of Schedule 3 to that Act (which apply, broadly, to corporate acquisitions in the period between 12 May 2010 and 30 March 2011).

Date of effect The measure commences on the day that the Tax Laws Amendment (2012 Measures No. 2) Act 2012 receives Royal Assent.

Proposal announced The measure was announced in the then Assistant Treasurer and Minister for Financial Services and Superannuation’s Media Release No. 159 of 25 November 2011.

Financial impact The measure has a nil revenue impact.  However, it does protect a significant amount of revenue that would otherwise be at risk.

Human rights implications :  This Schedule does not raise any human rights issue.  See Statement of Compatibility with Human Rights — Chapter 3, paragraphs 3.27 to 3.30.

Compliance cost impact Low.



Outline of chapter

1.1                   Schedule 1 to this Bill amends the Fringe Benefits Tax Assessment Act 1986 (FBTAA) and the Income Tax Assessment Act 1997 (ITAA 1997) to reform the taxation treatment of living-away-from-home (LAFH) allowances and benefits to:

•        generally treat LAFH allowances as part of an employee’s assessable income rather than as fringe benefits;

•        better target the concessional treatment by allowing an income tax deduction:

-       for reasonable expenses incurred and substantiated for accommodation and food and drink (beyond ‘ordinary weekly food and drink expenses’);

-       to employees who maintain a home in Australia for their own personal and immediate use and enjoyment at all times while required to live away from home for their work; and

-       for a maximum period of 12 months in respect of an individual employee for a particular work location; and

•        tax employers on:

-       LAFH allowances to the extent they relate to ‘ordinary weekly food and drink expenses’ of employees who satisfy the requirements to claim an income tax deduction and have provided their employer with a declaration; and

-       LAFH benefits (that is, the provision of accommodation, food and expense payments) provided to employees who would not be eligible to claim an income tax deduction had they incurred the expenses directly. 

1.2                   Subject to transitional rules, these amendments will generally apply from 1 October 2012.

1.3                   All legislative references are to the ITAA 1997 unless otherwise indicated.

Context of amendments

1.4                   The payment of a LAFH allowance is currently a fringe benefit.  This differs from other allowances paid to an employee which are assessable income to the employee and, if work related, a substantiated deduction may be available against that income.

1.5                   Under the fringe benefits tax (FBT) law, a LAFH allowance is an allowance paid by an employer to an employee to compensate for additional expenses incurred and any disadvantages suffered because the employee is required to live away from their usual place of residence in order to perform their employment duties.  The allowance is intended to cover reasonable and additional accommodation and food and drink expenses.  Additional expenses do not include expenses the employee would be entitled to claim as an income tax deduction.  Specific provisions cover accommodation, food or expense payments provided by the employer.

1.6                   No income tax is payable by the employee on a LAFH allowance.

1.7                   The part of a LAFH allowance fringe benefit that is taxed to the employer is usually minimal as the taxable part of the fringe benefit is reduced by any reasonable amounts paid in compensation for accommodation and increased expenditure on food.

1.8                   A tax concession for a LAFH allowance was introduced to the income tax system in 1945.  The Explanatory Note to the former income tax law states:

‘Various wage fixing authorities have granted away from home allowances to employees whose places of employment are located away from their usual places of abode.  The allowance is paid to compensate the employee for the additional expenditure he is obliged to incur in providing board and accommodation for himself at his place of employment while, at the same time, maintaining his home elsewhere.’

1.9                   The Explanatory Note indicates that a LAFH allowance was intended to be an allowance objectively determined by a wage fixing authority, for the purposes of compensating an employee for additional expenditure incurred on food and accommodation where an employee is required by their current employer to live away from their usual place of residence, where they are maintaining a residence. 

1.10               LAFH allowances were moved to the FBT law in 1986 when FBT was introduced, and the incidence of tax shifted to the employer as a fringe benefit. 

1.11               Consistent with the income tax exemption, the intention was to tax employers on some legislated proportion of the LAFH costs — that is, the LAFH allowance was to be tax free (exempt) to both employer and employee to the extent that it was for the reasonable cost of additional accommodation and the increased expenditure for food.

1.12               The current law is being interpreted broadly and the concession is being used in a manner that is outside the original policy intent.  Employees are using the concessions to access tax-free amounts even though they are not incurring additional expenses, that is, the cost of maintaining two homes.  The amount of the allowance may be in excess of actual expenditure incurred on accommodation and food, and employees may be claiming the concessions for extended periods of time.  This is resulting in a significant and growing cost to revenue.

Summary of new law

1.13               This measure generally returns the taxation treatment of LAFH allowances to the income tax system in a similar way to what it was prior to the introduction of the FBT law in 1986.  Generally, allowances paid by an employer to an employee as compensation for being required to live away from home will be included in the assessable income of the employee.

1.14               The taxation treatment of LAFH allowances as part of the income tax system broadly brings LAFH allowances into line with other allowances, such as motor vehicle allowances and laundry allowances.

1.15               Employees who maintain a home in Australia for their own use, and who are required, by their employer, to live away from that home for the purposes of their employment, will be able to claim an income tax deduction for reasonable substantiated expenses incurred on accommodation and food and drink (beyond ‘ordinary weekly food and drink expenses’).  The deduction will be limited to a period of 12 months (other than for ‘fly-in fly-out’ workers).

1.16               The component of a LAFH allowance representing ‘ordinary weekly food and drink expenses’ will not be included in the assessable income of employees who satisfy the requirements to claim an income tax deduction and have provided their employer with a declaration.  This component will be treated as a fringe benefit to the employer in a similar way to the current law.

1.17               The LAFH allowance fringe benefit provisions in the FBT law which provide an FBT exemption or concession will be repealed.  Employers who provide direct LAFH benefits will be able to apply the otherwise deductible rule to reduce the taxable value of LAFH fringe benefits they provide to their employees, ensuring the FBT treatment mirrors the income tax treatment, similar to the treatment of other employee allowances and benefits.

Comparison of key features of new law and current law

New law

Current law

Most LAFH allowances will be assessable income of the employee. 

Employees who are required to live away from home by their employer for work purposes, and maintain a home in Australia will be able to claim an income tax deduction for a period of 12 months for reasonable expenses that are substantiated for accommodation and food and drink (beyond ‘ordinary weekly food and drink expenses’).

If an employee satisfies the requirements to claim an income tax deduction and have provided the employer with a declaration, then the component of a LAFH allowance representing ‘ordinary weekly food and drink expenses’ will be treated as a fringe benefit to the employer.

LAFH allowances are included in the FBTAA as a fringe benefit taxable to an employer.

The taxable value of the LAFH fringe benefit is the value of the benefit reduced by either or both of two components, the ‘exempt accommodation component’ and the ‘exempt food component’. 

Exemptions and concessions apply to accommodation, food or expense payments provided by the employer.

No FBT is payable on the exempt accommodation or exempt food components of a LAFH allowance

Detailed explanation of new law

How will living-away-from-home allowances and benefits be taxed?

1.18               This Schedule amends Division 7 of Part III of the FBTAA to reform the taxation treatment of LAFH allowances and benefits.  As a result, the existing rules in sections 30 and 31 of the FBTAA are repealed and replaced with new rules for the treatment of certain LAFH allowances.  [Schedule 1, item 5]  

1.19               The changes will treat LAFH allowances (other than the component representing ‘ordinary weekly food and drink expenses’) as assessable income of the employee under the ITAA 1997.  This is consistent with the income tax treatment of most allowances which are included as assessable income under either section 6-5 as ordinary income or under section 15-2 as allowances and other things provided in respect of employment.  Employees will be able to deduct reasonable substantiated expenses for accommodation and food and drink (other than the component representing ‘ordinary weekly food and drink expenses’) incurred while required by the employer to live away from their residence in Australia.

1.20               A component of a LAFH allowance representing ‘ordinary weekly food and drink expenses’ will continue to be treated as a fringe benefit to the employer, where the employee has provided a declaration to the employer, and treated under the FBTAA.  A ‘LAFH allowance food and drink fringe benefit’ will arise when:

•        an employer pays an allowance to an employee as compensation for food and drink expenses for all or part of a seven-day period;

•        the employee satisfies the requirements specified in paragraphs  25-115(1)(a) to (e) to claim an income tax deduction (discussed below in paragraph 1.27); and

•        the employee has provided the employer with:

-       a declaration stating that the employee will incur food and drink expenses for which these requirements are satisfied; and

-       the employee has not subsequently notified the employer in writing of a change in circumstances within seven days of becoming aware of the change so that they no longer satisfy any of the requirements in paragraphs 25-115(1)(b), (c) or (e) — that is, the usual place of residence ceases to be available for their use and enjoyment at all times while they are living away from it or they no longer intend to return to that residence at the end of the period. 

[Schedule 1, item 5, sections 30 and 30A of the FBTAA]

1.21               The amount of the ‘LAFH allowance food and drink fringe benefit’ is so much of the allowance that does not exceed the employee’s ordinary weekly food and drink expenses as defined in paragraph 25-115(3)(b) for the seven-day period; that is, $42 for the employee plus $42 for a spouse or child over the age of 12 and $21 for a child under the age of 12 living with the employee.

1.22               The taxable value of the fringe benefit is the amount of the benefit less any ‘recipients contribution’.

1.23               The provision of accommodation, food and expense payments by employers to employees, who would not be eligible to claim an income tax deduction had they incurred the expenses directly, is taxable to employers as a fringe benefit.

1.24               The taxable value of these fringe benefits will be determined under the normal FBT rules in Division 5 for expense payment fringe benefits, in Division 11 for property fringe benefits and in Division 12 for residual fringe benefits.  If an employee satisfies the requirements in the income tax law for claiming a deduction for a LAFH allowance, their employer can reduce the taxable value of the fringe benefits because of the operation of the otherwise deductible rule. 

1.25               The otherwise deductible rule allows employers to reduce the taxable value of a benefit provided to an employee if the employee would be able to claim an income tax deduction had they incurred the expense of acquiring the benefit themself. 

1.26               To substantiate the reduction in taxable value, the employer must receive a declaration (in a form approved by the Commissioner of Taxation (Commissioner)) from the employee that the food and accommodation expenses would otherwise be deductible.

Example 1.1  

Jack reimburses the reasonable accommodation expenses of his employee, Michelle, who is required by Jack to live away from home in Australia to carry out her duties of employment for 12 months.  Michelle is maintaining her home in Australia for her use and enjoyment at all times while she is living away for work.

If Michelle had incurred the expense, she would be eligible to claim a deduction for the accommodation expenses for the period she is living away from home.  Michelle provides Jack with a declaration in the approved form that the otherwise deductible rule applies.

Jack’s liability to FBT on the expense payment fringe benefit is nil.  The otherwise deductible rule applies to reduce the taxable value of the benefit to zero because if Michelle had incurred the accommodation expense she would have been entitled to a deduction under the income tax law.

Jack is required to meet the record keeping requirements under section 132 of the FBTAA.

Who will be able to claim a deduction for living-away-from-home expenses?

1.27               An employee will be able to claim a deduction for reasonable accommodation and food and drink expenses incurred in living away from home when:

•        they are required by their employer or future employer to live away from their usual place of residence in Australia to perform the duties of their employment;

•        their usual place of residence in Australia in which they have an ownership interest (or their spouse has an ownership interest) continues to be available for their immediate use and enjoyment at all times while they are living away from it;

•        it is reasonable to expect that they will return to their usual place of residence upon completion of the job;

•        the expense on accommodation or food and drink is for the employee or their spouse or child; and

•        either:

-       the expense relates to the first 12 months that their employer requires them to live away from their usual place of residence in Australia for their employment; or

-       they are provided with exempt transport benefits under subsection 47(7) of the FBTAA, or would be provided with exempt transport fringe benefits had the restriction on the employee’s place of employment in paragraph 47(7)(a) not applied (about the place of employment needing to be in a remote location).

[Schedule 1, item 1, paragraphs 25-115(1)(a) to (e)]

1.28               The new law requires the employee to have incurred the expense in order to claim a deduction.  In practice, however, family members may also be paying for food and drink expenses.  In such cases, those family members would be considered to be acting as agent of the employee in expending the employee’s salary and wages on food and drink and the employee, in those circumstances, would still be incurring the expense.

1.29               The employer or future employer must require the employee to live away from their usual place of residence.  An employee will not be able to move to a location and subsequently find employment in that new location and then claim to be living away from home.  There must be requirements to live in another location placed on the employee by the employer or future employer.  [Schedule 1, item 1, subsection 25-115(5)]

Example 1.2  

Viktor has lived in Melbourne for the past ten years with his family, where he owns a home.

Viktor moves to Sydney to look for a job while his family stays behind in Melbourne in the family home.

Viktor finds a job in Sydney.  He will not be able to claim a deduction for accommodation and food and drink expenses incurred while living in Sydney because he moved to Sydney to find a job — his future employer did not require him to move to Sydney.

Example 1.3  

Ralph is an airline pilot who currently lives in Mildura.  He applies for a job with a national airline that will require him to live in Sydney. 

Ralph is successful in his application and moves to Sydney for his new job.  Ralph maintains his home in Mildura for his spouse and teenage children who continue to live there.

Ralph is entitled to claim a deduction for reasonable accommodation and food and drink expenses while living away from his Mildura home.

Example 1.4  

Continuing Example 1.2, Viktor is subsequently required by his employer to work in Canberra for six months.

Viktor has bought a house while working in Sydney.  His family has moved from Melbourne to the new family home.  Viktor’s family stays in the Sydney home while he works in Canberra.  At the end of the six months, Viktor returns to his family home in Sydney.

Viktor is entitled to claim a deduction for reasonable accommodation and food and drink expenses incurred while living in Canberra.

1.30               To be eligible for the deduction, the employee’s usual place of residence must continue to be available for their immediate use and enjoyment at all times (or their spouse or child who would normally reside with them at that place) while they are living away from home.  That is, the employee must incur the ongoing cost of maintaining this residence (such as mortgage or rental payments and rates), and it cannot be rented out or sub-let while they are living away from home.  The employee must be able to return to the home at any time and take up immediate occupancy.

1.31               The term ‘usual place of residence’ is not a defined term and is therefore understood according to its ordinary meaning.  The customary meaning of the word ‘reside’ is to dwell permanently or for a considerable time.  ‘Residence’ means the place, especially the house, in which one lives. 

1.32               An employee’s usual place of residence must be a residence in which the employee or the employee’s spouse has an ownership interest, that is, it is either owned or leased by the employee or the employee’s spouse.  It could include a caravan if it were a permanent place of residence.  ‘Ownership interest’ is defined in section 118-130 of the ITAA 1997. 

1.33               The terms ‘spouse’ and ‘child’ are currently defined in the dictionary to the ITAA 1997 but are affected by Subdivision 960-J of the ITAA 1997 which covers family relationships. 

1.34               Spouse includes another individual with whom the employee is in a relationship that is registered under a State or Territory law, as well as another individual who, although not legally married to the individual, lives with the individual on a genuine domestic basis in a relationship as a couple.

1.35               Child includes adopted children, stepchildren or ex-nuptial children, as well as children of the employee’s spouse.

1.36               Adult children living in the family home generally do not have an ownership interest in the dwelling.  Therefore, such an employee who moves from the family home to work interstate is not entitled to an income tax deduction.

Example 1.5  

Ivan lives in Adelaide with his parents and does not have an ownership interest in the family home.  He gets a job in Brisbane and is required to move there by his new employer.  At the end of the employment contract, Ivan intends to return to Adelaide and continue living with his parents.

As Ivan does not have an ownership interest in the dwelling, he would not be able to claim a deduction for his accommodation and food and drink expenses incurred while living in Brisbane. 

1.37               In addition, in order to be entitled to a deduction, it must be reasonable to expect that the employee will return to their usual place of residence upon completion of the job.

1.38               There are numerous court decisions which have established principles for determining whether or not an employee can be regarded as living away from their usual place of residence.  Some principles that have been developed by courts on whether a person is living away from home include:

•        there is normally a choice for the employee between two places of residence;

•        the employee has to change residence in order to work temporarily for his or her employer at another locality;

•        if not for the employer requiring the employee to work at another locality, the employee would have continued to live at the former place;

•        there is an intention or expectation of the employee returning to live at the former place of residence at the end of the assignment at the temporary job locality;

•        the employee’s usual place of residence is close to where an employee is permanently employed;

•        the employee does not abandon their former place of residence when the employee moves;

•        the employee does not have a lifestyle of a transitory nature; and

•        a person’s holiday home would not be their usual place of residence. 

Example 1.6  

Adrian is a geologist with a mining company who has been required by his employer to leave his home in Perth to work on a mining site in remote Western Australia for two years.  Adrian and his family have lived in this home for a number of years.  Adrian’s spouse and children will continue to live in the Perth home while he is living away from home on the remote mining site.  Adrian’s home in Perth is his usual place of residence.

Example 1.7  

Diane who lives in Sydney is required by her employer to move to the branch office in Melbourne for a two year period.  Diane does not sell her property as she wishes to return to it at the end of two years when she returns to Sydney.  Diane’s home in Sydney is her usual place of residence. 

1.39               It will be a question of fact whether a residence is the taxpayer’s usual place of residence.  However, the general anti-avoidance rules in Part IVA of the Income Tax Assessment Act 1936 may apply to artificial arrangements designed to allow an employee to satisfy the requirements to claim an income tax deduction.

1.40               If an individual has a boarder or tenant staying with them in their usual place of residence when they are required to live away from home for their employment, they can continue to have that boarder or tenant, but the boarder’s stay must not impinge on the availability of the residence for the individual’s immediate and reasonable use and enjoyment.

Example 1.8  

Janelle owns a three bedroom house in Melbourne.  She currently has a tenant living with her, with whom she has no personal relationship, and who pays rent.

Janelle’s employer requires her to work interstate for eight months to set up a new shop in Perth.  Janelle moves to Perth for the period, while planning on returning to Melbourne in eight months’ time.  Her tenant stays in the house, and continues to pay rent.

Janelle would still be eligible for the deduction as her usual place of residence continues to be available for her immediate use and enjoyment at all times.

However, Janelle would not be able to further rent out the dwelling and still be entitled to an income tax deduction as this will affect her immediate and reasonable use and enjoyment of the dwelling.

1.41               The employee’s usual place of residence must be in Australia.  For a temporary resident to be entitled to claim an income tax deduction, they must be maintaining a residence in Australia for their own personal and immediate use and enjoyment at all times, which they are required to live away from.

Example 1.9  

Patrick comes to Australia from Ireland to work as an information technology consultant in Sydney for three years.  He would like to become a permanent resident.  He sets up home in Sydney with a long term rental agreement on a flat.

Part way through his three year contract, Patrick’s employer asks him to assist with the establishment of another branch of the business in Brisbane.  This will take six to 12 months. 

Patrick continues to rent and maintain his home in Sydney for his immediate use and enjoyment while he works in Brisbane.  Patrick is entitled to claim a deduction for his reasonable substantiated accommodation and food and drink expenses (beyond ‘ordinary weekly food and drink expenses’) incurred for living in Brisbane.

1.42               If an employee has a house-sitter at their usual place of residence while they are living away from it for their work and does not charge the house-sitter rent for that period, the employee can claim a deduction for their reasonable accommodation, food and drink expenses as long as the house-sitter is required to vacate the residence whenever the employee returns home, for example, during temporary visits.

Example 1.10  

Paul owns a two bedroom townhouse in Adelaide.  His employer requires him to work in Brisbane for 12 months.  Paul moves to Brisbane for the period and plans to return to Adelaide at the end of that time. 

Paul arranges for Jodie, a university student who is the adult daughter of friends, to house-sit while he is away. 

Under her arrangement with Paul, Jodie will keep the townhouse clean, look after Paul’s pets and pay the power and gas bills to cover her consumption while Paul is away.  Jodie will also vacate the townhouse whenever Paul temporarily returns home. 

Paul would still be eligible to claim a deduction for his accommodation and food and drink expenses (beyond ‘ordinary weekly food and drink expenses’) as his usual place of residence continues to be available for his use and enjoyment at all times.

What expenses will be deductible and how much?

1.43               An employee who satisfies the requirements outlined above will be eligible to claim a deduction for accommodation and food and drink expenses (beyond ‘ordinary weekly food and drink expenses’) incurred while living away from their usual place of residence.  The expenses can only be deductible to the extent they are reasonable.

Accommodation

1.44               An employee can deduct accommodation expenses incurred while living away from home, subject to the other requirements being met, to the extent that the expenses are reasonable.  [Schedule 1, item 1, subsection 25-115(2)]

1.45               Accommodation costs include rent, lease or hotel costs, but not mortgage repayments.

1.46               In determining what accommodation expenses are reasonable, the principles that have been applied in the treatment of LAFH allowances for FBT purposes will also be applied for income tax purposes.  Factors for determining reasonable accommodation costs are currently outlined in the Australian Taxation Office guide Fringe benefits tax — a guide for employers .

1.47               In determining what accommodation costs are reasonable, a range of factors will need to be considered which will vary depending on the location of the accommodation and the needs of the employee.

1.48               These factors could include whether the employee will be accompanied by family members, the position held by the employee in the workplace, the location where the employee will be living, whether or not the accommodation will be furnished and the employee’s current living standards. 

1.49               There may be circumstances where an employee is required to incur higher levels of expenditure on accommodation at their new location than at their usual place of residence. 

1.50               For example, the employee may move to an area where the price of accommodation for comparable properties to their usual place of residence is higher, or there is a shortage of accommodation which results in higher market values or restrictions on the type of accommodation available. 

1.51               In addition, work requirements for accommodation, such as the use of accommodation for work purposes may necessitate particular types of accommodation, or restrict the location of the accommodation (for example, a doctor needs to be located within a certain distance to a hospital).

1.52               In cases where an employee is sharing accommodation, the employee will only be able to claim a deduction for their share of expenses — not the full amount.  That is, the deduction for the employee in shared accommodation is limited to their share of the accommodation expense.  This will be the case for employees living in share accommodation who are not in a spousal relationship with their housemate.

1.53               Where an employee’s spouse or children are living with them (and they are not living in shared accommodation), the employee will be able to claim the full amount of the expense.  If they are living in shared accommodation, the deductible amount will be limited to the share applicable to the employee and his or her spouse or children.

1.54               However, if one employer is reimbursing accommodation expenses for two employees who are in a spousal relationship, the expenses must be shared between both employees.  Both employees will not be entitled to claim a full deduction for the same expenses. 

1.54

Food

1.55               An employee may deduct food and drink expenses for both themselves and a spouse or children who live with them away from their usual place of residence.  This includes food and drink expenses for a spouse or children who visit the employee while they are entitled to a LAFH deduction, provided the spouse or children are living with the employee while they are visiting, and not staying in separate accommodation. 

1.56               An employee can deduct food and drink expenses to the extent the expenses are reasonable and exceed ordinary food and drink expenses.  ‘Ordinary food and drink expenses’ in relation to a seven-day period are the total of $42 for each individual of 12 years of age or older, and $21 for each individual under the age of 12 years.  This reflects the fact that food and drink expenses are generally private in nature and only the excess over these amounts will be considered additional and therefore deductible.  The amounts of $42 and $21 are equal to the LAFH allowance ‘statutory food amount’ previously used in the FBTAA.  These amounts were set in 1986 at $42 per week for a person of 12 years of age or older, or otherwise $21 per week.  [Schedule 1, item 1, subsection 25-115(3)]

1.57               If an employee shops for food and drink on a fortnightly basis, they would need to split the bill in two to work out the relevant expenses they have incurred for the seven day period.  Likewise if an employee shops on a monthly basis, the expenses will need to be broken down into periods of seven days.

Example 1.11  

Florence and Robert are married and both work for the same multi-national company.  They are both posted to the Singapore office for a period of two years.

They continue to maintain their home in Melbourne for their use and enjoyment while they are living in Singapore and regularly return to it for brief periods.

Florence and Robert will only be able to claim a deduction against their income for their own share of the accommodation and food and drink expenses incurred while living away from home.  That is, each person will be entitled to a deduction of 50 per cent of the total reasonable accommodation and food and drink expenses.  Likewise, both Florence and Robert will not be entitled to a deduction for the first $84 ($42 each) of the food and drink expense for each seven day period.

This ensures that there is not a double deduction for the same expenses and only ‘additional’ expenses are deductible.

If the employer has provided LAFH allowances including a component for ‘ordinary weekly food and drink expenses’ to Florence and Robert, and they have provided a declaration to the employer, the component for ‘ordinary weekly food and drink expenses’ will be treated as a fringe benefit.

Substantiation requirements

1.58               To be able to claim accommodation and food and drink expenses, certain substantiation requirements need to be met.  The expenditure on accommodation and food and drink needs to be substantiated by the employee by obtaining written evidence in accordance with Subdivision 900-E of the ITAA 1997.  [Schedule 1, item 27, subsection 900-97(1)]

1.59               The written evidence for accommodation expenses could include a lease agreement, credit card statements, bank statements or other receipts for accommodation.  The written evidence for food and drink expenses is provided by the receipts for expenses actually incurred. 

1.60               To minimise the cost of compliance for employees, substantiation will not generally be required for food and drink expenses unless the expenses exceed an amount specified in a determination by the Commissioner.  [Schedule 1, item 27, paragraph 900-97(1)(b) and subsection 900-97(2)] 

1.61               If employees claim amounts in excess of the amount specified in a determination by the Commissioner, the full amount must be substantiated. 

1.62               In accordance with standard practice, the Commissioner may seek some evidence or basis for a deduction claim during an audit or review of an assessment if he or she believes that an employee’s claims of amounts up to the determination amount (less the component for ‘ordinary weekly food and drink expenses’) have not actually been incurred.

Example 1.12  

Ciara is asked by her employer to relocate for six months from Brisbane to Canberra.  She is maintaining a home in Brisbane.  She is paid an allowance to cover accommodation and food and drink each week of her posting. 

Ciara will have the allowance included in her assessable income.  She can substantiate her accommodation expenses.  Her food and drink expenses are greater than $42 for a seven-day period but she is not required to substantiate these expenses as they do not exceed the amount specified by the Commissioner in a determination. 

1.63               The rules for retaining written evidence require that documentation has to be retained for five years.  A taxpayer is not required to lodge this documentation with their income tax return but the Commissioner can ask that the taxpayer provide it.  The five-year period can be extended where there is a dispute with the Commissioner.  [Schedule 1, item 27, section 900-98]  

Time limit for living-away-from-home deduction

1.64               An employee can only claim deductions for accommodation and food and drink expenses for the first 12 months that their employer requires them to live away from their usual place of residence in Australia for their employment.  [Schedule 1, item 1, subparagraph 25-115(1)(e)(i)]  

1.65               The 12-month period commences the first day the employee begins to live away from home, ignoring temporary relocations between the usual place of residence and the work location.    

1.66               The 12-month period pauses if the employee temporarily resumes living in their usual place of residence.  For example, the employee takes a month leave and returns to their usual place of residence, or is required to perform employment duties at their original work location for a short period of time and resumes living at their usual place of residence.  It will be a matter of fact as to whether an employee has temporarily resumed living at their usual place of residence or whether they have resumed living there for an extended period.  [Schedule 1, item 1, subsection 25-115(4)]

1.67               During these temporary periods of relocation to the usual place of residence, food and drink expenses incurred while living in the usual place of residence will not be deductible.  Food and drink expenses incurred while an employee has returned to their usual place of residence are not additional expenditure incurred because the employee is required to live away from home for work.  [Schedule 1, item 1, paragraph 25-115(4)(a)]

1.68               However, if the employee has temporarily returned to their usual place of residence, but is still incurring accommodation expenses (such as rent) at their LAFH accommodation, these expenses will still be deductible while the 12-month period is paused.  [Schedule 1, item 1, paragraph 25-115(4)(a)]

Example 1.13  

Cassandra is required to live away from her usual place of residence by her employer.  She has a 12-month lease on a flat close to her employment where she lives while she is living away from her usual place of residence.  She meets all the other requirements, so she is able to deduct the accommodation and food and drink expenses that she incurs.

Cassandra returns to her usual place of residence for one week for a family wedding. 

During this period, the 12-month period will pause.  She will not be able to claim any food and drink expenses that she incurs, however, she will be able to continue claiming her accommodation expenses on the rent for the flat during this week.

Example 1.14  

Nathan is required by his employer to live away from his usual place of residence for a period of two years.  He finds long-term accommodation near his work for the duration of the employment contract.  During this period, he returns to his usual place of residence for six months.  He has not temporarily resumed living at his usual place of residence but has returned for an extended period. 

1.69               The 12-month period restarts if the employee’s work location changes, that is, the employee is required by their employer to move to another location to perform the duties of employment, and it would be unreasonable for the employer to require their employee to commute to the new location from the earlier location.  [Schedule 1, item 1, paragraph 25-115(4)(b)]

1.70               All other changes in the nature of the employee’s employment are irrelevant for resetting the 12-month period.  Changes to the conditions of employment, such as a promotion of the employee to a management position, or a change in the employee’s job title, within the same work location, do not re-set the 12 month period.  [Schedule 1, item 1, paragraph 25-115(4)(c)]

1.71               In addition, if an employee takes up employment with a connected entity of their employer, the 12-month period will not automatically recommence.  For example, a corporate restructure that transfers the employee from one connected entity to another with no change in the nature of employment will not re-set the 12-month period.  [Schedule 1, item 1, paragraph 25-115(4)(d)]

1.72               The term ‘connected entity’ is defined in the dictionary to the ITAA 1997. 

1.73               The 12-month limitation does not apply to eligible employees who are provided with exempt transport benefits under subsection 47(7) of the FBTAA, or would be provided with exempt transport fringe benefits had the restriction on the employee’s place of employment in paragraph 47(7)(a) not applied (about the place of employment needing to be in a remote location).  [Schedule 1, item 1, subparagraphs 25-115(1)(e)(ii) and (iii)]

1.74               This covers employees who:

•        are provided with residential accommodation, at or near their usual place of employment, by their employer or an associate of their employer; and

•        on a regular basis, work for a number of days and have a number of days off, returning to their usual place of residence during the days off; and

•        are provided with transport on a regular basis in connection with this travel between their usual place of residence and their place of employment, by their employer or an associate of their employer; and

•        having regard to the location of that usual place of employment and the location of their usual place of residence, it would be unreasonable to expect the employee to travel between those places on work days on a daily basis.

1.75               This means that all employees who are working under fly-in fly-out arrangements or drive-in drive-out arrangements, regardless of the location of the place of employment, will not be subject to the 12-month rule.    

Example 1.15  

Max comes to Australia as a temporary resident to work in the mining sector in Western Australia on a contract for two years.  He rents a home in Perth.  He works eight days on and six days off at a mine site in the Pilbara.  The employer provides accommodation and food and drink for its employees at the mine site.

Max’s home in Perth is available for his use at all times when he is working at the mine site. 

Max’s employer only has to pay FBT on the benefits in relation to ‘ordinary food and drink expenses’ provided to Max while he is living away from home.

Application and transitional provisions

1.76               The reforms will generally apply from 1 October 2012.  [Schedule 1, item 29]  

1.77               Employers will have to withhold (under the pay as you go system) from the allowances that are assessable income of the employee, except as varied by the Commissioner (either by way of an individual or a class variation).  [Schedule 1, item 28]  

1.78               Transitional rules apply to:

•        permanent residents; and

•        temporary residents or foreign residents who are maintaining a residence in Australia for their own personal and immediate use and enjoyment at all times, that they are required to live away from for work;

who have employment arrangements for LAFH allowances and benefits in place prior to 7.30 pm (AEST) on 8 May 2012.

1.79               The requirements as announced in the 2012-13 Budget that:

•        permanent residents must be maintaining a residence in Australia for their own personal and immediate use and enjoyment at all times, that they are required to live away from for work ; and

•        an employee can only claim deductions for accommodation and food and drink expenses for the first 12 months that their employer requires them to live away from their usual place of residence in Australia for their employment;

will not apply to permanent residents until the earlier of 1 July 2014 or the date a new employment arrangement is entered into, or an existing arrangement is varied, but not so as to give anyone an additional 12 months after the transitional arrangements end.  [Schedule 1, subitems 30(1) and (3)]  

1.80               The requirement as announced in the 2012-13 Budget that:

•        an employee can only claim deductions for accommodation and food and drink expenses for the first 12 months that their employer requires them to live away from their usual place of residence in Australia for their employment;

will not apply to temporary residents or foreign residents maintaining a residence in Australia for their own personal and immediate use and enjoyment at all times, that they are required to live away from for work, until the earlier of 1 July 2014 or the date a new employment arrangement is entered into, or an existing arrangement is varied , but not so as to give anyone an additional 12 months after the transitional arrangements end.  [Schedule 1, subitems 30(2) and (3)]

Example 1.16  

Justin is a permanent resident.  Justin’s five year employment contract expires, and he re-signs with his employer for a further six-month period on 1 August 2013.

Until he re-signs, the new requirements that Justin must maintain a home within Australia, and that he can only claim an income tax deduction for 12 months in respect of employment at a particular work location will not apply to Justin and his employer.  The other changes will apply to Justin from 1 October 2012.

The 12-month requirement and the requirement to maintain a home in Australia will apply to Justin and his employer from 1 August 2013.

1.81               Any material variation to an existing employment arrangement triggers the commencement of the new arrangements.  For example, an extension of time of an existing contract, change in the salary of an employee or change in the working hours of the employee would trigger the commencement of the new provisions.  Changes such as an employee changing their name on the contract (for example, they get married and change their last name) or fixing a typo in a contract would not be considered a material change in a contract, and the employee could still be covered by the transitional arrangements.

1.82               If all employees of an organisation are covered by the same employment contract, and this contract is altered or re-signed for all employees, the new arrangements would be triggered for all employees.   

Example 1.17  

The XYZ Mining Corporation has a standard workplace agreement for all employees.  The current contract covers the three-year period to 30 November 2012.

On 1 December 2012, following discussions with employees about the conditions in the agreement, and an increase in the salaries of the employees, the contract is renewed for a further three year period.

From 1 December 2012, all employees of the XYZ Mining Corporation will be required to meet the new requirements, and will not be able to access the transitional arrangements.

1.83               For those employees who are living away from their usual place of residence for employment purposes, as required by their employer or future employer, or are living at their usual place of residence on a temporary basis and expect to resume living away from that residence for employment purposes, as required by their employer or future employer on 1 October 2012, the 12 month period is treated as commencing from 1 October 2012.  [Schedule 1, item 31]  

1.84               Employment arrangements include not only arrangements with an employee’s employer but also an entity connected to the employee’s employer. 

1.85               The meaning of eligible employment arrangement is to be interpreted to include both formal and informal employment agreements.  Most employees will be on employment contracts which are clearly within the meaning of an employment arrangement.  However, some employees may have more informal arrangements with their employer.  These informal arrangements are also covered by the meaning of employment arrangement.  [Schedule 1, subitem 30(3)] 

1.86               ‘Temporary resident’ has the current meaning in the dictionary to the ITAA 1997 which is used to give temporary residents concessional tax treatment on their foreign sourced income.

Consequential amendments

1.87               As a result of the reforms, a number of consequential amendments are required to the FBTAA.

1.88               The Schedule repeals definitions in subsection 136(1) of the FBTAA associated with Division 7.  These definitions are ‘eligible family member’, ‘exempt accommodation component’, ‘exempt food component’, ‘food component’, ‘living-away-from-home allowance benefit’, ‘living-away-from-home allowance fringe benefit’, ‘living-away-from-home food fringe benefit’, ‘recipients allowance’ and ‘recipients allowance period’ and ‘statutory food amount’.  [Schedule 1, items 11 to 23 of the FBTAA]

1.89               A definition of a ‘living-away-from-home allowance food and drink fringe benefit’ is inserted to subsection 136(1) of the FBTAA.  [Schedule 1, item 16]

1.90               A consequential amendment is made to the definition of ‘recipients contribution’ in subsection 136(1).  [Schedule 1, item 21 of the FBTAA]

1.91               This Bill also repeals sections 21 and 63 and subsection 47(5) of the FBTAA which provide an exemption or reduction in taxable value for benefits provided in relation to living away from home.  [Schedule 1, items 3, 7 and 10 of the FBTAA] As outlined above, these provisions are redundant because of the operation of the otherwise deductible rule which reduces the taxable value of the benefits by the amount of the income tax deduction that is otherwise allowed to an employee under the ITAA 1997. 

1.92               Consequential amendments are made to the ITAA 1997 to reflect the insertion of a new section 25-115 and related provisions.  [Schedule 1, items 24 to 26]  

1.93               Subsection 12-1(2) in Schedule 1 to the Taxation Administration Act 1953 (TAA 1953) is repealed as a result of the repeal of the LAFH provisions in the FBTAA.  [Schedule 1, item 28 of the TAA 1953]

Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Reform of the living-away-from-home allowance and benefit rules

1.94               This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

Overview

1.95               This Schedule reforms the LAFH allowance and benefit rules.

1.96               The transitional rules in this measure provide for a differentiated treatment of taxpayers, based on their residency status for income tax purposes — that is, between temporary and foreign residents, on the one hand, and permanent residents on the other.

Human rights implications

1.97               Some submissions to the consultation process on the exposure draft argued that the transitional rules are not compatible with international human rights conventions in so far as these prohibit discrimination on the basis of specified grounds, including race, colour, sex, language, religion, political or other opinion, national or social origin, property, birth or other status.  This argument depends on viewing residency for tax purposes as falling within ‘other status’.

1.98               However, there is a well-established body of international law and practice recognising that taxation laws of a State can differentiate between the tax treatment of residents of that State and the tax treatment of non-residents.  For example, treaties to prevent double taxation use residence status as a way to allocate taxing rights between States.  At the same time, discrimination between residents of the same State on the basis of their nationality is prohibited. 

1.99               The different treatment that the transitional rules in this measure give to taxpayers according to their residence status (as opposed to their nationality) is consistent with that body of international law and practice.

1.100           In light of this, there is no basis to conclude that this different treatment amounts to discrimination on the basis of ‘other status’ under the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

Conclusion

1.101           This Schedule is compatible with human rights as it does not raise any human rights issues.

Assistant Treasurer, the Hon David Bradbury



 

Outline of chapter

2.1                   Schedule 2 to this Bill amends the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) to ensure that Division 105 operates to the exclusion of Division 58 in circumstances where a representative of an incapacitated entity is a creditor of the incapacitated entity, and the representative makes a supply in satisfaction of a debt that the incapacitated entity owes to the representative.

2.2                   The provisions will take effect from the start of the first quarterly tax period on or after Royal Assent. 

2.3                   All legislative references in this chapter are to the GST Act unless otherwise specified.

Context of amendments

2.4                   Under Division 105, a creditor is liable for the goods and services tax (GST) payable on the supply of a debtor’s property where the supply is in satisfaction of a debt owed to the creditor.

2.5                   This means that where a mortgagee in possession or control of a corporation’s property exercises its power of sale, the sale of the property by the mortgagee may be a taxable supply under Division 105, even though ownership of the property passes from the mortgagor to the third party purchaser. 

2.6                   In 2008, the Federal Court held in Deputy Commissioner of Taxation v PM Developments Pty Ltd [2008] FCA 1886, that the liquidator of an incapacitated entity was not liable for the GST arising from a transaction during the period of the liquidator’s appointment.  Instead, the Court held that the GST liability is a liability of the company in liquidation. 

2.7                   In response to the decision, the GST Act was amended to insert Division 58 to clarify that a representative of an incapacitated entity is responsible for certain GST consequences which arise from a supply, acquisition or importation that falls within the scope of the representative’s responsibility or authority for managing the incapacitated entity’s affairs.

2.8                   The definition of ‘representative’ in section 195-1 was also expanded to ensure that Division 58 would apply to a ‘controller’ (within the meaning of section 9 of the Corporations Act 2001 ).  The definition of ‘controller’ in the Corporations Act 2001 includes a receiver, or receiver and manager, of a corporation’s property; or anyone else who (whether or not as agent for the corporation) is in possession, or has control, of that property for the purpose of enforcing a security interest. 

2.9                   As a result of these amendments, there are circumstances where both Division 58 and Division 105 can apply to a mortgagee, or other holder of a security interest, in possession or control of a corporation’s property.  This gives rise to uncertainty as the two Divisions contain substantially different registration and reporting requirements.

2.10               For example, Division 105 allows a mortgagee to report any GST liabilities arising from the sale of a mortgagor’s property under the one GST registration, in its capacity as mortgagee.  On the other hand, Division 58 requires a representative to separately register each incapacitated entity that it represents. 

2.11               In addition to the different registration requirements, subsection 105-5(3) provides that a supply of a mortgagor’s property by a mortgagee in possession or control is not a taxable supply where:

•        the mortgagor has provided the mortgagee with a written notice that the supply would not be taxable if supplied by the mortgagor; or

•        the mortgagee in possession believes that the supply would not be taxable on the basis of reasonable information. 

2.12               Division 58 does not provide a similar exclusion.

2.13               The amendments are intended to ensure that Division 105 applies to the exclusion of Division 58 in all cases where a representative makes a supply that is covered by or meets the requirements of paragraph 105-5(1)(a), regardless of whether the supply is taxable or not.

Summary of new law

2.14               Where a representative of an incapacitated entity is in possession or control of the property of a corporation, Division 105 applies to the exclusion of Division 58 to any supplies of property that the representative makes in satisfaction of a debt that the incapacitated entity owes to the representative.

Comparison of key features of new law and current law

New law

Current law

Division 105 applies to the exclusion of Division 58 to the extent that a representative of an incapacitated entity makes supplies covered by paragraph 105-5(1)(a).

The more specific Division 105 applies to the exclusion of the more general Division 58, in accordance with the accepted principle of statutory interpretation.

However, this outcome may not be readily apparent or clear from the current law.

Detailed explanation of new law

2.15               New section 58-95 provides that Division 58 (including the registration and reporting requirements of Division 58) does not apply to representatives of incapacitated entities to the extent that their supplies would otherwise be of a kind to which subsection 105-5(1)(a) applies.  [Schedule 2, item 2, section 58-95]

2.16               The insertion of this tie breaker provision means that Division 105 applies to the exclusion of Division 58 in all circumstances where an overlap between Division 58 and Division 105 arises.  This ensures certainty for entities engaged in the mortgage lending sector and reduced compliance costs for representatives of incapacitated entities.

Example 2.1

Company MCH borrows money from a finance provider, PLB Bank, to purchase a property.  A mortgage is registered over the property with PLB Bank as the mortgagee.  The terms and conditions of the mortgage deed allow the mortgagee to take control or possession of the property and to exercise the power of sale to recover any outstanding debts owed by MCH.

MCH defaults on the loan repayments and PLB Bank takes possession of the property and subsequently exercises its power of sale as mortgagee and sells the property to a third party.  The sale proceeds are applied towards the satisfaction of the outstanding debt owed by MCH to PLB Bank.  If MCH had sold the property, the sale would have been a taxable supply for GST purposes.

PLB Bank is a controller, as defined in section 9 of the Corporations Act 2001 , and is therefore a representative, as defined in section 195-1 of the GST Act, for the purposes of Division 58.  When PLB Bank sells the property by exercising its power of sale as mortgagee it is making a supply of a kind covered by paragraph 105-5(1)(a). 

Section 58-95 of the GST Act ensures that Division 105 applies to this arrangement to the exclusion of Division 58.  More specifically, Division 105 overrides Division 58 to the extent that the representative PLB Bank makes supplies covered by paragraph 105-5(1)(a).

Application provisions

2.17               The amendments contained by this Schedule apply in relation to supplies made on or after the start of the first quarterly tax period starting on or after Royal Assent.  [Schedule 2, item 4]

2.18               It does not matter whether quarterly tax periods are the tax periods that apply to that entity.  [Schedule 2, item 4]

Consequential amendments

2.19               A note is inserted at the end of Division 58-1 of the GST Act to explain that Division 58 does not apply to a representative to the extent that paragraph 105-5(1)(a) applies to its supplies.  [Schedule 2, item 1, section 58-1 ]

2.20               A note is inserted at the end of section 105-1 of the GST Act to clarify that Division 105 overrides Division 58 to the extent that the creditor is a representative of the debtor and the debtor is an incapacitated entity.  [Schedule 2, item 3, section 105-1 ]

Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

GST supplies by representatives who are creditors

2.21               This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

Overview

2.22               This Schedule amends the GST Act.  The amendment ensures that in circumstances where a representative of an incapacitated entity is a creditor of that entity, the correct provision of the GST Act is applied. 

Human rights implications

2.23               This Schedule does not engage any of the applicable rights or freedoms.

Conclusion

2.24               This Schedule is compatible with human rights as it does not raise any human rights issues.

Assistant Treasurer, the Hon David Bradbury



Chapter 3          

Consolidation

Outline of chapter

3.1                   Schedule 3 to this Bill amends Schedule 3 to the Tax Laws Amendment (2012 Measures No. 2) Act 2012 to ensure that:

•        no interest is payable if an overpayment of income tax arises because of a deduction under the pre-rules in Part 1 of Schedule 3 to that Act (which apply, broadly, to corporate acquisitions in the period before 12 May 2010); and

•        no shortfall interest or administrative penalty is payable if additional tax becomes payable because an amendment to an assessment is made, to the extent that the amendment is attributable to a deduction under the pre-rules in Part 1 of Schedule 3 to that Act or under the interim rules in Part 2 of Schedule 3 to that Act (which apply, broadly, to corporate acquisitions in the period between 12 May 2010 and 30 March 2011).

Context of amendments

3.2                   Schedule 3 to the Tax Laws Amendment (2012 Measures No. 2) Act 2012 amended the consolidation provisions in the income tax law to modify the tax cost setting and rights to future income rules and to make the tax outcomes for consolidated groups more consistent with the tax outcomes that arise when assets are acquired outside the consolidation regime.

3.3                   Under that Act, the changes affecting a corporate acquisition depend on the time when the acquisition took place.  That is:

•        the pre-rules in Part 1 of Schedule 3 apply, broadly, to corporate acquisitions that took place before 12 May 2010;

•        the interim rules in Part 2 of Schedule 3 apply, broadly, to corporate acquisitions that took place between 12 May 2010 and 30 March 2011; and

•        the prospective rules in Part 3 of Schedule 3 apply, broadly, to corporate acquisitions that take place after 30 March 2011.

3.4                   The amendments in Schedule 3 to the Tax Laws Amendment (2012 Measures No. 2) Act 2012 were announced by the then Assistant Treasurer and Minister for Financial Services and Superannuation in Media Release No. 159 of 25 November 2011.  That announcement specified that:

•        no interest would be payable if an overpayment of income tax arises because of a deduction under the pre-rules; and

•        no interest or penalties would be payable if additional tax becomes payable because an amendment to an assessment is made, to the extent that the amendment is attributable to a deduction under the pre-rules or under the interim rules.

Summary of new law

3.5                   Schedule 3 to this Bill amends Schedule 3 to the Tax Laws Amendment (2012 Measures No. 2) Act 2012 to ensure that:

•        no interest is payable where an overpayment of income tax arises because of a deduction under the pre-rules in Part 1 of Schedule 3 to that Act; and

•        no shortfall interest or administrative penalty is payable in respect of an amendment to an assessment that results in additional tax being payable, to the extent that the amendment is made because of a deduction under:

-       the pre-rules in Part 1 of Schedule 3 to that Act; or

-       the interim rules in Part 2 of Schedule 3 to that Act.

Comparison of key features of new law and current law

New law

Current law

A company will not be entitled to interest on overpayments if it receives an assessment reducing its income tax liability because a deduction is allowed under the pre-rules in Part 1 of Schedule 3 to the Tax Laws Amendment (2012 Measures No. 2) Act 2012 .

A company may be entitled to interest on overpayments if it receives an assessment reducing its income tax liability because a deduction is allowed under the pre-rules in Part 1 of Schedule 3 to the Tax Laws Amendment (2012 Measures No. 2) Act 2012 .

A company will not be liable to pay shortfall interest or an administrative penalty if it receives an amended assessment increasing its income tax liability because a deduction is disallowed under:

•        the pre-rules in Part 1 of Schedule 3 to the Tax Laws Amendment (2012 Measures No. 2) Act 2012 ; or

•        the interim rules in Part 2 of Schedule 3 to that Act.

A company may be liable to pay shortfall interest or an administrative penalty if it receives an amended assessment increasing its income tax liability because a deduction is disallowed under:

•        the pre­-rules in Part 1 of Schedule 3 to the Tax Laws Amendment (2012 Measures No. 2) Act 2012 ; or

•        the interim rules in Part 2 of Schedule 3 to that Act.

Detailed explanation of new law

3.6                   Schedule 3 to this Bill inserts new items 53 and 54 into Schedule 3 to the Tax Laws Amendment (2012 Measures No. 2) Act 2012 .  These items ensure that:

•        no interest is payable if an overpayment of income tax arises because of a deduction under the pre-rules in Part 1 of Schedule 3 to that Act; and

•        no shortfall interest or administrative penalty is payable in respect of an amendment to an assessment that results in additional tax being payable, to the extent that the amendment is made because of a deduction under:

-       the pre-rules in Part 1 of Schedule 3 to that Act; or

-       the interim rules in Part 2 of Schedule 3 to that Act.

No interest payable if an overpayment of tax arises because of a deduction under the pre-rules

3.7                   Companies are entitled to interest on overpayments arising from assessments under section 8G of the Taxation (Interest on Overpayments and Early Payments) Act 1983 .

3.8                   A company is generally entitled to interest where, at a particular time, the sum of any income tax crediting amounts credited by the Commissioner of Taxation (Commissioner) exceeds, broadly, the income tax liabilities of the company (paragraphs 8G(1)(d) and 8G(2)(c) of the Taxation (Interest on Overpayments and Early Payments) Act 1983 ).

3.9                   Similarly, a company is entitled to interest in certain circumstances where certain decisions are made by the Commissioner which result in a reduction of income tax that has previously been paid (section 9 of the Taxation (Interest on Overpayments and Early Payments) Act 1983 ).

3.10               Where the pre-rules in Part 1 of Schedule 3 to the Tax Laws Amendment (2012 Measures No. 2) Act 2012 apply in working out the amount of a deduction for a company, the company may, for example, receive an assessment that results in a refund of income tax.  As a result, in the absence of these amendments, the company may be entitled to an amount of interest in respect of the deduction. 

3.11               To this extent, it is considered that interest on overpayments should not be payable in these circumstances because the entitlement to interest arises only due to the beneficial retrospective operation of the pre-rules.

3.12               Therefore, the amendments will prevent interest from being payable in these circumstances. 

3.13               That is, where the pre-rules in Part 1 of Schedule 3 to the Tax Laws Amendment (2012 Measures No. 2) Act 2012 apply in working out the amount of a deduction, the deduction is disregarded in working out:

•        the amount (if any) of an excess mentioned in paragraph 8G(1)(d) or 8G(2)(c) of the Taxation (Interest on Overpayments and Early Payments) Act 1983 ; and

•        the extent (if any) to which an amount of relevant tax is overpaid as mentioned in paragraph 9(1)(b) of that Act.

[Schedule 3, item 1, subitems 53(1) and (2) of Tax Laws Amendment (2012 Measures No. 2) Act 2012]

3.14               However, subitems 53(1) and (2) do not apply where an amount of interest has been paid by the Commissioner before 25 November 2011.  Therefore, companies will not have to refund interest that they have already received.  [Schedule 3, item 1, subitem 53(3) of Tax Laws Amendment (2012 Measures No. 2) Act 2012]

No shortfall interest if additional tax becomes payable under the pre-rules or the interim rules

3.15               Where an income tax assessment is amended to increase the amount of tax payable, the taxpayer is liable to pay shortfall interest charge on the amount of the increase (section 280-100 in Schedule 1 to the Taxation Administration Act 1953 (TAA 1953)).

3.16               A company may be liable to pay additional tax because a claim for deduction is disallowed due to the operation of:

•        the pre-rules in Part 1 of Schedule 3 to the Tax Laws Amendment (2012 Measures No. 2) Act 2012 ; or

•        the interim rules in Part 2 of Schedule 3 to the Tax Laws Amendment (2012 Measures No. 2) Act 2012

3.17               It is considered that the shortfall interest charge should not be payable in these circumstances because the liability to interest arises only due to the retrospective operation of the pre-rules or the interim rules.

3.18               Therefore, the amendments will prevent a liability for shortfall interest charge from arising in these circumstances. 

3.19               That is, where the pre-rules or the interim rules apply in working out the amount of a deduction, the deduction is disregarded in working out under subsection 280-100 in Schedule 1 to the TAA 1953 the extent, if any, to which an company is liable to pay an additional amount of income tax because of an amended assessment.  [Schedule 3, item 1, subitems 54(1) and (3) of Tax Laws Amendment (2012 Measures No. 2) Act 2012]

No administrative penalty if additional tax becomes payable under the pre-rules or the interim rules

3.20               A taxpayer may be liable to an administrative penalty where, broadly, the taxpayer makes, or fails to make, a statement to the Commissioner about the operation of the income tax law in certain circumstances (Division 284 in Schedule 1 to the TAA 1953).

3.21               The amount of the administrative penalty is generally based on the shortfall amount.  The shortfall amount is the amount by which the relevant income tax liability, or the amount of a payment or credit of income tax, is less than or more than it would otherwise have been (section 284-80 in Schedule 1 to the TAA 1953).

3.22               A company may be liable to pay an administrative penalty because a claim for deduction is disallowed due to the operation of:

•        the pre-rules in Part 1 of Schedule 3 to the Tax Laws Amendment (2012 Measures No. 2) Act 2012 ; or

•        the interim rules in Part 2 of Schedule 3 to the Tax Laws Amendment (2012 Measures No. 2) Act 2012

3.23               It is considered that an administrative penalty should not be payable in these circumstances because the liability to interest arises only due to the retrospective operation of the pre-rules or the interim rules.

3.24               Therefore, the amendments will prevent an administrative penalty from arising in these circumstances. 

3.25               That is, where the pre-rules or the interim rules apply in working out the amount of a deduction, the deduction is disregarded in working out the amount, if any, of a shortfall amount under subsection 284-80(1) in Schedule 1 to the TAA 1953.  [Schedule 3, item 1, subitems 54(2) and (3) of Tax Laws Amendment (2012 Measures No. 2) Act 2012]

Application and transitional provisions

3.26               The amendments in Schedule 3 to this Bill commence on the day that the Tax Laws Amendment (2012 Measures No. 2) Act 2012 receives Royal Assent.

STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Consolidation

3.27               This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

Overview

3.28               This Schedule amends Schedule 3 to the Tax Laws Amendment (2012 Measures No. 2) Act 2012 to ensure that:

•        no interest is payable if an overpayment of income tax arises because of a deduction under the pre-rules in Part 1 of Schedule 3 to that Act; and

•        no shortfall interest or administrative penalty is payable if additional tax becomes payable because an amendment to an assessment is made, to the extent that the amendment is attributable to a deduction under the pre-rules in Part 1 of Schedule 3 to that Act or under the interim rules in Part 2 of Schedule 3 to that Act.

Human rights implications

3.29               This Schedule does not engage any of the applicable rights or freedoms.

Conclusion

3.30               This Schedule is compatible with human rights as it does not raise any human rights issues.

Assistant Treasurer, the Hon David Bradbury

 

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Schedule 1:  Reform of the living-away-from-home allowance and benefit rules

Bill reference

Paragraph number

Item 1, paragraphs 25-115(1)(a) to (e)

1.27

Item 1, subparagraph 25-115(1)(e)(i)

1.64

Item 1, subparagraphs 25-115(1)(e)(ii) and (iii)

1.73

Item 1, subsection 25-115(2)

1.44

Item 1, subsection 25-115(3)

1.56

Item 1, subsection 25-115(4)

1.66

Item 1, paragraph 25-115(4)(a)

1.67, 1.68

Item 1, paragraph 25-115(4)(b)

1.69

Item 1, paragraph 25-115(4)(c)

1.70

Item 1, paragraph 25-115(4)(d)

1.71

Item 1, subsection 25-115(5)

1.29

Items 3, 7 and 10 of the FBTAA

1.91

Item 5

1.18

Item 5, sections 30 and 30A of the FBTAA

1.20

Items 11 to 23 of the FBTAA

1.88

Item 16

1.89

Item 21 of the FBTAA

1.90

Items 24 to 26

1.92

Item 27, subsection 900-97(1)

1.58

Item 27, paragraph 900-97(1)(b) and subsection 900-97(2)

1.60

Item 27, section 900-98

1.63

Item 28

1.77

Item 28 of the TAA 1953

1.93

Item 29

1.76

Item 31

1.83

Subitems 30(1) and (3)

1.79

Subitems 30(2) and (3)

1.80

Subitem 30(3)

1.85

Schedule 2:  GST supplies by representatives who are creditors

Bill reference

Paragraph number

Item 1, section 58-1

2.19

Item 2, section 58-95

2.15

Item 3, section 105-1

2.20

Item 4

2.17, 2.18

Schedule 3:  Consolidation

Bill reference

Paragraph number

Item 1, subitems 53(1) and (2) of Tax Laws Amendment (2012 Measures No. 2) Act 2012

3.13

Item 1, subitem 53(3) of Tax Laws Amendment (2012 Measures No. 2) Act 2012

3.14

Item 1, subitems 54(1) and (3) of Tax Laws Amendment (2012 Measures No. 2) Act 2012

3.19

Item 1, subitems 54(2) and (3) of Tax Laws Amendment (2012 Measures No. 2) Act 2012

3.25

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