Senate debates

Tuesday, 24 November 2015


Tax and Superannuation Laws Amendment (2015 Measures No. 5) Bill 2015; Second Reading

5:21 pm

Photo of Nigel ScullionNigel Scullion (NT, Country Liberal Party, Minister for Indigenous Affairs) Share this | | Hansard source

I move:

That this bill be now read a second time.

I seek leave to have the second reading speech incorporated in Hansard.

Leave granted.

The speech read as follows—

This Bill amends various taxation laws to implement a range of improvements to Australia's tax laws.

The Government is committed to fairness and sustainability in Australia's tax system. This Bill underlines that commitment by making some important changes to realign policies with their original intent, improve integrity and reduce complexity for taxpayers.

Schedule 1 to this Bill will modernise the methods for calculating tax deductions for work-related car expenses by streamlining and updating the available methods and rates for claiming work-related car expenses.

Schedule 2 will better target the Zone Tax Offset to exclude Fly-in Fly-out and Drive-in Drive-out workers. This meets the Government's priority to deliver a fairer tax system—ensuring only those genuinely living in the specified geographic zones are entitled to the offset.

Schedule 3 will introduce a separate grossed-up cap of $5,000 for salary sacrificed meal entertainment and entertainment facility leasing expenses for certain employees of not-for-profit organisations, and all use of these salary sacrificed benefits will become reportable.

Schedule 4 will create a new reporting regime which requires third parties to report on a range of transactions.

The 2015-16 Budget delivered by this Government demonstrated a commitment to building a fair and sustainable tax system. Schedule 1 to this Bill contributes to this commitment by modernising and streamlining the available methods and rates for calculating work-related car expenses. The schedule reduces the number of methods for claiming the deduction, not what is deductible for car expenses.

Currently, work-related car expenses are claimed by 3.8 million taxpayers each year.

Under current rules, taxpayers can choose one of four methods to calculate their claims based on their travel and documentation. This Bill reduces the available methods down to two.

Having four different methods available adds complexity to claims for taxpayers. This is because taxpayers—or their tax advisers—tend to calculate all four methods in order to identify the method that delivers the greatest amount of deduction.

Of the four methods currently available, both the 12 per cent of original value method and one-third of actual expenses method are used where more than 5,000 business kilometres are travelled, and therefore require less substantiation. Yet these two methods are used in just two per cent of claims each year. As such, this Bill will remove these two options.

Instead, for the 2015-16 income year, taxpayers can continue to calculate their claims using the more popular cents per kilometre method for business travel of less than 5,000 kilometres, or the logbook method to calculate their claims based on actual expenses and travel.

This Bill also modernises the formula for calculating claims using the cents per kilometre method. Under this method, no substantiation of car expenses is required—only a reasonable estimation of the work-related travel conducted throughout the year, up to a maximum of 5,000 business-related kilometres. This will not change under this Bill. Under present arrangements, these work-related kilometres are then multiplied by a cents per kilometre rate based on the size of a car's engine - currently 65 cents per kilometre for small cars, 76 cents per kilometre for medium cars, and 77 cents per kilometre for large cars.

In addition, the existing rates apply to rotary engines of different sizes, and have not previously been modernised to apply to modern electric or hybrid vehicles.

This Bill streamlines the different rates based on engine size to a single rate of 66 cents per kilometre, which is based on the average running expenses in Queensland and New South Wales of the five highest selling vehicles in Australia. This rate is a fair estimation of expenses for all taxpayers, and is supported by recent data from both RACQ and NRMA for the costs of running the top five selling cars.

For those taxpayers who travel more than 5,000 business-related kilometres, the logbook method will not change—establishing work-related driving by keeping a logbook for 12 weeks which is valid for five years—still enables them to claim their actual expenses based on their work-related use.

For those that wish to stay on the cents per kilometre method, Tax Time 2016 will be much easier with a standard rate applied to their travel.

The original methods and rates were set in the 1980s—it is clear based on the methods actually used, and up to date industry information on current running costs, that these rates and methods are outdated. They are adding to the compliance burden of everyday Australians—which is already one of the highest in the modern world.

Going forward, the Commissioner of Taxation will review the new single rate each year reflecting the most up to date running costs for the greatest number of Australian taxpayers. These changes will raise $845 million over the forward estimates, making a significant contribution to our ongoing budget repair effort.

Schedule 2 provides for changes to the Zone Tax Offset to realign it with its original intent.

From the 2015-16 year, the Zone Tax Offset will be targeted to people genuinely living in identified regional areas. This Bill will exclude 'fly-in fly-out' and 'drive-in drive-out' workers (also referred to as FIFO workers) from claiming the offset, where their usual residence is not within one of the 'zones'. FIFO workers whose usual residence is in one zone, but who work in a different zone, will retain the Zone Tax Offset entitlement associated with their usual place of residence. This will ensure that the offset is better targeted to those taxpayers genuinely living in these regional areas.

The Zone Tax Offset was introduced in 1945 and was intended to compensate recipients for the disadvantages of living in remote areas including isolation, uncongenial climate and higher costs of living.

Geographic regions associated with the Zone Tax Offset are spread across Australia and include regional areas of all states and territories except Victoria and the Australian Capital Territory. In addition, particularly remote areas (including parts of the Northern Territory, far west and north Queensland and northern Western Australia) are eligible for higher zone rebates in recognition of the additional costs they face.

Currently, to be eligible for the offset, a taxpayer must reside or work in a specified remote area for more than 183 days in an income year. The residency test does not require a Zone Tax Offset recipient to spend 183 days consecutively in the relevant zone. As a result, FIFO workers who spend more than a total of 183 days in a zone are currently eligible to claim the offset.

When first enacted, the Zone Tax Offset was intended to compensate Australians genuinely living in these regional areas for certain disadvantages associated with living in such remote areas. However, this offset was designed before the rise of the Fly-in Fly-out worker, before modern travel and before the mining boom made temporary relocation for work economically viable.

So what we now see is that FIFO workers flying in from Perth, or Brisbane, or Sydney—areas otherwise ineligible for the offset—are able to spend over 183 non-consecutive days in these regional areas of Australia, return to their home in Sydney or Brisbane or Perth, and still claim the offset. This is clearly not the intent of the original policy and it is unfair on those Australian families who are genuinely contending with the isolation, uncongenial climate and higher costs of living in these remote areas.

It is estimated that up to 180,000 people currently claim the Zone Tax Offset based on where they work rather than where they live.

Schedule 2 to this Bill amends the law so that only those residents genuinely living in the designated geographic zones are eligible to claim the offset, and is expected to raise $325 million over the forward estimates. This change is consistent with the original policy intent of the offset, ensuring that it is fair, well targeted and sustainable.

Schedule 3 to this Bill introduces a separate single grossed-up cap of $5,000 for salary sacrificed meal entertainment and entertainment facility leasing expenses for employees of certain not-for-profit organisations. All use of these salary sacrificed entertainment benefits will become reportable.

The charitable and not-for-profit sector in Australia is vitally important to the strength of our community. Each year the federal government provides billions of dollars in support to the sector in the form of various tax concessions.

These include income tax exemptions, deductible gift recipient status, applying a higher threshold for GST registration and fringe benefits tax concessions.

Employees at a public benevolent institution or a health promotion charity are ordinarily entitled to Fringe Benefit Tax exempt benefits up to $30,000 a year and employees in public hospitals, not-for-profit hospitals and public ambulance services up to $17,000 a year.

In addition to their $17,000 or $30,000 cap, an employee will also be entitled to spend an unlimited amount on entertainment benefits without being subject to Fringe Benefit Tax. These uncapped benefits can include meals, alcohol, cruises, holidays overseas and birthday parties.

The use of these concessions has moved beyond its original intention. However, as the government recognises the ongoing importance of these concessions in the not-for-profit sector, this Bill imposes a cap of $5,000 grossed up on these benefits rather than removing them altogether. A cap improves fairness and is further evidence of the Government's commitment to the integrity and sustainability of the Australian tax system. This change is expected to raise $295 million over the forward estimates.

Since 2007, the Australian Taxation Office has offered individual taxpayers a pre-filling service to help them to complete their tax return. It uses the information received from third parties to provide this service.

The Australian Taxation Office now receives sufficient information to completely pre-fill a simple tax return. It now provides information to taxpayers on wages and salaries, interest and dividend income, government benefits from Centrelink, and Medicare and private health insurance details.

To further improve compliance and make it easier to complete tax returns, Schedule 4 to this Bill amends Schedule 1 to the Taxation Administration Act 1953 to increase the information reported by third parties to the Commissioner of Taxation.

Schedule 4 creates a new reporting regime requiring third parties to report on the following four types of transactions: government grants and payments, transfers of real property, transfers of shares and units in unit trusts and business transactions made through payment systems.

First, government grants and payments often constitute income in the hands of businesses. Examples of these payments are those provided to contractors or consultants for a range of services. These payments may give rise to taxable consequences for the supplier of services.

Commonwealth and state and territory government entities will be required to report information on grants and payments for services to businesses that occur on or after 1 July 2017.

Local government entities will also be required to report information on payments for services to businesses that occur on or after 1 July 2017.

Second, transfers of real property may give rise to different kinds of tax consequences. A common consequence is an income tax liability, based on a net capital gain. Another is a goods and services tax liability.

Each state and territory will be required to report information on transfers of freehold or leasehold interests in real property that occur on or after 1 July 2016.

Third, transfers of shares or units in a unit trust may give rise to income tax consequences based on a net capital gain. Corporate events, such as a return of capital to shareholders, may also have income tax consequences.

The Australian Securities and Investments Commission will be required to report on transaction data that it has received under the market integrity rules. ASIC will report on transactions that occur on or after 1 July 2016.

To enable the Commissioner to identify the parties in each transaction that ASIC reports, market participants such as stockbrokers will provide client identity information to the Commissioner.

Such reports will be provided for transactions that occur on or after 1 July 2017.

Trustees of trusts other than unit trusts are required to report on transactions that have a tax consequence for absolutely entitled beneficiaries. This will allow the Commissioner to attribute any capital gains tax consequences to absolutely entitled beneficiaries. Such reports will be required for transactions that occur on or after 1 July 2017.

The Commissioner will exempt trustees from reporting under this regime where they lodge a tax return for the trust for the relevant income year.

Finally, amounts that a customer pays a business typically give rise to income tax consequences for the business.

Administrators of payment systems will be required to report the total of all electronic transactions paid to a business or provided as a refund or cash to a customer of the business. Examples of electronic transactions are those payments using credit or debit cards. However, the reporting will be limited to transactions the administrator of the payment system reasonably believes are for the purposes of a business.

These reports apply to transactions that occur on or after 1 July 2017.

This measure will improve taxpayer compliance by increasing the information reported to the ATO to allow improvements to pre-filling of tax returns. This is expected to raise $123 million over the forward estimates. In addition to increasing integrity in the tax system, this measure will also simplify the tax return process for taxpayers.

The Government recognises that this regime will impose some costs on reporters and fully expects the Commissioner of Taxation to streamline processes and avoid duplication. Compliance costs for reporters can be minimised by aligning information reporting requirements with the natural systems of businesses (such as setting up new client records or paying suppliers) and using current and emerging technologies.

This Bill is aimed at better targeting and strengthening our tax system to ensure it is fair and sustainable.

Full details of the measures are contained in the explanatory memorandum.

Debate adjourned.