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Chapter 38: Towards a better regime for taxing fringe benefits

A case for reform

The taxation of fringe benefits through the employer (rather than the employee) at the top marginal tax rate is seen as complex, administratively burdensome and discriminating against employees on less than the top rate. The car valuation regime also affects allocative efficiency.

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A strategy for reform

To address equity issues by taxing fringe benefits in the hands of the employee.

To improve efficiency, and to avoid a significant loss of revenue, by changing the ‘concessional’ statutory formula for car benefits.

To consider differing treatments for entertainment and on-premise car parking fringe benefits.

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Key policy issues
What method should be used to determine taxable benefits? How should the statutory formula for cars be changed? Should a ‘de minimis’ level of assigning and taxing fringe benefits apply? When should the FBT year end? Can the compliance costs for entertainment fringe benefits be reduced without a great call on revenue? Can the compliance costs of on-premise car parking fringe benefits be reduced without a great call on revenue? What approach should be adopted for FBT exempt and rebatable organisations?
Option 1
Current exclusions approach.

Option 2
Positive inclusions approach.

Option 1
A schedular approach.

Option 2
Modify the statutory formula.

To apply the proposed $1,000 limit for reporting fringe benefits could lead to a large tax revenue loss. Option 1
Align with the income tax year.

Option 2
Continue to finish at March 31.

Option
Return entertainment to pre-1995 treatment (exempt from FBT and make non-deductible) and tightly define scope.
Option
Exempt on-premise car parking from taxation as a fringe benefit.
Option 1
Continue concessions in personal income tax regime.

Option 2
Remove concessions and where appropriate replace with direct subsidy.