Australia To Extend Fringe Benefit Tax Exemptions

By Editorial 03 March, 2011

The Australian Treasury has released for public consultation an exposure draft of legislation that will extend the fringe benefits tax (FBT) exemption for Australian residents working in remote locations on a fly-in fly-out basis to Australian residents working in similar remote locations overseas.

Extending the exemption will ensure that Australian residents working in remote areas on fly-in fly-out arrangements are taxed consistently, regardless of whether they are working in Australia. The new rules will apply to fringe benefits provided after July 1, 2009, when Australian residents working in remote areas overseas potentially became assessable on their foreign employment income.

In the 2009-10 Budget, the government tightened the eligibility requirements for an income tax exemption provided to Australian residents employed overseas for periods greater than 91 continuous days under section 23AG of the Income Tax Assessment Act 1936.

Generally under Australian income tax law, Australians who are resident taxpayers are required to pay tax on their worldwide income. Section 23AG was originally introduced to ensure that foreign employment income was not double taxed, first in the country where the income was earned and then again in Australia.

As a result, from July 1, 2009, the foreign employment income of most Australians working overseas is no longer exempt from Australian income tax. It is instead included in the assessable income of the Australian employee and subject to the appropriate marginal tax rates.

Australian employees whose income is no longer exempt because of the 2009-10 Budget changes are eligible to claim a foreign income tax offset for the foreign income tax paid on those amounts now included in their assessable income. The offset applies against any Australian tax payable on that Australian employee’s assessable income. This eliminates double taxation of wage and salary income.

The amendments were aimed at improving the fairness and integrity of Australia’s tax system by better targeting the tax exemption for income earned by Australians overseas. As a result, most Australian residents earning employment income (whether within Australia or overseas) are now treated more consistently.

Employers of employees whose foreign employment income is no longer exempt are now liable for FBT if they provide fringe benefits to employees who are Australian residents for tax purposes, and the employer has a sufficient connection to Australia. Such benefits were previously exempt from FBT because no FBT liability arose in relation to benefits provided to employees whose salary or wages were fully exempt from income tax. Removing the income tax exemption for affected individuals has brought these individuals within the FBT regime.

The Treasury says that the general application of FBT to these employees is appropriate, as it ensures the consistent treatment of employee remuneration regardless of whether it is received as cash or as a non-cash benefit. However, the presence of the exemption from FBT for employees working in remote areas of Australia under fly-in fly-out arrangements means that Australian resident employees working in Australian remote areas are now taxed inconsistently to Australian residents working in remote areas overseas.

Taxing transport provided under these arrangements may also result in economic double taxation, with an Australian employer paying FBT on transport provided to an employee employed under a fly-in flyout arrangement, as well as the possibility of an employee paying foreign tax on the value of transport received.

Double taxation may occur because Australia taxes fringe benefits in the hands of employers, whereas most other countries that tax fringe benefits, tax them in the hands of employees. The FBT regime does not include an equivalent to the foreign income tax offset.

In November last year the Assistant Treasurer Bill Shorten said: "The operation of the current FBT exemption for fly-in fly-out arrangements, which apply for work in Australia, will be extended and applied to Australian workers in similar situations overseas."

Extending the exemption will ensure that Australian residents working in remote areas on fly-in fly-out arrangements are taxed consistently, regardless of whether they are working in Australia or overseas, as well as eliminate any possibility of double taxation on such benefits.

Interested parties are invited to comment on the exposure draft bill and explanatory materials. While submissions may be lodged electronically or by post, electronic lodgement is preferred. The closing date for submissions is March 28, 2011.

Tags: Individuals | Expatriates | Tax | Law | Fringe Benefits | Employees | Australia | Legislation | Tax Rates |


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