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Abolish 'hated' fringe benefits tax and restore small business confidence

Publication date: 10 Mar 98 | Source: THE TAX INSTITUTE

The Taxation Institute of Australia has recommended the Federal Government abolish the fringe benefits tax which has eroded small business confidence since its introduction in the mid 1980's and replace it with workable income tax law on employee benefits.

This recommendation forms an integral part of a submission on overall tax reform put forward by the Taxation Institute to the Gibson Committee titled Tax Reform in Australia.

"Fringe benefits tax is without doubt the most unpopular tax introduced in the last 20 years. It also has unreasonably high costs of compliance, representing 10.5% of revenue collected from the tax," said Taxation Institute of Australia Tax Technical Director, Ms Annamaria Carey.

"The legislation is incredibly detailed including over 100 pages of definitions and other interpretive provisions which have led to these high compliance costs and some ludicrous cases of taxable benefits," she said.

Some of these examples include the case of an employee working (unpaid) on a weekend who might use lavatory facilities at their workplace. The employee's consumption of toilet paper and soap is subject to FBT in this situation. Another example is a salesman who is given a laptop computer, printer and modem so that he can work 'on the road'. In this situation, FBT will be payable on the printer and modem, even though the provision of the laptop computer is exempt.

"The repeal of this hated fringe benefits tax would certainly go a long way toward restoring small business confidence," said Ms Carey.

The Taxation Institute advocates an income tax law which taxes employees on benefits received from employment with the following features:

- simple readable law which is not overly prescriptive; - taxes specific benefits only - those which might be loosely termed 'salary packaging' such as cars, non-remote housing and personal expenses such as telephone bills and school fees; - all specifically taxed items would appear on an employee's PAYE group certificate; - reasonable living-away-from-home allowances paid in cash would be exempt from tax; - all other benefits from the employer would be tax free; and - employees take responsibility for their own income (both cash and non-cash) and have a full understanding of how they are taxed.

"This model is an equitable basis upon which to rebuild the taxation of employee benefits," Ms Carey said.

"The Taxation Institute strongly recommends that the Government seriously considers this proposal. Only bold action will restore sense to this already too complex but very important area of the law," she said.