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States shortchanged in FBT/GST legislation, says Taxation Institute

Publication date: 23 Mar 00 | Source: THE TAX INSTITUTE

The Government's proposed FBT changes to GST on employee benefits are inequitable and will operate to the disadvantage of employees and the financial detriment of the states, the Taxation Institute of Australia claimed today.

The changes, contained in recent legislation, ignore the tax professions important recommendations designed to make the changes fairer, and create a massive windfall for the Federal Government from increased FBT payments.

The proposed legislation will introduce two "gross up" formulas for FBT depending on whether the provider of the benefit is entitled to a GST input credit. However, where only a partial GST input credit is available on a particular benefit, the higher gross up formula will apply to the whole benefit, thus subjecting it to higher FBT.

This legislation means the Federal Government will receive a massive windfall gain from increased FBT payments. Frequently, this FBT will be met by the employee under a salary sacrifice arrangement, resulting in the employee paying the higher FBT.

"The tax bodies supported the concept of dual gross up formulae in preference to a single higher rate in order to avoid double taxation," says Mr Conwell.

"But double taxation still occurs under this legislation and the Federal Government gets a tax windfall at the expense of the States and Territories, because the States and Territories get the revenue from the GST, and higher FBT is paid when a GST input tax credit is claimable.

"The States and Territories are, in effect, funding the Federal Government's FBT windfall. To rub salt into the wound, this will happen even when the States and Territories provide fringe benefits to their own employees. The Government therefore needs to look at the issue of compensating the States and Territories for their revenue loss.

"There are many other deficiencies in this legislation which were pointed out to officials during consultation and which remain to be addressed. The only sensible course is for the Government to withdraw the legislation in its current form and go back to the drawing board."