EXPLANATORY STATEMENT
Select Legislative Instrument 2006 No. 165
Issued by authority of the Minister for Revenue
and Assistant Treasurer
Fringe Benefits Tax Assessment Act 1986
Fringe Benefits Tax Amendment Regulations 2006 (No. 2)
Section 135 of the Fringe Benefits Tax Assessment Act 1986 (the Act) provides that the Governor-General may make regulations prescribing matters required or permitted by the Act to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to the Act.
Certain employers are required to make quarterly instalments of fringe benefits tax (FBT). Effectively, the employer is required to make quarterly instalments of ¼ of the amount of tax in their most recent year of tax for which the Commissioner has made an assessment.
The purpose of the Regulation is to ensure that employers’ quarterly instalments reflect, as closely as possible, their expected tax liability for the first year after the FBT rate is changed.
Since the FBT rate changed from 48.5 per cent to 46.5 per cent from 1 April 2006, an equivalent reduction in the notional tax amount is provided.
To ensure that any future changes in the FBT rate are appropriately reflected in employers’ notional tax amounts, the regulation provides for a generic variation of notional tax amount, which applies in any year that the FBT rate is changed.
The Regulations are taken to have commenced on 1 April 2006, and would apply for the FBT year starting 1 April 2006 and later years. Subsection 12(2) of the Legislative Instruments Act 2003 prohibits the retrospective operation of regulations, or a provision of regulations, which adversely affect the rights of, or impose liabilities on, a person other than the Commonwealth in respect of anything done or omitted to be done before the date of notification. The retrospective commencement would not contravene subsection 12(2) because the proposed Regulations would not retrospectively disadvantage a person or impose a liability upon a person (see advice from the Office of Legislative Drafting and Publishing in Attachment).
Overview
The Fringe Benefits Tax Amendment Regulations 2006 (No. 2) were enacted to address discrepancies in employers' quarterly instalments of fringe benefits tax (FBT) following a change in the FBT rate. Specifically, the Act was introduced to ensure that employers' quarterly instalments more accurately reflect their expected tax liability after the FBT rate was reduced from 48.5 per cent to 46.5 per cent, effective from 1 April 2006. The regulations were formulated under Section 135 of the Fringe Benefits Tax Assessment Act 1986, empowering the Governor-General to establish rules necessary for the Act's implementation. The policy objective of these regulations is to maintain the alignment of employers' quarterly FBT instalments with their actual tax obligations, thereby preventing any potential underpayment or overpayment of FBT due to rate changes. These regulations commenced on 1 April 2006, applying to FBT years starting from that date and onwards.
Scope and Application
The Fringe Benefits Tax Amendment Regulations 2006 (No. 2) apply to employers who are required to make quarterly instalments of fringe benefits tax (FBT) as prescribed by the Fringe Benefits Tax Assessment Act 1986. These regulations specifically address the adjustments needed to ensure that employers' quarterly FBT instalments reflect their expected tax liability after a change in the FBT rate. For instance, following the change in the FBT rate from 48.5 per cent to 46.5 per cent from 1 April 2006, the regulations provide for a reduction in the notional tax amount, thereby aligning the quarterly instalments with the new tax rate. The regulation includes provisions for a generic variation of the notional tax amount, applicable in any year the FBT rate is altered. These regulations commenced on 1 April 2006 and apply to FBT years starting from that date and any subsequent years. Importantly, the regulations do not operate retrospectively and do not adversely affect the rights or impose liabilities on individuals or entities for actions taken before the regulations' commencement.
Key Provisions
The main sections of the Fringe Benefits Tax Amendment Regulations 2006 (No. 2) (the Regulations) require employers to adjust their quarterly instalments of fringe benefits tax (FBT) in response to changes in the FBT rate. Specifically, Section 135 of the Fringe Benefits Tax Assessment Act 1986 empowers the Governor-General to make regulations that are necessary or convenient to carry out the Act, and these Regulations seek to ensure that employers’ quarterly instalments closely reflect their expected tax liabilities following a change in the FBT rate. As detailed in the Explanatory Statement, the Regulations were introduced to address the reduction in the FBT rate from 48.5 per cent to 46.5 per cent, effective from 1 April 2006. They provide for an equivalent reduction in the notional tax amount and include a generic variation of the notional tax amount applicable whenever the FBT rate changes in the future.
The Regulations impose specific obligations on employers who are required to make quarterly instalments of FBT. These employers must adjust their quarterly instalments to reflect the new FBT rate as closely as possible. The adjustment is based on the previous year's tax assessment, requiring employers to pay a quarter of the tax amount from the most recent year assessed by the Commissioner. This requirement ensures that employers’ quarterly payments are aligned with the current FBT rate, thereby preventing overpayment or underpayment of FBT. Employers must also account for any future changes in the FBT rate by applying the generic variation of the notional tax amount stipulated in the Regulations.
Breaches of the Regulations may result in civil or administrative consequences. Employers who fail to comply with the requirement to adjust their quarterly FBT instalments may face penalties. Although the specific penalties are not detailed in the Explanatory Statement, it is reasonable to assume that non-compliance could lead to interest charges on unpaid FBT, fines, or other administrative actions taken by the Australian Taxation Office. The precise penalties would be determined in accordance with the Fringe Benefits Tax Assessment Act 1986 and other relevant legislation. The Regulations are designed to ensure that FBT payments are accurate and timely, thereby maintaining the integrity of the tax system.