EXPLANATORY STATEMENT
STATUTORY RULES 1990 NO. 68
ISSUED BY THE AUTHORITY OF THE TREASURER
FRINGE BENEFITS TAX REGULATIONS
These regulations allow the notional tax amount of an employer, by reference to which the instalments of fringe benefits tax payable by the employer are calculated, to be varied to take account of the reduced rate of fringe benefits tax applying from 1 April 1990.
Subsection 110(2) of the Fringe Benefits Tax Assessment Act 1986 provides that, where the rate of tax declared by Parliament for a year of tax is different from the rate declared for the immediately preceding year of tax, the calculation of the notional tax amount of an employer provided in subsection 110(1) may be varied. The notional tax amount may only be varied if regulations are in place for that purpose and must be varied in accordance with those regulations. The notional tax amount is only varied on and after such date as is prescribed.
The rate of tax that applies to employers liable to pay fringe benefits tax has been reduced, by the Taxation Laws Amendment (Rates and Rebates) Act 1989, from 49 percent to 47 percent. The reduced rate applies to the year of tax commencing on 1 April 1990 and all subsequent years.
As a consequence, it is appropriate to vary the notional tax amount of employers for the year beginning on 1 April 1990. Fringe benefits tax is payable in part by 3 instalments in the course of a year of tax, each instalment equalling 25% of the employer’s notional tax amount. (The amount of tax paid by way of instalments is then credited against the amount of tax assessed - at the end of the tax year - to be the employer’s fringe benefits tax liability for that year.) The employer’s notional tax amount for a year of tax is generally the employer’s fringe benefits tax liability for the previous year.
These Regulations specify a formula by which an employer’s notional tax amount is to be varied to reflect the new reduced rate of fringe benefits tax. The Regulations also prescribe the date from which the variation is to apply.
A detailed explanation of the Regulations is given in the Attachment.
Attachment
Detailed notes on the Fringe Benefits Tax Regulations
Regulation 1 allows the Regulations to be cited as the Fringe Benefits Tax Regulations.
Regulation 2 facilitates references in these Regulations to the Fringe Benefits Tax Assessment Act 1986, which in these Regulations is referred to as “the Act”.
Subregulation 3(1) specifies the formula by which the notional tax amount determined in accordance with subsection 110(1) of the Act is to be varied for the year of tax commencing on 1 April 1990. (Subsection 110(1) sets out the general rule for determining the notional tax amount of an employer.) The formula is that the amount of fringe benefits tax assessed in respect of the employer for the year of tax commencing 1 April 1989 (the notional tax amount in accordance with subsection 110(1) of the Act) be multiplied by the ratio 47/49. This will have the effect of reducing the amount of instalments payable by employers for the year of tax commencing on 1 April 1990, reflecting the decreased rate of tax that will apply for that year.
Subregulation 3(2) prescribes 1 April 1990 as the date from which the notional tax amount of the employer is varied. As a consequence, all of the instalments of fringe benefits tax payable for the 1990-91 year will be calculated by reference to the new reduced rate of tax.
Example:
If for the year of tax commencing on 1 April 1989 an employer was assessed as liable for fringe benefits tax of $10,000, the employer’s notional tax amount for 1990-91 would ordinarily be $10,000. The fringe benefits tax instalments payable for 1990-91 would each be $2,500 (25% of $10,000).
By virtue of the proposed regulations, the employer’s notional tax amount for 1990-91 will instead be:
$10,000 x 47/49 - $9,591.84
The employer’s fringe benefits tax instalments for the year will accordingly be reduced to $2,397.96 (25% of $9,591.84).
Overview
The Fringe Benefits Tax Regulations 1990 were enacted to address the need to adjust the notional tax amounts for employers following a reduction in the rate of fringe benefits tax. This Act was issued under the authority of the Treasurer in accordance with the Fringe Benefits Tax Assessment Act 1986. The primary objective was to ensure that the reduced rate of fringe benefits tax, which was lowered from 49 percent to 47 percent effective from 1 April 1990, was appropriately reflected in the instalments of fringe benefits tax that employers were required to pay. By varying the notional tax amount using a specified formula, the Regulations aimed to align the tax instalments with the new tax rate, thereby reducing the burden on employers for the financial year commencing on 1 April 1990. The regulations were designed to provide a seamless transition to the new tax rate, ensuring that employers would not be overburdened while the system adjusted to the legislative changes.
Scope and Application
The Fringe Benefits Tax Regulations 1990, issued under the authority of the Treasurer, address the variation of employers' notional tax amounts in light of the reduced fringe benefits tax rate, effective from 1 April 1990. These regulations are applicable to employers who are liable for fringe benefits tax, allowing them to adjust the notional tax amount used for calculating their tax instalments. This adjustment is necessary due to the change in tax rates as stipulated by the Taxation Laws Amendment (Rates and Rebates) Act 1989, which lowered the tax rate from 49 percent to 47 percent. The regulations specify the formula for adjusting the notional tax amount and set the date of application, ensuring that all instalments for the 1990-91 tax year reflect the new reduced tax rate. This legislative action ensures compliance with the statutory requirement that the notional tax amount can only be altered if appropriate regulations are in place, and these regulations provide the necessary framework for that adjustment.
Key Provisions
The Fringe Benefits Tax Regulations 1990 provide the framework for adjusting the notional tax amount for employers, as specified in subsection 110(2) of the Fringe Benefits Tax Assessment Act 1986. This adjustment takes into account the reduced tax rate of 47 percent, effective from 1 April 1990. The primary focus of the Regulations is to modify the notional tax amount to reflect this new rate, ensuring that employers only pay instalments based on the correct tax amount (subregulation 3(1)). For instance, if an employer's assessed fringe benefits tax for the year ending 31 March 1990 was $10,000, the notional tax amount for the subsequent year, 1990-91, would be recalculated using the ratio 47/49, resulting in a new notional tax amount of approximately $9,591.84. This change impacts the instalments that employers must pay, with the first instalment for the year 1990-91 now calculated at 25% of $9,591.84, or $2,397.96.
The Fringe Benefits Tax Regulations impose specific obligations on employers. Firstly, employers must determine their notional tax amount for the year of tax in accordance with the formula provided in subregulation 3(1). This involves taking the amount of fringe benefits tax assessed for the previous year and adjusting it by the ratio 47/49. Secondly, employers must use this adjusted notional tax amount to calculate their instalments for the current year of tax. Additionally, employers need to ensure they make the correct instalment payments based on this recalculated amount. The Regulations also require employers to adhere to the date prescribed for the variation, which is 1 April 1990, as stipulated in subregulation 3(2). This date ensures consistency in applying the reduced tax rate across all employers.
Under these Regulations, there are no explicit offences or penalties outlined for failing to comply with the adjustments to the notional tax amount. However, it is important to note that the Fringe Benefits Tax Assessment Act 1986 includes provisions for penalties and enforcement actions in the event of non-compliance with tax obligations. Employers who fail to accurately calculate and pay their instalments may face penalties under the general provisions of the Act, which could include fines or additional tax assessments. It is essential for employers to ensure they adhere to the requirements set out in the Regulations to avoid potential penalties or other consequences under the broader tax legislation.