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Employment taxes

Changes to the FBT system for work-related electronic devices

The Government is extending existing fringe benefit tax (FBT) concessions for work-related electronic devices for small businesses. In line with the other small business Budget measures, this concession will apply to those businesses with an aggregated annual turnover of less than $2 million.

Small businesses will not be subject to the current annual FBT limitation of one qualifying work-related portable electronic device, where the items have substantially similar functions. The stated purpose is to remove confusion where there is a function overlap between different products (such as between a tablet and a laptop). Interestingly, the Australian Taxation Office (ATO) already makes this distinction in its published guidance.

This change will take effect from the FBT year commencing 1 April 2016.

New FBT concessional caps - meal and entertainment benefits

The Government has announced that it will introduce a $5,000 grossed-up cap on FBT exemption and rebate concessions relating to the provision of certain meal entertainment and entertainment facility leasing expense (EFLE) benefits. These changes will apply to meal entertainment and EFLE benefits that are provided as part of a 'salary packaging arrangement', being arrangements involving a benefit provided in exchange for a reduction in salary or wages, or where the benefit is part of the employee's remuneration package.

This change will impact certain employers including public benevolent institutions, public and not-for-profit hospitals, public ambulance services, charitable institutions and a range of not-for-profit institutions, clubs and associations.

Such benefits will also become Reportable Fringe Benefits for Payment Summary Reporting purposes.

Meal entertainment and EFLE were originally 'excluded' from FBT when the capping measures were introduced as an administrative concession, on the basis that it would be too difficult to track and record the benefits against an individual's general concessional $17,000 or $30,000 grossed-up cap. The Government views the salary packaging of these items to be an unintended outcome of the availability of these concessions and, through the introduction of the $5,000 grossed-up cap, seeks to limit the tax leakage. Where the $5,000 grossed-up cap is exceeded, the excess benefits will count towards the existing general caps.

These changes will take effect from the FBT year commencing 1 April 2016. The announcement is silent on whether existing salary sacrifice arrangements, or those entered into prior to 1 April 2016, will be grandfathered for concessional treatment post-1 April 2016, in a similar manner to previous FBT amendments impacting salary sacrifice arrangements.

Changes to the taxation of employee share schemes

Legislation to implement changes to the taxation of employee share schemes is currently before Parliament following consultation on the draft legislation released earlier this year. Further to this consultation, the Government has in the Budget announced that the following additional amendments will be made to the taxation of employee share schemes:

  • excluding eligible venture capital investments from the aggregated turnover test and grouping rules (for the start-up concession)
  • providing the capital gains tax discount to employee share scheme interests that are subject to the start-up concession, where options are converted into shares and the resulting shares are sold within 12 months of exercise, and
  • allowing the Commissioner of Taxation to exercise discretion in relation to the minimum three-year holding period where there are circumstances outside the employee's control that make it impossible for them to meet this criterion.

These changes will impact start-up organisations that issue shares to their employees. Prior to the changes, start-up employees that are issued shares or options had to pay income tax at the time they received those shares or options, regardless of whether they had yet realised any financial benefit.

These changes are intended to make employee share schemes more accessible and provide additional tax assistance to eligible companies through a start-up concession.

These changes will take effect with the remainder of the enabling legislation from 1 July 2015.

Contact us

Greg Kent

Partner, PwC Australia

Tel: +61 (3) 8603 3149

Norah Seddon

Australia and Asia Pacific People & Organisation Tax Leader, PwC Australia

Tel: +61 2 8266 5864

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