Fringe benefits tax (FBT) collections currently represent less than 1 per cent of total revenue collections each year, raking in $4 billion annually compared to the $85 billion in corporate taxes and $220 billion from individuals.
Australia is only one of three countries which impose an FBT on employers, with New Zealand and India being the other two.
Andrew Mills, director, tax policy and technical at The Tax Institute, and the driving force behind its tax reform project, The Tax Summit: Project Reform, said: “The festive season always brings out the FBT debate. We have a system where you have such varied outcomes where you chose one form of entertainment over another or even one type of gift over another. Even the location at which the gift is presented can result in different tax outcomes.”
Mr Mills advised that, throughout Project Reform, many businesses noted that while the FBT they pay could be around 10 per cent of the amount of income tax they pay annually, the cost of compliance is often equal to, and at times more, than the amount they spend to comply with the income tax laws.
“This is a system designed in the 1980s that is not fit for the 21st century,” Mr Mills said. “For the amount of revenue raised, the cost and complexity within the system is unjustifiable.”
However, Mr Mills noted that scrapping the tax may not be achievable considering the revenue it raises, and believes a sustainable replacement should be instead considered.
“Most jurisdictions impose tax on the employees and use tax withholding regimes to achieve this. Not only are we out of step with the rest of the world, that difference also creates problems for people working across national boundaries,” Mr Mills said.
“A move away from FBT would remove the need to compare the provision of sandwiches rather than a more substantive meal, or otherwise comparing the provision of a gift hamper or voucher rather than tickets to a sporting event or musical; and that is before you consider the various elections available under the FBT Act.
“There are many ways we could transition out of FBT and into a new regime. We could ‘suspend’ FBT for two or three years while the FBT system is redesigned without suspending tax payments.
“That is, design a more effective system where both salary and non-salary forms of remuneration are subject to income tax in the hands of the employee. In the interim, you could require employers to pay an average or minimum amount of FBT (based on 2019–20 or 2020–21 FBT year amounts) without the underlying need to incur significant compliance costs, hence maintaining underlying revenue collections.”