17 March 2006 
 
 
The case has never been stronger for an overhaul of Australia’s Fringe Benefits Tax (FBT), the Institute of Chartered Accountants in Australia has stated. The Institute is calling on the Australian Government to reform the FBT, which is fraught with increasing complexities, economic inefficiencies and tax inequities.  
 
The Institute's recommendations were released in a report jointly produced by the Institute and Associate Professor Neil Warren from Atax, Faculty of Law, University of New South Wales.  
 
The Institute of Chartered Accountants Tax Counsel, Ali Noroozi, said that in the past, the Government has been reluctant to embrace any changes to the FBT for various reasons such as the anticipated revenue costs and also because taxpayers have had to come to terms with several other tax reforms in recent years.  
 
“Today the Commonwealth Budget is in substantial surplus, most recent tax reforms are now well entrenched and the Government has given simplification to the system a high priority. The Institute believes that, in the context of this environment, the case for reform of the FBT should be revisited,” Mr Noroozi said.  
 
The report argues that there are considerable economic efficiency, equity and simplicity opportunities to be gained with the introduction of three major reforms including; the transferral of FBT from the employer to the employee, the valuation of all benefits at cost and the increase in the threshold for exempt minor fringe benefits.  

1. By transferring the taxation of fringe benefits into the hands of the employee rather than the employer, long held concerns of businesses that employers should not be legally liable for a tax that directly relates to the income of the employee would be addressed and the cost of compliance burdens would also be reduced.
 

2. Employees will also benefit from the transfer of liability. Most employers pass the cost of FBT onto employees, who in turn get taxed at the highest tax rate. By transferring the responsibility of FBT onto employees it would effectively be taxed at their personal income marginal tax rates.
 

3. By introducing the valuation of all benefits at cost rather than some benefits, which are currently valued concessionally such as motor vehicles, economic efficiency would be improved through the removal of distortions arising from the rates imposed and the method of valuing benefits.
 

4. By increasing the threshold for exempt minor fringe benefits and by exempting those benefits that have high compliance costs, which were non-deductible to employers, the current legislation would be simplified by removing the need for employers to account for every small fringe benefit.