2013 amendment will see certain types of non-cash benefits taken into account for Working for Families Tax Credits and more. Applies from 1 Apr 2014.

Sections MB 7B and MB 8 of the Income Tax Act 2007

Background

"Family scheme income" is used to calculate entitlements and obligations for a number of different forms of social assistance. A key principle of tax policy is horizontal equity. In the context of social assistance, this means that entitlements to, for example, Working for Families Tax Credits should apply equally to people on the same effective income. Inequity arises when a non-cash benefit is provided as a substitute for salary or wages, if it is not included in family scheme income in the way that salary or wages would be.

This amendment will see certain types of non-cash benefits taken into account for Working for Families Tax Credits, the student allowances parental income threshold, and community services card entitlements.

Key features

New section MB 7B requires employees who receive certain non-cash benefits to include them in their family scheme income calculations as follows:

  • The availability of an employer-provided motor vehicle for an employee's private use is included if it is part of an explicit salary trade-off - that is, if the employee would be entitled to a greater amount of employment income if they chose not to receive the non-cash benefit.
  • An employee who receives short-term charge facilities will also be required to include these if the value of benefits received in a year is more than the specified threshold in section CX 25(3). This applies to any employee, not just those employees who work for charitable organisations.

Section MB 7(2) sets out the amounts which must be included in a person's family scheme income, if they receive one of the benefits referred to above.

  • For a motor vehicle which is made available for the person's private use, the amount to be included is the amount by which their employment income would be increased in the absence of that benefit.
  • For short-term charge facilities to be included their aggregate value for a person in the relevant income year must be above a threshold. That threshold is the lesser of 5% of the employee's salary or wages, or $1,200. The amount to be included is the aggregate value of all short-term charge facility fringe benefits, including fringe benefit tax.

As a consequence, the title of section MB 8 has been amended to avoid confusion with new section MB 7B.

Detailed analysis

It is important to note that section MB 7B applies to all employees, not merely employees of charitable organisations.

When explaining the concept of an explicit salary trade-off, section MB 7B(1)(b) uses the phrase "the person would be entitled to a greater amount of employment income should the person choose, or have chosen, not to receive the benefit".

The inclusion of the clause "or have chosen" is not intended to signify that a fringe benefit will arise where a person was offered such a choice and chose the greater amount of employment income. Instead, it is intended to refer to situations where the person has previously been offered a choice between the benefit and a greater amount of employment income, has chosen the benefit, and would not receive a greater amount of employment income if they now chose to not receive the benefit.

The short-term charge facilities may be provided by multiple employers. Therefore an employee who receives short-term charge facility fringe benefits from more than one employer during the tax year will need to aggregate their benefits to determine whether the aggregate value of those benefits is greater than the threshold.

Application date

The amendments apply from 1 April 2014.