The Australian Federal Government has handed down its Budget for 2015-2016. A number of measures will impact directly or indirectly on Australian employers and employees, and in this post we summarise some of these headline measures.

The measures set out below do not yet have legislative force, and will generally need to pass the Australian Parliament prior to their passage into law.

Zone tax offset

The Government has moved to tighten the application of the Zone Tax Offset to exclude ‘fly-in fly-out’ and ‘drive-in drive-out’ workers. The Zone Tax Offset provides a tax offset to individuals living in particular remote locations for a sufficient period of time, in order to recognise the cost and consequences of living in those areas.

The Government proposes to remove the offset for workers whose normal residence is not in an eligible zone. The offset will continue to be available for workers who ‘fly-in, fly-out’ or ‘drive-in, drive-out’ from one eligible zone to another (i.e. where they still reside in an eligible zone).

Businesses (particularly resource-companies) that factor the value of this offset into compensation packages for relevant employees should review arrangements to identify whether the offset may be lost.

This measure is proposed to take prospective effect from 1 July 2015.

Tax residency of working holiday-makers

Currently, an individual traveling in Australia on a working holiday visa will be classified as an Australian tax resident when they satisfy the tax residency requirements (typically, being present in Australia for six months will satisfy the criteria). The Government proposes to treat many individuals traveling in Australia on a working holiday visa as being non-residents, regardless of the length of time that the individual spends in Australia.

The effect of this change would be to cause those individuals to lose access to the tax-free threshold, low income tax offset and favourable progressive taxation rates; instead, those individuals would be taxed at a rate of 32.5 cents in the dollar on all income derived in Australia.

Taxpayers on working holiday visas (often young, casual workers) make up a significant proportion of the employee-base of a number of industries: including hospitality, and some aspects of the agriculture and construction sectors. Clients operating in those sectors should be aware of the potential impact of these amendments, including the possibility that the changes may disincentivise workforce participation on the part of working holiday visa holders.

This measure is proposed to take prospective effect from 1 July 2016.

Change in calculating work-related car deductions

The Government has announced that it will replace the three rates used in calculating work-related car expenses under the popular “cents per kilometre method”, to one rate set at 66 cents per kilometre. For the 2013-2014 year, the rates were based on engine size and ranged from 77 cents to 65 cents. The proposed change will reduce the size of deductions taxpayers can claim when using cars with engines over 1600 cc.

The Government has also announced that it will seek to eliminate both the ‘12% of original value method’ and ‘one-third of actual expenses method’ from the methods available to taxpayers to calculate work related car expenses, stating that these two methods are only used by less than 2% of taxpayers who claim work related car expenses.

This measure will not affect leasing and salary sacrificing arrangements.

This measure is proposed to take prospective effect from the 2015-2016 income year.

Cap on meal and entertainment benefits for certain not-for-profit employees

The Government has proposed to introduce a single grossed-up cap of AUD 5,000 for salary sacrificed meal and entertainment benefits for employees of certain not-for-profit organisations. Meal entertainment benefits exceeding the separate grossed-up cap of AUD 5,000 can also be used to calculate an employee’s fringe benefits tax (FBT) exemption rebate cap. Use of meal entertainment benefits will be reportable.

Currently, employees of public benevolent institutions and health promotion charities have a standard $30,000 FBT exemption cap, while employees of public and not-for-profit hospitals have a cap of $17,000. These employees can also salary sacrifice meal and entertainment benefits with no FBT payable by the employer, and without the need to report the salary sacrificing. Employees of rebatable not-for-profits can also salary sacrifice meal entertainment benefits (but only a partial FBT rebate is able to be claimed by their employers up to a standard $30,000 cap). These exemption caps were originally introduced to assist these organisations to attract and retain employees.

This measure is proposed to take prospective effect from 1 April 2016.

FBT exemption for electronic devices

There is an amendment to extend an existing fringe benefits tax (FBT) exemption for the provision of work-related electronic devices to employees. The amendment should allow small businesses to provide employees with multiple devices notwithstanding that those devices may have similar functions (e.g. a laptop computer and a tablet).

This measure is proposed to take prospective effect from 1 April 2016.