The FBT discussion – what is the CCA position?
In developing policy related to taxation concessions provided to the charities and not-for-profit sector, CCA has consistently adopted a longer term view of what might best serve the sector’s interests, both now and into the future.
It is worth noting that some very influential people, including Ken Henry and a number of senior government ministers have argued that what the sector should be striving for is appropriate terms and conditions for all employees. The not-for-profit sector should not have to rely on tax concessions to recruit or retain staff.
While CCA agree with this approach in principle, it is clear that at present the sector does not provide employees with the level of financial rewards that are available in other sectors. At least for the time being, some form of concession is required, particularly for lower paid employees across the sector.
Within this context, the questions we might ask about the future of the Fringe Benefit Tax concessions relate more to whether they are appropriately targeted and provide a good return on investment for the sector. We need to ask whether the current cost of the FBT concession could be better directed supporting a different approach in providing a wage advantage to those employed in the charities and not-for-profit sector?
Any examination of the FBT concessions reveals that the benefits of the FBT concession have both eroded over time and increasingly favored the highest paid employees in the sector. Advantages such as uncapped meals allowances and the capacity to claim multiple exemptions enable higher paid employees to gain significant pre-tax income that can be spent in restaurants, function centers and with travel agents. These provisions clearly favor those with incomes above $150,000 much more than they do those earning less than $60,000. A Victorian medical specialist working at three hospitals earning over $300,000 can claim three FBT concessions (over $50,000 tax free) and spend $100,000 of their income tax free on travel, meals and venue hire expenses. This level of benefit is not available to lower paid employees.
The inequity in the FBT concessions makes it more difficult to justify, especially in comparison with some alternative approaches.
It is for these reasons that CCA argued for further investigation of alternative models including the modeling of a straight income tax concession for all staff employed in charities. If FBT was phased out and the personal income tax free threshold was increased by $15,000 for all charity employees, what would be the real costs and benefits?
CCA has supported the proposal to cap the meals allowance and to restrict multiple claiming of FBT exemptions, but it has also argued that all savings from these measures should be redirected to enable 15,000 smaller charities to gain Deductible Gift Recipient status. This would mean most charities could receive tax deductible gifts from Trusts, Public and Private Ancillary Funds, high wealth individuals and the broader community.
The complexity of these issues has meant that at times the CCA position has been misrepresented in the media and in some associated discussions. CCA has never argued there should be no tax concessions or that government should be clawing back money from the sector. The CCA position is essentially that over time we need to better target our existing tax concessions. It is this position that CCA put forward in our response to the Not-for-Profit Sector Tax Concessions Working Group Discussion Paper in December 2012.