Employers who deliver training to employees who are to be made redundant will now be exempt from fringe benefits tax after the legislation passed through Parliament.

The 2021 Treasury Laws Amendment Bill has now passed the two houses, allowing employers an exemption from FBT if they deliver training or education to an employee who has become redundant, or will soon be redundant, for the aim of assisting the individual to obtain new employment elsewhere.

The tax exemption will not be granted to retraining supplied under a salary packaging agreement or to costs for which an income tax deduction is specifically rejected, this includes Commonwealth-supported spots at universities or repayments on Commonwealth student loans.

The rule will cover various redundancy situations, including where an employee is made redundant in one part of the employer’s business but is able to be reassigned to a different area of its business. It also includes the conditions in which where the employer realistically expects the employee to be redundant but has not yet been made redundant.

The declaration was made in last year’s federal budget, the government is hoping that this measure will offer a stimulus for employers to help their staff move on to their next career.

While the move is encouraging, further changes to extend tax deductions to education and training not related to an employee’s current job was required in order to bring equity to the tax system.

Some have suggested that this new FBT exemption may discriminate against individuals who work for employers who do not have the financial capacity to undertake such activities.

Existing income tax regulations deter individuals from participating in reskilling and retraining by not permitting a deduction. It takes away the possible benefits of our human capital and hence our productive ability.

With the limited ability to find skilled labour from overseas, retraining our labour force is essential, as skill shortages are increasingly becoming common as our economy starts getting back to the pre-COVID levels.

Now that the FBT obstacle has been addressed, the income tax restriction continues.

Focus on CGT exemption for granny flats

The amended bill also guarantees a CGT event does not occur on when you are entering, varying or terminating an official written granny flat arrangement providing accommodation for older Australians or individuals with disabilities.

In order to gain access to the exemption, the individual having the granny flat interest must have reached pension age or have a disability. The arrangement must be made in writing and should not be of a commercial nature.

The measure comes after the Board of Taxation finalised its analysis of the tax treatment of granny flat arrangements in 2019, proposing that the government offers an exemption for all CGT events that are theoretically capable of applying to granny flat arrangements.

Low & middle income tax offset

The passing of the bill also includes the function of the low and middle income tax offset to cover the 2021–22 financial year.

The Low & Middle Income Tax Offset (LMITO) delivers those with taxable incomes between $48,000 and $90,000 a maximum offset of $1,080. Individuals earning less than $37,000 will see a benefit of up to $255.

The announcement was made as a temporary measure in the 2018–19 federal budget and was intended to be removed when stage two tax cuts kicked in on 1 July 2020 but was maintained in the wake of COVID-19.

The LMITO remained for one more year in May’s federal budget as Treasurer Josh Frydenberg emphasised the need to further stimulate the economy. The most recent extension will come at a cost of $7.8 billion.

If you need to discuss any of the above with your accountant here at Paris Financial, please contact our office.