Nick Sherry (Tasmania, Australian Labor Party, Assistant Treasurer) Share this | Hansard source

I was going to touch on this issue in concluding the debate on the second reading but, as I think Senator Fielding would appreciate, I was running out of time so I covered the matters raised by Senator Xenophon.

The current law, the Taxation Administration Act 1953, permits the Commissioner of Taxation to vary the PAYG withholding amount to be withheld by an employer in order that the amounts withheld reflect an employee’s final Australian tax liability. So the existing law allows the commissioner to deal with the issue that Senator Xenophon is raising. A taxpayer who will be entitled to a foreign income tax offset in his or her Australian income tax assessment, because of foreign income tax paid, is able to ask the Commissioner of Taxation to vary the amount of PAYG withheld by his or her employer to reflect the foreign tax paid. So the current law allows adjustment. There is an administrative avenue available to taxpayers to seek to overcome the issue that Senator Fielding is raising—potential PAYG withholding issues—including taking into account the level of foreign tax withheld at source in the foreign country.

The proposed amendment that Senator Fielding is moving—and I appreciate his intentions—could affect the imposition of fringe benefits tax in Australia. It would create inequity between the tax treatment of fringe benefits paid to Australian-based employees and foreign-based employees. It could also result in a loss of potential revenue for the government and could encourage tax avoidance—for example, via the conversion of taxable salaries into non-taxable fringe benefits. The proposed amendment would remove an employer’s obligation to withhold PAYG withholding amounts from salaries and wages et cetera paid to their Australian residents and employees working overseas.

The PAYG withholding provisions are an integral part of Australia’s tax system, so the treatment proposed by Senator Fielding would be inconsistent with the PAYG treatment of Australian based employees and could create large end of year tax debts for some employees. So the government is mindful of the fact that some other countries tax fringe benefits from Australia. In this regard the government is examining the need for further work in that specific area to minimise the potential for double taxation of fringe benefits. The main thrust of Senator Fielding’s amendment we believe can be dealt with under current tax law by the commissioner. Therefore, Senator Fielding’s amendment is not necessary and, unfortunately, opens up a range of consequences. For the reasons I have outlined, that would be inappropriate and undesirable.