Tax Rambling

In Greece, if you own a pool of over 25 meters squared under the tax law you are required to add an amount to your assessable income of sometimes close to 20,000 euros.

The policy is designed to be both a luxury tax and an acknowledgement that you must have paid for the pool from income you probably did not declare (I love the way there is an assumption that everyone who is rich has not declared all their income).

But in Greece you can buy floating tiles, so that when you are not using the pool you can walk over the pool and no one will ever know there is a pool.

This product did not exist until it was announced that the revenue authority in Greece had used google maps to find that, rather than the 300 pool that had been declared in Athens suburbs, there were well over 16,000 that were large enough for this tax to apply.

Since then there has been an amazing increase in their sales.

I wonder what public finances would look like in Greece if the Greeks took their world leading passion for avoiding taxes and applied that passion to anything even slightly productive?

The Government has just released draft legislation in relation to the capping rules for exempt fringe benefits that can be provided by public hospitals, ambulance services, registered public benevolent institutions and registered health promotion charities.

I should quickly say it is exactly as was announced on Budget night – from 1 April 2016 the total amount of salary packaged meal entertainment and entertainment leasing facilities that employees of these entities will be able to salary package is $5,000. (By the way, as my wife is a doctor at the public hospital, I have to get my 8 and 4 year old sons married by 1 April 2016 so my wife can salary package the costs of their wedding…)

But what is more interesting is that these changes only apply to benefits where there is a “salary packaging” arrangement.

For the first 20 years of the FBT Assessment Act 1986 there was no difference between whether a fringe benefit was “salary packaged” or not. But recently, changes have been made to limit the FBT concessions and exemptions to situations where the benefit is not provided under a salary package arrangements.

In 2008 the FBT Assessment Act 1986 was changed so that the exemption provided by section 41 would no longer apply to food or drink provided to an employee as part of a salary sacrifice arrangement.

In 2012 the FBT Assessment Act 1986 was changed so that:

• Concessions that apply to the valuation rules in respect to in-house expense payment benefits, in-house property benefits and in-house residual benefits do not apply to benefits under a salary packaging arrangement.
• The specific exemption that applies to residual benefits in respect to private home to work travel through public transport, where the employer and associate are in the business of providing transport to the public, does not apply where the benefit is provided in-house and where the employee accesses the benefit under a salary packaging arrangement.
• The annual reduction of aggregate taxable value of $1,000 does not apply to in-house benefits where the employee accesses the benefit under a salary packaging arrangement.

This draft legislation is the third time the Government has limited FBT exemptions and concession so they do not apply to “salary packaging” arrangements.

Given that there is now a definition of “salary packaging” in section 136 of the FBT Assessment Act 1986, it is very easy to amend this Act so that any exemption or concession in the FBT law does not apply where there is salary packaging (interestingly my auto correct keeps changing this to slurry packaging…).

As there will be no car manufacturing in Australia in 2017 why would not the Government consider saving $800 million a year and make it so that the statutory method for calculating the FBT on cars only available if the car is not salary packaged.

I know the idea of thinking about the best way to explain the tax system is not the first thought of the day for most people… But to start today…

This is what I think should occur in every tax training event or tax training document. Here are my six tax training rules.

1. The session or document must be “evolutionary”, being that they need to start from first principles and not assume substantial previous knowledge. With a technical discipline like taxation, once you have missed a learning step it is often not possible to engage later in the training.

2. The session or document must explain the “why”, being that it is easier to understand a certain provision of taxation legislation, if you first understand why the policy makers wanted such a provision to exist.

3. The session or the document must be “relevant and practical”, being that it cannot merely be a discussion of the provision of the legislation, but must discuss how a taxpaying entity would apply and comply with the provision, and how a revenue authority would collect any revenue that flows from the provision and ensure compliance with the provision.

4. The session or document must be “empowering”, being that those trained are confident to apply the provisions after they have left the session or read the document as they feel they have a detailed understanding of its purpose, its operation and its outcomes.
5. The session or document must be “open and respectful”. As taxation legislation and administration is very difficult to understand, the session must allow for participants to feel comfortable to ask open questions and responses must be respectful. 

6. The session or document must be “fun”. Taxation training can be thought of as “boring” and if this is the case participants will engage less and be less confident as a result. Therefore, a tax technical session must be fun for the participants.

In addition to these six “taxation training” principles, it is important to apply general adult learning principles as proposed by Malcolm Knowles in 1970. These include:

1. Autonomous and self directed learning.

2. Learning that allows for an accumulated foundation of experience and knowledge.
3. Learning that is goal oriented.
4. Learning that is relevant.
5. Learning that is practical.
6. Learning where participants are shown respect.
Many of these factors are in my six tax training rules.

Now I have to live up to my rules.