CGT and FBT Exemption Draft Legislation Released

The Australian Government has published two pieces of draft legislation which were originally announced in the most recent federal budget from October 2020. The first piece of legislation which has been released include measures to exempt employers from the 47 percent fringe benefits tax (FBT). The second piece of legislation released provides a capital gains tax exemption for granny flat arrangements.

FBT exemptions for re-skilling and retraining

The measure will give employers an exemption FBT if they provide education or training to a redundant or soon-to-be redundant employee in order to help assist that employee with an opportunity to gain new employment.

This exemption won’t be extended to retraining offered under a salary packaging arrangement or costs for which an income tax deduction is specifically denied, including Commonwealth-supported places at universities or repayments for Commonwealth student loans.

The exemption will cover a large range of redundancy scenarios, such as when an employee is made redundant in one part of the employer’s business but is able to be redeployed in another department of the same business. The newly introduced exemption measure will cover instances when the employer reasonably expects the employee to be redundant, but has not yet been formally made redundant.

The Australian Government anticipates that the measure will incentivise employers to retrain redundant employees so that they are “better prepared to transition to their next career”.

This new exemption will make Australians more desirable to employee for a larger variety of businesses within a larger number of different industries.

Australian Government has stated that it is important for businesses to re-skill or up-skill their workers as it is becoming more evident that the jobs and skills which will be required by Australian workers in a world after the conclusion of the covid-19 pandemic will be different to the skills required by workers in a world before the pandemic.

Targeted CGT exemption for granny flats

This second measure will make sure a CGT event does not happen on entering into, varying or terminating an official written granny flat arrangement when providing accommodation for elderly Australian residents or an Australian resident who has a disability.

To gain access to this exemption, the individual with the granny flat interest must have reached the pension age or have a disability. The arrangement is required to be in writing and must not be of a commercial nature.

This new measure surrounding granny flats has been introduced after the Board of Taxation concluded its review of the tax treatment of granny flat arrangements in 2019, recommending that the government provide an exemption for all CGT events that are hypothetically capable of applying to granny flat arrangements.

Granny flats allow a family to care for an elderly or disabled family member. However, building this second dwelling usually increases the overall value of the family’s home (their main residence) and, on top of this the rent gained from the family member living in the flat, the family then has to pay capital gains tax on this gain if they sell their home at a later date.

The tax can be a key barrier to families creating official and legally enforceable granny flat arrangements. When faced with a potentially substantial CGT liability, families may opt for informal arrangements which can leave open the risk of financial abuse and exploitation.