January 2000 Volume 81 Number 1 "serving the protectors"
Police To Suffer Under New Fringe Benefits Tax Legislation
By Terry Collins   CEO Police Federation of Australia

olice officers across Australia will be financially penalized by the Federal Government’s fringe benefits tax (FBT) legislation, which will treat the provision of subsidized police housing and the use of some unmarked police vehicles as fringe benefits.

Police officers could be subject to:

• Additional 1% Medicare levy surcharge (in addition to the existing 1.5% Medicare levy).
• An additional surcharge of up to 15% on all employer contributions to individual police officers’ superannuation funds. The surcharge would be deducted from each police officer’s superannuation account.
• The loss of social security benefits such as:

• Child support payments.
• Austudy.
• Assistance with Higher Education Contribution Scheme (HECS).

While the Government’s intention was clearly designed to ensure a fairer tax system for all PAYE employees, it has had the unintended consequence of acting to the detriment of various disciplined services, and in particular, the Australian Military and each State, Territory and Federal police service.

The Federal Government has reviewed its position and moved to exempt Australia’s 45,000 military personnel from the fringe benefits tax on allowances paid on Defence Force housing. At the time the Government explained this change in recognition of the unique circumstances where Defence Force personnel are subject to compulsory relocations.

The Police Federation of Australia (PFA) is an organization representing 42,000 serving police officers throughout each of the State and Territory jurisdictions, and is seeking to have the Government similarly review the application of fringe benefits reporting as it applies to police.

THE POLICE FEDERATION REPONSE

The Police Federation of Australia has undertaken an extensive lobbying strategy to alert the federal government of the impact the FBT changes will have on police officers.

The Police Federation, represented by every police association/union president in Australia, met members of the Federal Government, opposition parties and senior departmental heads to put the case that police officers were being unfairly penalized for performing their duties.

Although there is a number of items categorized as reportable “fringe benefits”, which will adversely affect police, the two major items are police vehicles and housing.

POLICE VEHICLES

A practice in modern policing is for specialist police officers and federal agents to be on 24-hour call, and as such are required to take home a police car for ready-response.

These police officers are contacted direct by police control, and are directed to attend such incidents as:

• Drugs inquiries.
• Organized crime investigations.
• Homicide.
• Fatal and other serious accidents.
• Scientific and forensic investigations.
• The supervision of police operations on an emergency command-and-control basis.

Under the Government’s change to the FBT legislation, police officers required to take a police vehicle (on the specific basis the vehicle is NOT to be used for personal use), will nevertheless have their reportable income for the purposes of their group certificates grossed-up by a further $5000-$6000 with no change to their actual take-home pay.

The unintended consequences of the Government’s FBT legislation will impact severely on police services throughout Australia. Undercover operations, including major drug operations, will be jeopardized if police officers do not have unmarked vehicles readily available to undertake such tasks. Such an outcome has the potential to undermine other Federal Government policies such as the Prime Minister’s Drug Initiative.

HOUSING

Police who are assigned to small regional or country police stations, and are required to reside in a police residence normally attached to the stations (other than those gazetted as remote) are affected by this FBT legislation.

Housing in this respect is not part of the officers’ remuneration, but is a requirement of their condition of service to reside at the location so as to be available 24 hours per day to a small local community.

The implications of the FBT on police housing will have its greatest impact in regional Australia.

The effect of the legislation could amount to a constable’s wage being grossed up by a further $6000 per annum, but without extra income.

GROSSING UP FOR TAX PURPOSES

The grossing-up of these “assumed benefits” will have the effect of increasing the police officers’ reportable income for purposes of assessing the medicare levy charge and superannuation surcharge and means testing various child support and family maintenance payments.

The affected police officers would not receive any actual increase in salary, but may be penalized thousands of dollars in surcharges and loss of social security payments.

Although the police officers will not be required to pay the FBT (the employer will), the individual police officer (employee) will have the “assumed benefit” assessed. For example, the difference between the police department rent charged and the market rate for a similar property may be assessed at $5000. This assumed benefit of $5000 will be “grossed-up” by a factor of 1.94 ($5000 x 1.94 = $9700) resulting with $9700 being shown on the police officers’ tax group certificates.

A similar exercise will be carried out for the assumed “benefit” of being directed to take home an unmarked police vehicle for call-out.

THE POLICE FEDERATION OF AUSTRALIA STRATEGY

The Police Federation of Australia prepared and hand-delivered a formal submission to the Federal Treasurer, Peter Costello, on 25 November 1999.

The PFA sought an exemption by way of specific regulation as allowed under the Act (“A New Tax System {Fringe Benefits Reporting} Act 1998”).

The PFA will maintain its intensive lobbying of federal politicians and will co-ordinate the state, territory and federal police associations’ strategy of identifying affected areas and leading delegations of affected members to local federal government politicians.

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