Remote area tax concessions and payments

• Remote area tax concessions and payments are outdated, inequitable and poorly designed. They should be rationalised and reconfigured to reflect contemporary Australia.
• Remote Australia has changed considerably since 1945. Many areas once considered isolated are no longer remote, and improvements in technology have helped reduce the hardships of life in remote Australia, although expectations have risen.
• Today, close to half a million Australians live in remote places. The tyranny of distance can make living and doing business challenging. Some things that most Australians take for granted are not readily on hand. Yet many of those in remote Australia hold a strong personal or cultural connection to a place and their community as well as the way of life it offers. Others are attracted by job opportunities.
• The zone tax offset (ZTO), the remote area allowance (RAA), and the fringe benefits tax (FBT) remote area concessions are broadly designed to mitigate some of the inherent challenges, and facilitate development in regional and remote Australia.
• The ZTO is an ineffective and blunt instrument. There is no evidence to suggest that the ZTO currently affects where people choose to live or work. Some areas are no longer isolated, but remain eligible. Were it to be retained, the ZTO would need to be overhauled.
  • Reforms to eligibility would still leave the ZTO without a compelling rationale. There is no general role for Government to compensate taxpayers for the disadvantages of life in particular areas. Higher wages in the zones across a wide skill spectrum suggests that the market compensates workers, at least to some extent, for the disadvantages of remote living. For those looking to settle in remote communities, issues of liveability and lifestyle also play an important part, with remote living largely a matter of choice. The ZTO should therefore be abolished.
• The RAA is a supplementary payment directed to people on income support in remote areas. It is a means of partially compensating for higher living costs. The majority of recipients are from areas with socio-economic disadvantage and face barriers to mobility. Being out of the labour market, RAA recipients do not benefit from the wage premiums that apply to ZTO recipients.
  • While the RAA has a legitimate role, it needs a refresh — with boundaries updated to contemporary measures of remoteness, payment rates reviewed and transparency enhanced.
• FBT concessions for remote areas have dual objectives: equitable tax treatment where employers have operational reasons to provide goods and services to employees, and regional development.
  • The most compelling argument for these concessions is the former. But current concessions are poorly targeted for this purpose. They are overly generous and complex, thereby creating other inequities.
  • FBT remote area concessions should be redesigned to be consistent with the fundamental principle of equitable tax treatment while reducing the cost burden on taxpayers.
  • Most significantly, concessions on employer-provided housing should change. The current exemption should be reverted to a 50 per cent concession (as it was prior to 2000), and provisions allowing employers to claim housing exemptions solely because it is 'customary' to do so should be removed.

Remote area tax concessions and payments need an overhaul

'Tax concessions and payments for residents and businesses in remote Australia are outdated, inequitable and poorly designed', Commissioner Jonathan Coppel said on release of the Productivity Commission's draft report on Remote Area Tax Concessions and Payments. The Commission has called for an overhaul of remote area tax concessions and payments so they are better targeted and fairer.

The Government tasked the Commission to assess the zone tax offset (ZTO), the remote area allowance (RAA) and the fringe benefits tax (FBT) remote area concessions. As a first step, the Commission held extensive consultations with communities and businesses in remote Australia. It will continue to engage with stakeholders in developing its final report.

The Commission's assessment is that the ZTO should be abolished. Remote Australia has changed considerably since the ZTO was introduced in 1945. Some eligible areas, like Cairns, Townsville and Darwin, are no longer remote. And the ZTO has little influence on where people live or work.

'More fundamentally, there is no clear role for Government to compensate taxpayers for the disadvantages of life in remote areas. Many ZTO recipients are already compensated by higher remuneration and many enjoy the nature and pace of remote living', Mr Coppel said.

'The RAA has a legitimate role but needs a refresh', Mr Coppel continued. The RAA is a small top-up for welfare recipients in remote areas, to help cover high living costs.

The majority of recipients are from areas with socio-economic disadvantage and most do not benefit from the higher wages that apply to many ZTO recipients. 'The RAA boundaries date back to the early 1980s and need updating, and the payment rates are overdue for a review', Mr Coppel said.

FBT was introduced to prevent remuneration 'in kind', such as housing, from being used to lower income tax. But sometimes, remote area tax concessions are needed to make the tax equitable, particularly where there are operational reasons to provide these 'benefits'.

'When we pulled together the evidence we found that the current concessions are overly generous and complex', Commissioner Paul Lindwall said. 'Being broad-based concessions, they are also a blunt tool for regional development and not a cost-effective way to get employees or employers to move to, or invest in, regional areas', he added.

These concessions should be better targeted. 'Most significantly, the current exemption on employer-provided housing should revert to a 50 per cent concession (as it was before 2000)', Mr Lindwall said. The Commission is not recommending changes to remote area FBT concessions related to fly-in fly-out.

The Commission is keen to get your feedback. You can find the draft report at www.pc.gov.au/remote-tax, and provide feedback by using the submission or brief comments links.

Download the infographic

• High resolution - Can remote area tax concessions and payments be fairer and better targeted? (PDF - 1783 Kb)

Can remote area tax concessions and payments be fairer and better targeted? (Text version of infographic)

What systems are we looking at?

• Zone Tax Offset (ZTO)
• Remote Area Allowance (RAA)
• FBT Remote Area concessions

Does the ZTO or RAA fit a modern Australia?

The ZTO dates back to World War II when many comforts were not available to remote area Australians.

• No TV or Internet
• 65% had electricity

And many of the eligible areas like Cairns and Darwin are no longer remote ...

[Graph showing a large population increase of Darwin and Cairns from 1911, through 1945 to 2016.]

There's less isolation with developments in...

• Communications
• Transport

45% of recipients of the ZTO concession live in Darwin, Cairns, Mackay and Townsville.

The RAA boundaries haven’t been updated since the 1980s, and the rates have been unchanged since 2000.

FBT remote area concessions are a means of making the FBT more equitable for employers in remote areas, but they are overly generous and poorly targeted.

Can the system be fairer and better targeted for those who need it?

Have your say on what we're recommending in our Remote Area Tax Concessions and Payments draft report at pc.gov.au/remote-tax