• Benefits provided as a result of relocation

    Fringe benefits provided as a result of relocation are not a separate fringe benefit type. For FBT purposes, these benefits may be taxed as expense payment fringe benefits or as residual fringe benefits.

    Payments or reimbursements made to an employee in respect of relocation may be coded against several expense codes in the general ledger. The expense descriptions may not provide sufficient detail to identify the amounts as benefits provided as a result of relocation. Therefore, FBT staff may need to perform a detailed analysis of the expense descriptions to identify the amounts as being fringe benefits.

    If an entity has a relocation work area or a travel work area that manages relocations, that work area could be responsible for collating data in relation to benefits resulting from relocation and providing it to FBT staff. For entities that do not have a designated work area to deal with relocations, managers of all work areas should be asked whether any relocation expenditure has been approved in respect of employees engaged by that work area. This assists in identifying benefits that have been paid and then further work can be undertaken to identify the types and amounts of benefits paid.

    Paying a relocation allowance as opposed to providing an expense payment fringe benefit

    Payments to cover relocation expenses may take the form of:

    • an allowance paid to an employee
    • reimbursements of expenses incurred by an employee
    • payment of the expense directly to a third party who provided the goods or services.

    Allowances are taxed under the PAYG provisions. The allowance amount will be subject to income tax at marginal rates in the hands of the employee.

    Reimbursements or expense payments are taxed in accordance with the provisions of the FBTAA. Certain benefits relating to the relocation of an employee are either exempt benefits, or have a reduced taxable value. If an item of expenditure constitutes an exempt benefit, there will not be any FBT payable in respect of the item. If an item of expenditure is not covered by an exemption, FBT of 46.5% will be payable on the grossed-up taxable value of the expenditure.

    Further Information

    Details of the reductions and exemptions that apply to relocation expenditure are discussed in section 19.4 of Reductions in fringe benefit taxable value and section 20.4 of Fringe benefits tax exempt benefits.

    End of further information

    Better practice entities will consider whether an item of relocation expenditure is an exempt benefit, or will have a reduced taxable value. If so, such entities will reimburse the employee for the expenditure or pay the third party who provided the goods or services. If the item is not exempt, or the taxable value is not able to be reduced, entities should consider paying the amount as an allowance because the employee may pay a lower marginal rate of tax on the allowance than the 46.5% FBT rate.

    In summary, the payment of relocation expenditure should be made as follows:

    Relocation item's FBT treatment

    Better practice form of payment

    Exempt/reduced taxable value

    Reimburse employee or pay expense amount

    Not exempt/reduced taxable value

    Pay as an allowance

    For example, an employee incurs $5,500 of expenses relating to the sale of a dwelling, such as real estate agent fees. If the entity reimburses the employee for the expenses, the entity could claim an ITC of $500 resulting in a net cost of $5,000. If these expenses meet the requirements to be treated as an exempt benefit, such as meeting required time limits, no FBT is payable by the entity. The total cost to the entity of the expense reimbursement would, therefore, be $5,000.

    If the entity paid the employee an allowance to cover the costs, the employee would pay income tax on the allowance. Depending on the total taxable income of the employee, the income tax rate paid on the allowance may be up to 46.5%. To enable the employee to pay the real estate agent $5,500, at no cost to the employee, the entity would be required to pay the employee an allowance of up to $10,281, resulting in an additional cost to the entity of $5,281 as compared to reimbursing the employee for the real estate agent fees.

    In this situation, the entity should consider reimbursing the employee for the expenses incurred.

      Last modified: 17 Jul 2012QC 21998