• Reductions in fringe benefit taxable value

    This information forms Chapter 19 of Fringe benefits tax - a guide for employers.

    Remember, a fringe benefit may be provided by another person on behalf of an employer. It may also be provided to another person on behalf of an employee (for example, a relative).

    19.1 When the value can be reduced

    A number of fringe benefits attract concessional treatment. The concession is a reduction in the taxable value of the fringe benefit that results in a reduced amount of fringe benefits tax (FBT), or even no FBT, being payable.

    The taxable value of a fringe benefit is calculated in accordance with valuation rules. Where the 'otherwise deductible' rule applies, the taxable value is then reduced.

    If the fringe benefit is of a type that attracts any of the concessions listed in this chapter, you (the employer) may reduce the taxable value further. In some instances there may be special conditions that must be satisfied before the concession applies – for example, keeping certain records.

    Some of the explanations given in this chapter are necessarily brief. For more on each concession refer to the relevant section of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), a link to which is provided at each concession.

    19.2 Remote area reductions

    Residential fuel

    Residential fuel is any form of fuel (including electricity) used for domestic purposes. If you provide a current employee with residential fuel for use in connection with their usual place of residence, you may reduce the taxable value of the fringe benefit by 50% in the following circumstances:

    • the fringe benefit is an expense payment fringe benefit, a property fringe benefit or a residual fringe benefit
    • the fringe benefit was not provided to the employee under a non-arm's length arrangement, or an arrangement that was entered into by any of the parties for the purpose, or partial purpose, of enabling you to obtain the residential fuel concession
    • the employee is also  
      • the recipient of a remote area housing benefit that is an exempt benefit as described in section 10.8 of Housing fringe benefits
      • under an obligation to repay the whole, or a part of, a remote area housing loan connected with the dwelling and you provide a form of housing assistance referred to below, or
      • incurring remote area housing rent in connection with a unit of accommodation and you provide a form of housing assistance referred to below.
       

    Free water provided to an employee under a residential tenancy agreement is part of the remote area housing benefit, as described in section 10.8 of Housing fringe benefits, and is not considered residential fuel.

    Remote area housing

    Where you subsidise certain costs your employees may incur in acquiring accommodation in remote areas, you may be eligible for a reduction of the taxable value of the benefit arising from subsidising these costs.

    These reductions are different from the remote area housing benefit exemption explained in section 10.8 of Housing fringe benefits. There are different requirements you must meet in order to be entitled to the reduction.

    Remote area loan

    Remote area loan

    If:

    then:

    • you provide a loan fringe benefit connected with a dwelling to your employee
    • the employee occupied or used the dwelling as their usual place of residence during part of the FBT year (the occupation period) when they had to repay some or all of the loan, and
    • the shared conditions are met

     

    you are entitled to a reduction of 50% of the taxable value of the loan fringe benefit that relates to the occupation period.

    Remote area interest

    Remote area interest

    If:

    then:

    • you provide an expense payment fringe benefit for interest accrued by your employee on a remote area housing loan connected with a dwelling
    • that employee occupied or used the dwelling as their usual place of residence during part of the FBT year (the occupation period) when the interest accrued, and
    • the shared conditions are met

     

    you are entitled to a reduction of 50% of the taxable value of the expense payment fringe benefit that relates to the occupation period.

    Remote area rent

    Remote area rent

    If:

    then:

    • you provide an expense payment fringe benefit for rent accrued by your employee for a unit of accommodation
    • the employee used the unit of accommodation as their usual place of residence during part of the FBT year (the occupation period) when the rent accrued, and
    • the shared conditions are met

     

    you are entitled to a reduction of 50% of the employee’s expenditure that relates to the occupation period.

    The reduction applies to 50% of the employee's expenditure (the gross rent), not to 50% of the taxable value.

    Remote area property benefit

    Remote area property benefit

    If:

    then:

    • you provide an employee with a property fringe benefit consisting of land, or house and land
    • the employee’s property is a remote area residential property, and
    • the shared conditions are met

     

    you are entitled to a reduction of 50% of the taxable value of the property fringe benefit.

    Remote area residential property

    Remote area residential property is:

    • land on which there is a dwelling that is used by the employee immediately after the provision of the fringe benefit as their usual place of residence
    • land on which the employee proposes to build, or finish building, a dwelling for use as their usual place of residence.

    The Commissioner of Taxation must be satisfied that the employee has made sustained reasonable efforts to:

    • start building within six months of acquiring the land
    • within 18 months of acquiring the land, use the dwelling as their usual place of residence.

    Remote area residential property expense payment benefit

    Remote area residential property expense payment benefit

    If:

    then:

    • you provide an expense payment fringe benefit to your employee
    • the employee’s expenditure is in respect of a remote area residential property, and
    • the shared conditions are met

     

    you are entitled to reduction of 50% of the taxable value of the expense payment fringe benefit.

    Expenditure in respect of remote area residential property

    The expenditure must be in relation to the:

    • employee’s purchase of land on which they intend to build, or complete the building of, a dwelling (expenditure 1)
    • building of a dwelling on land held by the employee (expenditure 2)
    • purchase of land on which there is already a dwelling (expenditure 3), or
    • extension of a dwelling on the employee’s land by adding a room or part of a room to the dwelling (expenditure 4).

    The following conditions must also be satisfied:

    If expenditure 1 or 2 applies:

    • where expenditure in 1 or 2 is incurred by the employee, they must intend to occupy the dwelling as their residence
    • the Commissioner must be satisfied that the employee made sustained reasonable efforts to start building within six months and to occupy the dwelling within 18 months after the employee incurred the expenditure.

    If expenditure 3 or 4 applies:

    • where expenditure in 3 or 4 is incurred by the employee, they must use the dwelling as their usual place of residence as soon as reasonably practicable after incurring the expenditure.
    Mortgaged remote area residential property

    Where the remote area residential property is mortgaged by the employee, the 50% reduction can still apply as long as your payment or reimbursement relates to the original purchase cost of the land or property.

    If your payment or reimbursement relates to an employee's mortgage repayments, the 50% reduction would not apply. However, you may be eligible for the remote area interest reduction as explained above.

    Example

    An employee purchases a remote area residential property and pays a 10% deposit and uses a mortgage to pay for the rest. The employer agrees to reimburse the employee 20% of the original purchase price of the property. In this case, the remote area residential property benefit reduction may apply provided the other conditions are met.

    If, however, the employer agreed to reimburse the employee 20% of their total loan repayments (which includes interest and other charges), the remote area residential expense payment benefit reduction would not apply. This is because the reimbursement is not wholly in respect of the purchase of the property, but rather it is in respect of the employee meeting the conditions of their mortgage. The reimbursement of interest may qualify for the remote area interest reduction above.

    End of example

    Remote area residential option fee

    Remote area residential option fee

    If:

    then:

    • you provide an employee with a property fringe benefit
    • their property is a remote area residential property option fee, and
    • the shared conditions are met

     

    you are entitled to a 50% reduction of the taxable value of the property fringe benefit.

    Remote area residential property option fee

    A remote area residential property option fee is property consisting of a fee paid to an employee in return for the employee granting you an option to buy an interest in land. The following conditions must be satisfied:

    • the employee must hold an interest in the land to which the option relates
    • the land must, at the time when the option fee was paid to the employee, either have a dwelling on it which is the employee’s usual place of residence or be land on which the employee intends to build, or complete the building of, such a dwelling
    • if the employee intends to build, the Commissioner must be satisfied that they have made sustained reasonable efforts to  
      • commence building or start completing the construction of the dwelling within six months
      • to occupy the dwelling within 18 months of the time when the option fee was paid
       
    • when the option fee is paid, the shared conditions must be met
    • the contract under which the option fee is paid must be entered into no later than when the employee obtains an interest in the land subject to the option, and the option must also be a recognised remote area housing obligation restricting the employee’s right to dispose of the interest in the land.

    Remote area residential property repurchase consideration

    Remote area residential property repurchase consideration

    If:

    then:

    • you provide your employee with a property fringe benefit
    • the property is remote area residential property repurchase consideration, and
    • the shared conditions are met

     

    you are entitled to a 50% reduction of the taxable value of the property fringe benefit.

    However, the 50% discount is denied on that portion of a benefit, arising on repurchased, which is attributable to you paying a repurchase price excessively above market value under a buy-back clause in a remote area housing agreement.

    Remote area residential property repurchase consideration
    • the employee must hold an interest in the land to which the repurchase relates
    • the land must, at the time when the repurchase consideration was paid to the employee, either have a dwelling on it which is the employee’s usual place of residence or be land on which the employee intends to build, or complete the building of, such a dwelling
    • if the employee intends to build, the Commissioner must be satisfied that they have made sustained reasonable efforts to
      • commence building or start completing the construction of the dwelling within six months
      • to occupy the house within 18 months of the time when the option fee was paid
       
    • when the repurchase consideration is paid, the shared conditions must be met
    • the contract under which the repurchase consideration is paid must be entered into no later than when the employee obtains an interest in the land subject to the repurchase, and the repurchase must also be a recognised remote area housing obligation restricting the employee’s right to dispose of the interest in the land.
    Recognised remote area housing obligation

    A recognised remote area housing obligation is a contractual obligation, binding the employer and the employee, which restricts the employee’s ability to dispose of their interest in the relevant land other than to the employer and for a price that can be determined by reference to the contract.

    The restriction must exist for a period of at least five years from:

    • for a property fringe benefit in relation to ‘remote area property repurchase consideration’, the time when the employee acquired their interest in the land
    • for any other type of property fringe benefit, the time when the benefit was provided to the employee
    • for an expense payment fringe benefit, the time when the expenditure was incurred by the employee.

    Shared conditions

    To qualify for the FBT concession, you must meet the following shared conditions.

    Remote area

    The concessions apply only to accommodation located in areas that meet the requirements outlined below.

    It is located in a remote area if it is not in or near an urban centre. This means the accommodation must be located at least 40 kilometres from a town with a census population between 14,000 and 130,000, and at least 100 kilometres from a town with a census population of 130,000 or more (population figures based on the 1981 Census).

    If the accommodation is in zone A or B (for income tax purposes), it must be located at least 40 kilometres from a town with a census population between 28,000 and 130,000, and at least 100 kilometres from a town with a census population of 130,000 or more.

    Where the shortest practical surface route between a locality and an eligible urban area includes a route by water, the distance travelled by water is doubled for the purposes of working out how remote that locality is from the eligible urban area.

    No application of extended remote area test for certain employers

    The extension of the remote area test for hospitals, charities, public ambulance services and the police force that applies to the remote area housing exemption doesn't apply to remote area housing assistance concessions.

    Current employee

    The employee (not an associate or third party) receiving the remote area housing assistance must be a current employee of your business in the FBT year in which you provide the benefit, and their usual place of employment must be in a remote area.

    Customary

    At the time the employee's expenditure was incurred, it was customary for employers in the industry in which the employee was employed to provide housing assistance for their employees.

    A benefit will be accepted as being customary in the industry where it is normal, or common, for employees of that class or job description in that industry to be provided with the same or similar benefits. It is not necessary that all or even the majority of employees in the industry receive the benefit. Where it is unique, rare or unusual within an industry to provide the benefit, it would not be accepted as being customary.

    Necessary

    It was necessary because, at the time the employee's expenditure was incurred, it was customary for employers in the industry in which the employee was employed to provide housing assistance for their employees.

    It is necessary for you to provide accommodation to employees if:

    • the nature of your business is such that employees are likely to move frequently from one residential location to another
    • there is not sufficient suitable residential accommodation otherwise available in the area in which the employee is employed, or
    • it is customary in your industry to provide free or subsidised housing to employees.
    Usual place of residence

    The accommodation must be the employee's usual place of residence. The following factors may be considered when deciding where an employee's usual place of residence is:

    • an employee's usual place of residence is normally found near to their fixed or permanent employment base
    • the terms of the employee's employment contract or award may indicate whether their move to a new place of residence is merely temporary or of a more lasting nature
    • the longer the employee is required to work at a place, the more indicative it is that the move is not temporary in nature.
    A dwelling

    All of the concessions, other than the remote area housing rent, must be in respect of a dwelling. A dwelling is (a unit of) accommodation constituted by, or contained in, a building, being a unit that consists in whole or in substantial part of residential accommodation. Examples of dwellings are houses and apartments. A caravan is not considered a dwelling.

    Arm's length arrangement

    The fringe benefit was not provided to the employee under:

    • a non-arm's length arrangement, or
    • an arrangement that was entered into by any of the parties for the purpose, or partial purpose, of enabling you to obtain the remote area housing concession.

    Remote area holiday transport – not subject to ceiling

    Under an award or industry custom, an employee working in a remote area may be reimbursed for the costs of travelling from (or may be provided with transport from) the remote area for the purpose of having a holiday and, similarly, back to the remote area after the holiday. The employee may also be entitled to be provided with accommodation and/or meals in connection with the transport from and to the remote area. A remote area is defined in section 10.8 of Housing fringe benefits.

    You may reduce the taxable value of the fringe benefits arising from the transport, accommodation and meals by 50% if:

    • the employee travels from the work locality to the town where they lived before being engaged to work at that locality
    • the employee travels to the capital city of the state or territory in which the workplace is located (for this purpose, Perth and Adelaide are treated as if they were the capital cities of Christmas Island and the Northern Territory, respectively).

    The following requirements must also be satisfied:

    • the holiday is of three working days or more
    • where the benefit is an expense payment fringe benefit, you are provided with proof of the expenditure – that is, originals or copies of receipts or invoices - or a Remote area holiday transport declaration in a form approved by the Commissioner (refer to Declarations).

    The reduction in taxable value extends also to holiday transport, accommodation and food benefits given to the employee's family, whether accompanied by the employee or not. If a child or the spouse of the employee doesn't live at the employee's work locality, the concession will also apply if the holiday travel by the spouse or child is for the purpose of meeting the employee.

    If the benefit is a reimbursement for car expenses calculated on a cents per kilometre basis, the reduction in taxable value is limited. The maximum reduction is 50% of the amount that would be paid if the reimbursement were to be calculated at a certain rate per kilometre. That rate per kilometre is the applicable rate for claiming income tax deductions on a cents per kilometre basis. In addition, a rate of 0.63 cents per kilometre is permitted where more than one family member travels in the car.

    The reduction of taxable value doesn't apply to a reimbursement of car expenses calculated on a cents per kilometre basis unless you obtain a Remote area holiday transport declaration, in a form approved by the Commissioner, from the employee.

    Cents per kilometre changes

    Each of the methods below refers to reimbursement on a cents per kilometre basis. From 1 July 2015, there are changes to the cents per kilometre method and separate rates based on the size of the employee's car are no longer available. Only for the FBT return for 2016, you had the ability to choose either the 2014-15 car rates or the single 66 cent rate. However, from 1 April 2016 onwards, employers must use the single rate that applies for the following income year, per the table below.

    Cents per kilometre singles rates

    FBT year

    Cents per kilometre rate

    1 April 2015 – 31 March 2016

    64, 76 or 77 cents depending on engine capacity or

    66 cents

    1 April 2016 – 31 March 2017

    Rate for the income year 1 July 2016 - 30 June 2017:

    66 cents

    1 April 2017 – 31 March 2018

    Rate for the income year 1 July 2017 - 30 June 2018:

    To be advised.

      Last modified: 05 May 2017QC 17819