ATO Interpretative Decision

ATO ID 2013/42

Fringe Benefits Tax

Issue

In determining whether the provision of accommodation to an employee is an exempt residual benefit under subparagraph 47(5)(ba)(i) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), are the transitional provisions met where accommodation is provided by an unrelated third party under a secondment agreement between the employer, the employee and the third party?

Decision

Yes, the transitional provisions are met in relation to subparagraph 47(5)(ba)(i) as the secondment agreement is an 'eligible employment agreement' for the purposes of item 27 of Schedule 1 of Tax Law Amendment (2012 Measures No 4) Act 2012.

Facts

An employee who is employed by an Australian company is temporarily seconded under a contract to an unrelated overseas entity for a 12 month period from 23 May 2011.

This contract provided for the option that should the secondment be extended, then the contract would continue for that extended period, that is until 23 May 2013

The extension for the further 12 months was signed off on 3 May 2012.

For the duration of the whole secondment, the employee will remain employed by the Australian company, subject to the terms and conditions of their initial contract but as modified by the secondment agreement.

At the expiry of the secondment, the employee will return to their substantive position in Australia with their employer.

The employee owns a house in Australia where they reside with immediate family and to which they intend to return at the completion of their secondment.

The employee is a resident of Australia for the purposes of subsection 6(1) of the Income Tax Assessment Act 1936 as their domicile is Australia.

The employee is an Australian resident for the purposes of the Social Security Act 1991 and as such is not a temporary resident for the purposes of subsection 995-(1) of the Income Tax Assessment Act 1997.

This house represents the employee's normal place of residence for the purposes of section 30.

As part of the secondment agreement with their employer, the unrelated overseas entity will provide the employee with accommodation to the employee and to their immediate family while they are based in the overseas country.

Reasons for Decision

From 1 October 2012, the concessional tax treatment of Living-Away-From-Home allowances and benefits to employees who maintain a house in Australia (paragraph 31C(a) of the FBTAA) and provide their employer with a declaration has been adjusted to a maximum period of 12 months (section 31D of the FBTAA).

This arrangement however is subject to the transitional rules in Schedule 1, Part 3 of Tax Laws Amendment (2012 Measures No 4) Act 2012 which provide that where these rules are applicable, the employee is not required to maintain a home in Australia and the concession is not limited to 12 months.

Specifically:

27 Transitional - existing employment arrangements

(1)

During the transitional period, disregard paragraph 31C(a) and section 31D of the Fringe Benefits Tax Assessment Act 1986 if:

(a)

the employee is neither a temporary resident nor a foreign resident; and

(b)

during the entire period:

(i)

starting at the Budget time; and

(ii)

ending on 30 September 2012;

that employment was covered by an eligible employment arrangement that was neither varied in a material way nor renewed.

(2)

...

(3)

In this item:

Budget time means 7.30 pm, by legal time in the Australian Capital Territory, on 8 May 2012.

eligible employment arrangement means an arrangement under which:

(a)

the employer; or

(b)

an associate of the employer;

commits to provide the employee with [a] benefit for the employee's accommodation...while the duties of that employment require the employee to live away from [the employee's]...normal residence.

...

transitional period means the period:

(a)

starting on 1 October 2012; and

(b)

ending at the earliest of:

(i)

30 June 2014; and

(ii)

the time the eligible employment arrangement referred to in paragraph (1)(b)...ends; and

(iii)

the first time that eligible employment arrangement is varied in a material way or renewed.

As the secondment agreement is an arrangement between the employer and the third party to provide the employee with accommodation, the employer has 'committed itself' to provide the employee with that benefit. It is therefore an 'eligible employment arrangement'.

The fact that the benefit is ultimately provided by an unrelated third party who is not an associate of the employer is immaterial to that conclusion.

As provided for by the secondment agreement, should that agreement be extended, then it would expire on the date of the extended term which was 23 May 2013. As this extension was signed off on 3 May 2012, then this arrangement predated the budget time being 8 May 2012 meaning that item 27 of the transitional provisions will apply. This is because during the whole period starting at budget time and ending on 30 September 2012, the employment was covered by an eligible employment arrangement that was neither varied in a material way nor renewed.

Accordingly, as the transitional provisions have been met the requirements of both paragraph 31C(a) and section 31D are to be disregarded when considering whether the benefit represents an exempt benefit in terms of paragraph 47(5)(ba).

Year of income:  Year ending 31 March 2014

Legislative References:
Fringe Benefits Tax Assessment Act 1986
   subparagraph 47(5)(ba)(i)
   section 30
   section 31C
   section 31D

Keywords
fringe benefits tax
exempt benefits

Siebel/TDMS Reference Number:  1-46Q6J9O7; 1-80KS3SZ

Business Line:  Private Groups and High Wealth Individuals

Date of publication:  26 July 2013
Date reviewed:  5 September 2016

ISSN: 1445-2782