Edited version of private ruling

Authorisation Number: 1011737860126

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Ruling

Subject: Relocation benefits

Question 1

Will the reimbursement of the agent's commission expenses costs incurred in selling the employee's former residence and the stamp duty and legal fees paid on the purchase of a new residence be an exempt benefit under section 58C of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer: No

Question 2

Will the reimbursement of the costs incurred in moving the employee's household items from the former residence to the new residence be an exempt benefit?

Answer: No

This ruling applies for the following periods:

Year ended 31 March 2011

Year ended 31 March 2012

The scheme commences on:

1 April 2010

Relevant facts and circumstances

Your employee was offered employment in September 2009.

His employment commenced in October 2009.

In March 2010 the employee approached a real estate agent to arrange the sale of his residence.

The employee sold his residence in April 2010 and incurred agent's commission expenses.

The employee purchased a new residence in May 2010 and incurred stamp duty and legal fees.

The employee also incurred costs of removal and relocation of household items.

Google maps indicates the distance from the original residence to your office is 66.3 kilometres and involves a travelling time of 58 minutes. By comparison, the new residence is 9.4 kilometres from your office and the travelling time is 14 minutes.

The employee is seeking to enter into a salary sacrifice arrangement for the reimbursement of these costs.

You did not require the employee to change his usual place of residence, nor require the employee to live within a certain distance of your office.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 58C

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Reasons for decision

(1) Will the reimbursement of the agent's commission expenses costs incurred in selling the employee's former residence and the stamp duty and legal fees paid on the purchase of a new residence be an exempt benefit under section 58C of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Section 58C of the FBTAA provides that certain benefits that relate to the sale and/or acquisition of a dwelling as a result of an employee relocation will be exempt benefits if the criteria contained in the following subsections is satisfied:

· subsection 58C(1) which sets out the necessary requirements where an employee or an associate of an employee sells his or her interest in a dwelling because the employee is required to change his or her usual place of residence in order perform the duties of his or her employment;

· subsection 58C(2) which details the kind of benefits relevant to the sale of property and other qualifications; and

· subsection 58C(3) which addresses the acquisition of property and mirrors the conditions and requirements contained in the previously mentioned subsections.

Section 58C(1) of the FBTAA contains the pre-conditions that must be satisfied. It states:

[Sale or acquisition of dwelling] Where -

(a) during a particular period (in this subsection called the "former home holding period"), an employee of an employer, or an associate of an employee of an employer, holds -

(i) a prescribed interest in land on which -

(A) there is a building constituting or containing a dwelling;

(B) the employee or associate proposes to construct, or complete the construction of, a building constituting or containing a dwelling;

(ii) a prescribed interest in a stratum unit in relation to a dwelling; or

(iii) a proprietary right in respect of a dwelling, being a flat or home unit;

(b) the employee or associate sells the interest or right solely because the employee is required to change his or her usual place of residence in order to perform the duties of his or her employment;

(c) the employer first notifies the employee at a time (in this subsection called the "notice time") during the former home holding period that the employee is required to perform the duties of that employment at the employee's new place of employment;

(d) at the notice time, the employee occupied, or proposed to occupy, the dwelling, or proposed to occupy the proposed dwelling, as his or her usual place of residence; and

(e) the employee or associate entered into a contract for the sale of the interest or right within 2 years after the day on which the employee commenced to perform the duties of that employment at the employee's new place of employment;

the following subsections have effect.

The following subsections in question are 58C(2) [expense payment or residual benefit with sale of property] and 58C(3) [expense payment or residual benefit with purchase of property] of the FBTAA which if all the conditions are met are exempt benefits.

In considering the conditions contained within subsection 58C(1).

(a) Did the employee hold during the "former home holding period" an interest in land on which there is a dwelling, stratum unit, flat or home unit, or propose to construct a dwelling?

During the "former home holding period" the employee held an interest in land on which there is a dwelling.

Therefore, this condition is satisfied.

(b) Did the employee sell the interest or right solely because he was required to change his usual place of residence in order to perform the duties of his employment?

Section 58C(1)(b) of the FBTAA contains three elements, namely,

(1) Was the employee required to change his or her usual place of residence?

(2) Was the required relocation to enable the employee to carry out duties of employment?

(3) Was the sale of property solely because the employee is required to relocate and is required to relocate in order to perform the duties of employment?

(1) Was the employee required to change his usual place of residence?

The meaning of the word "required" was discussed by the Administrative Appeals Tribunal in Compass Group (Vic) Pty Ltd (as trustee for White Roche & Associates Hybrid Trust) v FC of T [2008] AATA 845; 2008 ATC 10-051 as follows;

The ordinary meanings of the word "require" include:

"…1a to need something; b to wish to have something. 2 to demand, exact or command by authority. 3 to have as a necessary or essential condition for success, fulfilment etc …"

The word "require" does not contemplate choice.

Application to your circumstances

The employee was offered employment by you in September 2009, and he commenced his employment duties with you in October 2009. The employee first approached a real estate agent to place his former residence on the market in March 2010. The employee therefore continued to live at his former residence for six months after being offered employment by you and five months after commencing that employment.

You did not require the employee to change his usual place of residence in order for him to perform his duties of employment. There is no condition of employment in the employee's duty statement that he is required to live within a certain distance of his place of employment.

Further, the distance and travelling time to your office from the employee's former residence is not sufficient to create a requirement as the employee was able to perform his duties of employment while living at his former usual place of residence for a period of five months.

Therefore, the facts as provided do not show that the employee was required to change his usual place of residence.

(2) Was the required relocation to enable the employee to carry out duties of employment?

A required relocation to enable an employee to carry out duties of employment implies that in a practical sense the relocation was required because otherwise the duties of employment could not be carried out.

You require that the employee carry out his duties of employment at the office during office hours regardless of where he lives. Provided the employee was on duty when required, it was not relevant where he lived. The employee carried out his duties of employment for five months while living at his former usual place of residence. It was therefore possible, and actually happened, for the employee to carry out his duties of employment while living at the former usual place of residence.

Therefore, the relocation was not required to enable the employee to carry out his duties of employment.

(3) Was the sale of property solely because the employee is required to relocate and is required to relocate in order to perform the duties of employment?

As discussed above, you did not require that the employee change his location of residence, nor was he required to live within a certain distance of the office. Nor was the relocation required to enable the employee to carry out his duties of employment as he was able to perform his duties of employment while residing at his former residence for five months before relocating.

This indicates that even if there was a requirement to relocate so as to be able to perform the duties of employment it was not the sole reason. From the information provided it appears that the employee made the choice to change his usual place of residence for personal reasons.

Therefore, it is concluded that the employee did not sell his former residence solely because was required to change his usual place of residence in order to perform his duties of employment. There was another reason for the relocation which appears to be a personal or private choice.

This condition is not satisfied.

(c) Did the employer first notify his employee during the former home holding period that the employee is required to perform the duties of that employment at the employee's new place of employment?

The employee resided at his former residence until it was sold in April 2010. You first notified the employee in September 2009, during the period that he held the residence, that he is required to perform the duties of his employment at his new place of employment.

This condition is satisfied.

(d) Did the employee occupy, or propose to occupy, at the notice time, the dwelling, or propose to occupy the proposed dwelling, as his usual place of residence?

At the notice time, when you first notified the employee of the position, the employee occupied the former residence as his usual place of residence.

This condition is satisfied.

Summary

All of the conditions of section 58C(1) of the FBTAA are satisfied except (b) as the employee changed his place of residence due to personal choice rather than solely as a requirement of employment. Hence section 58C(1) of the FBTAA does not apply and the accompanying subsections 58C(2) and 58C(3) of the FBTAA which exempts expense payment or residual benefits in relation to sale or purchase of a property also do not apply. Hence the reimbursement of relocation expenses in this situation will not be an exempt benefit.

It should also be noted that subsection 58C(3) which contains the conditions to be satisfied in relation to the acquisition of a property also contains a requirement for the employee to:

acquire the interest or right solely because the employee is required to change his or her usual place of residence in order to perform the duties of that employment at the employee's new place of employment.

For the same reasons set out above in relation to paragraph 58C(1)(b) this requirement will not be satisfied.

2. Will the reimbursement of the costs incurred in moving the employee's household items from the former residence to the new residence be an exempt benefit?

In general terms, section 58B provides an exemption for the reimbursement of expenditure that is in respect of the removal or storage of household effects of the employee where the conditions in paragraphs 58B(1)(b), (c) and (d) are satisfied.

These paragraphs state:

(b) the removal or storage is required solely because:

(i) the employee is required to live away from his or her usual place of residence in order to perform the duties of that employment;

(ii) the employee, having lived away from his or her usual place of residence in order to perform the duties of that employment, is required to return to his or her usual place of residence:

(A) in order to perform those duties; or

(B) because the employee has ceased to perform those duties; or

(iii) the employee is required to change his or her usual place of residence in order to perform the duties of that employment;

(c) the removal or storage is required to enable a family member to:

(i) if subparagraph (b)(i) applies - take up residence, or to continue to reside, at or near the place where the employee performs the duties of that employment while living away from his or her usual place of residence;

(ii) if subparagraph (b)(ii) applies - take up residence at the employee's usual place of residence; or

(iii) if subparagraph (b)(iii) applies - take up residence, or to continue to reside, at the employee's new usual place of residence;

(d) if subparagraph (b)(iii) applies:

(i) the removal takes place, or the storage commences to be provided, within 12 months after the day on which the employee commenced to perform the duties of that employment at the employee's new place of employment; and

(ii) the benefit is not provided under a non-arm's length arrangement;

(e) if subparagraph (a)(i) applies - documentary evidence of the recipients expenditure is obtained by the recipient and that documentary evidence, or a copy, is given to the employer before the declaration date; and

(f) the removal or storage was not provided in connection with travel undertaken by the employee in the course of performing the duties of that employment;

Is paragraph (b) satisfied?

Paragraph (b) requires the sole reason for the removal to be because:

(i) the employee is required to live away from his usual place of residence in order to perform the duties of employment; or

(ii) the employee having lived away from his usual place of residence is required to return to his usual place of residence; or

(iii) the employee is required to change his usual place of residence in order to perform his duties of employment.

As the employee has changed his usual place of residence the only subparagraph that can apply is subparagraph (iii). However, for the same reasons discussed above in relation to section 58C the conditions contained within this subparagraph will not be met.

Therefore, the exemption in section 58B will not apply to the removal expenses.

Other matters

In your application you also asked whether the employee can enter into an effective salary sacrifice arrangement to package the costs. The requirements that must be satisfied for a salary sacrifice to be effective are set out in Taxation Ruling TR 2001/10 Income tax: fringe benefits tax and superannuation guarantee: salary sacrifice arrangements. Provided the requirements set out in this ruling are satisfied the expenses can be reimbursed as part of a salary sacrifice arrangement. However, in forming the package you may need to consider the fringe benefits tax liability that will arise from the reimbursements.

You also asked whether you need to obtain any additional documentary evidence. Presumably, this question is based on the assumption that the exemption will apply. As the exemption does not apply, it is not necessary for any further documentation such as a declaration to be obtained.

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