Edited version of private ruling

Authorisation Number: 1011815266731

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Ruling

Subject: housing assistance to employees

Question 1

Would the provision of a house to an employee be an exempt benefit under section 58ZC of the FBTAA?

Answer

Yes

Question 2

Would the provision of a house assistance to an employee be a fringe benefit to which section 60 of the FBTAA would apply to reduce the taxable value of that fringe benefit by 50%?

Answer

Yes

This ruling applies for the following periods:

Year ended 31 March 2011

Year ended 31 March 2012

Year ended 31 March 2013

Year ended 31 March 2014

The scheme commences on:

1 July 2010

Relevant facts and circumstances

The employer is located in an area which is listed as a remote location in PS LA 2000/6 Fringe benefits tax: what is considered to be remote for the purposes of the remote area housing benefit.

The employer has stated that they are continually competing with other employers to attract staff. This combined with the general shortage of certain classes of employees and the remote location of the business makes it difficult to attract and retain qualified staff.

As a result they have decided to offer housing support to their employee in Class A as part of their remuneration package.

The housing support will be offered in two ways.

The employer will rent a property and make available to potential employees under a salary sacrifice arrangement(SSA), at this stage it would be a rental from a third party (e.g. real estate agency).

In the future they may purchase a property and make available to rent rather than a third party transactions, this would all be at arms length transactions in a separate entity. All properties will be located in the area. The housing will be provided on the basis that the home will be the employee's usual place of residence.

If the employee owns a home in the area then rather than providing a house to the employee they will have the opportunity to salary sacrifice 50% of their home loan interest expense on a monthly basis. This interest expense would be the only expense the employer will be reimbursing staff for. This payment will be provided on the basis that the home will be the employee's usual place of residence.

The employer's Australian and New Zealand Standard Industrial Classification (ANZSIC) code was provided.

Copies of two employment advertisements for employees in unrelated businesses were provided:

· The first (based in a different remote area in within the same industry), included in the salary package subsidised housing.

· The second (based in various remote locations but in a different industry) also included housing assistance in the package.

Relevant legislative provisions

FBTAA section 25

FBTAA section 58ZC

FBTAA section 60

FBTAA subsection 60(2)

FBTAA subsection 142(1)

FBTAA subsection 136(1)

Reasons for decision

Question 1

Would the provision of a house to an employee be an exempt benefit under section 58ZC of the FBTAA?

Summary

The benefit is an exempt benefit as it is customary in the industry to provide housing assistance to employee mechanics.

Detailed reasoning

Section 58ZC of the FBTAA will apply to exempt a housing benefit where:

· for the whole of the tenancy period, the unit of accommodation is in a remote area (that is, it is not located in or adjacent to an eligible urban area)

· for the whole of the tenancy period, the accommodation is occupied by a person who is a current employee, and the usual place of employment of the employee is in the remote area, and

· it is necessary for the employer to provide accommodation for employees or to arrange to provide such accommodation because:

· the nature of the employer's business is such that employees are liable to move frequently from one residential location to another

· there is insufficient suitable residential accommodation otherwise available at or near the place or places where the employees are employed, or

· it is customary for employers in that industry to provide free or subsidised accommodation for employees.

A housing benefit arises when an employee is provided with the right to use a unit of accommodation and the lease or licence which grants that right exits at a time when the unit of accommodation is the usual place of residence.

This is the case here as the housing will only be provided to an employee and will be their usual place of residence. However, if the right to use that unit of accommodation is not the employee's usual place of residence then the benefit is a residual benefit to which the exemption contained in subsection 47(5) of the FBTAA may apply.

In addition the housing being provide will be situated in an area which is considered remote for the purpose of this exemption.

Also, as the employee is providing the benefit under a SSA, to receive the benefit the employee must be eligible to receive salary and therefore a current employee.

Finally, we need to look at whether it is necessary to provide the accommodation. Of the three points there is no evidence to suggest that the employment involves employees moving frequently, nor is there any evidence to suggest that there is insufficient suitable accommodation available. In fact as the employer intends to rent a property themselves this demonstrates that suitable accommodation is available.

Therefore we need to look at the last point being whether it is customary for employers in that industry to provide free or subsidised accommodation for employees.

The issue of whether something is customary in an industry was addressed in Taxation Determination TD 94/97 Fringe benefits tax: what does the phrase 'customary for employers in the industry' mean in relation to the provision of fringe benefits to employees?. Paragraphs 2 and 3 state:

A benefit will be accepted as being customary 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 the provision of the benefit is unique, rare or unusual within an industry it would not be accepted as being customary.

In defining the employer's industry, this Office will accept categorisation based on any recognised industry classification system. Examples of these are the industry codes for business income used by this Office (listed in the company income tax return instructions), and Australian and New Zealand Standard Industrial Classification (ANZSIC) codes.

In this case the employer has provided two examples of where employees are offered housing assistance when working in remote areas. One of these examples is within the same industry. Therefore it is accepted that in respect of the industry that it is common for employees to be offered housing assistance as part of their employment package.

Therefore the required conditions set down in section 58ZC of the FBTAA have been satisfied and the provision of the housing benefit will be exempt.

However it should be noted that this exemption does not extend to the provision of residential fuel (including electricity) provided in connection with the housing (see ATO Interpretative Decision ATO ID 2004/276 Fringe Benefits Tax Exempt benefits: remote area housing and residential fuel). These are separate benefits to which section 59 of the FBTAA would apply to reduce the taxable value by 50%.

Where free water is provided to an employee in accordance with a residential tenancy agreement between an employer and the employee, the water will form part of the housing benefit on which the remote area housing fringe benefit is based (see ATO Interpretative Decision ATO ID 2005/158 Fringe Benefits Tax Exempt Benefits: remote area housing and water).

Question 2

Would the provision of a house assistance to an employee be a fringe benefit to which section 60 of the FBTAA would apply to reduce the taxable value of that fringe benefit by 50%?

Summary

The taxable value of the housing interest paid by the employer can be reduced by 50%.

Detailed reasoning

Section 60 of the FBTAA provides for a reduction in the taxable value of certain fringe benefits relating to remote area housing.

Where the employee already has their own home the employer will allow the employee to salary sacrifice 50% of their home loan interest expense on a monthly basis rather than provide the employee with housing.

The payment of home loan interest is covered by subsection 60(2) of the FBTAA and will apply where:

· the employer provides 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.

If these conditions are met then the employer is entitled to a reduction of 50% of the taxable value of the expense payment fringe benefit that relates to the occupation period.

A remote area housing loan is defined in subsection 142(1) of the FBTAA and is:

· a housing loan relating to a dwelling that is situated in a remote area,

· where the employee is a current employee and

· the usual place of employment is in a remote area.

In this case the employee is provided the benefit under a SSA which indicates that to receive the benefit they would need to be eligible to receive salary and therefore a current employee. In addition the housing and place of employment are located in a remote area for the purposes of the FBTAA.

In addition the benefit will not be provided if the home is not the employee's usual place of residence.

Finally the shared conditions are also met as they are the same as those needed under section 58ZC of the FBTAA being:

· the nature of the employer's business is such that employees are liable to move frequently from one residential location to another

· there is insufficient suitable residential accommodation otherwise available at or near the place or places where the employees are employed, or

· it is customary for employers in that industry to provide free or subsidised accommodation for employees.

Given the expenses to be paid are limited to 50% of the interest on the remote are home loan then subsection 60(2) of the FBTAA will apply to reduce the taxable value of the expense payment benefit by 50%.

However as explained in ATO Interpretative Decision ATO ID 2003/157 Fringe Benefits Tax Remote area housing: reduction of taxable value - remote area housing loan interest, electing to only pay 50% of the interest expense incurred will not reduce the taxable value of the benefit to nil. The reduction available under subsection 60(2) of the FBTAA is 50% of the amount actually paid by the employer.

For example if the interest expense is $5,000 and the employer pays $2,500 (or half) of that total expense the reduction in taxable value is $1,250. This would leave a taxable value of $1,250 to which fringe benefits tax would be payable on.

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