Edited version of private ruling

Authorisation Number: 1011869137989

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Ruling

Subject: Remote area housing

Question

Will the provision of accommodation in the nearest town to an employee who would have been accommodated in a remote area if the accommodation had not been destroyed by a natural disaster be an exempt benefit under subsection 58ZC(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) during the period in which the destroyed accommodation is being rebuilt?

Answer

Yes

This ruling applies for the following period

01 April 2011 - 31 March 2012
01 April 2012 - 31 March 2013
01 April 2013 - 31 March 2014

Relevant facts

You are located 22 kilometres from the nearby town and 119 kilometres from a population centre with a population of more than 130,000.

Due to the seasonal extreme climatic conditions of your business it is necessary for you to provide accommodation to employees at or near your business premises.

Recently much of the housing in the area, including the on-site accommodation at your business premises was destroyed by a natural disaster.

As a result of the accommodation being destroyed, the only available accommodation is in the nearby town.

The town is located 56.2 kilometres from a population centre which had a population of more than 14,000 in the 1981 Census.

The nearest urban area to the town which had a population over 130,000 in the 1981 Census, is located 97.5 kilometres from the town.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 25

Fringe Benefits Tax Assessment Act 1986 Subsection 47(5)

Fringe Benefits Tax Assessment Act 1986 Section 58ZC

Fringe Benefits Tax Assessment Act 1986 Subsection 58ZC(1)

Fringe Benefits Tax Assessment Act 1986 Subsection 58ZC(2)

Fringe Benefits Tax Assessment Act 1986 Subsection 58ZC(3)

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 Subsection 140(1)

Income Tax Assessment Act 1936 Subsection 79A(3E)

Reasons for decision

In general terms, a housing fringe benefit arises where an employee is provided with the right to use a unit of accommodation and the lease or licence which grants that right exists at a time when that unit of accommodation is the usual place of residence of the employee.

However, under section 58ZC of the FBTAA, a housing benefit that is a remote area housing benefit is an exempt benefit.

You have provided a housing benefit to some of your employees.

Is the housing benefit a remote area housing benefit?

Subsection 58ZC(2) of the FBTAA states that a housing benefit provided to an employee by an employer will be a remote area housing benefit if:

(a) during the whole of the tenancy period, the unit of accommodation was located in a State or internal Territory and was not at a location in, or adjacent to, an eligible urban area; and

(b) during the whole of the tenancy period, the recipient was a current employee of the employer and the usual place of employment of the recipient was not at a location in, or adjacent to, an eligible urban area; and

(c) it would be concluded that it was necessary for the employer, during the year of
tax, to provide, or to arrange for the provision of, residential accommodation for employees of the employer because:

i. the nature of the employer's business was such that employees of the employer were liable to be frequently required to change their places of residence; or

ii. there was not, at or near the place or places at which the employees of the employer were employed, sufficient suitable residential accommodation for those employees (other than residential accommodation provided by or on behalf of the employer); or

iii. it is customary for employers in the industry in which the recipient was

(d) employed during the tenancy period to provide residential accommodation for their employees free of charge or for a rent or other consideration that is less than the market value of the right to occupy or use the accommodation concerned; and

(e) the recipients overall housing right was not granted to the recipient under:

i. a non-arm's length arrangement; or

ii. an arrangement that was entered into by any of the parties to the arrangement for the purpose, or for purposes that included the purpose, of enabling the employer to obtain the benefit of the application of this section.

A housing benefit will therefore be a remote area housing benefit where the following conditions are met:

· the accommodation is located in a remote area;

· the usual place of employment of the employee is in a remote area;

· it is necessary to provide the accommodation for one of the reasons given in paragraph 58ZC(2)(d); and

· the overall housing right was not granted under a non-arm's length arrangement, or an arrangement entered into for the purpose of enabling the employer to obtain the benefit of the application of the section.

Is the accommodation located in a remote area?

For the purposes of considering the treatment of the accommodation provided to your employees, section 140 of the FBTAA, provides that the accommodation and place of employment will not be in a remote area if it is situated:

· less than 40 kilometres from an eligible urban area with a census population of 14,000 to less than 130,000; or

· less than 100 kilometres from an eligible urban area with a census population of 130,000 or more.

Before the natural disaster destroyed the accommodation in which the employees were residing, this condition was satisfied.

As a result of the natural disaster you have had to accommodate the employees in alternative accommodation which is 97.5 kilometres from a population centre with a census population of 130,000 or more. As it is less than 100 kilometres from a population centre with a census population of 130,000 or more it will not satisfy this requirement.

However, subsection 58ZC(3) provides a discretion that enables the Commissioner to treat a person who resides in an area adjacent to an eligible as residing outside that area.

Subsection 58ZC(3) of the FBTAA states:

History

S 58ZC(2) amended by No 77 of 2005, s 3 and Sch 1 item 4, by repealing para (c), applicable in respect of the FBT year following 2006/07 FBT year and in respect of all later FBT years. Para (c) formerly read:

(c) it is customary for employers in the industry in which the recipient was employed during the tenancy period to provide residential accommodation for their employees without charge or for a rent or other consideration that is less than the market value of the right to occupy or use the accommodation concerned; and

S 58ZC(2) amended by No 41 of 2005, s 3 and Sch 10 item 16, by substituting "A" for "For the purposes of this section, a", applicable in respect of the FBT year beginning on 1 April 2000 and in respect of all later FBT years.

For the purposes of subsection (2):

(a) if a unit of accommodation:

(i) is at a location in, or adjacent to, an eligible urban area; and

(ii) is adjacent to, or in close proximity to, another unit of accommodation that is occupied or used and is not at a location in, or adjacent to, an eligible urban area;

the Commissioner may, if the Commissioner considers that it is appropriate to do so having regard to all the circumstances, treat the first-mentioned unit of accommodation as not being at a location in, or adjacent to, an eligible urban area; and

(b) if the usual place of employment of a person:

(i) is at a location in, or adjacent to, an eligible urban area; and

(ii) is adjacent to, or in close proximity to, another location at which people are employed, being another location that is not in, or adjacent to, an eligible urban area;

the Commissioner may, if the Commissioner considers that it is appropriate to do so having regard to all the circumstances, treat that place of employment of the first-mentioned person as not being at a location in, or adjacent to, an eligible urban area.

Prior to the introduction of section 58ZC, the discretion to treat a housing fringe benefit as a remote area fringe benefit was contained in subsection 29(5) of the FBTAA. In explaining the circumstances in which the discretion was to be exercised, the Explanatory Memorandum to Fringe Benefits Tax Assessment Bill 1986 stated:

Sub-clause 29(5) mirrors a similar provision in the income tax law and gives the Commissioner of Taxation the power where circumstances warrant it, to treat a person who resides or works in an area adjacent to an eligible urban area, as residing or working outside that area if persons who live or work near to that person, are outside that area. This power is to meet situations where near neighbours would otherwise be treated differently as to whether they qualify for the concession under the "remoteness" tests because they live or work just on opposite sides of the dividing mark.

The discretion referred to in the Explanatory Memorandum is contained within subsection 79A(3E) of the Income Tax Assessment Act 1936 (ITAA 1936) which states:

For the purposes of this section other than this subsection, the Commissioner may, if he or she considers it appropriate having regard to all the circumstances, treat a point in Zone A or Zone B that is not in the special area in that Zone but is adjacent to or in close proximity to the special area in that Zone as being a point in the special area in that Zone.

The application of the discretion is discussed at paragraphs 57 to 66 of Taxation Ruling TR 94/27 Income tax: zone rebate for residents of isolated areas. As set out in these paragraphs, subsection 79A(3E) requires a consideration of:

· the adjacent or close proximity test which is discussed in paragraphs 57 to 61 of TR 94/27; and

· 'all the circumstances' which is discussed at paragraphs 62 to 66 of TR 94/27.

Both of these tests are also contained in paragraph 58ZC(3)(a) of the FBTAA.

The adjacent or close proximity test

The accommodation is located 97.5 kilometres from a population centre of more than 130,000 people. Therefore, it is possible that it is 2.5 kilometres from a unit of accommodation that is not adjacent to an eligible urban area.

As set out in subparagraph 58ZC(3)(a)(ii) the initial test to consider is whether the accommodation is 'adjacent to, or in close proximity to' the unit of accommodation that is not in an eligible urban area.

The FBTAA does not define what is meant by the terms 'adjacent' or 'in close proximity'.

Some guidance is provided by paragraphs 58 and 59 of TR 94/27 which state:

58. Subsection 79A(3E) introduces the concept of an adjacent to, or close proximity test. The subsection is designed to reduce anomalies that may arise through a strict interpretation of the 250 kilometre shortest practicable surface route test.

Outstations

59. As a general rule, if taxpayers live on the same property but at different points, at least one of which is in the special area of a zone, subsection 79A(3E) will generally be applied to treat the other points as also being in the special area.

The Macquarie Dictionary defines 'adjacent' to mean:

1. lying near, close, or contiguous; adjoining; neighbouring: a field adjacent to the main road.

In applying this definition, the accommodation cannot be considered to be 'adjacent' to the accommodation that is not in an eligible urban area.

The Macquarie Dictionary defines 'close' to mean 'near'.

The meaning of 'near' 'proximate' or 'close' was discussed by the Full federal Court in Virgin Blue Airlines Pty Ltd v Commissioner of Taxation [2010] FCAFC 137; 2010 ATC 20-226 in the context of considering whether a car park in which the employees parked their cars was 'in the vicinity' of the primary place of employment for the purposes of paragraph 39A(1)(f) of the FBTAA. Both parties in their written submissions to the Court had agreed that the primary judge was correct in concluding that the meaning of the phrase 'in the vicinity of' meant 'near, 'proximate' or 'close'.

Edmonds and Gilmour JJ at paragraph 33 said:

…"near" is a relative term which invites the question "how near?" This is to be answered by reference to the statutory context without regard to the facts of the instant case.

In the context of the car parking provisions Edmonds and Gilmour JJ at paragraph 36 said:

When regard is had to the statutory context, concerning the imposition of a tax upon a car parking benefit provided to employees who use their cars to commute to and from work, it is apparent that the word "vicinity" in the phrase "at, or in the vicinity of" is a reference to places which are near meaning in close spatial proximity to each other. The word "near" when used to denote spatial proximity according to the Oxford English Dictionary (Second Edition) means "[t]o, within, or at, a short distance; to, or in, close proximity". Such a conclusion is not affected by the fact that the expression "at or near" is employed in other provisions of the FBTAA: s 7(2)(b); s 47(7)(b); s 58L(1)(e); s 61C(1)(c); s 142(2E)(b)(ii); s 143(1)(j); s 143C(1)(f).

In applying this test, Edmonds and Gilmour JJ at paragraph said:

In our opinion a car park which is approximately 2 kms away from the appellant's employee's primary place of employment is not near, proximate or close to that place.

If the same spatial proximity test is applied in relation to the employee's usual place of residence, it will not be adjacent, or in close proximity to a unit of accommodation that is not adjacent to an eligible urban area.

However, this is not the only test to be considered. Subsection 58ZC(3) requires regard to be had to all the circumstances.

The 'all the circumstances' test

TR 94/27 discusses this test in paragraphs 62 to 66 which state:

Residence in an area of extreme isolation and hardship

62. In an unreported decision of 29 August 1985, Taxation Board of Review No. 2 allowed in full a taxpayer's claim for a zone rebate applicable to the special area within Zone A on grounds of extreme isolation and hardship. We respectfully accept the correctness of that decision.

63. The facts of the case were that at all times during the 1981-82 income year the taxpayer resided in Zone A, 238 kilometres by road from the nearest urban centre. The road, a four-wheel drive track and the only surface route to the taxpayer's residence, was frequently closed for varying periods of time due to local climatic conditions. There were no medical or hospital services in the area. The only means of communication were a weekly mail service or radio telephone.

64. The taxpayer claimed a zone rebate applicable to an individual who resides in the special area of Zone A, and requested that the Commissioner exercise his discretion under subsection 79A(3E) to treat his residence as a point within the special area in Zone A. On assessment, the taxpayer's claim was reduced by an amount equal to the difference between the rebate for the special area within Zone A and the rebate for Zone A. This amount was disallowed on the basis that the taxpayer was unable to show that he had an adjacent, or closely proximate, neighbour within the special area, and that as a consequence subsection 79A(3E) had no application.

65. The Board decided to allow the taxpayer's objection. The Board considered that, while the concept of an adjacent or closely proximate neighbour was a relevant consideration in the exercise of the discretion in subsection 79A(3E), it was also relevant to have regard to other factors. The Board relied on the presence in the subsection of the words 'having regard to all the circumstances'. The members of the Board unanimously decided that the extreme degree of isolation and hardship experienced by the taxpayer in this particular case was such that it was appropriate to exercise the discretion in favour of the taxpayer, having regard to these circumstances.

66. We agree that the circumstances to which the Board had regard were relevant to the exercise of the discretion under subsection 79A(3E). The Board did not expressly reject the adjacent to, or close proximity, test as a determinative test, but decided that a number of other circumstances should be taken into consideration in exercising the discretion in that case. The decision reached by the Board was therefore open to it on the particular facts of the case, and it may be applied in similar fact situations involving an extreme degree of isolation and hardship.

The facts of your situation are similar to those of the unreported decision referred to in TR 94/27 as the usual place of residence is not adjacent to, or closely proximate to a unit of accommodation that is in a remote area, but there is an additional factor that needs to be taken into account.

This factor is the reason for the change in accommodation. If the natural disaster had not occurred, the accommodation provided to the employees would have been an exempt benefit. Given the change in accommodation is due to a natural disaster which is outside your control, it is appropriate for the discretion to be exercised until the accommodation is rebuilt.

The discretion will cease to apply once the accommodation is rebuilt and is able to be provided to your employees as the special circumstances will no longer apply.

Is the usual place of employment in a remote area?

As the place of employment is more than 100 kilometres from an eligible urban area with a 1981 census population of more than 130,000 and more than 40 kilometres from a town with a 1981 census population of more than 14,000 the usual place of employment was not at a location in, or adjacent to an eligible urban area.

Is it necessary to provide the accommodation for one of the reasons given in paragraph 58ZC(2)(d)?

Due to the seasonal extreme climatic conditions of your location there is limited alternative accommodation and it is necessary for you to provide accommodation at or near your business premises.

Was the overall housing right granted under a non-arm's length arrangement, or an arrangement entered into for the purpose of enabling the employer to obtain the benefit of the application of the section

As set out above, it is necessary for you to provide accommodation to your employees. Prior to the natural disaster the provision of accommodation was an exempt benefit. The change in location of the accommodation was the result of a natural disaster that was outside your control. It was not the result of an arrangement entered into for the purpose of obtaining the exemption.

Conclusion

As all of the requirements of subsection 58ZC(2) are satisfied, the provision of accommodation to employees who would have been accommodated in a remote area if the accommodation had not been destroyed by a natural disaster will be an exempt benefit under subsection 58ZC(1).

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