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Ruling

Subject: Remote Area Housing

Question 1

Is it necessary for you to provide housing assistance to your employees for one of the reasons listed in subsection 142(2E) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer Yes

Question 2

Will paragraph 60(2)(a) of the FBTAA be satisfied where you reimburse the interest that relates to a loan taken out by the employee and their spouse to purchase their usual place of residence?

Answer Yes

Question 3

Will paragraph 60(2A)(a) of the FBTAA be satisfied where you reimburse the rent paid by your employee where the rental agreement is in joint names with the employee and their spouse?

Answer Yes

Question 4

Will the answer to question 2 change if the housing assistance is provided by a reimbursement that is paid into the employee's savings account?

Answer No

This ruling applies for the following periods

1 April 2011 - 31 March 2012

1 April 2012 - 31 March 2013

The scheme commences on

1 January 2012

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

Relevant facts

You conduct your business in a town that is in a remote area.

Residential housing and rental properties are limited in the town.

As a condition of employment, you need to offer accommodation to attract potential employees.

To assist attracting employees to the town you are proposing to offer the following assistance to employees:

§ for employees that purchase a residence in the town you will reimburse or make a payment to discharge the interest on a housing loan

§ for employees that rent you will reimburse or pay their rent.

Two of your employees have entered into the arrangement. One has purchased a property jointly with their spouse. The other has entered into a rental agreement with their spouse.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 20

Fringe Benefits Tax Assessment Act 1986 section 60

Fringe Benefits Tax Assessment Act 1986 subsection 138(3)

Fringe Benefits Tax Assessment Act 1986 section 142

Question 1

Is it necessary for you to provide housing assistance to your employees for one of the reasons listed in subsection 142(2E) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Detailed reasoning

The common conditions listed under subsection 142(2E) of the FBTAA apply where an employer provides remote area housing assistance in the form of:

§ the payment or reimbursement of rent

§ the payment or reimbursement of the interest accrued on a housing loan

§ the payment or reimbursement of the cost of acquiring land, or house and land

§ the making of a housing loan

§ the provision of land or house and land, and

§ the payment an employee receives related to them being granted a repurchase option on the house, or to the repurchase of their house.

Subsection 142(2E) of the FBTAA states:

For the purposes of the application of this section to a fringe benefit in relation to a year of tax in relation to an employee of an employer, the common conditions in relation to a particular period or in relation to a particular time are as follows:

(a) it is customary for employers in the industry in which the employee was employed during that period or at that time, as the case may be, to provide housing assistance for their employees;

(b) it would be concluded that it was necessary for the employer, during the year of tax, to provide or arrange for the provision of housing assistance 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;

(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 employee was employed during that period or at that time, as the case may be, to provide housing assistance for their employees.

The conditions necessary to consider in your situation are:

(a) Is it customary for employers in your industry to provide housing assistance to employees, and

(b) Can it be concluded that the housing assistance was necessary because:

(ii) there was insufficient suitable accommodation at or near the place of employment, or

(iii) it is customary for employers in your industry to provide housing assistance.

(a) Is it customary for employers in your industry to provide housing assistance to employees?

Guidelines on what the phrase 'customary for employers in the industry' means, is provided 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? (TD 94/97)

Paragraphs 2 to 4 of TD 94/97 state:

2. 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.

3. 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.

4. The ANZSIC has a structure comprising categories at four levels, namely Divisions (the broadest level), Subdivisions, Groups and Classes (the finest level). For example, the operations of a wine maker fall within the following categories:

§ Division: Manufacturing

§ Subdivision: Food, beverage and Tobacco Manufacturing

§ Group: Beverage and Malt Manufacturing

§ Class: Wine Manufacturing

It will be open for an employer to argue that their operations fall within any of the four levels of classification.

In applying this guidance to the information you provided, it is accepted that employers in your industry provide housing assistance in the form that you will be providing to their employees.

Can it be concluded that the housing assistance was necessary?

You have advised that residential housing and rental properties at or near the place of employment are limited. Given the limited accommodation and the conclusion above that it is customary for employers in your industry to provide housing assistance, it is also accepted that it is necessary for you to provide the assistance.

Question 2

Will paragraph 60(2(a) of the FBTAA be satisfied when you reimburse the interest that relates to a loan taken out by the employee and their spouse to purchase their usual place of residence?

Detailed reasoning

Subsection 60(2) of the FBTAA provides for a 50% reduction of the taxable value of expense payment fringe benefits in respect of remote area housing loan interest payments, where all of the conditions of subsection 60(2) are met.

Subsection 60(2) of the FBTAA states that where:

(a) the recipient of an expense payment fringe benefit in relation to an employer in relation to a year of tax is an employee of the employer;

(b) the recipients expenditure is in respect of interest in respect of a remote area housing loan connected with a dwelling;

(c) the recipient occupied or used the dwelling as his or her usual place of residence during a period (in this section referred to as the ``occupation period'') during which the interest accrued; and

(d) the fringe benefit was not provided 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;

the amount that, but for this subsection, would be the taxable value of the fringe benefit in relation to the year of tax shall be reduced by 50% of so much of that amount as relates to the occupation period.

As you have only asked about the application of paragraph 60(2)(a) this ruling will not consider whether the conditions contained within the other paragraphs of subsection 60(2) are met.

Is the recipient of the expense payment fringe benefit an 'employee'?

You have advised that an employee has purchased a property jointly with their spouse, therefore the interest that will be paid or reimbursed is an expense incurred by both the employee and their spouse.

In considering whether the reduction in subsection 60(2) only applies to the employee's portion of the interest subsection 138(3) of the FBTAA states that:

For the purposes of this Act, where a benefit in respect of the employment of an employee is provided jointly to the employee and one or more associates of the employee, the benefit shall be deemed to have been provided to the employee only.

As the spouse is an associate of the employee, subsection 138(3) deems the benefit to have been only provided to the employee.

Support for this conclusion is provided by the discussion of the Federal Court in the National Australia Bank v FC of T 93 ATC 4914 (NAB Case).

Question 3

Will paragraph 60(2A)(a) of the FBTAA be satisfied where you reimburse the rent paid by your employee where the rental agreement is in joint names with the employee and their spouse?

Detailed reasoning

Subsection 60(2A) of the FBTAA states that where:

(a) the recipient of an expense payment fringe benefit in relation to an employer

in relation to a year of tax is an employee of the employer;

(b) the recipients expenditure is in respect of remote area housing rent

connected with a unit of accommodation;

(c) the recipient occupied or used the unit of accommodation as his or her usual

place of residence during a period (in this subsection called the ``occupation period'') during which the rent accrued; and

(d) the fringe benefit was not provided 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;

the amount that, but for this subsection, would be the taxable value of the fringe benefit in relation to the year of tax shall be reduced by 50% of so much of the recipients expenditure as relates to the occupation period.

As you have only asked about the application of paragraph 60(2A)(a) this ruling will not consider whether the conditions contained within the other paragraphs of subsection 60(2A) are met.

You have advised that an employee has entered into a rental agreement with their spouse.

In considering whether the reduction in subsection 60(2A) only applies to the employee's portion of the rent the reasoning used in question 2 applies to this question.

Question 4

Will the answer to question 2 change if the housing assistance is provided by a reimbursement that is paid into the employee's savings account?

Detailed reasoning

Section 20 of the FBTAA provides that an expense payment benefit arises where:

(a) the provider makes a payment which discharges in whole or in part, an obligation of the recipient to pay an amount to a third person, or

(b) the provider reimburses the recipient in whole or in part an amount of expenditure incurred by the recipient.

If the housing assistance is provided in the form of a reimbursement it will come within paragraph 20(b) of the FBTAA. The definition of a reimbursement is contained in Taxation Ruling TR 92/15. Provided the requirements set out in TR 92/15 are met the amount paid to the employee will be a reimbursement. The account into which the payment is made will not affect the classification of the payment as a reimbursement.

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