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Ruling

Subject: Fringe benefits tax: Taxation of benefits provided to employees of a public benevolent institution

Question 1

If you provide an employee with accommodation in a unit of accommodation that you own or lease, will the value of the benefit be included in the calculation of your 'aggregate non-exempt amount' if the unit of accommodation is located in the town in which you operate?

Answer: No

Question 2

If you pay or reimburse rent or interest expenses incurred by an employee in relation to his or her usual place of residence, will the value of the benefit be included in the calculation of your 'aggregate non-exempt amount'?

Answer: Yes

Question 3

In calculating the value of the 'aggregate non-exempt amount', can the value of the expense payment benefit that arises from the payment or reimbursement of the rent or interest referred to in question 2 be reduced under section 60 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer: No

Question 4

If you also pay or reimburse the electricity expenses incurred by an employee who is receiving a form of housing assistance referred to in questions 1 and 2, will the value of the benefit be included in the calculation of your 'aggregate non-exempt amount'?

Answer: Yes

Question 5

In calculating the value of the 'aggregate non-exempt amount', can the value of the expense payment benefit that arises from the payment or reimbursement of the electricity expenses referred to in question 4 be reduced under section 59 of the FBTAA if:

(a) the housing assistance involves the use of a unit of accommodation that you own or lease; or

(b) the housing assistance involves the payment or reimbursement of the rent or interest expenses incurred by the employee?

Answer:

(a) Yes

(b) No

This ruling applies for the following periods:

Year ending 31 March 2012

Year ending 31 March 2013

year ending 31 March 2014

The scheme commences on:

1 April 2011

Relevant facts and circumstances

You are located in a country town.

To assist with attracting and retaining suitably qualified staff you are considering the provision of housing assistance to employees.

The housing assistance may be provided by:

· providing the use of a residential property that you rent; or

· paying or reimbursing the rental expenses incurred by the employee in renting their usual place of residence; or

· paying or reimbursing interest relating to a loan taken out to purchase the employee's usual place of residence; and

· paying or reimbursing the electricity expenses that relate to a property for which one of the other three forms of assistance is being provided.

The residential properties for which the assistance will be provided are located in the country town in which you operate.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Subsection 5B(1D)

Fringe Benefits Tax Assessment Act 1986 Subsection 5B(1E)

Fringe Benefits Tax Assessment Act 1986 Subsection 5B (1F)

Fringe Benefits Tax Assessment Act 1986 Subsection 5B (1G)

Fringe Benefits Tax Assessment Act 1986 Subsection 5B(1H)

Fringe Benefits Tax Assessment Act 1986 Subsection 5B(1J)

Fringe Benefits Tax Assessment Act 1986 Subsection 5B(1K)

Fringe Benefits Tax Assessment Act 1986 Subsection 5B(1L)

Fringe Benefits Tax Assessment Act 1986 Section 20

Fringe Benefits Tax Assessment Act 1986 Section 25

Fringe Benefits Tax Assessment Act 1986 Subsection 57A(1)

Fringe Benefits Tax Assessment Act 1986 Section 58ZC

Fringe Benefits Tax Assessment Act 1986 Section 59

Fringe Benefits Tax Assessment Act 1986 Subsection 60(2)

Fringe Benefits Tax Assessment Act 1986 Subsection 60(2A)

Fringe Benefits Tax Assessment Act 1986 Subsection 140(1)(b)

Fringe Benefits Tax Assessment Act 1986 Subsection 140(1A)

Fringe Benefits Tax Assessment Act 1986 Subsection 142(1)

Fringe Benefits Tax Assessment Act 1986 Subsection 142(1A)

Reasons for decision

Will you be liable to pay fringe benefits tax if the proposed benefits are provided to an employee?

Under the proposal there are three alternate forms of housing assistance that may be provided to an employee. They are:

1. the provision of the use of a residential property that you rent;

2. the payment or reimbursement of rental expenses incurred by an employee in renting his or her usual place of residence; and

3. the payment or reimbursement of interest that relates to a loan taken out by an employee to purchase his or her usual place of residence.

In addition, where you provide an employee with one of these three types of assistance, you may pay or reimburse the electricity expenses that relate to the residence.

Each of these forms of assistance involves the provision of a benefit to an employee. As you are a public benevolent institution these benefits will be an exempt benefit under subsection 57A(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

Generally, an employer will not be liable to pay fringe benefits tax when an exempt benefit is provided to an employee. However, the exemptions provided to an employer under section 57A are limited by subsection 5B(1D) of the FBTAA.

Subsection 5B(1D) provides that the 'fringe benefits taxable amount' of an employer who comes within section 57A will include the employer's aggregate non-exempt amount for the relevant year of tax.

The method for calculating an employer's aggregate non-exempt amount is contained within subsections 5B(1E) to 5B(1L) of the FBTAA. These subsections provide that a PBI will only be liable to pay fringe benefits tax on the amount by which the total grossed-up value of certain benefits provided to an individual employee exceeds $30,000.

Under subsection 5B(1L) of the FBTAA, this calculation will not include the value of benefits:

· that constitute the provision of meal entertainment;

· that are car parking fringe benefits; or

· whose taxable values are wholly or partly attributable to entertainment facility leasing expenses.

In addition, the calculation will not include the value of benefits that are exempt benefits for all employers.

Therefore, as the benefits you are providing are not one of the listed benefits that are specifically excluded from the calculation by subsection 5B(1L) of the FBTAA, the grossed-up value of the benefits will be included in the calculation unless they are an exempt benefit for all employers.

Are any of the proposed benefits exempt benefits for all employers?

In determining whether any of the proposed benefits will be an exempt benefit for all employers it is necessary to firstly determine the category of benefit that is being provided. Within the FBTAA there are thirteen different categories of benefits. Each category has its own valuation rules and most categories specify certain benefits that are exempt benefits.

The benefits that may be provided under the proposed arrangement come within the following two categories:

· housing benefits (as defined in section 25 of the FBTAA) which arise from the provision of the use of a residential property by an employee where the property is the employee's usual place of residence; and

· expense payment benefits (as defined in section 20 of the FBTAA) which arise from the payment or reimbursement of expenses incurred by the employee. Under the arrangement the expenses incurred by the employee will be rent, interest and electricity expenses.

In referring to the housing benefits and the expense payment benefits that are exempt benefits, the only proposed benefit that may be an exempt benefit is the provision of the housing benefit.

Will the provision of a housing benefit be an exempt benefit?

Under section 58ZC of the FBTAA a housing benefit that is provided to a current employee will be an exempt benefit where the following conditions are met:

· the accommodation is in a remote area (an area is a remote area if it is not in or adjacent to an eligible urban area);

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

· it is necessary for the employer to provide, or arrange for the provision of residential accommodation for employees for one of the following three reasons:

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

· there is insufficient suitable residential accommodation otherwise available at or near the place where the employee is employed; or

· it is customary for employers in the employer's industry to provide free or subsidised accommodation for employees; and

· the housing benefit is not granted to the employee under:

· a non-arm's length arrangement; or

· an arrangement entered into by any of the parties for purposes that included the purpose of enabling the employer to obtain the benefit of the application of the exemption.

The application of these conditions to your situation is discussed below:

Are the accommodation and place of employment located in a remote area?

As set out above, a remote area is one that is not located in or adjacent to an eligible urban area. Section 140 of the FBTAA contains two definitions of eligible urban areas.

The first definition contained within paragraph 140(1)(b) of the FBTAA is used in relation to:

· a housing benefit by most employers; and

· other benefits by all employers.

Attachment 1 of Practice Statement Law Administration PS LA 2000/6 provides a listing of towns to which this paragraph applies.

The list of employers who do not use this definition for the purpose of determining whether a housing benefit is a remote area housing benefit includes employers who are a charitable institution. As you are a charitable institution, the listing in attachment 1 of PS LA 2000/6 is not applicable to the consideration of whether the housing benefits that you provide are remote area housing benefits. However, it will be used for the purpose of determining whether an employee who receives another category of benefit is in a remote area.

For the purpose of considering whether the housing benefits that you provide are remote area housing benefits the relevant attachment is attachment 2 of PS LA 2000/6 which is a listing of towns to which the second definition of eligible urban areas applies. This second definition is contained within subsection 140(1A) of the FBTAA.

In attachment 2 of PS LA 2000/6, the country town in which you operate is listed as a remote town. Therefore, for the purpose of determining whether a housing benefit that you provide is a remote area housing benefit, it is accepted that both the unit of accommodation and the usual place of employment are in a remote area.

Is it necessary for you to provide or arrange for the provision of residential accommodation for one of the listed reasons?

Of the three reasons that are listed the most relevant reason is the third reason which applies where it is customary for employers in your industry to provide residential accommodation to their employees.

The meaning of the phrase 'customary for employers in the industry' is discussed 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 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.

You are a public benevolent institution located in a rural area. In applying the guidance provided by TD 94/97, it is accepted that it is not unusual for a public benevolent institution located in a rural area to provide accommodation to employees. As an example, you have indicated employees of another public benevolent institution located in the same country town are receiving the benefit. Therefore, it is accepted that it is necessary for you to provide or arrange for the provision of residential accommodation for employees.

Is the housing benefit granted to the employee under a non-arm's length arrangement or an arrangement entered into by any of the parties for purposes that included the purpose of enabling the employer to obtain the benefit of the application of the exemption?

Although, as discussed below, a liability for fringe benefits tax may arise if the housing assistance is provided in a different form, the information provided with the ruling application does not indicate that a purpose of providing the housing benefit will be to enable the employer to obtain the benefit of the exemption. Rather, the information indicates that the sole purpose is to enable you to attract suitably qualified staff.

Therefore, it is accepted that the housing benefits will not be granted under a non-arm's length arrangement, or an arrangement entered into by any of the parties for purposes that included the purpose of enabling the employer to obtain the benefit of the application of the exemption.

Conclusion

As each of the conditions contained in section 58ZC of the FBTAA will be met, the housing benefits that you provide in the country town will be exempt benefits. Therefore, if you provide an employee with accommodation in the town in which you operate in a unit of accommodation that you own or lease, the value of the benefit will not be included in the calculation of your 'aggregate non-exempt amount'.

Will any concessions apply to the payment or reimbursement of the rent, interest or electricity expenses incurred by the employee in relation to his or her usual place of residence?

As discussed above, the payment or reimbursement of the listed expenses will be an expense payment benefit. As these types of expense payment benefits are not listed in subsection 5B(1L) of the FBTAA and are not exempt for all employers, the value of these benefits will form part of the calculation of your 'aggregate non-exempt amount'.

Generally, the value of an expense payment benefit that is grossed-up in the calculation of the 'aggregate non-exempt amount' will be the amount of the payment or reimbursement. However, there are a number of sections that enable this value to be reduced including:

· section 59 which enables a 50% reduction in the taxable value of an expense payment benefit that relates to the supply of residential fuel that is used in connection with a residence for which a remote area housing benefit, a remote area housing loan or remote area housing rent is being provided;

· subsection 60(2) which enables a 50% reduction in the taxable value of an expense payment benefit where the recipients expenditure is in respect of interest for a 'remote area housing loan'; and

· subsection 60(2A) which enables a 50% reduction in the taxable value of an expense payment benefit where the recipients expenditure is in respect of 'remote area housing rent'.

The application of these provisions to your situation is discussed below:

Can the value of the expense payment benefit that arises from the payment or reimbursement of an employee's electricity expenses be reduced by 50% under section 59 of the FBTAA?

As set out above, section 59 of the FBTAA enables the taxable value of an expense payment benefit to be reduced by 50% where:

· the benefit is not provided to the employee under a non-arm's length arrangement, or an arrangement that was entered into by any of the parties for the purpose, or partial purpose, of enabling the employer to obtain the concession; and

· the employee is also:

· the recipient of a remote area housing benefit; or

· under an obligation to repay the whole or part of a remote area housing loan connected with the dwelling and in receipt of a form of housing assistance that comes within section 60 of the FBTAA; or

· incurring remote area residential rent in connection with a unit of accommodation and in receipt of a form of housing assistance that comes within section 60 of the FBTAA.

For the same reasons as were discussed above in relation to the provision of a housing benefit, it is accepted that the payment or reimbursement of an employee's electricity expenses will not occur under a non-arm's length arrangement, or an arrangement entered into by any of the parties for purposes that included the purpose of enabling the employer to obtain the 50% reduction.

Therefore, the 50% reduction under section 59 will apply where the employee is also provided with a remote area housing benefit.

The application of the 50% reduction in the alternative situations where you pay or reimburse either:

· the rental expenses incurred by the employee in renting their usual place of residence; or

· the interest that relates to a loan taken out to purchase the employee's usual place of residence

will depend upon whether the concession in section 60 of the FBTAA applies to these payments or reimbursements.

Can the values of the expense payment benefits that arise from the payment or reimbursement of the rental expenses or home loan interest be reduced under section 60?

Payment or reimbursement of interest

Subsection 60(2) of the FBTAA enables the taxable value of an expense payment benefit to be reduced by 50% where the conditions set out in the subsection are met. One of the conditions to be met is for the recipient's expenditure to be in respect of interest that arises from a 'remote area housing loan'.

Subsection 142(1) of the FBTAA sets out the conditions to be met for a housing loan to be a 'remote area housing loan'. One of the conditions to be met is for the dwelling not to be in a location that is in, or adjacent to an eligible urban area.

The two definitions of an eligible urban area and the circumstances in which they apply were discussed above in relation to the provision of the housing benefits. As set out in that discussion, the relevant definition for benefits other than housing benefits is the definition in paragraph 140(1)(b) of the FBTAA. The listing of the towns to which this definition applies is contained in attachment 1 to PS LA 2000/6.

Attachment 1 to PS 2000/6 lists the country town in which you operate as an eligible urban area. Therefore, for the purposes of considering the concessions in section 60, the dwelling is in an eligible urban area. As the dwelling is in an eligible urban area, the loan will not be a remote area loan. Therefore, the concession in subsection 60(2) will not apply to the expense payment benefit that arises from the payment or reimbursement of the interest that relates to the loan taken out to purchase the dwelling.

Payment or reimbursement of rent

Similarly, subsection 60(2A) of the FBTAA enables the taxable value of an expense payment benefit to be reduced by 50% where the conditions set out in the subsection are met. One of the conditions to be met is for the recipient's expenditure to be in respect of 'remote area housing rent'.

Subsection 142(1A) of the FBTAA sets out the conditions to be met for rent to be 'remote area housing rent'. One of the conditions to be met is for the dwelling not to be in a location that is in, or adjacent to an eligible urban area.

As with a 'remote area housing loan' the relevant definition an eligible urban area is that contained in paragraph 140(1)(b) of the FBTAA and the relevant listing of towns is the list contained in attachment 1 to PS LA 2000/6.

As attachment 1 to PS 2000/6 lists the country town in which you operate as an eligible urban area, the concession in subsection 60(2) will not apply to the expense payment benefit that arises from the payment or reimbursement of the employee's rent.

Conclusion

The grossed-up value of the expense payment benefits that arise from the payment or reimbursement of the rent, interest or electricity expenses incurred by an employee will be included in the calculation of your 'aggregate non-exempt amount'.

In calculating the taxable value that is grossed-up the amount that would otherwise be the taxable value of the expense payment benefits that arise from the payment of the electricity expenses can be reduced by 50% if the employee is receiving a housing benefit that is a remote area housing benefit.

The 50% reduction will not apply to the other possible expense payment benefits. That is, it will not apply to the payment or reimbursement of:

· the rental expenses incurred by the employees; or

· the interest that arises on the loan used to purchase the employee's usual place of residence; or

· the electricity expenses incurred in relation to the employee's usual place of residence if the employee is not also in receipt of a remote area housing benefit.

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