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Ruling

Subject: Fringe benefits tax: Remote area housing benefits

Subject

Fringe Benefits Tax PBR - Remote Area Housing - Loan Interest & Rent

This ruling applies to

The taxpayer

Issue 1

Remote Area Housing Benefits

Question 1

Is the taxable value of an expense payment fringe benefit resulting from the payment by the taxpayer of Employee 1, 2, 3, and 4's rental payments for residential accommodation in the Area, under the terms of a valid salary sacrifice arrangement, reduced under subsection 60(2A) of the Fringe Benefits Tax Assessment Act 1986?

Advice/Answers

Yes.

Question 2

Is the taxable value of an expense payment fringe benefit resulting from the payment by the taxpayer of Employee 5, 6, 7, 8 and 9's mortgage loan interest for residential accommodation in the Area, under the terms of a valid salary sacrifice arrangement, reduced under subsection 60(2) of the Fringe Benefits Tax Assessment Act 1986?

Advice/Answers

Yes.

This ruling applies for the following period

Year ended 31 March 2013

Year ended 31 March 2014

Year ended 31 March 2015

Year ended 31 March 2016

The scheme commenced on

1 April 2012.

Relevant facts

The taxpayer is seeking a ruling for 9 of its employees, who are relocating to the Area under 5 year fixed-term contracts.

The taxpayer stated that the area is the primary place of employment and residence for the 9 employees.

The taxpayer stated that each of the 9 employees would use the residence at the Area as their usual place of residence during the occupation period.

The taxpayer proposes to offer Employee 1, Employee 2, Employee 3, and Employee 4 the ability to salary sacrifice 50% of rental payments for remote area housing rent connected with a unit of accommodation. The pre-tax salary of the relevant employee would be reduced by 50% of the rental payments.

The taxpayer proposes to offer Employee 5, Employee 6, Employee 7, Employee 8, and Employee 9 the ability to salary sacrifice 50% of the interest amount on mortgage repayments for the remote area housing loans. The pre-tax salary of the relevant employee would be reduced by 50% of the interest payable on the loan.

The taxpayer stated that the remote areas housing loans and rental arrangements are made under an arm's length agreement.

The taxpayer stated that the loan/rent arrangements are not entered into for the purpose of gaining the benefit of the concession of section 60 of the FBTAA.

The taxpayer advises that a number of regional local government authorities offer remote area housing benefits to their employees.

Assumptions

None.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 20.

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 136(1).

Fringe Benefits Tax Assessment Act 1986 subsection 142(1).

Fringe Benefits Tax Assessment Act 1986 subsection 142(1A).

Fringe Benefits Tax Assessment Act 1986 subsection 142(2E)

Fringe Benefits Tax Assessment Act 1986 subsection 142(3).

Reasons for decision

Issue 1

Question 1

Is the taxable value of an expense payment fringe benefit resulting from the payment by the taxpayer of employee 1, 2, 3, and 4's rental payments for residential accommodation in the Area, under the terms of a valid salary sacrifice arrangement, reduced under subsection 60(2A) of the FBTAA?

Summary

The payment by the taxpayer for the rent of employees 1, 2, 3, and 4 will constitute remote area housing rent connected with a unit of accommodation as all the necessary requirements under subsection 142(1A) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) have been met.

The taxable value of the expense payment fringe benefit resulting from the payment of the rent of employees 1, 2, 3, and 4, by the taxpayer, will qualify for reductions in taxable value under subsection 60(2A) of the FBTAA as all the necessary conditions have been met.

Detailed reasoning

Subsection 60(2A) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) provides for a 50% reduction of taxable value of the expense payment fringe benefits in respect of remote area housing rental payments where all the following conditions set out in subsection 60(2A) are met:

60(2A)  [Recipient of remote area housing rent]  

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 the purposes that included the purpose, of enabling the employer to obtain the benefit of the application of this section';

60(2A)(a) Expense payment fringe benefit in respect of employee's housing rent

In basic terms, an expense payment benefit, under section 20 of the FBTAA, is either where an employer reimburses an employee for expenses incurred by the employee or where an employer pays a third party in satisfaction of expenses incurred by an employee. Also, in basic terms, a fringe benefit as a benefit, as defined in subsection 136(1) of the FBTAA, is a benefit provided to an employee by an employer in respect of the employee's employment and such benefit is not otherwise exempted.

This condition is met as the taxpayer proposes to pay the rental payments of employee 6 under the terms of valid salary sacrifice arrangement.

60(2A)(b) Recipients expenditure for remote area housing rent for a unit of accommodation

Subsection 136(1) of the FBTAA defines a 'unit of accommodation' to include accommodation in a house, flat or home unit.

The taxpayer proposes to pay the rental payments incurred by employees 1, 2, 3, and 4 in connection with a unit of accommodation.

Subsection 142(1A) of the FBTAA, in basic terms, sets out the requirements for a 'remote area housing rent connected with a unit of accommodation' as being rental payments that also meets all of the following requirements:

142(1A)  [Remote area housing rent connected with a unit of accommodation] 

(a) during the whole of the period in the year of tax when the employee occupied or used the unit of accommodation as his or her usual place of residence:

(i) the unit of accommodation was situated in a State or internal Territory and was not at a location in, or adjacent to, an eligible urban area; and

(ii) the employee was a current employee of the employer and the usual place of employment of the employee was not at a location in, or adjacent to, an eligible urban area;

(b) the common conditions set out in subsection (2E) are satisfied in relation to the occupation period…

The common conditions in subsection 142(2E) of the FBTAA are as follows:

142(2E)  [Common conditions]  

(a) it is customary for the 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 the 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.

142(2E)(a) Housing assistance

Under paragraph 142(2E)(a) of the FBTAA employers must provide housing assistance for their employees during their period of employment. Housing assistance is defined in subsection 142(3) of the FBTAA

142(3) [Housing assistance]

A reference in this section to housing assistance is a reference to:

(c) the making of payments in discharge or reimbursement of expenditure incurred by a person in respect of interest incurred in respect of a housing loan relating to a dwelling;

According to the facts the taxpayer fulfils this requirement.

142(1A)(a)(i) Unit of accommodation in remote area as employee's usual place of residence

Practice Statement PS LA 2000/6 provides a list of cities and towns within Australia that are considered to be remote areas. The Area is listed as a remote area.

It is considered that the relevant unit of accommodation will be in a remote area as it will be located in the Area.

The unit of accommodation is the usual place of residence for employees 1, 2, 3, and 4.

Hence, this condition is met.

142(1A)(a)(ii) Current employee is usually employed not in, nor near, an eligible urban area

PS LA 2000/6 provides a list of cities and towns within Australia that are considered to be remote areas. The Area is listed as a remote area.

The taxpayer has confirmed that employee 1, 2, 3, and 4's primary place of employment is at the Area.

This condition is satisfied.

142(1A)(b) The common conditions as set out in subsection 142(2E) of the FBTAA are met

The taxpayer advises that a number of taxpayers in similar situations offer remote area housing benefits to their employees, and believes it is customary for taxpayers in similar situations to provide free or subsidised residential accommodation to employees in remote locations to attract staff.

It is accepted that, especially in remote areas, it is customary for employers to provide housing assistance, as defined, to their current employees.

It is considered, therefore, that the 'common conditions' are met in this case.

60(2A)(c) The unit of accommodation is the employee's usual place of residence during the period of rental payments

The taxpayer confirmed that employees 1, 2, 3, and 4 will use the unit of accommodation as his/her usual place of residence during the occupation period which the rental payment accrues.

This condition is met.

60(2A)(d) The rental agreement is entered into under bona-fide circumstances

It is noted that the rental agreement is entered into at an arm's length between all parties. The reimbursement provided under the arrangement is not entered into for the purpose of gaining the benefit or concession of section 60 of the FBTAA.

This condition is satisfied.

Conclusion

The payment by the taxpayer for the rent of employees 1, 2, 3, and 4 will constitute remote area housing rent connected with a unit of accommodation as all the necessary requirements under subsection 142(1A) of the FBTAA have been met.

The taxable value of the expense payment fringe benefit resulting from the payment of the rent of employee 1, 2, 3, and 4, by the taxpayer, will qualify for reductions in taxable value under subsection 60(2A) of the FBTAA as all the necessary conditions have been met.

Question 2

Is the taxable value of an expense payment fringe benefit resulting from the payment by taxpayer of employee 5, 6, 7, 8, and 9's mortgage loan interest for residential accommodation in the Area, under the terms of a valid salary sacrifice arrangement, reduced under subsection 60(2) of the Fringe Benefits Tax Assessment Act 1986?

Summary

The payment by the taxpayer for the housing loan interest of employees 5, 6, 7, 8, and 9 will constitute remote area housing loan interest as all the necessary requirements under subsection 142(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) have been met.

The taxable value of the expense payment fringe benefit resulting from the payment of the housing loan interest of employees 5, 6, 7, 8, and 9, by the taxpayer, will qualify for reductions in taxable value under subsection 60(2) of the FBTAA as all the necessary conditions have been met.

Detailed reasoning

Subsection 60(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) provides for a 50% reduction of taxable value of expense payment fringe benefits in respect of remote area housing loan interest payments where all the following conditions set out in subsection 60(2) are met:

60(2)  [Recipient of expense payment fringe benefit]

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 the purposes that included the purpose, of enabling the employer to obtain the benefit of the application of this section';

60(2)(a) Expense payment fringe benefit in respect of employee's housing loan

In basic terms, an expense payment benefit, under section 20 of the FBTAA, is either where an employer reimburses an employee for expenses incurred by the employee or where an employer pays a third party in satisfaction of expenses incurred by an employee. Also, in basic terms, a fringe benefit, as defined in subsection 136(1) of the FBTAA, is a benefit provided to an employee by an employer in respect of the employee's employment and such benefit is not otherwise exempted.

This condition is met as the taxpayer proposes to pay the residential housing loan interest of employees 5, 6, 7, 8, and 9 under the terms of a valid salary sacrifice arrangement.

60(2)(b) Recipients expenditure for interest for remote area housing loan for a dwelling

Subsection 136(1) of the FBTAA defines a 'dwelling' as meaning a unit of accommodation constituted by, or contained in a building, being a unit that consists, in whole or in substantial part, of residential accommodation.

The taxpayer proposes to pay the interest expenditure for the residential housing loan incurred by employees 5, 6, 7, 8, and 9.

Subsection 142(1) of the FBTAA, in basic terms, sets out the requirements for a 'remote area housing loan' as being a housing loan that also meets all of the following requirements:

142(1)  [Remote area housing loan]  

o during the whole of the period in the year of tax when the employee occupied or used the dwelling as his or her usual place of residence:

o the dwelling was situated in a State or internal Territory and was not at a location in, or adjacent to, an eligible urban area; and

(ii) the employee was a current employee of the employer and the usual place of employment of the employee was not at a location in, or adjacent to, an eligible urban area;

(b) the common conditions set out in subsection (2E) are satisfied in relation to the occupation period…

The common conditions in 142(2E) of the FBTAA are as follows:

142(2E) [Common conditions]

o it is customary for the 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;

o 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:

o 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;

o 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

o it is customary for the 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.

142(2E)(a) Housing assistance

Under paragraph 142(2E)(a) of the FBTAA employers must provide housing assistance for their employees during their period of employment. Housing assistance is defined in subsection 142(3) of the FBTAA

142(3) [Housing assistance]

A reference in this section to housing assistance is a reference to:

(aa) the making of payments in discharge or reimbursement of rent or other consideration incurred by a person in respect of the subsistence of a lease or licence in respect of a unit of accommodation;

According to the facts the taxpayer fulfils this requirement.

142(1)(a)(i) Dwelling in remote area as employee's usual place of residence

Practice Statement PS LA 2000/6 provides a list of cities and towns within Australia that are considered to be remote areas. The Area in question is listed as a remote area.

The relevant dwelling is in a remote area as it will be located in the Area.

The dwelling is the usual place of residence for employees 5, 6, 7, 8, and 9.

Hence, this condition is met.

142(1)(a)(ii) Current employee is usually employed not in, nor near, an eligible urban area

PS LA 2000/6 provides a list of cities and towns within Australia that are considered to be remote areas. The Area is listed as a remote area.

The taxpayer has confirmed that employee 5, 6, 7, 8, and 9's primary place of employment is at the Area.

This condition is satisfied.

142(1)(b) The common conditions in subsection 142(2E) of the FBTAA are met

The taxpayer advises that a number of taxpayers in similar situations offer remote area housing benefits to their employees, and believes it is customary for taxpayers in similar situations to provide free or subsidised residential accommodation to employees in remote locations to attract staff.

It is accepted that, especially in remote areas, it is customary for employers to provide housing assistance, as defined, to their current employees.

It is considered, therefore, that the 'common conditions' are met in this case.

60(2)(c) The dwelling is the employee's usual place of residence during the period the interest accrued

The taxpayer confirmed that employees 5, 6, 7, 8, and 9 will use the dwelling as his/her usual place of residence during the occupation period which the interest accrued.

This condition is met.

60(2)(d) The housing loan is entered into under bona-fide circumstances

It is noted that the loan agreement is entered into at an arm's length between all parties. The reimbursement provided under the arrangement is not entered into for the purpose of gaining the benefit or concession of section 60 of the FBTAA.

This condition is satisfied.

Conclusion

The payment by the taxpayer for the housing loan interest of employees 5, 6, 7, 8, and 9 will constitute remote area housing loan interest as all the necessary requirements under subsection 142(1) of the FBTAA have been met.

The taxable value of the expense payment fringe benefit resulting from the payment of the housing loan interest of employees 5, 6, 7, 8, and 9, by the taxpayer, will qualify for reductions in taxable value under subsection 60(2) of the FBTAA as all the necessary conditions have been met.

Further issues for you to consider

N/A

ATO view documents

Fringe benefits tax: a guide for employers (NAT 1054).

Other references (non ATO view, such as court cases)

PS LA 2000/6 Fringe benefits tax: what is considered to be remote for the purposes for the remote area housing benefit.

Does Part IVA, or any other anti-avoidance provision, apply to this ruling?

N/A.

Other relevant comments

N/A.

Keywords

Fringe benefits tax

Remote area housing

Remote area housing loan

Remote area housing rent connected with a unit of accommodation

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