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Ruling

Subject: Fringe benefits tax - remote area housing rent

Question 1

Will a payment by the employer to employee one as a reimbursement for their rental accommodation as part of an effective salary sacrifice arrangement be eligible for the 50% concession by subsection 60(2A) of the Fringe Benefits Tax Assessment Act 1986?

Answer

Yes

Question 2

Will a payment by the employer to employee two as a reimbursement for their rental accommodation as part of an effective salary sacrifice arrangement be eligible for the 50% concession by subsection 60(2A) of the Fringe Benefits Tax Assessment Act 1986?

Answer

Yes

Question 3

Will a payment by the employer to employee three as a reimbursement for their rental accommodation as part of an effective salary sacrifice arrangement be eligible for the 50% concession by subsection 60(2A) of the Fringe Benefits Tax Assessment Act 1986?

Answer

Yes

This ruling applies for the following periods:

Year ended 31 March 2013

Year ended 31 March 2014

The scheme commences on:

1 April 2012

Relevant facts and circumstances

You are an employer based principally in a town that is classified as a remote area according to Law Administration Practice Statement PS LA 2000/6.

The provision of subsidised housing to employees is considered customary within your industry.

You have previously provided subsidised housing to a small number of upper management employees (4 staff positions in the past 10 years).

You are implementing a new policy. You intend to offer housing assistance to all of your employees as part of salary packaging.

Employee one:

An employee commenced in a lower management position late last year.

The employee resides in the neighbouring town which is also classified as a remote area according to PS LA 2000/6.

At the time of appointment, the employee had an existing lease on a residence under an arms length arrangement.

The lease was recently renewed and expires one year from that date.

The leased residence is the employee's usual place of residence.

You are considering salary packaging the reimbursement of 50% of the employees rental expenses to the employee though an effective, salary sacrifice arrangement.

Employee two:

An employee commenced in an upper management position during last year.

The employee moved from interstate to take up the position however Living Away From Home is not relevant.

The employee now rents a residence in the town in which you are located, with a lease expiry date of later this year. The leased residence is the employee's usual place of residence.

The lease was signed under an arms length transaction with no connection to you.

You are considering salary packaging the reimbursement 50% of the employee's rental expense to the employee through an effective salary sacrifice arrangement.

Employee three:

An employee currently works in a non-management position.

The employee resides in the town in which you are located and has an existing lease on a residence under an arms length arrangement.

The leased residence is the employee's usual place of residence.

You are considering salary packaging the reimbursement 50% of the employee's rental expense to the employee through an effective salary sacrifice arrangement.

Relevant legislative provisions

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

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

Fringe Benefits Tax Assessment Act 1986 Subsection 142(2E).

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

All references made in these reasons for decision are to the Fringe Benefits Tax Assessment Act 1986 unless otherwise stated.

Question 1

Summary

Where you reimburse employee one for his or her rental accommodation as part of an effective salary sacrifice arrangement, the taxable value of the expense payment fringe benefit may be reduced by 50% under subsection 60(2A).

Detailed reasoning

Subsection 60(2A), provides for a reduction of the taxable value of expense payment fringe benefits by 50% of the gross rent incurred by the employee in respect of remote area housing rent where all the following conditions are met:

· 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;

· the recipient's expenditure is in respect of remote area housing rent connected with a unit of accommodation;

· 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

· the fringe benefit was not provided under:

· a non-arm's length arrangement; or

· 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;

Paragraph 60(2A)(a):

This condition will be met as you intend to reimburse the rent for residential housing incurred by your current employee.

Paragraph 60(2A)(b):

The expenditure that your employee incurs must be for remote area housing rent connected with a unit of accommodation.

The necessary requirements for the existence of 'remote area housing rent connected with a unit of accommodation' are set out in subsection 142(1A).

The first requirement of subsection 142(1A) is set out in paragraph (a) of that subsection:

i …during the whole of the period (in this subsection referred to as the "occupation period") in the year of tax when the employee occupied or used the unit of accommodation as his or her usual place of residence:

ii 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

iii 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...

You satisfy this requirement as the accommodation is in a town which is not adjacent to an eligible urban area, and your employee is a current employee whose usual place of employment is in a town which is also not adjacent to an eligible urban area.

The second requirement of subsection 142(1A) is set out in paragraph (b) of that subsection:

…the common conditions set out in subsection 142(2E) are satisfied in relation to the occupation period…

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

· 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 to their employees;

· 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:

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

· 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 that provided by or on behalf of the employer); or

· 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.

You are implementing a new policy that will allow all employees, not just upper management, to salary package the reimbursement of rental expenses.

It is customary in your industry to provide housing assistance to employees and it can be concluded that for this reason you also will be providing housing assistance.

Therefore this requirement will also be satisfied.

The third requirement of subsection 142(1A) is set out in paragraph (d) of that subsection:

(a) …the lease or licence was not granted under:

(b) a non arm's length arrangement; or

(c) an arrangement that was entered into by any of the parties to the arrangement for the purpose, or purposes that included the purpose, of enabling the employer to obtain the benefit of the application of section 60.

In relation to subparagraph 142(1A)(d)(ii), in subsection 136(1) the expression 'non-arm's length arrangement' is defined to mean an arrangement other than an arm's length arrangement. The term 'arm's length arrangement' is not defined in the FBTAA. However subsection 136(1) of the FBTAA defines 'arm's length transaction' to mean a transaction where the parties to the transaction are dealing with each other at arm's length in relation to the transaction.

The expression 'at arm's length' is defined in The CCH Macquarie Concise Dictionary of Modern Law , 1988, CCH Australia Ltd/ Macquarie Library Pty Ltd, Sydney, as meaning that the parties to a transaction are not connected in such a way as to bring into question the ability of one to act independently of the other.

In Granby Pty Ltd v. FCT (1995) 30 ATR 400; 95 ATC 4240, where the expression 'dealing with each other at arm's length' in section 160ZH of the Income Tax Assessment Act 1936 was in question, Lee J said (at ATR 403; ATC 4243):

The expression "dealing with each other at arm's length" involves an analysis of the manner in which the parties to a transaction conducted themselves in forming that transaction. What is asked is whether the parties behaved in the manner in which parties at arm's length would be expected to behave in conducting their affairs. Of course, it is relevant to that enquiry to determine the nature of the relationship between the parties, for if the parties are not parties at arm's length the inference may be drawn that they did not deal with each other at arm's length.

Your employee had a lease prior to employment with you and it was recently renewed for twelve months. There is nothing unusual in this arrangement that would suggest that the lease was entered into under a non-arm's length transaction.

Subparagraph 142(1A)(d)(ii) requires that the lease was not granted under an arrangement entered into by 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 section 60.

In Newton v. Federal Commissioner of Taxation (1958) 98 CLR 1; (1958) 11 ATD 442; (1958) 7 AITR 298, the Privy Council examined the meaning of the word 'purpose'.

Lord Denning said at page number CLR 8; ATD 445; AITR 304,

The word "purpose" means, not motive, but the effect which is sought to achieve - the end in view.

Lord Denning also said (at the same page),

In order to bring an arrangement within the section, you must be able to predicate by looking at the overt acts by which it was implemented that it was implemented in that particular way so as to avoid tax. If you cannot so predicate, but have to acknowledge that the transactions are capable of explanation by reference to ordinary business or family dealing, without necessarily being labelled as a means to avoid tax, then the arrangement does not come within the section.

The lease that the employee renewed is a lease that the employee had entered into prior to employment with you. There is nothing to indicate that the lease was entered into other than for the purpose of obtaining accommodation.

There are no overt acts by which one could predicate that the arrangement has been implemented by any of the parties for the purpose of allowing you to enjoy the benefits of the concession under subsection 60(2A). Therefore you meet this requirement also.

The condition in paragraph 60(2A)(b) will therefore be satisfied because the rent incurred by your employee in respect of the unit of accommodation is in respect of remote area housing rent under subsection 142(1A).

Paragraph 60(2A)(c):

The unit of accommodation is your employee's usual place of residence and you will be reimbursing the rental expenses he or she incurs whilst living there.

Paragraph 60(2A)(d):

Even though the council and the employee are not at arm's length, the arrangement can still be an arm's length arrangement. It is noted that you have provided accommodation to senior management employees in the past. Your employee is not in senior management however you are implementing a policy that will allow you to provide such fringe benefits to more employees. Therefore the fringe benefit is not being provided under a non-arm's length arrangement.

You are implementing a policy whereby fringe benefits such as this will be provided to any employee as part of a salary sacrifice arrangement. There are no overt acts by which one could predicate that the arrangement to reimburse the employee's rental expenses would be implemented by any of the parties for the purpose of allowing you to enjoy the benefits of the concession. The arrangement can be explained as being one of ordinary business dealings as is customary in your industry.

Consequently, you will meet the condition in paragraph 60(2A)(d).

As all of the conditions in subsection 60(2A) will be met, the taxable value of any expense payment fringe benefits that you provide in relation to remote area housing rent may be reduced by 50%.

Question 2

Summary

Where you reimburse employee two for his or her rental accommodation as part of an effective salary sacrifice arrangement, the taxable value of the expense payment fringe benefit may be reduced by 50% under subsection 60(2A).

Detailed reasoning

The conditions in section 60(2A) are considered in relation to employee two.

Paragraph 60(2A)(a):

This condition will be met as you intend to reimburse the rent for residential housing incurred by your current employee.

Paragraph 60(2A)(b):

The expenditure that your employee incurs must be for remote area housing rent connected with a unit of accommodation.

The necessary requirements for the existence of 'remote area housing rent connected with a unit of accommodation' are set out in subsection 142(1A) of the FBTAA.

The first requirement of subsection 142(1A) is set out in paragraph (a) of that subsection. You satisfy this requirement as your employee is a current employee whose accommodation and usual place of employment is located in a town which is not adjacent to an eligible urban area.

The second requirement of subsection 142(1A) is set out in paragraph (b) of that subsection, that is that the common conditions set out in subsection 142(2E) are satisfied in relation to the occupation period.

Whilst you are implementing a new policy that will allow all employees to salary package the reimbursement of rental expenses, you have in the past provided subsidised housing to a small number of upper management staff.

It is customary in your industry to provide housing assistance to employees and it can be concluded that for this reason you also are providing housing assistance.

Therefore you satisfy this requirement.

The third requirement of subsection 142(1A) is set out in paragraph (d) of that subsection.

Your employee moved to the town you are located in recently and the lease was entered into with no connection to you. There are no other facts that suggest that the lease was entered into under a non-arm's length transaction.

The employee has leased accommodation in order to take up the position with you. There are no overt acts by which one could predicate that the arrangement has been implemented by any of the parties for the purpose of allowing the you to enjoy the benefits of the concession in subsection 60(2A). Therefore this requirement is also satisfied.

The condition in paragraph 60(2A)(b) will therefore be satisfied because the rent incurred by your employee in respect of the unit of accommodation is in respect of remote area housing rent under subsection 142(1A).

Paragraph 60(2A)(c):

The unit of accommodation is your employee's usual place of residence and you will be reimbursing the rental expenses he or she incurs whilst living there.

Paragraph 60(2A)(d):

Even though the council and the employee are not at arm's length, the arrangement can still be an arm's length arrangement. It is noted that you have provided accommodation to senior management employees in the past. Therefore the fringe benefit is not being provided under a non-arm's length arrangement.

You are implementing a policy whereby fringe benefits such as this will be provided to any employee as part of a salary sacrifice arrangement. There are no overt acts by which one could predicate that the arrangement to reimburse the employee's rental expenses would be implemented by any of the parties for the purpose of allowing you to enjoy the benefits of the concession. The arrangement can be explained as being one of ordinary business dealings as is customary in your industry.

Consequently, the condition in paragraph 60(2A)(d) will be met.

As all of the conditions in subsection 60(2A) will be met, the taxable value of any expense payment fringe benefits that you provide in relation to remote area housing rent may be reduced by 50%.

Question 3

Summary

Where you reimburse employee three for his or her rental accommodation as part of an effective salary sacrifice arrangement, the taxable value of the expense payment fringe benefit may be reduced by 50% under subsection 60(2A).

Detailed reasoning

The conditions in section 60(2A) are considered in relation to employee three.

Paragraph 60(2A)(a):

This condition is met as you intend to reimburse the rent for residential housing incurred by your current employee.

Paragraph 60(2A)(b):

The expenditure that your employee incurs must be for remote area housing rent connected with a unit of accommodation.

The necessary requirements for the existence of 'remote area housing rent connected with a unit of accommodation' are set out in subsection 142(1A).

The first requirement of subsection 142(1A) is set out in paragraph (a) of that subsection. You satisfy this requirement as your employee is a current employee whose accommodation and usual place of employment is located in a town which is not adjacent to an eligible urban area.

The second requirement of subsection 142(1A) is set out in paragraph (b) of that subsection, that is that the common conditions set out in subsection 142(2E) are satisfied in relation to the occupation period.

You are implementing a new policy that will allow all employees, not just upper management, to salary package the reimbursement of rental expenses.

It is customary in your industry to provide housing assistance to employees and it can be concluded that for this reason you also are providing housing assistance.

Therefore this requirement will be satisfied.

The third requirement of subsection 142(1A) is set out in paragraph (d) of that subsection.

Your employee has an existing lease on a residence under an arm's length transaction. There are no other facts that suggest that the lease was entered into under a non-arm's length transaction.

Your employee entered into the lease prior to the implementation of your policy of providing housing assistance. There are no overt acts by which one could predicate that the arrangement has been implemented by any of the parties for the purpose of allowing you to enjoy the benefits of the concession in subsection 60(2A). Therefore this requirement is also satisfied.

The condition in paragraph 60(2A)(b) will therefore be satisfied because the rent incurred by your employee in respect of the unit of accommodation is in respect of remote area housing rent under subsection 142(1A).

Paragraph 60(2A)(c):

The unit of accommodation is your employee's usual place of residence and you will be reimbursing the rental expenses he or she incurs whilst living there.

Paragraph 60(2A)(d):

Even though the council and the employee are not at arm's length, the arrangement can still be an arm's length arrangement. It is noted that you have provided accommodation to senior management employees in the past. Your employee is not in senior management however you are implementing a policy that will allow you to provide such fringe benefits to more employees. Therefore the fringe benefit is not being provided under a non-arm's length arrangement.

You are implementing a policy whereby fringe benefits such as this will be provided to any employee as part of a salary sacrifice arrangement. There are no overt acts by which one could predicate that the arrangement to reimburse the employee's rental expenses would be implemented by any of the parties for the purpose of allowing you to enjoy the benefits of the concession. The arrangement can be explained as being one of ordinary business dealings as is customary in your industry.

Consequently, the condition in paragraph 60(2A)(d) will be met.

As all of the conditions in subsection 60(2A) will be met, the taxable value of any expense payment fringe benefits that you provide in relation to remote area housing rent may be reduced by 50%.

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