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Ruling

Subject: Exempt benefit - relocation - removal and storage of household effects

Question

Is the reimbursement of relocation costs for the packing, storage and transport of household effects an exempt benefit in accordance with section 58B of the Fringe Benefits Tax Assessment Act 1986?

Answer

Yes.

This ruling applies for the following period:

1 April 2011 to 31 March 2012

The scheme commences on:

1 April 2011

Relevant facts and circumstances

You are located in a country town.

You advertised a position of employment. The position was located in the country town.

An individual applied for and was offered the advertised position.

Prior to being offered the position the individual did not work for you.

The individual accepted the offer of employment.

At the time the employee was offered the position, their usual place of residence was in another state.

The country town in which you are located is at least eight hours from the location of the employee's usual place of residence.

The employee relocated to the country town in order to take up the employment position.

You have a policy that new employees appointed to specified positions will be reimbursed for relocation costs involved in the packing, storage and transport of household effects.

The employee received this benefit.

The relocation occurred within 12 months of the employee commencing their employment with you.

In order to provide the reimbursement you required the employee to provide you with copies of payments they made for the relocation expenses.

The employee provided you with the required evidence and you reimbursed them for the expenses.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 20

Fringe Benefits Tax Assessment Act 1986 subsection 30(1)

Fringe Benefits Tax Assessment Act 1986 section 58B

Fringe Benefits Tax Assessment Act 1986 subsection 58B(2)

Fringe Benefits Tax Assessment Act 1986 subparagraph 58B(1)(b)(iii)

Reasons for decision

Is the reimbursement of relocation costs for the packing, storage and transport of household effects an exempt benefit in accordance with section 58B of the Fringe Benefits Tax Assessment Act 1986?

You have reimbursed the costs incurred by the employee for the packing, storage and transport of household effects from an interstate location.

This reimbursement may be an exempt benefit under section 58B of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) if certain requirements are satisfied.

Section 58B states:

(1) Where:

(a) either of the following benefits is provided in, or in respect of, a year of tax in respect of the employment of an employee:

(i) an expense payment benefit where the recipients expenditure is in respect of the removal or storage of household effects of the employee;

(ii) a residual benefit where the recipients benefit consists of the removal or storage of household effects of the employee;

(b) the removal or storage is required solely because:

(i) the employee is required to live away from his or her usual place of residence in order to perform the duties of that employment;

(ii) the employee, having lived away from his or her usual place of residence in order to perform the duties of that employment, is required to return to his or her usual place of residence:

(A) in order to perform those duties; or

(B) because the employee has ceased to perform those duties; or

(iii) the employee is required to change his or her usual place of residence in order to perform the duties of that employment;

(c) the removal or storage is required to enable a family member to:

(i) if subparagraph (b)(i) applies-take up residence, or to continue to reside, at or near the place where the employee performs the duties of that employment while living away from his or her usual place of residence;

(ii) if subparagraph (b)(ii) applies-take up residence at the employee's usual place of residence; or

(iii) if subparagraph (b)(iii) applies-take up residence, or to continue to reside, at the employee's new usual place of residence;

(d) if subparagraph (b)(iii) applies:

(i) the removal takes place, or the storage commences to be provided, within 12 months after the day on which the employee commenced to perform the duties of that employment at the employee's new place of employment; and

(ii) the benefit is not provided under a non-arm's length arrangement;

(e) if subparagraph (a)(i) applies-documentary evidence of the recipients expenditure is obtained by the recipient and that documentary evidence, or a copy, is given to the employer before the declaration date; and

(f) the removal or storage was not provided in connection with travel undertaken by the employee in the course of performing the duties of that employment;

· the benefit is an exempt benefit in relation to the year of tax.

· In summarising, the section 58B exemption will apply if the following conditions are satisfied:

· the employee is provided with an expense payment benefit or residual benefit

· the benefit is provided in respect of the removal or storage of household effects of the employee

· the removal or storage is required solely because the employee is required to:

· live away from their usual place of residence in order to perform employment duties, or

· return to their usual place of residence at the end of a period during which they lived away from their usual place of residence to perform employment duties, or

· change their usual place of residence in order to perform employment duties

· if the removal or storage relates to a family member, the removal or storage must be required to enable a family member to take up residence, or to continue to reside, at the employee's new usual place of residence

· if the employee is required to change their usual place of residence, the benefit must not be provided under a non-arms length arrangement and the removal or storage must occur within 12 months from the day the employee commenced employment at their new place of employment

· if the benefit is an expense payment benefit, documentary evidence of the employees expenditure must be provided to the employer before the declaration date

· the removal or storage is not provided in connection with travel the employee undertakes in the course of performing their employment related duties

Was the employee provided with an expense payment benefit or residual benefit?

Section 20 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) sets out the circumstances in which an expense payment benefit will arise. Section 20 states:

Where a person (in this section referred to as the provider):

(a) makes a payment in discharge, in whole or in part, of an obligation of another person (in this section referred to as the recipient) to pay an amount to a third person in respect of expenditure incurred by the recipient; or

(b) reimburses another person (in this section also referred to as the recipient) in whole or in part, in respect of an amount of expenditure incurred by the recipient;

the making of the payment referred to in paragraph (a), or the reimbursement referred to in paragraph (b), shall be taken to constitute the provision of a benefit by the provider to the recipient.

As you reimbursed the employee for relocation costs the benefit is an expense payment benefit under paragraph 20(b) of the FBTAA.

Was the benefit provided in respect of the removal or storage of household effects of the employee

Subsection 58B(2) defines what constitutes the removal and storage of household effects for the purposes of the exemption.

Subsection 58B(2) states:

(a) a reference to the household effects of an employee is a reference to tangible property (whether or not owned by a family member) kept primarily for the personal use of family members; and

(b) without limiting the generality of an expression used in subsection (1), the recipients expenditure shall be taken to be in respect of, and the recipients benefit shall be taken to consist of, the removal or storage of household effects if the expenditure or benefit is in respect of, or consists of, the transport, packing, unpacking or insurance of the household effects in connection with the removal or storage of the household effects.

You have stated that the reimbursement was for relocation costs involved in the packing, storage and transport of household effects. We conclude that the benefit was an expense payment benefit in respect of the removal or storage of the household effects of the employee.

Was the removal or storage solely required because the employee was required to live away from, return to, or change their usual place of residence?

Prior to accepting your offer of employment the usual place of residence of the employee was interstate. Upon accepting the offer of employment the employee moved from their usual place of residence to live in the country town.

Depending upon the circumstances the country town may have become the employee's usual place of residence. If it did, it is necessary to consider whether the employee was required to change the usual place of residence in order to perform employment duties. However, if the usual place of residence did not change, the relevant condition to consider is whether the employee was required to live away from the usual place of residence in order to perform the duties of employment.

Was the removal or storage required solely because the employee was required to live away from or change the usual place of residence in order to perform the duties of their employment?

The FBTAA does not define what is meant by 'required' in the context of an employee being required to change their usual place of residence. In the absence of a legislative reference it is relevant to refer to the ordinary meaning of 'require'.

The Macquarie Dictionary defines 'require' to mean:

· to have need of; need: he requires medical care.

· to call on authoritatively, order, or enjoin (a person, etc.) to do something: to require an agent to account for money spent.

· to ask for authoritatively or imperatively; demand.

· to impose need or occasion for; make necessary or indispensable: the work required infinite patience.

· to call for or exact as obligatory: the law requires annual income tax returns.

· to place under an obligation or necessity.

· to wish to have: to require room service.

· to make demand; impose obligation or need: to do as the law requires.

Further guidance is provided by the Administrative Appeals Tribunal decision in Compass Group (Vic) Pty Ltd (as trustee for White Roche & Associates Hybrid Trust) v FC of T [2008] AATA 845; 2008 ATC 10-051 (Compass). Although this case concerned the meaning of the term 'required' in regards to the living away from home allowance provisions contained in subsection 30(1) of the FBTAA, it is applicable to your situation as the term 'required' is used in the same way in both subsection 30(1) and paragraph 58B(1)(b). In both provisions, the employee is required to alter their usual place of residence in order to perform the duties of their employment.

In the Compass decision, in responding to a question of whether the employee was required to live away from his usual place of residence in order to perform the duties of his employment for the purposes of subsection 30(1), at paragraph 63 Deputy President S A Forgie said:

The question posed by s 30(1)(b) and summarised in the heading is framed in the passive voice and so does not expressly identify the agent requiring the employee to live away from his or her usual place of residence. Regarding the whole of s30(1) and particularly s 30(1)(b), it would seem that the agent requiring the employee to live away from his or her usual place of residence must be the employer, the inherent nature of the employment or a mixture of the two. It would seem that regard must be had to both in order to answer whether the employee is so required.

It can similarly be concluded that in paragraph 58(1)(b) the requirement for the employee to change their usual place of residence can be imposed by either, or both, the employer or the nature of the employment.

Further guidance was provided at paragraph 65 where Deputy President S A Forgie said

The word "require" does not contemplate choice. The distinction is apparent from the passage from Hill J's judgment in Roads and Traffic Authority of New South Wales v Commissioner of Taxation when he said:

"…For the reasons already given, an employee who is required as part of his employment to reside at the work site for periods of time and to bear the cost of his own accommodation, in the circumstances where he has his own private house, will be entitled to a deduction for the cost of that expenditure. …

…An employee who had no private home and was employed indefinitely to work at a particular site and did in fact work for the whole of his employment at that site, might be said to have chosen to live at the site so that the cost of his accommodation would be private. …"

In Compass it was held that the employee was not required to live away from his usual place of residence, where his usual place of residence was 60 kilometres away from his place of employment. It was held that as opposed to be required to, the employee had chosen, to live in a rented property closer to his place of work during the week.

In explaining his decision Deputy President S A Forgie said, at paragraph 70:

Although Lunney was concerned with travelling expenses, the principles are consistent with those established in relation to accommodation expenses. When I consider Mr Brown's situation in light of those principles, I come to the conclusion that a reasonable person would conclude that he was not required to rent premises and to live in Lilydale during the week but chose to. Beyond the fact of the payment of the sum of $15,336.00 itself to Mr Brown, there is no evidence that suggests that his employer required or even requested that he do so in order that he could perform his duties. The payment itself does not take the matter any further. The work itself does not seem to have demanded or required it.

Certainly Mr Brown was required to have greater client contact and so to work longer hours but the hours were not so extended and the commuting distance to Murrindindi not so great that it could be thought that the work itself required it so that he could perform the duties of his employment. Like Dr Charlton, a reasonable person would conclude that Mr Brown chose to reside in accommodation that was closer to his place of work during the week but that he was not required to do so in order to perform the duties of his employment with The Compass Group.

At the time of receiving the offer of employment for the position in the country town, the employee's usual place of residence was interstate. You have stated that it takes at least eight hours to travel from the interstate location to the country town. On the basis of this travel time, it is accepted the employee was required to change or live away from the usual place of residence in order to perform the duties of employment. The commuting distance between the interstate location and the country town is so great that the work itself required your employee to change their usual place of residence to the country town in order to perform the duties of their employment. The requirement is a requirement of necessity caused by the distance between the employee's usual place of residence and their place of work.

Was the removal or storage required solely because the employee was required to change their usual place of residence?

The phrase 'required solely' is not defined in the FBTAA. 'Solely' is defined in the Macquarie Dictionary to mean:

· as the only one or ones: solely responsible.

· exclusively or only: plants found solely in the tropics.

· wholly; merely

The use of the term solely after the word required provides an additional element that must be satisfied. In addition to the employee being required to change or live away from their usual place of residence, there can be no other reason for the removal or storage of household effects.

The information provided does not indicate the existence of an alternative reason for the move to the country town. In the absence of such a reason, it is accepted that the removal or storage was required solely because the employee was required to change or live away from their usual place of residence in order to perform the duties of their employment.

If the removal or storage related to a family member, was the removal or storage required to enable a family member to take up residence (at or near the place where the employees is performing the duties of employment) or at the employee's new usual place of residence?

'Family member' is defined in subsection 136(1) to mean:

(a) the employee;

(b) the spouse of the employee; or

(c) a child of the employee.

In this case the removal or storage was required to enable the employee to take up residence in the country town which is where the employee is performing their duties of employment.

If the employee was required to change their usual place of residence, was the benefit provided under a non-arm's length arrangement and did the removal or storage occur within 12 months?

ATO Interpretative Decision ATO ID 2005/156 Fringe Benefits Tax: Exempt Benefits: remote area housing - non-arm's length arrangement discusses what is meant by the expression non-arm's length arrangement and states:

Within subsection 136(1) of the FBTAA, 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 section 136(1) 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.

You have a policy of providing the relevant benefit to new employees appointed to specified positions. The employee was provided with this benefit in line with this policy.

You have stated that the employee relocated, with the associated costs of packing, storing and transporting of household effects being incurred within 12 months of the employee commencing their employment duties with you.

We consider the benefit was not provided under a non-arm's length arrangement and that the removal or storage occurred within 12 months.

If the benefit is an expense payment benefit, was documentary evidence provided?

You have stated that the employee provided you with copies of payments made in relation to their relocation expenses in order to be reimbursed by you.

Was the removal or storage provided in connection with travel?

The removal or storage was not provided in connection with travel undertaken by the employee in the course of performing their employment duties.

Conclusion:

As all of the requirements of section 58B of the FBTAA are met, the reimbursement provided to your employee is an exempt benefit.

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