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Ruling

Subject: Reimbursement of employee accommodation expenses - deduction & FBT

Question 1

Is the company entitled to claim a deduction under section 8-1 of the Income Tax Assessment Act 1997 for the reimbursement of the employees' accommodation expenses?

Answer

Yes

Question 2

Can the taxable value of the expense payment fringe benefit to be provided to the employees be reduced in accordance with subsection 60(2A) of the Fringe Benefits Tax Assessment Act 1986?

Answer

No

This ruling applies for the following periods:

Year ended 30 June 2013

Year ended 30 June 2014

The scheme commences in:

Late 2012

Relevant facts and circumstances

The company has employees.

The company purchased a business in a remote area town. The company has not previously been involved in the relevant industry.

The company provides services for a number of clients. The clients are invoiced directly and pay the company for the services.

The company is required to provide its own equipment. It purchased plant and equipment when it bought the business and has since purchased further equipment.

The employees relocated interstate to the remote area earlier in 2012 to undertake their duties of employment.

The employees are residing in a caravan park as this was the most economical accommodation available. The company is considering reimbursing its employees for this expense.

The employees have a residence interstate which they are currently renting out. They will be returning there at the end of two years.

In the remote area town most industries provide housing to encourage workers to the area.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1,

Fringe Benefits Tax Assessment Act 1986 Section 20,

Fringe Benefits Tax Assessment Act 1986 Section 23,

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(1A) and

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

Reasons for decision

Question 1

Summary

The company is entitled to claim a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for the reimbursement of its employees' accommodation expenses.

Detailed reasoning

The company may claim a deduction under section 8-1 of the ITAA 1997 for the cost of providing fringe benefits to its employees and for the amount of FBT that it pays.

Broadly, a fringe benefit as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA):

a benefit:

a) provided at any time during the year of tax; or

b) provided in respect of the year of tax;

being a benefit provided to the employee or to an associate of the employee by:

c) the employer; or

d) an associate of the employer; or…

(e)…

…in respect of the employment of the employee…

A benefit, as defined in subsection 136(1) includes 'any right…privilege, service or facility…'. The benefit that the company intends to provide is the reimbursement of the expenses that its employees incur in paying for accommodation.

The benefit is being provided in respect of the employees' employment with the company. Therefore the reimbursement of the expenses will be fringe benefits and the company will therefore be entitled to claim a deduction under section 8-1 of the ITAA 1997.

Question 2

Summary

The taxable value of the expense payment fringe benefit to be provided to the employees cannot be reduced in accordance with subsection 60(2A) of the FBTAA, as the accommodation expense is not remote area housing rent under 142(1A) of the FBTAA.

Detailed reasoning

The benefit that will be provided to the employees is an expense payment benefit under section 20 of the FBTAA. This section 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 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.

The taxable value of the expense payment fringe benefit will be determined in accordance with section 23 of the FBTAA:

…the taxable value in relation to a year of tax of an external expense payment fringe benefit provided during the year of tax is the amount of the payment referred to in paragraph 20(a), or the reimbursement referred to in paragraph 20(b), as the case requires, reduced in the case to which paragraph 20(a) applies, by the amount of the recipients contribution.

Subsection 60(2A) of the FBTAA, provides for a reduction of the taxable value of 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:

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 recipient's 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 first condition in paragraph 60(2A)(a) of the FBTAA will be met as the company intends to reimburse the expense for accommodation incurred by its current employees.

Under the second condition the expenditure the employees' incur 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:

…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:

(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...

The requirement will be met as the accommodation is in a town which is not adjacent to an eligible urban area, and the employees are current employees with a usual place of employment that is at a location 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 first of the common conditions set out in paragraph 142(2E)(a) of the FBTAA is that:

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;

Taxation Determination TD 94/97 explains the ATO view of the meaning of the phrase 'customary for employers in the industry' in relation to the provision of fringe benefits to employees.

Paragraph 2 of TD 94/97 states:

A benefit will be accepted as being customary in the industry where it is normal for employees of that class or job description in the 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 benefits is unique, rare or unusual within an industry it would not be accepted as being customary.

The Commissioner has not issued a listing of industries in which it would be considered customary for employers to provide housing assistance.

However, the now withdrawn Taxation Ruling IT 67 provided examples of classes of employees whose employers would meet this requirement. IT 67 provided guidance on the former section 26AAAB of the Income Tax Assessment Act 1936 which provided concessional treatment for subsidised housing in remote areas for employees where it was customary for employers in the particular industry to provide employees with free or subsidised accommodation.

The examples listed were as follows:

· miners

· sugar mill employees

· bank employees

· police

· prison employees

· school teachers

· hospital employees

· farm workers

· hotel and motel staff, and

· civil engineering workers, e.g. on bridge or dam works.

For housing assistance to be customary the need for the assistance would arise from the nature of the employment or the conditions under which the person is employed. For example, housing assistance would be customary in occupations which require employees to live at or near a work site or where employees could be directed by the employer to perform their duties at a new location.

Employees in the relevant industry are not employed in such circumstances and it is not normal, common or usual for employees in that industry to be provided with housing assistance. Therefore, regardless of what is occurring in other industries located in the remote area town, it is not customary in the relevant industry for employers to provide employees of any class or job description with housing assistance.

Therefore the condition in paragraph 142(2E)(a) of the FBTAA will not be satisfied in respect of the expense payment fringe benefit to be provided to the employees of the company.

This means that the common conditions in subsection 142(2E) of the FBTAA will not be satisfied and the accommodation expenditure incurred by the employees will not meet the requirements of subsection 142(1A) of the FBTAA.

As the expense incurred by the employees will not be remote area housing rent under subsection 142(1A) of the FBTAA, some of the conditions in subsection 60(2A) of the FBTAA will not be met and the taxable value of any expense payment fringe benefits that the company provides in relation to remote area housing rent may not be reduced by 50%.

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