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Ruling

Subject: Fringe Benefits Tax - Remote area housing

Question 1

Will the provision of housing to employees be an exempt benefit under subsection 58ZC(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes

Question 2

Can the value of the expense payment benefit that arises from the reimbursement of the home loan interest be reduced under subsection 60(2) of the FBTAA?

Answer

Yes

Question 3

Can the value of an expense payment benefit that arises from the payment of rental expenses be reduced under subsection 60(2A) of the FBTAA?

Answer

Yes

This ruling applies for the following periods:

01 April 2012 - 31 March 2013

01 April 2013 - 31 March 2014

The scheme commences on:

01 April 2012

Relevant facts and circumstances

You operate a business which has a branch based in a remote town.

As well as maintaining your operations in that remote town you are also looking to set up operations in two other remote towns.

You require staff that have specialised skills. In order to retain existing staff and attract new staff who have the required expertise in your remote branches you are considering offering them a range of benefits.

The average cost of residential accommodation in the remote towns is more than the average wage

You currently provide residential accommodation at below market value rent; however, there is difficulty in getting sufficient suitable residential accommodation. You intend to lease suitable residential accommodation to provide to employees.

Therefore, you are considering providing the following benefits:

· accommodation, which will be your employee's usual place of residence, in the remote towns,

· reimbursement of the whole or part of the employee's rental expenses of residential premises, which will be your employee's usual place of residence, located in the remote towns, and

· reimbursement of the employee's interest on housing loans for properties, which are your employee's usual place of residence, located in the remote towns.

You have provided news articles that confirm the lack of suitable housing available and the high rentals being charged for existing houses in the areas in which your branches are located.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 20

Fringe Benefits Tax Assessment Act 1986 Section 25

Fringe Benefits Tax Assessment Act 1986 Section 58ZC

Fringe Benefits Tax Assessment Act 1986 Subsection 58ZC(1)

Fringe Benefits Tax Assessment Act 1986 Subsection 58ZC(2)

Fringe Benefits Tax Assessment Act 1986 Subsection 60(2)

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

Fringe Benefits Tax Assessment Act 1986 Section 140

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)

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

Reasons for decision

Question 1

Will the provision of housing to employees be an exempt benefit under subsection 58ZC(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

You propose to lease residential properties in the remote towns to allow employees to use the premises as their usual place of residence.

In determining whether the proposed benefit will be exempt it is first necessary to determine the category of benefit that will be 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.

Section 25 of the FBTAA provides that a housing benefit arises from the provision of the use of a residential property by an employee where the property is the employee's usual place of residence.

As you will provide your employees with the use of residential premises for their usual place of residence, the benefit will be a 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 certain conditions are met.

Subsection 58ZC(2) of the FBTAA sets out the conditions that need to be satisfied for a housing benefit to be a remote area housing benefit. It states:

A housing benefit in relation to an employer for a year of tax and for a unit of accommodation, being a benefit provided to an employee of the employer in respect of the employee's employment, is a remote area housing benefit if:

(a) during the whole of the tenancy period, the unit of accommodation was located in a State or internal Territory and was not at a location in, or adjacent to, an eligible urban area; and

(b) during the whole of the tenancy period, the recipient was a current employee of the employer and the usual place of employment of the recipient was not at a location in, or adjacent to, an eligible urban area; and

(c) (Repealed by No 77 of 2005)

(d) it would be concluded that it was necessary for the employer, during the year of tax, to provide, or to arrange for the provision of, residential accommodation 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; or

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 employers in the industry in which the recipient was employed during the tenancy period to provide residential accommodation for their employees free of charge or for a rent or other consideration that is less than the market value of the right to occupy or use the accommodation concerned; and

(e) the recipients overall housing right was not granted to the recipient 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.

To summarise, the conditions to be met are:

· the accommodation is in a remote area

· the usual place of employment 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

Is the accommodation located in a remote area?

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.

Broadly, for most employers, accommodation is in a remote area if it is not in or near an urban centre. Accommodation is classed as being near or adjacent to an eligible urban area and therefore not remote where it is situated:

· less than 40 kilometres from an eligible urban area with a census population of 14,000 to less than 130,000, or

· less than 100 kilometres form an eligible urban area with a census population of 130,000 or more.

Our fact sheet Fringe benefits tax - remote areas provides a list of towns which are considered to be either located in a remote area or a non-remote area.

Two of the remote towns are listed as being located in remote areas. The other is located more than 100 kilometres from the nearest eligible urban area and is considered to be located in a remote area.

Therefore, this condition is satisfied.

Is the usual place of employment of the employee in a remote area?

The usual place of employment of the employees is in the remote towns. As discussed above, these locations are in a remote area.

Therefore this condition is satisfied.

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

Of the three reasons that are listed, the most relevant reason is the second reason.

You have advised that:

· there is a shortage of suitable accommodation in the remote towns,

· you need to attract staff with specialist skills ,

· you compete with other companies, both locally and internationally, for suitable employees and need to offer similar assistance and benefits to attract and retain the employees, and

· the provision of housing assistance is common in industries employing staff in remote areas.

Therefore it can be concluded that it is necessary for you to provide accommodation for your employees.

Is the accommodation provided under a non-arm's length arrangement or as part of an arrangement entered into by any of the parties for the purpose, or for purposes that included the purpose, of enabling the employer to obtain the benefit of the application of this section?

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.

In your situation it is necessary to provide accommodation to your employees due to the shortage of suitable accommodation in the remote towns and the necessity to compete with other industries to both attract and retain suitably qualified employees.

We therefore agree that the accommodation was not provided under a non-arm's length arrangement or for a purpose that allows you to obtain a benefit from the application of subsection 58ZC(2) of the FBTAA.

Conclusion

As all of the conditions detailed in subsection 58ZC(2) of the FBTAA are satisfied, the provision of accommodation to employees located in the remote towns will be a remote area housing benefit and therefore an exempt benefit.

Question 2

Can the value of the expense payment benefit that arises from the reimbursement of the home loan interest be reduced under subsection 60(2) of the FBTAA?

You propose to reimburse your employees interest incurred on remote area housing loans.

Subsection 60(2) of the FBTAA provides for a 50% reduction of the taxable value of expense payment fringe benefits in respect of remote area housing loan interest payment where all the conditions in that subsection are satisfied.

Subsection 60(2) of the FBTAA states:

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;

the amount that, but for this subsection, would be the taxable value of the fringe benefit in relation to the year of tax shall be reduced by 50% of so much of that amount as relates to the occupation period.

In summary the value of the benefit can be reduced where:

(2)(a) the benefit is an expense payment fringe benefit

(2)(b) the employees expenditure is in respect of interest on a remote area housing loan connected with a dwelling

(2)(c) the employee occupied the dwelling as his or her usual place of residence, and

(2)(d) the benefit was not provided:

(i) under a non-arm's length arrangement, or

(ii) under 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 reduction.

(2)(a) Will the benefit be an expense payment fringe benefit?

Section 20 of the FBTAA 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 will reimburse your employees for the interest incurred on their housing loans the benefit will be an expense payment fringe benefit under section 20 of the FBTAA.

(2)(b) Will the employee's expenditure be in respect of interest on a remote area housing loan for a dwelling?

The term 'dwelling' is defined in subsection 136(1) of the FBTAA as 'a unit of accommodation constituted by, or contained in a building, being a unit that consists, in whole or a substantial part, of residential accommodation.'

You are proposing to pay the interest expenses incurred by your employees, located at your remote operations, arising from their residential housing loans.

A remote area housing loan is defined in subsection 142(1) of the FBTAA as follows:

In this Act, a reference, in relation to a year of tax in relation to an employee of an employer, to a remote area housing loan connected with a dwelling is a reference to a housing loan relating to the dwelling where:

(a) 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 dwelling as his or her usual place of residence:

(b) 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

(c) 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;

In summary, the conditions to be met are:

(a) the dwelling must be the employee's usual place of residence

(b) the residence must be in a remote area

(c) the employee's usual place of employment must be in a remote area

(d) the common conditions set out in subsection (2E) are satisfied, and

(e) the benefit was not provided:

(i) under a non-arm's length arrangement, or

(ii) under 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 reduction.

(a) Will the dwelling be the employee's usual place of residence?

You have stated that the dwellings will be the usual place of residence for your employees.

(b) Will the residence be located in a remote area?

You have advised that you will only reimburse interest expenses on housing loans used to purchase homes in the remote towns.

(c) Will the employee's usual place of employment be located in a remote area?

As per the discussion in question 1 above, the employees' usual place of employment will be in the remote towns.

(d) Will the common conditions stated in subsection 142(2E) of the FBTAA be met

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

For the purposes of the application of this section to a fringe benefit in relation to a year of tax in relation to an employee of an employer, the common conditions in relation to a particular period or in relation to a particular time are as follows:

(a) 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 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 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.

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 advise that it is a common feature in industries conducting business in remote areas and which require employees with specialist skills, as they are required to compete for employees and need to offer similar assistance and benefits to retain and attract employees.

You have also stated that there is a shortage of suitable accommodation in the remote towns.

Therefore we agree that it is both customary and necessary for you to provide housing assistance to your employees that reside and work in a remote area.

(e) Is the accommodation provided under a non-arm's length arrangement or as part of an arrangement entered into by any of the parties for the purpose, or for purposes that included the purpose, of enabling the employer to obtain the benefit of the application of this section?

For the same reasons discussed in question 1 this condition has been met.

As all the conditions listed under subsection 142(1) of the FBTAA are satisfied the housing loan is a remote area housing loan.

(2)(c) Will the employee occupy or use the dwelling as their usual place of residence?

As discussed in question 1 the dwelling will be the employee's usual place of residence.

(2)(d) Is the accommodation provided under a non-arm's length arrangement or as part of an arrangement entered into by any of the parties for the purpose, or for purposes that included the purpose, of enabling the employer to obtain the benefit of the application of this section?

For the same reasons discussed above this condition is met.

Conclusion

The taxable value of the expense payment fringe benefit resulting from the payment of the remote area housing loan interest will qualify for reductions in taxable value available under subsection 60(2) of the FBTAA.

Question 3

Can the value of an expense payment benefit that arises from the payment of rental expenses be reduced under subsection 60(2A) of the FBTAA?

Due to your employees being unable to afford the rental prices of homes in the remote towns, you are proposing to reimburse the whole or part of the employee's rental expenses of residential premises.

Subsection 60(2A) of the FBTAA provides for a 50% reduction of the taxable value of expense payment fringe benefits in respect of remote area housing rental payments where all the conditions in that subsection are satisfied.

Subsection 60(2A) of the FBTAA states as follows:

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

the amount that, but for this subsection, would be the taxable value of the fringe benefit in relation to the year of tax shall be reduced by 50% of so much of the recipients expenditure as relates to the occupation period.

In summary the conditions to be met are:

(a) the employee is in receipt of an expense payment fringe benefit

(b) the employee's expenditure is in respect of remote area housing rent for accommodation

(c) the accommodation was the employee's usual place of residence

(d) the benefit was not provided under:

(i) a non-arm's length arrangement, or

(ii) 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 reduction.

(3)(a) Will the benefit be an expense payment fringe benefit?

As discussed in question 2, where you reimburse an employee for an expense they have incurred, you will be providing an expense payment fringe benefit.

(3)(b) Will the employee's expenditure be in respect of remote area housing rent of their accommodation?

You have advised that you propose to reimburse your employees for their rental expenses in respect of their accommodation in the remote towns.

Subsection 142(1A) of the FBTAA sets out the conditions to be met for rent of accommodation to qualify as remote area housing rent. Subsection 142(1A) states:

In this Act, a reference, in relation to a year of tax in relation to an employee of an employer, to a remote area housing rent connected with a unit of accommodation is a reference to rent or other consideration payable in respect of the subsistence of a lease or licence in respect of the unit of accommodation where:

(a) 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;

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

(c) (Omitted by No 95 of 1988)

(d) the lease or licence was not granted under:

(i) a non-arm's length arrangement; or

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

In summary the conditions to be met are:

(a) the unit of accommodation must be the employee's usual place of residence

(i) the residence must be in a remote area

(ii) the employee's usual place of employment must be in a remote area

(b) the common conditions set out in subsection (2E) are satisfied, and

(a) the benefit was not provided:

(i) under a non-arm's length arrangement, or

(ii) under 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 reduction.

The conditions listed under subsection 142(1A) above, are the same as those discussed in question 2, therefore the responses apply to those conditions apply here. As these conditions are met, the payment by you for the housing rental payments of your employees will constitute remote area housing rent.

(3)(c) Will the employee occupy or use the dwelling as their usual place of residence?

As discussed in question 1 the dwelling will be the employee's usual place of residence.

(3)(d) Is the accommodation provided under a non-arm's length arrangement or as part of an arrangement entered into by any of the parties for the purpose, or for purposes that included the purpose, of enabling the employer to obtain the benefit of the application of this section?

For the same reasons discussed above this condition is met.

Conclusion

The taxable value of the expense payment fringe benefit resulting from the payment of the remote area housing rental payments of your employees will qualify for reductions in taxable value as per subsection 60(2A) of the FBTAA.

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