Edited version of your private ruling

Authorisation Number: 1012517614274

Ruling

Subject: Remote area housing benefits

Question 1

Will the provision of accommodation to Employee 1 be an exempt benefit under section 58ZC of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

No.

Question 2

Will the provision of accommodation to Employee 1 be an exempt benefit under subsection 47(5) of the FBTAA for the period:

(a) at the start of their employment with you to 30 September 2012

(b) 1 October 2012 to the end of the employment arrangement, and

(c) from the start of the renewed arrangement to 30 June 2014?

Answer

(a) Yes

(b) Yes

(c) No.

Question 3

Will the provision of accommodation to Employee 2 be an exempt benefit under section 58ZC of the FBTAA?

Answer

Yes.

This ruling applies for the following periods

1 April 2010 - 31 March 2011

1 April 2011 - 31 March 2012

1 April 2012 - 31 March 2013

1 April 2013 - 31 March 2014.

The scheme commenced on

1 January 2011.

Relevant facts and circumstances

Your employees are required to perform various duties, requiring their presence on your premises.

Your employees' usual place of employment is your premises.

It is customary for you to provide accommodation to the employees.

You provide the employees with accommodation on your premises for the tenure of their appointment. The accommodation is free of charge.

Your premises is located in a remote area.

Employee 1 has been provided accommodation from prior to May 2012 and is still occupying that accommodation. The employment arrangement with that employee has now been extended, and:

· the employee has another residence in which they intend to return to at the end of their employment contract with you

· the residence has been rented out

· the employee visits the residence for rental inspection purposes

· the accommodation that you have provided is the employee's address for this employee's driver's licence, electoral roll and mail

You also provided accommodation to Employee 2 for a period of more than a year, and:

· this employee had no other previous residence, and remained on your premises at all times

· the accommodation that you provided was the address that this employee used for a driver's licence and electoral roll address. The mail address was either the accommodation you provided or the employee's work address.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 25

Fringe Benefits Tax Assessment Act 1986 section 31C

Fringe Benefits Tax Assessment Act 1986 section 31D

Fringe Benefits Tax Assessment Act 1986 section 31F

Fringe Benefits Tax Assessment Act 1986 section 45

Fringe Benefits Tax Assessment Act 1986 subsection 47(5)

Fringe Benefits Tax Assessment Act 1986 section 58ZC

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 section 140

Tax Laws Amendment (2012 Measures No. 4) Act 2012 item 26

Tax Laws Amendment (2012 Measures No. 4) Act 2012 item 27.

Reasons for decision

Question 1

Will the provision of accommodation to Employee 1 be, an exempt benefit under section 58ZC of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Detailed reasoning

In general terms the provision of accommodation will be a fringe benefit unless it is an exempt benefit.

The provision of accommodation may be an exempt benefit under subsection 58ZC where the accommodation is located in a remote area and is the employee's usual place of residence. Subsection 58ZC(2) 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

…

(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.

Therefore for the provision of accommodation will be a remote area housing benefit if the following conditions are met:

1. the employee is provided with a housing benefit

2. the unit of accommodation is located in a remote area

3. for the whole of the tenancy period the unit of accommodation is occupied by the employee who's usual place of employment is in a remote area

4. one of the following three conditions must also be met:

· the nature of your 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 or places where the employees are employed, or

· it is customary for employers in that industry to provide free or subsidised accommodation for employees.

1. What is a housing benefit?

Section 25 of the FBTAA sets out the circumstances in which a housing benefit will be provided. It states:

The subsistence during the whole or a part of a year of tax of a housing right granted by a person (in this section referred to as the "provider") to another person (in this section referred to as the "recipient") shall be taken to constitute a benefit provided by the provider to the recipient in respect of the year of tax.

'Housing right' is defined under subsection 136(1) of the FBTAA to mean:

a lease or licence granted to the person to occupy or use a unit of accommodation insofar as that lease or licence subsists at a time when the unit of accommodation is the person's usual place of residence.

Therefore a housing benefit will be provided where the accommodation is the employee's usual place of residence.

Is the accommodation provided the 'usual place of residence' of Employee 1?

The FBTAA does not define 'usual place of residence'. However, in subsection 136(1) it does define a 'place of residence' to mean:

(a) a place at which the person resides; or

(b) a place at which the person has sleeping accommodation;

whether on a permanent or temporary basis and whether or not on a shared basis.

In the absence of a legislative reference it is relevant to refer to the ordinary meaning of 'usual'. The Macquarie Dictionary defines 'usual' to mean:

1. habitual or customary: his usual skill.

2. such as is commonly met with or observed in experience; ordinary: the usual January weather.

3. in common use; common: say the usual things.

noun

4. that which is usual or habitual.

phrase

5. as usual, as is (or was) usual; in the customary or ordinary manner: he will come as usual.

Guidelines for determining an employee's usual place of residence are provided by Miscellaneous Taxation Ruling MT 2030 Fringe benefits tax: living-away-from-home allowance benefits.

Paragraphs 15 to 18 refer to various decision of Taxation Boards of Review relating to the former 51A of the Income Tax Assessment Act 1936 (ITAA 1936). In referring to these decisions paragraph 14 of MT 2030 states:

As the decisions illustrate, the question whether an employee is living away from his or her usual place of residence normally involves a choice between two places of residence, i.e., the place where the employee is living at the time or some other place. A person is regarded as living away from a usual place of residence if, but for having to change residence in order to work temporarily for his employer at another locality, the employee would have continued to live at the former place. It would be relevant in reaching that view that there is an intention or expectation of the employee returning to live at the former place of residence on cessation of work at the temporary job locality. This would be relevant even if the employee is living in temporary quarters close to a temporary job site.

Further discussion occurs at paragraphs 19 to 25. Paragraph 20 provides the following general rule:

Employees who move to a new locality to take up a position of limited duration with an intention to return to the old locality at the end of the appointment would generally be treated as living away from their usual place of residence. For example, a construction worker having to travel to a construction site to live and work would be in this category unless he had abandoned the former place of residence upon moving to the locality of the site. A case of the latter situation would be where the employee decided to permanently leave the former home, e.g., if a resident of Sydney, on obtaining a job for two years on a construction site in a remote part of Western Australia, decided to "sell up" in Sydney and move permanently to Western Australia to live.

As an example of the application of this general rule paragraph 22 states:

Examples of employees on appointments of finite duration who will generally be living away from their usual place of residence are foreign nationals employed in Australia on a temporary basis and Australian residents (e.g., export consultants, diplomats, immigration officials, etc.) stationed in a foreign country for a time. Provided the appointment is for a limited period and the employee can be expected in the normal course to return to the same city or district of the home country to live, the employee may be treated as living away from his or her usual place of residence.

These principles and the various cases that have considered usual place of abode or usual place of residence were discussed by the Administrative Appeals Tribunal 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. At paragraphs 55 and 56 Deputy President S A Forgie said:

55. There are several principles that can be gleaned from these cases. The first is that the fact that s 30 and, before it, s 51A, are concerned with what is described as a living-away-from-home allowance. That allowance is paid by an employer to an employee in respect of the employee's employment. It is a payment in the nature of compensation. The compensation is to meet additional expenses the employee incurs during a particular period and for other additional disadvantages he or she faces in that period but only if the expenses are incurred because he or she is required to live away from his or her usual place of residence in order to perform the duties of employment. As Mr Cotes alluded to in CaseB47, it necessarily assumes that the taxpayer has two places that could be described as his or her place of residence before one or the other needs to be identified as the "usual place of residence".

56. Putting to one side the case of Case 50, all cases looked to the taxpayer's place of residence before he or she acquired another place of residence. Each looked to the taxpayer's continuing connection with the first place of residence including matters such as whether his or her family continued to live there, the frequency of the taxpayer's visits there and whether or not that was a place to which the taxpayer could return at will if he or she so wished. Also relevant was the nature of the employment and whether the move to another place was a temporary or permanent move.

In considering the factors referred to by the AAT the following factors indicate that Employee 1 is living away from her usual place of residence:

· they resided in their previous residence prior to their appointment in the position

· their tenure with you is for a finite period of time

· they intend to return to live in this residence after their tenure with you has ceased

· they visit the property for routine inspections.

As Employee 1 has maintained a connection with their previous place of residence and intends to return there to live, we consider that they are living away from their usual place of residence.

Therefore as Employee 1 is living away from their usual place of residence, the provision of the accommodation is not a housing benefit.

Conclusion

As the benefit is not a housing benefit it is not a remote area housing benefit and is therefore not an exempt benefit under section 58ZC of the FBTAA.

Question 2

Will the provision of accommodation to Employee 1 be an exempt benefit under subsection 47(5) of the FBTAA for the period:

(a) at the start of their employment with you to 30 September 2012

(b) 1 October 2012 to the end of the employment arrangement, and

(c) from the start of the renewed arrangement to 30 June 2014?

(a) Will the provision of accommodation be an exempt benefit under subsection 47(5) of the FBTAA for the period at the start of Employee 1's employment with you to 30 September 2012?

In general terms subsection 47(5) of the FBTAA provides that the accommodation provided will be an exempt benefit where the employee is required to live away from their normal place of residence in order to perform their employment duties. Subsection 47(5) was amended by Tax Laws Amendment (2012 Measures No. 4) Act 2012, (TLA Measures No. 4 Act 2012) which reformed the taxation treatment of living-away-from-home allowances and benefits. The amendments to subsection 47(5) apply from 1 October 2012. As Employee 1 was provided with accommodation from the start of their employment with you, which was prior to 1 October 2012, it is relevant to consider subsection 47(5) as it was, prior to the amendments.

Subsection 47(5) stated:

(a) a residual benefit consisting of the subsistence, during a year of tax, of a lease or licence in respect of a unit of accommodation is provided to an employee of an employer in respect of his or her employment;

(b) the unit of accommodation is for the accommodation of eligible family members and is provided solely by reason that the employee is required to live away from his or her usual place of residence in order to perform the duties of that employment;

(c) the accommodation is not provided while the employee is undertaking travel in the course of performing the duties of that employment; and

(d) either of the following conditions is satisfied:

(i) subsection (7) applies in relation to the provision of transport for the employee in connection with travel in the period in the year of tax when the lease or license subsisted, being travel between the employee's usual place of residence and the employee's usual place of employment;

(ii) the employee gives to the employer, before the declaration date, a declaration, in a form approved by the Commissioner, purporting to set out:

(A) the employee's usual place of residence; and

(B) the place at which the employee actually resided while living away from his or her usual place of residence;

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

Therefore, the provision of accommodation will be an exempt benefit under subsection 47(5), from the beginning of their employment with you to 30 September 2012, if the following conditions are satisfied:

1. the benefit is a residual benefit consisting of the provision of accommodation

2. the accommodation is provided as the employee is required to live away from their usual place of residence

3. the employee is not travelling while performing their employment duties, and

4. the employee provides a declaration in the approved form.

1. Is the benefit a residual benefit consisting of the provision of accommodation?

A residual benefit is defined in section 45 of the FBTAA to be a benefit that is not a benefit by virtue of any provision of Subdivision A of Divisions 2 to 11 inclusive of the FBTAA. As the provision of accommodation does not fall within Divisions 2 to 11 of the FBTAA it will be a residual benefit.

2. Has the accommodation been provided to the employee as they are required to live away from their usual place of residence?

As discussed above in question 1, we consider that Employee 1 is living away from their usual place of residence.

3. Is the employee travelling while performing their employment duties?

Employee 1 is not travelling while performing their employment duties.

4. Has the employee provided a declaration in the approved form before the declaration date?

The term 'declaration date' is defined in subsection 136(1) of the FBTAA as follows:

in relation to an employer in relation to a year of tax, means the date of lodgement of the return of the fringe benefits taxable amount of the employer of the year of tax, or such later date as the Commissioner allows.

The definition above provides the Commissioner with the discretion to extend the declaration date.

The Commissioner will grant an extension where circumstances indicate that it is fair and reasonable to do so.

In your situation, you had previously received a private ruling advising the benefit provided was a remote area housing benefit which does not require you to obtain a declaration from your employee.

Therefore it is considered that to enable you to obtain the necessary declarations, it is fair and reasonable to extend the declaration date to a set date in the future.

Conclusion

If you obtain a declaration from Employee 1 by the set future date the accommodation provided to Employee 1 will be an exempt benefit under subsection 47(5) of the FBTAA from the beginning of their employment with you to 30 September 2012.

(b) Will the provision of accommodation be an exempt benefit under subsection 47(5) of the FBTAA for the period 1 October 2012 to the end of Employee 1's employment arrangement?

As discussed above subsection 47(5) of the FBTAA was amended by TLA Measures No. 4 Act 2012 and applies from 1 October 2012. The amended subsection 47(5) states:

(a) a residual benefit consisting of the subsistence, during a year of tax, of a lease or licence in respect of a unit of accommodation is provided to an employee of an employer in respect of his or her employment;

(b) the unit of accommodation is for the accommodation of eligible family members and is provided solely by reason that the employee is required to live away from his or her normal residence; and

(ba) the employee satisfies:

(i) sections 31C (about maintaining an Australian home) and 31D (about the first 12 months); or

(ii) section 31E (about fly-in fly-out and drive-in drive out requirements); and

(c) any accommodation is not provided while the employee is undertaking travel in the course of performing the duties of that employment; and

(d) any of the following conditions is satisfied:

(i) subsection (7) applies in relation to the provision of transport for the employee in connection with travel in the period in the year of tax when the lease or license subsisted, being travel between the employee's usual place of residence and the employee's usual place of employment;

(ii) if the employee satisfies section 31C and 31D - the employee gives to the employer, before the declaration date, a declaration, in a form approved by the Commissioner, purporting to set out the matters in subparagraphs 31F(1)(a)(i) to (iii);

(iii) if the employee satisfies section 31E - the employee gives to the employer, before the declaration date, a declaration, in a form approved by the Commissioner, purporting to set out the matters in subparagraphs 31F(1)(b)(i) to (iii):

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

Therefore, the provision of accommodation will be an exempt benefit under amended subsection 47(5) for the period 1 October 2012 to the end of Employee 1's employment arrangement if the following conditions are satisfied:

1. the benefit is a residual benefit consisting of the provision of accommodation

2. the accommodation is provided as the employee is required to live away from their normal residence

3. the employee satisfies section 31C, and 31D

4. the employee is not travelling while performing their employment duties, and

5. the employee provides a declaration in the approved form.

1. Is the benefit a residual benefit consisting of the provision of accommodation?

As stated in question 2(a)1 above the provision of accommodation is a residual benefit.

2. Has the accommodation been provided to the employee as they are required to live away from their normal residence?

'Normal residence' is defined in subsection 136(1) of the FBTAA to mean:

(a) if the employee's usual place of residence is in Australia - the employee's usual place of residence; or

(b) otherwise -

(i) the employee's usual place of residence; or

(ii) the place in Australia where the employee usually resides when in Australia.

As discussed above in question 1, we consider that Employee 1 is living away from their usual place of residence.

3. Does the employee satisfy sections 31C and 31D?

Section 31C of the FBTAA requires an employee to maintain a home in Australia from which they are living away from while section 31D provides access to the tax concessions for living-away-from-home allowances and benefits for a 12 month period.

Section 31C states:

The employee satisfies this section if:

(a) the place in Australia where the employee usually resides when in Australia:

(i) is a unit of accommodation in which the employee or the employee's spouse has an ownership interest (within the meaning of the Income Tax Assessment Act 1997); and

(ii) continues to be available for the employee's immediate use and enjoyment during the period that the duties of that employment require the employee to live away from it; and

(b) it is reasonable to expect that the employee will resume living at that place when that period ends.

Section 31D states:

SECTION 31D FIRST 12 MONTHS EMPLOYEE IS REQUIRED TO LIVE AWAY FROM HOME

31D(1)

The employee satisfies this section if the fringe benefit relates only to all or part of the first 12 months that the duties of that employment require the employee to live away from the place in Australia where he or she usually resides when in Australia.

…

However, the transitional provisions contained in the TLA Measures No. 4 Act ('the transitional provisions') apply to affect the application of subsection 31C and 31D of the FBTAA as follows:

Part 3-Application and transitional provisions

26 Application of amendments

The amendments made by this Schedule apply in relation to an employee who, on or after 1 October 2012, lives away from his or her normal residence (whether a benefit provided for living away from that residence on or after that day was paid before, on or after that day).

27 Transitional-existing employment arrangements

(1) During the transitional period, disregard paragraph 31C(a) and section 31D of the Fringe Benefits Tax Assessment Act 1986 if:

(a) the employee is neither a temporary resident nor a foreign resident; and

(b) during the entire period

(i) starting at the Budget time; and

(ii) ending on 30 September 2012;

that employment was covered by an eligible employment arrangement that was neither varied in a material way nor renewed.

Paragraph 27(3) defines 'transitional period' as:

(a) starting on 1 October 2012; and

(b) ending at the earliest of:

(i) 30 June 2014; and

(ii) the time the eligible employment arrangement referred to in paragraph (1)(b) or (2)(b); and

(iii) the first time that eligible employment arrangement is varied in a material way or renewed.

In summarising, the transitional provisions allow section 31C and 31D of the FBTAA to be disregarded:

· for the transitional period of 1 October 2012 and ending at the earliest of

· 31 June 2014, or the first time the eligible employment arrangement is varied in a material way or renewed, if the following conditions are satisfied:

1. on or after 1 October 2012 the employee lives away from their normal residence (whether a benefit provided for living away from that residence on or after that day was paid before, on or after that day)

2. the employee is neither a temporary resident or a foreign resident

3. during the period from Budget time to 30 September 2012 the employment was covered by an eligible employment arrangement that was neither materially varied nor renewed.

In your situation, the commencement date of the employment arrangement of Employee 1 was prior to the budget announcement on 8 May 2012. The arrangement was not renewed or varied between 8 May 2012 and 30 September 2012.

As Employee 1 is neither a temporary resident or a foreign resident and they have lived away from their normal residence on or after 1 October 2012 the requirements of sections 31C and 31D can be disregarded for the period up to when the employment was materially varied or renewed or, where there was no material change or renewal of the arrangement, to 30 June 2014.

You have advised that although there has been no change in the conditions of your employment arrangement with Employee 1, a written agreement was entered into confirming your employee's employment for a further period.

As Employee 1's employment arrangement has been renewed, sections 31C and 31D of the FBTAA can only be disregarded until the employment arrangement was written and confirmed.

Conclusion

The accommodation provided to Employee 1 will be exempt from FBT under subsection 47(5) of the FBTAA up to the date of the renewal of their employment arrangement provided they give you a declaration in the approved form.

4. Is the employee travelling while performing their employment duties?

Employee 1 is not travelling while performing their employment duties.

5. Has the employee provided a declaration in the approved form?

The final condition to be satisfied is that Employee 1 provides you with a declaration form as described under section 31F of the FBTAA if they satisfy section 31C of the FBTAA.

Subsection 31F(1) states:

The employee satisfies this section if the employee gives the employer a declaration, in a form approved by the Commissioner, purporting to set out:

(a) for a fringe benefit to which section 31 (about employees who maintain an Australian home) applies:

(i) the address of the place in Australia where the employee usually resides when in Australia; and

(ii) that section 31C is satisfied for that place; and

(iii) the address of each place where the employee actually resided during the period to which the benefit relates; or

….

31F(2)

The employee must give the employer the declaration before the declaration date for the year of tax during which the benefit was provided.

As discussed above, the Commissioner has granted an extension of the declaration date to a set date in the future.

In obtaining the declaration from Employee 1 you can disregard the requirement to satisfy section 31C of the FBTAA as the transitional provisions apply for the period 1 October 2012 to the end of the their employment arrangement.

Therefore providing you obtain declaration from Employee 1, by the set future date, setting out the requirements of subsection 31F of the FBTAA this condition will be met.

(c) Will the provision of accommodation be an exempt benefit under subsection 47(5) of the FBTAA from the start of the renewed employment arrangement to 30 June 2014?

As discussed above, the provision of accommodation will be an exempt benefit under amended subsection 47(5) of the FBTAA if the following conditions are satisfied:

1. the benefit is a residual benefit consisting of the provision of accommodation

2. the accommodation is provided as the employee is required to live away from their normal residence

3. the employee satisfies sections 31C and 31D

4. the employee is not travelling while performing their employment duties, and

5. the employee provides a declaration in the approved form.

The conditions listed at points 1, 2 and 4 have been discussed above and are considered to be met. Therefore it is only necessary to consider the conditions listed at points 3 and 5.

3. Does the employee satisfy sections 31C and 31D?

As discussed above section 31C of the FBTAA requires an employee to maintain a home in Australia from which they are living away from.

Specifically:

· the employee or the employee's spouse must have an ownership interest in the accommodation

· the accommodation must continue to be available for the employee's immediate enjoyment during the period that they are required to live away from it, and

· the employee intends to resume living at their home when the period ends.

You have advised that Employee 1 owns their home close by and has currently rented it out. Employee 1expects to return to live in it when their term of employment with you has ended.

As the home is rented out it is not available for Employee 1's immediate enjoyment, therefore this condition is not met.

As one of the conditions listed under subsection 31C is not met the provision of accommodation to Employee 1 is not an exempt benefit under subsection 47(5) of the FBTAA from the start of the renewed employment arrangement to 30 June 2014.

3. Will the provision of accommodation to Employee 2 be an exempt benefit under section 58ZC of the FBTAA?

As discussed in question 1 above, a remote area housing benefit will therefore arise where the following conditions are met:

1. you provide a housing benefit to your employee

2. the unit of accommodation is in a remote area

3. the usual place of employment is in a remote area

4. 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

5. 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

1. Do you provide a housing benefit to Employee 2?

As discussed in question 1 a housing benefit will arise where the accommodation provided to an employee is the employee's usual place of residence.

What constitutes 'usual place of residence' is also discussed above in question 1.

Therefore the accommodation provided to Employee 2 will be their usual place of residence if they have another residence to which they have a connection with and intend to return to after their employment with you ceases.

From the information provided Employee 2 ceased any connection with their previous residence when entering into employment with you. They have not purchased a residence and have no connection with another residence during their period of employment with you.

As they have only one residence, the accommodation provided by you, it is considered that this accommodation is their usual place of residence.

Therefore you are providing a housing benefit to Employee 2.

2. Is the unit of accommodation 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.

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.

You are located in a town that is listed as being located in remote area.

Therefore the accommodation is in a remote area.

3. Is the usual place of employment in a remote area?

Your employee's usual place of employment is on your premises which is in a remote area.

You therefore meet this condition.

4. 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 third reason that it is customary for employers in the employer's industry to provide free or subsidised accommodation for 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? (TD 94/97).

TD 94/97 states:

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.

You have advised that it is customary in your industry to provide accommodation these types of employees.

You therefore meet this condition.

5. 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 requirements of their employment duties.

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 the conditions stated in subsection 58ZC(2) have been met the accommodation provided to the Employee 2 is a remote area housing benefit that is an exempt benefit.

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