Edited version of private advice

Authorisation Number: 1012633847264

Ruling

Subject: Exempt fringe benefits

Question 1

Will the payment of the rental costs incurred by the employee be an exempt benefit?

Answer

No. However, the taxable value can be reduced by 50% under subsection 60(2A) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

Question 2

Will the payment of the electricity costs incurred by the employee be an exempt benefit?

Answer

No. However, the taxable value can be reduced by 50% under subsection 59(3) of the FBTAA.

This ruling applies for the following periods:

Year ended 31 March 2015

Year ended 31 March 2016

Year ended 31 March 2017

The scheme commences on:

1 April 2014

Relevant facts and circumstances

Your business is located in a remote area.

You are considering entering into a salary sacrifice agreement with one of your employees.

The employee lives in a remote area.

Under the proposed agreement you will pay the rental and electricity costs incurred by the employee.

These costs will be incurred by the employee in relation to the employee's residence which is rented from a third party landlord under an arm's length arrangement.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 20

Fringe Benefits Tax Assessment Act 1986 Section 58ZC

Fringe Benefits Tax Assessment Act 1986 Subsection 59(3)

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 140(1)

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

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

Reasons for decision

Will the payment of the rental costs incurred by the employee be an exempt benefit?

Under the arrangement you will pay the rental costs incurred by the employee in renting a residence in a remote area.

In considering whether the benefit will be an exempt benefit, it is necessary to initially determine the type of benefit that is being provided.

Section 20 of the FBTAA provides that an expense payment benefit will arise 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.

Your employee will be occupying rental accommodation provided by a third party. Under the terms of the salary sacrifice arrangement you will pay the rental costs incurred by the employee. In so doing, you will be making a payment in discharge of an obligation of another person, (your employee), to pay an amount to a third person, (the landlord). This is an expense payment benefit under paragraph 20(a) of the FBTAA.

In your application you referred to the exemption that applies under section 58ZC of the FBTAA for accommodation that is in a remote area. For the provision of accommodation to be an exempt benefit under section 58ZC the benefit must be a housing benefit. In general terms, a housing benefit will arise when a person is provided with the right to use of a unit of accommodation as their usual place of residence.

In the situation being considered, the benefit is the payment of an obligation incurred by the employee. As discussed above, this is an expense payment benefit. It is not a housing benefit. Therefore, as the benefit is an expense payment benefit the exemption in section 58ZC will not apply.

However, although the benefit will not be an exempt benefit, the taxable value of the benefit may be able to be reduced by 50% under subsection 60(2A) of the FBTAA. Subsection 60(2A) of the FBTAA states:

[Recipient of remote area housing rent] 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.

For the reduction to apply, the expenditure must be in respect of 'remote area housing rent connected with a unit of accommodation'. The term 'remote area housing rent connected with a unit of accommodation' is defined in subsection 142(1A) 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 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;

(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 arrangement for the purpose, or for purposes that included the purpose, of enabling the employer to obtain the benefit of the application of section 60.

In considering these requirements both the unit of accommodation and the place of employment are in a remote area. As they are not in, or adjacent to an eligible urban area the requirements in paragraph (a) are met.

Subsection 142(2E) contains the following common conditions:

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.

In your application you sought guidance as to whether it is customary for employers in your industry to provide housing assistance to their employees. In so doing, you indicated that the employee has identified other employees who work in the same industry with other employers in your area who receive housing assistance. On the basis of this information, the provision of the housing assistance to your employee can be accepted as being customary. Therefore, the requirements in paragraph (b) of the definition of 'remote area housing rent connected with a unit of accommodation' are met.

The other requirement in paragraph (d) of the definition of 'remote area housing rent connected with a unit of accommodation' is for the lease of the unit of accommodation to be provided under an arm's length arrangement and not to be obtained for the purpose of enabling the employer to obtain the concession in section 60. This requirement will be met as the lease is provided under an arm's length arrangement and there is no connection between the employer and the employee renting the accommodation.

Therefore, the expenditure is in respect of 'remote area housing rent connected with a unit of accommodation' and as the other requirements of subsection 60(2A) are met, the taxable value of the expense payment fringe benefit will be able to be reduced by 50%.

Will the payment of the electricity costs incurred by the employee be an exempt benefit?

As discussed above, in relation to the payment of the rental expenses, the payment of the electricity costs incurred by the employee will be an expense payment benefit. Therefore, it will not be an exempt benefit under section 58ZC.

There are two separate benefits; an expense payment benefit with respect to remote area housing rent payments, and an expense payment benefit with respect to remote area residential fuel. It is confirmed in ATO Interpretative Decision ATO ID 2004/276 Fringe Benefits Tax Exempt benefits: remote area housing and residential fuel (ATO ID 2004/276) that where a benefit is provided involving both remote area housing and residential fuel, the provision of residual fuel is treated as a separate benefit.

However, although the benefit will not be an exempt benefit, the taxable value of the benefit may be able to be reduced by 50% under subsection 59(3) of the FBTAA. Subsection 59(3) of the FBTAA states:

[Accommodation connected with remote area housing rent] Where:

(a) any of the following conditions are satisfied:

(i) the recipients expenditure in relation to an expense payment fringe benefit in relation to an employer in relation to an employee in relation to a year of tax is in respect of the supply of residential fuel;

(ii) the recipients property in relation to a property fringe benefit in relation to an employer in relation to an employee in relation to a year of tax is residential fuel;

(iii) the recipients benefit in relation to a residual fringe benefit in relation to an employer in relation to an employee in relation to a year of tax is the benefit of the consumption of residential fuel;

(b) the residential fuel is for use in connection with a unit of accommodation during a period in the year of tax or, in a case to which subparagraph (a)(i) applies, in a preceding year of tax, during which:

(i) the recipient of the fringe benefit occupied or used the unit of accommodation as his or her usual place of residence; and

(ii) remote area housing rent connected with the unit of accommodation accrued; and

(c) 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 and section 62, would be the taxable value of the fringe benefit in relation to the year of tax shall be reduced by 50%.

Residential fuel is defined in subsection 136(1) of the FBTAA to mean

any form of fuel (including electricity) for use for domestic purposes

The payment of the electricity account is the recipients expenditure with respect to the supply of residential fuel (electricity) which gives rise to an expense payment fringe benefit. Therefore, paragraph 59(3)(a)(i) is satisfied.

The electricity is in connection with a unit of accommodation used by your employee as their usual place of residence, and remote area housing rent. Therefore, subparagraphs 59(3)(b)(i) and (ii) are satisfied.

Further, it is accepted that the expense payment benefit was not provided under a non-arm's length arrangement, or an arrangement entered into for the purposes of enabling the employer to obtain the benefit of the application of this section. Therefore, subparagraphs 59(3)(c)(i) and (ii) are satisfied.

As all of the criteria of subsection 59(3) of the FBTAA are satisfied you are entitled to reduce the taxable value of expense payment fringe benefit that arises from the payment of the employee's electricity account by 50%.

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