Edited version of your written advice

Authorisation Number: 1012869449161

Date of advice: 7 September 2015

Ruling

Subject: FBT - Exempt Benefits - Sale or Acquisition of Dwelling from Relocation

Question

Is the reimbursement of selling expenses incurred by your employee in relation to the sale of their former usual place of residence a benefit that is exempt under subsection 58C(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

No.

Question 2

This ruling applies for the following periods

1 April 2015 to 31 March 2016

1 April 2016 to 31 March 2017

The scheme commenced on

1 July 2015

Relevant facts and circumstances

The employee's occupation is a Manager.

The employee is not a shift worker nor required to be on-call.

The employee originally had a usual place of residence in a Metropolitan area.

The employee was notified of employment in early July 20XX.

The employee commenced employment with you.

It is not a condition of employment to move to your location.

The employee moved to your location and rented a property.

The employee's former residence was sold.

You only allow relocation expenses through salary packaging which is considered an exempt benefit.

You have not reimbursed the employee for any costs thus far.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 58C

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

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

Fringe Benefits Tax Assessment Act 1986 Subsection 58C(3)

Reasons for decision

Is the reimbursement of selling expenses incurred by your employee in relation to the sale of their former usual place of residence a benefit that is exempt under subsection 58C(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Section 58C of the FBTAA provides an FBT exemption for costs that are incidental to the sale and/or purchase of a home where it is solely because the employee is required to change their usual place of residence to perform the duties of their employment.

Subsection 58C(2) of the FBTAA provides an exemption in relation to the sale of the home at the old locality and ss58C(3) of the FBTAA provides an exemption if there is a purchase of a home at the new locality.

For present purposes, an employee's relocation expenses that relate to the sale of a home will be exempt benefits if the criteria contained in ss58C(1) and ss58C(2) of the FBTAA are satisfied.

Subsection 58C(1) of the FBTAA sets out the necessary pre-conditions where an employee or an associate of an employee sells his or her interest in a dwelling because the employee is required to change his or her usual place of residence in order to perform the duties or his or her employment.

The pre-conditions for application of exemption are:

• The employee (or associate) owns a prescribed interest in a dwelling or a right in a dwelling (called the 'former home holding period')

• The employee (or associate) sells or proposes to sell the interest or right solely because the employee is required to change his or her usual place of residence in order to perform the duties of his or her employment

• The employer notifies the employee (called the 'notice time') that they are required to perform the duties of the employment at a new place of employment at a time while they are still in their former dwelling, and

• At the time the employee was notified, the employee occupied or proposed to occupy the former dwelling as his or her usual place of residence.

Subsection 58C(2) of the FBTAA details the kind of benefits relevant to the sale of property and other qualifications.

The exemption applies to the home that is sold only if:

• the sale is made solely because the employee changed their usual place of residence in order to carry out employment-related duties

• the house was owned when you notified the employee of the change to the new locality

• the house was the employee's usual place of residence, and

• the sale contract was made within two years of commencing duty at the new locality (called 'new employment day').

In this case, your employee is proposing for reimbursement expenses on the sale of the former home. Therefore, both ss58C(1) and ss58C(2) of the FBTAA will need to be satisfied for the benefit to be exempt from fringe benefits tax.

For a benefit to be an exempt benefit in relation to the sale of a property, the pre-conditions in ss58C(1) of the FBTAA need to be satisfied.

Pre-conditions

Applying the above to the facts of this case:

Owns prescribed interest

The employee owned a house in a Metropolitan area prior to accepting a new job in a regional area. The employee moved from the former property to the new rented property late August 20XX.

It is considered this first condition is satisfied.

Sells prescribed interest

Paragraph 58C(1)(b) of the FBTAA contains three elements:

(1) Was the employee required to change his or her usual place of residence?

(2) Was the required relocation to enable the employee to carry out duties of employment?

(3) Was the sale of property solely because the employee is required to relocate and is required to relocate in order to perform the duties of employment?

(1) Was the employee required to change his or her usual place of residence?

The term 'required' is not defined in the FBTAA. Therefore, it must take its ordinary meaning in the context in which it is used. Relevantly, The Macquarie Dictionary [Multimedia], version 5.0.0, 01/10/01, defines 'require' as:'

1. to have need of; need.

4. to impose need or occasion for; make necessary or indispensable.

6. to place under an obligation or necessity.

Therefore, it is considered that the term 'required' does not mean that the change of usual place of residence must be compulsory. Rather, the change may be one that is necessary in the circumstances in order for the employee to perform the duties of their employment.

In the Administrative Appeals Tribunal case of Re Compass Group (Vic) Pty Ltd (as trustee for White Roche & Associates Hybrid Trust) v. FC of T [2008] AATA 845; 2008 ATC 10-051; (2008) 71 ATR 720 (Compass), the Tribunal examined the meaning of the word 'required' in the context of living-away-from-home allowance benefits under former subsection 30(1).

In Compass, an employee temporarily accepted a more senior position from his employer. The position required him to work an additional five and a half hours each week. The employee's usual place of residence was 60 kilometres from his place of employment. As a result of his extended working hours, the employee rented premises closer to his place of employment and stayed there during the week. His employer did not require him to do so. The employee intended to return to his home when the extended working arrangements came to an end. The employee was paid a weekly allowance by his employer for the additional costs he incurred in renting the property.

The Tribunal considered whether the employee was required to live away from his usual place of residence in order to perform the duties of his employment and, therefore, whether the allowance was a living-away-from-home allowance within the meaning in former subsection 30(1).

The Tribunal said in Compass:

63. ...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...

65. The word 'require' does not contemplate choice...

70. ...I come to the conclusion that a reasonable person would conclude that he was not required to rent premises...but chose to...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 work itself does not seem to have demanded or required it...the hours were not so extended and the commuting distance...not so great that it could be thought that the work itself required it so that he could perform the duties of his employment.

In your case, the employee commenced employment duties with you on early August 20XX and permanently moved to the region from the city late August 20XX. The employee entered into a contract for the sale of the former residence mid 20YY. The employee therefore continued to live at the former residence for approximately four weeks after commencing employment.

You did not require the employee to change the usual place of residence to perform the duties of employment. There is no condition of employment that requires this employee to live within a certain distance of the place of employment.

Furthermore, the distance and travelling time to your office from the employee's former residence is not sufficient to create a requirement as the employee was able to commute this journey for a period of four weeks.

The facts as provided do not show that the employee was required to change the usual place of residence. Therefore, this element is not satisfied.

2) Was the required relocation to enable the employee to carry out duties of employment?

In ATO ID 2013/8 Fringe Benefits Tax: Employee required to change usual place of residence in order to perform duties of employment the employee was not required by their employer to change their usual place of residence, but their employment duties were such that it made it necessary for the employee to change their usual place of residence to effectively perform those duties. Factors taken into consideration were:

• The distance between the employee's usual place of residence and their new place of employment

• The employee was not permitted to perform their new duties of employment from the former place of employment

• The employer did not provide transport for the employee to commute between their usual place of residence and the new place of residence; and

• The employee was required to be on call at certain times and to sign on for duty within two hours of being contacted by their employer.

A required relocation implies that in a practical sense the relocation was required because the inherent nature of the employment is such that the duties of employment could not otherwise be carried out.

You require that the employee carry out the duties of employment during office hours regardless of where the employee lives. Provided the employee is on duty when required, it is not relevant where the employee lives. The employee carried out the duties of employment for four weeks while living at the former usual place of residence. It is therefore possible, and actually happened, for the employee to carry out the duties of employment while living at the former usual place of residence.

The relocation was not required to enable the employee to carry out the duties of employment. Therefore, this element is not satisfied.

(3) Was the sale of property solely because the employee is required to relocate and is required to relocate in order to perform the duties of employment?

As discussed above, you did not require that the employee change the location of residence, nor was the employee required to live within a certain distance of the locality. Nor was the relocation required to enable the employee to carry out the duties of employment as the employee was able to perform the duties of employment while residing at the former residence for four weeks before relocating.

The former house was sold on late June 20YY. The employee must sell their interest in their former house solely because they are required to change their usual place of residence to undertake their new employment duties. Although the employee owned a house in the city, the sale of that house was not conditional on the employee taking up the new position in a region early August 20XX.

This indicates that even if there was a requirement to relocate so as to be able to perform the duties of employment, it was not the sole reason. From the information provided it appears that the employee made the choice to change the usual place of residence for personal reasons.

Therefore, it is concluded that the employee did not sell the former residence solely because the employee was required to change the usual place of residence in order to perform the duties of employment. There was another reason for the relocation which appears to be a personal or private choice.

There is nothing to indicate that the employee was 'required' to change the usual place of residence to undertake the new duties of employment. From the information provided, the employee was neither a shift worker nor did the employment contract require the employee to be 'on call'. There was no requirement for the employee to change residences apart from convenience as this greatly reduced the travel time.

The sale of the property was not a requirement to perform the duties of employment. Therefore, this element is not satisfied.

It is considered this second condition is not satisfied.

Time employee was notified

The employee was notified of the new employment location and the duties expected to perform in that employment in early July 20XX when the employee was still living at the former residence.

It is considered this third condition is satisfied.

Occupied former dwelling as usual place of residence

The employee's usual place of residence was the former dwelling in the city at the time the employee was notified of the new employment duties and for a short period after undertaking the employment in the region.

It is considered this fourth condition is satisfied.

Benefits in respect of the sale of property

Subsection 58C(2) of the FBTAA further provides conditions on benefits associated with the sale of property and states:

Where:

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

(i) an expense payment benefit where the recipients expenditure is incidental to the sale of that interest or right;

(ii) a residual benefit where the recipients benefit is incidental to the sale of that interest or right;

(aa) the employee or associate entered into a contract for the sale of the interest or right within 2 years after the day (the new employment day) on which the employee commenced to perform the duties of that employment at the employee's new place of employment;

(b) if, apart from this paragraph, this subsection would apply in relation to 2 or more dwellings or proposed dwellings in relation to the change in the employee's usual place of residence - the employer of the employee elects that this subsection apply in relation to only one of those dwellings or proposed dwellings;

(c) if paragraph (b) applies - the benefit relates to the dwelling or proposed dwelling in respect of which the election is made;

(d) 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

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

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

In this case, although the employee sold the property within two years of moving to the region and applied for a reimbursement of the agent's commission which would be a residual benefit, the sale of the employee's house in the city was not a requirement of commencing duties with you.

Therefore, the pre-conditions in ss58C(1) of the FBTAA have not been satisfied. Accordingly, the reimbursement of the expenses incurred by the employee in relation to the sale of the property in the city will not be an exempt benefit under ss58C(2) of the FBTAA.

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