Edited version of your written advice

Authorisation Number: 1012926762405

Date of advice: 17 December 2015

Ruling

Subject: Remote Area Housing Benefits and Expense Payment Benefits

Question 1

Will the provision of housing benefits by the Company to its employees be exempt from Fringe Benefits Tax (FBT) in accordance with section 58ZC of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes.

Question 2

Will the provision of an expense payment benefit by the Company to an employee, where the employee's expenditure is in relation to rent, be reducible in accordance with subsection 60(2A) of the FBTAA?

Answer

Yes.

Question 3

Will the provision of an expense payment benefit by the Company to an employee, where the employee's expenditure is in relation to interest on a loan, be reducible in accordance with subsection 60(2) of the FBTAA?

Answer

Yes.

The period to which the ruling applies

1 April 2015 to 31 March 2021

Date in which the scheme commences

1 April 2015

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The Company is one of a number of corporations that provides services to customers within their service areas.

The four levels of employees at the Company are stipulated in the table below:

1. Senior Management

2. Middle Management

3. Specific-skill Employees

4. Other Employees

Some employees have been recruited locally, whereas some have been recruited from outside the local region.

The usual place of employment of the Company's employees is in a remote area.

The Company implemented the following arrangements:

1. Arrangement One

• The Company owns residential properties (situated within the Company's service area) that are provided to employees as their usual place of residence at less than market rent.

• The employee foregoes salary to the amount of the rent as per an effective salary sacrifice agreement.

• This arrangement involves the provision of a housing benefit.

• The provision of the properties is not linked to any particular position or employee level.

• It is customary for employees in this industry to receive accommodation without charge or at less than market rent in order to attract and retain skilled and qualified employees.

2. Arrangement Two

• The Company rents residential properties (situated within the Company's service area) via unrelated third parties and are provided to employees as their usual place of residence:

• The employee foregoes salary to the amount of the rent paid to the third parties as per an effective salary sacrifice agreement.

• This arrangement involves the provision of a housing benefit.

• Housing benefits have been provided only to those employees who have been recruited from outside of the local region and are employed at the Senior Management, Middle Management or Specific-skill Employee level. It is customary for employers in this industry to provide residential accommodation without charge or for a rent that is less than market value in order to attract and retain skilled and qualified employees.

• In no circumstances will the third parties providing the accommodation be related to the employee. Transactions will be at arm's length.

3. Arrangement Three

• Employees rent their accommodation (situated within, or in close proximity to, the Company's service area) directly, which is their usual place of residence, via a third party. The Company pays the rent to the unrelated third party on the employee's behalf.

• The employee foregoes salary to the amount of the rent as per an effective salary sacrifice agreement.

• This arrangement involves the provision of an expense payment benefit.

• These benefits have been provided only to those employees who have been recruited from outside of the local region and are employed at the Senior Management, Middle Management or Specific-skill Employee level. It is customary for employers in this industry to provide residential accommodation without charge or for a rent that is less than market value in order to attract and retain skilled and qualified employees.

• In no circumstances will the third party providing the accommodation be related to the employee. Transactions will be at arm's length.

4. Arrangement Four:

• Employees own their own accommodation (situated within, or in close proximity to, the Company's service area), which is their usual place of residence. The Company reimburses the interest component of the mortgage to the employee.

• The employee foregoes salary to the amount of the interest reimbursed as per an effective salary sacrifice agreement.

• This arrangement involves the provision of an expense payment benefit.

• These benefits have been provided only to those employees who have been recruited from outside of the local region and are employed at the Senior Management, Middle Management or Specific-skill Employee level. It is customary for employers in this industry to provide residential accommodation/housing assistance without charge or for a rent that is less than market value in order to attract and retain skilled and qualified employees.

• With respect to salary packaging of mortgage interest on qualifying remote housing, the mortgagor will not be related to either the employee or the employer (the Company). The mortgagor/mortgagee relationship will be at arm's length.

• With respect to any housing purchases by the employee, all transactions will be at arm's length.

Housing and expense payment benefits may be provided to employees that reside within, or in close proximity to, the Company's service area. As per the arrangements described above, the units of accommodation/houses are located within, or in close proximity to, the Company's service area.

The Company is seeking to expand the coverage of the arrangements to include all employees, as it faces pressure to retain existing employees from a number of areas.

Assumption

With specific regard to employees (to whom housing and expense payment benefits are provided) who reside in close proximity to (and not within) the Company's service area, these employees do not reside within, or adjacent to, an eligible urban area as defined in subsection 140(1) of the Fringe Benefits Tax Assessment Act 1986.

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 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 Subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 Subsection 140(1)

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)

Income Tax Assessment Act 1936 Schedule 2

Reasons for decision

Question 1

Will the provision of housing benefits by the Company to its employees be exempt from Fringe Benefits Tax (FBT) in accordance with section 58ZC of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Summary

The provision of the housing benefits by the Company to its employees will be exempt from FBT in accordance with section 58ZC of the FBTAA.

Detailed reasoning

Is a housing benefit provided?

The question of whether a housing benefit is provided by the Company is relevant only to Arrangements One and Two, as described in the facts.

Section 25 of the FBTAA defines a 'housing benefit' as being a housing right granted by a person to another person.

A 'housing right' is defined by subsection 136(1) of the FBTAA to mean a lease or license granted to a person to occupy or use a unit of accommodation to the extent that the lease or license subsists at a time when the unit of accommodation is the person's usual place of residence.

Subsection 136(1) of the FBTAA defines a 'unit of accommodation' to include a house, flat or home unit, and accommodation in house, flat or home unit.

The Commissioner's view on what is meant by 'usual place of residence' is considered in Miscellaneous Taxation Ruling MT 2030 Fringe benefits tax: living-away-from-home allowance benefits. The relevant paragraphs of MT 2030 are paragraphs 12, 14 and 19. From these paragraphs, a person's 'usual place of residence':

• must be a place of residence that they dwell permanently, and not temporarily, and

• is presumed to be near where they are employed permanently.

Based on the facts provided, Arrangement One involves residential properties owned by the Company being provided to employees from time to time as their usual place of residence at less than market rent. As such, Arrangement One satisfies the definition of a 'housing benefit' as defined in section 25 of the FBTAA.

Arrangement Two - where the Company rents a residential property via an unrelated third party and it is provided to employees as their usual place of residence - will also constitute a 'housing benefit' pursuant to section 25 of the FBTAA.

Is the housing benefit provided exempt from FBT?

Under subsection 58ZC(1) of the FBTAA, a housing benefit that is a 'remote area housing benefit' is exempt from FBT. The conditions for a housing benefit to be a 'remote area housing benefit' are set out in subsection 58ZC(2) of the FBTAA, as stipulated below.

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.

In order to determine whether housing benefits provided to the Company's employees constitute a remote area housing benefit, a discussion is provided below in respect of whether each element or condition in subsection 58ZC(2) of the FBTAA is satisfied.

Paragraph 58ZC(2)(a) of the FBTAA

A unit of accommodation will be treated as being in a remote area if it is not located in, or adjacent to, an eligible urban area.

Pursuant to paragraph 140(1)(a) of the FBTAA, an 'eligible urban area' is an area that is either:

• situated in Zone A or Zone B for income tax purposes (as described in Parts I and II respectively in Schedule 2 to the Income Tax Assessment Act 1936 (ITAA 1936)) and is an urban centre with a 1981 census population of not less than 28,000, or

• not situated in Zone A or Zone B for income tax purposes and is an urban centre with a 1981 census population of not less than 14,000.

The areas which form part of the Company's service area are not stipulated in Parts I and II of Schedule 2 to the ITAA 1936 as being situated in Zone A or Zone B for income tax purposes.

The ATO used to produce lists of remote and non-remote towns for the purposes of subsection 140(1) of the FBTAA in Law Administration Practice Statement PS LA 2000/6 Fringe benefits tax: what is considered to be remote for the purposes of the remote area housing benefit. However, that Practice Statement was withdrawn on 11 June 2013, as the ATO now maintains a list of eligible urban areas on its website.

The towns in the Company's service area are not situated within the any of the eligible urban areas provided in that list.

Therefore, the Company's employees (to whom housing benefits are provided) who reside within the Company's service area do not reside in an eligible urban area. With specific regard to employees (to whom housing benefits are provided) who reside in close proximity to (and not within) the Company's service area, it is assumed for the purposes of this Private Ruling that these employees do not reside within an eligible urban area.

According to paragraph 140(1)(b) of the FBTAA, an area that is 'adjacent to an eligible urban area' is an area that is situated either:

• less than 40 kilometres by the shortest practicable surface route from the centre of an eligible urban area with a 1981 census population of less than 130,000, or

• less than 100 kilometres by the shortest practicable surface route from the centre of an eligible urban area with a 1981 census population of 130,000 or more.

The ATO's website specifically classifies a certain number of towns in the Company's service area as 'remote areas'.

In terms of the remaining towns in the Company's service area that are not specifically classified by the ATO as a 'remote area', based on the distance between each of these towns in the Company's service area and the closest eligible urban areas, these towns in the Company's service area are not adjacent to an eligible urban area pursuant to paragraph 140(1)(b) of the FBTAA.

Therefore, the Company's employees (to whom housing benefits are provided) who reside within the Company's service area do not reside adjacent to an eligible urban area. With specific regard to employees (to whom housing benefits are provided) who reside in close proximity to (and not within) the Company's service area, it is assumed for the purposes of this Private Ruling that these employees do not reside adjacent to an eligible urban area as defined in subsection 140(1) of the FBTAA.

As the Company's employees residing (under either Arrangement One or Arrangement Two) within or in close proximity to the Company's service area do not reside within, or adjacent to, an eligible urban area, the condition in paragraph 58ZC(2)(a) of the FBTAA is satisfied.

Paragraph 58ZC(2)(b) of the FBTAA

Based on the facts provided, it is accepted that during the relevant tenancy period, employees who occupy the residential properties referred to in Arrangements One and Two are current employees of the Company, and the usual place of employment is in the Company's service area which, as concluded above, is not located within or adjacent to an eligible urban area.

Therefore, the condition in paragraph 58ZC(2)(b) of the FBTAA is satisfied.

Paragraph 58ZC(2)(d) of the FBTAA

From the facts provided, subparagraphs 58ZC(2)(d)(i) and 58ZC(2)(d)(ii) of the FBTAA are not required to be considered.

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? explains what is meant by the phrase 'customary for employees in the industry' in subparagraph 58ZC(2)(d)(iii). Paragraph 2 of TD 94/97 states:

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.

It is accepted that it is necessary for the Company to provide residential accommodation to its employees, as it is customary for employers in the industry to provide residential accommodation to its employees free of charge or for a rent that is less than market value.

Therefore, the condition in paragraph 58ZC(2)(d) of the FBTAA is satisfied.

Paragraph 58ZC(2)(e) of the FBTAA

Subsection 136(1) defines a 'non-arm's length arrangement' to mean an arrangement other than an arm's length arrangement. As the term 'arm's length arrangement' is not defined in the FBTAA, the Commissioner determined the term's meaning in ATO Interpretative Decision ATO ID 2005/156 Exempt benefits: remote area housing - non-arm's length arrangement for the purposes of subparagraph 58ZC(2)(e)(i) as follows:

• Subsection 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.

• Parties will be dealing with each other 'at arm's length' in relation to the transaction, where:

• they are not connected in such a way as to bring into question the ability of one to act independently of the other, and

• they have behaved in the manner in which parties at arm's length would be expected to behave in conducting their affairs.

All employees who elect to be subject to Arrangements One or Two do so by entering into a salary sacrifice agreement with the Company where they forego an amount of salary equal to the amount of the housing benefits granted by the Company. Therefore, it is accepted that the Company will grant the housing benefits to its employees under Arrangements One and Two under an arm's length arrangement.

Paragraph 58ZC(2)(e) of the FBTAA also requires consideration of whether Arrangements One or Two are entered into by the Company and its employees for the purpose of enabling the Company to obtain the benefit of the application of section 58ZC of the FBTAA.

In ATO Interpretative Decision ATO ID 2010/183 Fringe benefits tax: exempt benefits - remote area housing benefits - new novated lease arrangement, the Commissioner considered that the provision of housing benefits by an employer to an employee under a new novated lease arrangement to be for the purpose of enabling the employer to provide the benefit of housing to its employee as an ordinary business requirement of the employer, and not for the purpose of obtaining the benefit of the application of section 58ZC of the FBTAA.

In Newton v. Federal Commissioner of Taxation (1958) 98 CLR 1; (1958) 11 ATD 442; (1958) 7 AITR 298, the Privy Council examined the meaning of the word 'purpose'.

Lord Denning said at page number CLR 8; ATD 445; AITR 304:

The word "purpose" means, not motive, but the effect which is sought to achieve - the end in view.

Lord Denning also said (at the same page):

In order to bring an arrangement within the section, you must be able to predicate by looking at the overt acts by which it was implemented that it was implemented in that particular way so as to avoid tax. If you cannot so predicate, but have to acknowledge that the transactions are capable of explanation by reference to ordinary business or family dealing, without necessarily being labelled as a means to avoid tax, then the arrangement does not come within the section.

The Commissioner considers that there are no overt acts by which one could predicate that Arrangements One or Two has been implemented by any of the parties for the purpose of allowing the Company to enjoy the benefits of the tax exemption. The arrangement can be explained as being one of ordinary business dealings as is customary in the Company's industry.

In particular, where the Company and certain employees enter into either Arrangement One or Arrangement Two, such arrangements are entered into by each of the relevant parties for the purpose of enabling the Company to provide the benefit of housing to its employee whilst the employee remains currently employed.

Therefore, it is accepted that when Arrangements One or Two are entered into by the Company and its employees, they are not entered into for the purpose of obtaining the benefit of section 58ZC of the FBTAA. As such, the condition in paragraph 58ZC(2)(e) of the FBTAA is satisfied.

Conclusion

In circumstances where the Company and certain employees enter into a housing arrangement under either Arrangement One or Arrangement Two, a 'housing benefit' is provided pursuant to section 25 of the FBTAA.

As per the discussion above, each of the conditions for such housing benefits to constitute a 'remote area housing benefit' - as set out in subsection 58ZC(2) of the FBTAA - are satisfied. Therefore, such a remote area housing benefit provided by the Company to an employee in respect of either Arrangement One or Arrangement Two is exempt from FBT pursuant to subsection 58ZC(1) of the FBTAA.

Question 2

Will the provision of an expense payment benefit by the Company to an employee, where the employee's expenditure is in relation to rent, be reducible in accordance with subsection 60(2A) of the FBTAA?

Summary

The provision of an expense payment benefit by the Company to an employee, where the employee's expenditure is in relation to rent, will be reducible in accordance with subsection 60(2A) of the FBTAA.

Detailed reasoning

Is an expense payment benefit provided?

The question of whether an expense payment benefit is provided by the Company to the employee, where the employee's expenditure is in relation to rent, is relevant only to Arrangement Three, as described in the facts.

Expense payment benefits are defined in section 20 of the FBTAA as follows:

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.

A payment of an employee's rent by the Company to an unrelated third party under a salary sacrifice agreement constitutes an expense payment benefit pursuant to subsection 20(a) of the FBTAA.

Is the taxable value of an expense payment benefit (in relation to rent) reducible?

Subsection 60(2A) of the FBTAA provides that the taxable value of an expense payment benefit shall be reduced by 50% where the following conditions apply:

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 recipient's expenditure is in respect of remote area housing rent connected with a unit of accommodation;

(c) the recipient occupied or used the unit of accommodation as his or her usual place of residence during a period (in this subsection called the "occupation period") during which the rent accrued; and

(d) the fringe benefit was not provided under:

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

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

the 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 recipient's expenditure as relates to the occupation period.

In order to determine whether the payment of an employee's rent by the Company to an unrelated third party under a salary sacrifice agreement is reducible, a discussion is provided below in respect of whether each element or condition in subsection 60(2A) of the FBTAA is satisfied.

Paragraph 60(2A)(a) of the FBTAA

Based on the facts provided, the recipient of an expense payment benefit (as provided by the Company) is an employee of the Company.

Therefore, the condition in paragraph 60(2A)(a) of the FBTAA is satisfied.

Paragraph 60(2A)(b) of the FBTAA

In determining whether the payment of an employee's rent by the Company to an unrelated third party under a salary sacrifice agreement is 'in respect of a remote area housing rent', it is necessary to consider subsection 142(1A) of the FBTAA which sets out the conditions for a remote area housing rent.

Subsection 142(1A) of the FBTAA is set out below:

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;

(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 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.

Paragraph 142(1A)(a) of the FBTAA

Based on the facts provided, employees who rent their accommodation directly (which is their usual place of residence) via a third party - where rent to the unrelated third party is paid by the Company on the employee's behalf - are employees of the Company.

Further, according to the facts, the accommodation rented by the Company's employees will be within or in close proximity to the Company's service area.

As concluded in the response to Question 1 above (with specific regard to paragraph 58ZC(2)(a) of the FBTAA), the Company's employees who reside within the Company's service area do not reside in, or adjacent to, an eligible urban area. With specific regard to employees who reside in close proximity to (and not within) the Company's service area, it is assumed for the purposes of this Private Ruling that these employees do not reside in, or adjacent to, an eligible urban area as defined in subsection 140(1) of the FBTAA. Such a conclusion also applies to the condition at paragraph 142(1A)(a) of the FBTAA in respect of Arrangement Three.

Therefore, the condition in paragraph 142(1A)(a) of the FBTAA is satisfied.

Paragraph 142(1A)(b) of the FBTAA

The 'common conditions' as set out in subsection 142(2E) of the FBTAA are iterated below:

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.

It is accepted that it is necessary for the Company to provide residential accommodation to its employees, as it is customary for employers in the industry to provide residential accommodation to its employees free of charge or for a rent that is less than market value.

Therefore, the 'common conditions' in subsection 142(2E) of the FBTAA are satisfied. As such, paragraph 142(1A)(b) of the FBTAA is satisfied.

Paragraph 142(1A)(d) of the FBTAA

A discussion surrounding the definition of a 'non-arm's length arrangement' and an 'arm's length transaction' is provided in the response to Question 1 above (with specific regard to paragraph 58ZC(2)(e) of the FBTAA).

All employees who elect to be subject to Arrangement Three do so by entering into a salary sacrifice agreement with the Company where they forego an amount of salary equal to the amount of the rent paid by the Company. Therefore, it is accepted that Company will grant an expense payment benefit to its employees under Arrangement Three under an arm's length arrangement.

The response to Question 1 above discussed - pursuant to paragraph 58ZC(2)(e) of the FBTAA - whether Arrangements One or Two were entered into by the Company and its employees for the purpose of enabling the Company to obtain the benefit of the application of this section 58ZC of the FBTAA. With respect to Arrangement Three, it is similarly necessary to consider whether an arrangement under Arrangement Three is entered into by the Company and its employees for the purpose of enabling the Company to obtain the benefit of the application of section 60 of the FBTAA (which pertains to the reduction in taxable value of fringe benefits associated with remote area housing).

The Commissioner considers that there are no overt acts by which one could predicate that Arrangement Three has been implemented by any of the parties for the purpose of allowing the Company to enjoy the benefits of the tax reduction under section 60 of the FBTAA. The arrangement can be explained as being one of ordinary business dealings as is customary in the Company's industry.

In particular, where the Company and certain employees enter into Arrangement Three, such an arrangement is entered into by each of the relevant parties for the purpose of enabling the Company to provide the benefit of housing to its employee whilst the employee remains currently employed.

Therefore, it is accepted that when Arrangement Three is entered into by the Company and its employees, they are not entered into for the purpose of obtaining the benefit of section 60 of the FBTAA. As such, the condition in paragraph 142(1A)(d) of the FBTAA is satisfied.

Based on the above discussion, the conditions in subsection 142(1A) of the FBTAA are satisfied, which means that the payment of an employee's rent by the Company to an unrelated third party under a salary sacrifice agreement (under Arrangement Three) is 'in respect of a remote area housing rent'. As such, the condition in paragraph 60(2A)(b) of the FBTAA is satisfied.

Paragraph 60(2A)(c) of the FBTAA

Subsection 136(1) of the FBTAA defines a 'unit of accommodation' to include a house, flat or home unit, and accommodation in house, flat or home unit.

As per the response to Question 1 above, the Commissioner's view on what is meant by 'usual place of residence' is considered in MT 2030, which provides that a person's 'usual place of residence':

• must be a place of residence that they dwell permanently, and not temporarily, and

• is presumed to be near where they are employed permanently.

Based on the facts provided, all accommodation rented under Arrangement Three will be the usual place of residence of the Company's employees in accordance with the Commissioner's view in MT 2030.

Therefore, the condition in paragraph 60(2A)(c) of the FBTAA is satisfied.

Paragraph 60(2A)(d) of the FBTAA

The same principles/reasons underlying the conclusion formed above in respect of paragraph 142(1A)(d) of the FBTAA are also applicable to paragraph 60(2A)(d) of the FBTAA.

Further, in ATO Interpretative Decision ATO ID 2003/159 Remote area housing: reduction of taxable value - remote area housing rent, the Commissioner considered that paragraph 60(2A)(d) of the FBTAA did not apply to a similar arrangement to Arrangement Three.

Therefore, the condition in paragraph 60(2A)(d) of the FBTAA is satisfied.

Conclusion

In circumstances where the Company and certain employees enter into a housing arrangement under Arrangement Three, an 'expense payment benefit' is provided pursuant to subsection 20(a) of the FBTAA.

As per the discussion above, each of the conditions in subsection 60(2A) of the FBTAA - which assist in determining whether the payment of an employee's rent by the Company to an unrelated third party under a salary sacrifice agreement is reducible - are satisfied. Therefore, the taxable value of the applicable expense payment benefit under Arrangement Three is reducible by 50% pursuant to subsection 60(2A) of the FBTAA.

Question 3

Will the provision of an expense payment benefit by the Company to an employee, where the employee's expenditure is in relation to interest on a loan, be reducible in accordance with subsection 60(2) of the FBTAA?

Summary

The provision of an expense benefit payment benefit by the Company to an employee, where the employee's expenditure is in relation to interest on a loan, will be reducible in accordance with subsection 60(2) of the FBTAA.

Detailed reasoning

Is an expense payment benefit provided?

The question of whether an expense payment benefit is provided by the Company to the employee - where the employee's expenditure is in relation to interest on a loan - is relevant only to Arrangement Four, as described in the facts.

Expense payment benefits are defined in section 20 of the FBTAA as iterated in the response to Question 2 above.

In circumstances where the Company reimburses an employee for the interest incurred on a housing loan under a salary sacrifice agreement, an expense payment benefit is provided pursuant to paragraph 20(b) of the FBTAA.

Is the taxable value of an expense payment benefit (in relation to interest on a loan) reducible?

Subsection 60(2) of the FBTAA provides that the taxable value of an expense payment benefit shall be reduced by 50% where the following conditions apply:

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 interest in respect of a remote area housing loan connected with a dwelling;

(c) the recipient occupied or used the dwelling as his or her usual place of residence during a period (in this subsection called the "occupation period") during which the interest 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 order to determine whether the Company reimbursing an employee under a salary sacrifice agreement for the employee's interest incurred on a housing loan is reducible, a discussion is provided below in respect of whether each element or condition in subsection 60(2) of the FBTAA is satisfied.

Paragraph 60(2)(a) of the FBTAA

Based on the facts provided, the recipient of an expense payment benefit (as provided by the Company) is an employee of the Company.

Therefore, the condition in paragraph 60(2)(a) of the FBTAA is satisfied.

Paragraph 60(2)(b) of the FBTAA

In determining whether the reimbursement to an employee by the Company under a salary sacrifice agreement of interest incurred by the employee under a mortgage is 'in respect of a remote area housing loan', it is necessary to consider subsection 142(1) of the FBTAA which sets out the conditions for a remote area housing loan.

Subsection 142(1) of the FBTAA is set out below:

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:

(i) 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

(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 loan was not made to the employee pursuant to:

(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.

Paragraph 142(1)(a) of the FBTAA

Based on the facts provided, employees under Arrangement Four who own their own accommodation (which is their usual place of residence), and are reimbursed by the Company for the interest component of the employee's housing loan, are employees of the Company.

Further, according to the facts, the accommodation owned by the Company's employees will be within or in close proximity to the Company's service area.

As concluded in the response to Question 1 above (with specific regard to paragraph 58ZC(2)(a) of the FBTAA), the Company's employees who reside within the Company's service area do not reside in, or adjacent to, an eligible urban area. With specific regard to employees who reside in close proximity to (and not within) the Company's service area, it is assumed for the purposes of this Private Ruling that these employees do not reside in, or adjacent to, an eligible urban area as defined in subsection 140(1) of the FBTAA. Such a conclusion also applies to the condition at paragraph 142(1)(a) of the FBTAA in respect of Arrangement Four.

Therefore, the condition in paragraph 142(1)(a) of the FBTAA is satisfied.

Paragraph 142(1)(b) of the FBTAA

The 'common conditions' as set out in subsection 142(2E) of the FBTAA are iterated in the response to Question 2 above.

It is accepted that it is necessary for the Company to provide housing assistance to its employees, as it is customary for employers in the industry to provide residential accommodation to its employees free of charge or for a rent that is less than market value.

Therefore, the 'common conditions' in subsection 142(2E) of the FBTAA are satisfied. As such, paragraph 142(1)(b) of the FBTAA is satisfied.

Paragraph 142(1)(d) of the FBTAA

A discussion surrounding the definition of a 'non-arm's length arrangement' and an 'arm's length transaction' is provided in the response to Question 1 above (with specific regard to paragraph 58ZC(2)(e) of the FBTAA).

All employees who elect to be subject to Arrangement Four do so by entering into a salary sacrifice agreement with the Company where they forego an amount of salary equal to the amount of the interest reimbursed by the Company in respect of the employee's housing loan. Therefore, it is accepted that the Company will grant an expense payment benefit to its employees under Arrangement Four under an arm's length arrangement.

The responses to Questions 1 and 2 above discussed - pursuant to paragraph 58ZC(2)(e) of the FBTAA - whether Arrangements One or Two were entered into by the Company and its employees for the purpose of enabling the Company to obtain the benefit of the application of this section 58ZC of the FBTAA. With respect to Arrangement Four, it is similarly necessary to consider whether an arrangement under Arrangement Four is entered into by the Company and its employees for the purpose of enabling the Company to obtain the benefit of the application of section 60 of the FBTAA (which pertains to the reduction in taxable value of fringe benefits associated with remote area housing).

The Commissioner considers that there are no overt acts by which one could predicate that Arrangement Four has been implemented by any of the parties for the purpose of allowing the Company to enjoy the benefits of the tax reduction under section 60 of the FBTAA. The arrangement can be explained as being one of ordinary business dealings as is customary in the Company's industry.

In particular, where the Company and certain employees enter into Arrangement Four, such an arrangement is entered into by each of the relevant parties for the purpose of enabling the Company to provide the benefit of housing to its employee whilst the employee remains currently employed.

Therefore, it is accepted that when Arrangement Four is entered into by the Company and its employees, they are not entered into for the purpose of obtaining the benefit of section 60 of the FBTAA. As such, the condition in paragraph 142(1)(d) of the FBTAA is satisfied.

Based on the above discussion, the conditions in subsection 142(1) of the FBTAA are satisfied, which means that the reimbursement to an employee by the Company under a salary sacrifice agreement of interest incurred by the employee under a mortgage (under Arrangement Four) is 'in respect of a remote area housing loan'. As such, the condition in paragraph 60(2)(b) of the FBTAA is satisfied.

Paragraph 60(2)(c) of the FBTAA

Subsection 136(1) of the FBTAA defines a 'unit of accommodation' to include a house, flat or home unit, and accommodation in house, flat or home unit.

As per the response to Question 1 above, the Commissioner's view on what is meant by 'usual place of residence' is considered in MT 2030, which provides that a person's 'usual place of residence':

• must be a place of residence that they dwell permanently, and not temporarily, and

• is presumed to be near where they are employed permanently.

Based on the facts provided, accommodation owned by employees under Arrangement Four will be the usual place of residence of those employees of the Company in accordance with the Commissioner's view in MT 2030.

Therefore, the condition in paragraph 60(2)(c) of the FBTAA is satisfied.

Paragraph 60(2)(d) of the FBTAA

The same principles/reasons underlying the conclusion formed above in respect of paragraph 142(1)(d) of the FBTAA are also applicable to paragraph 60(2)(d) of the FBTAA.

Further, in ATO Interpretative Decision ATO ID 2003/157 Remote area housing: reduction of taxable value - remote area housing loan interest, the Commissioner considered that paragraph 60(2)(d) of the FBTAA did not apply to a similar arrangement to Arrangement Four.

Therefore, the condition in paragraph 60(2)(d) of the FBTAA is satisfied.

Conclusion

In circumstances where the Company and certain employees enter into an arrangement under Arrangement Four, an 'expense payment benefit' is provided pursuant to subsection 20(b) of the FBTAA.

As per the discussion above, each of the conditions in subsection 60(2) of the FBTAA - which assist in determining whether the amount of reimbursement to an employee by the Company under a salary sacrifice agreement of interest incurred by the employee under a mortgage is reducible - are satisfied. Therefore, the taxable value of the applicable expense payment benefit under Arrangement Four is reducible by 50% pursuant to subsection 60(2) of the FBTAA.

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