Edited version of your written advice

Authorisation Number: 1012984002486

Date of advice: 31 March 2016

Ruling

Subject: Fringe Benefit - Provision of on-site accommodation to company director

Question

Does a fringe benefit arise if a property, owned by a company (the Company), is provided to the director of the Company for use as their residential premises at no cost?

Answer

Yes.

The period to which this ruling applies

1 April 2011 to 31 March 2015.

Date in which the scheme commences

1 April 2011.

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 owned the management rights for a group of apartments in a high-rise building (the Development). These apartments were available for short-term holiday letting. The Company owned a residential unit on the ground floor of the Development that was adjacent to the reception area, office space.

Under a Caretakers Agreement between the Body Corporate of the Development (the Body Corporate) and the Company (being the 'Caretaker'), it was required that the on-site manager - the director of the Company - reside in a unit on the premises so they were available 24 hours per day. The director was paid a salary by the company for their work as on-site manager. The director lived in the unit as their, private residence however they also used the unit for work-related purposes.

The Caretakers Agreement was separate to the Company acting as the manager of the units in the holiday/rental pool. The Company had a separate management agreement with each unit owner to cover the role of rental manager. These management agreements were all similar, but differed in many cases as they were tailored to each unit owner's requirements.

The Caretakers Agreement and the individual management agreements did not require the director of the Company to use the residential unit owned by the Company as a staff room; as a venue for Body Corporate meetings; or for laundering the various tenanted apartments' linen.

The director paid no rent to the Company for the use of the residential unit. The Company earned commission for managing the units in the rental pool. The Company employed other staff members, in addition to the director, to operate the building reception, perform administrative work, and to clean and maintain the units in the Development.

Your arguments in support of your private ruling application

The director provides the following as the reasons for the personal use of the residential unit owned by the Company as being exempt from Fringe Benefits Tax (FBT):

• Living on-site was a requirement under the Caretakers Agreement. This could not be avoided.

• While not a requirement under either the Caretakers Agreement or the individual management agreements:

• The unit was used as a staff room between the hours of 8:00am and 4:00pm (the opening hours of the reception) where all staff could take their breaks and use the amenities, including the kitchen and bathroom. The unit was left unlocked during those hours.

• The unit was often used for staff and apartment owners to attend monthly Body Corporate meetings.

• The director also used the unit to launder the various tenanted apartments' linen. The director of the Company washed the pool towels, face cloths, tea towels, mattress protectors and some quilts that did not require dry cleaning. This washing was undertaken by the Company's director on a daily basis. The washing of bed linen and bathroom towels was outsourced.

• As the resident manager, the director was on call 24 hours a day, seven days a week. The 'free rent' was part of their compensation.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 25

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 Paragraph 140(1)(a)

Fringe Benefits Tax Assessment Act 1986 Subsection 148(1)

Income Tax Assessment Act 1936 Section 318

Income Tax Assessment Act 1936 Schedule 2, Parts I and II

Reasons for decision

Summary

The provision by the Company to its director of a residential unit that the Company owns in the Development - for the director's personal use as residential premises at no cost - will constitute a fringe benefit.

Detailed reasoning

A 'fringe benefit' is defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), which holds that the following conditions must be satisfied:

1. A benefit is provided at any time during the year of tax.

2. The benefit is provided to an employee or an associate of the employee.

3. The benefit is provided by:

a. their employer; or

b. an associate of the employer; or

c. a third party other than the employer or an associate under an arrangement between the employer or associate of the employer and the third party; or

d. a third party other than the employer or an associate of the employer, if the employer or an associate of the employer:

i. participates in or facilitates the provision or receipt of the benefit; or

ii. participates in, facilitates or promotes a scheme or plan involving the provision of the benefit; and the employer or associate knows, or ought reasonably to know, that the employer or associate is doing so;

4. The benefit is provided in respect of the employment of the employee.

5. The benefit is not one that is specifically excluded as per paragraphs (f) to (s) of the definition of a fringe benefit in subsection 136(1) of the FBTAA.

In order to determine whether the provision of the Company's property to its director (for personal use as residential premises) constitutes a 'fringe benefit' as defined in subsection 136(1) of the FBTAA, a discussion is provided below in respect of whether each element or condition of the definition of a fringe benefit is satisfied.

A benefit is provided

Subsection 136(1) of the FBTAA provides a broad definition of a 'benefit' as including:

any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or is to be, provided under:

(a) an arrangement for or in relation to:

(i) the performance of work (including work of a professional nature), whether with or without the provision of property; …

The Company's director was provided with the right to occupy on-site accommodation (a residential unit owned by the Company) within the Development at no cost. As discussed below, the on-site accommodation has been received in respect of employment and would therefore be taken to have been received as part of an arrangement relating to the performance of work. Given this situation, the provision of on-site accommodation falls within the definition of a 'benefit' in subsection 136(1) of the FBTAA.

As such, the first condition (i.e. the provision of a 'benefit') of the definition of a 'fringe benefit' - as defined in subsection 136(1) of the FBTAA - is satisfied.

The benefit is provided to an employee or an associate of the employee

An 'employee' is defined in subsection 136(1) of the FBTAA to mean a current, future or former employee.

As the benefit (the provision of on-site accommodation) is provided to the director of the Company - and the director is an employee of the Company - the second condition (i.e. a benefit is provided to an employee) of the definition of a 'fringe benefit' as defined in subsection 136(1) of the FBTAA is satisfied.

The benefit is provided by an employer, an associate of the employer or a third party

'Employer' is defined in subsection 136(1) of the FBTAA to mean a current, future or former employer.

The definition of 'associate' adopts the meaning of that term given by Income Tax Assessment Act 1936 (ITAA 1936). The list of the associates of a company (the 'Primary Entity') is contained in subsection 318(2) of the ITAA 1936. Associates of the Primary Entity include the following:

• Another entity which has 'sufficient influence' over the Primary Entity, either in its own right or in conjunction with other entities.

• Another entity which holds a majority voting interest in the Primary Entity, either in its own right or in conjunction with other entities which would be treated as its associates under any of the other tests described in subsections 318(1), (2) or (3) of the ITAA 1936.

• A company which is sufficiently influenced by: (a) the Primary Entity; (b) another company, partnership, trustee or other person classed as an associate of the Primary Entity by virtue of subparagraph 318(2)(e)(i)(B) of the ITAA 1936; or (c) a company which is itself classed as an associate of the Primary Entity by reason of the application of the rules in paragraphs 318(2)(a), (b), (c) or (d) of the ITAA 1936; or (d) two or more of the above entities.

• A company where a majority voting interest is held by: (a) the Primary Entity; (b) entities which are classed as associates of the Primary Entity under any of the other rules in subsection 318(2) of the ITAA 1936; or (c) the Primary Entity and entities which are classed as associates of the Primary Entity under any of the other rules in subsection 318(2) of the ITAA 1936.

A company is 'sufficiently influenced' by others if, according to paragraph 318(6)(b) of the ITAA 1936, the company or its directors are accustomed to act in accordance with the directions, instructions or wishes of those others, or are under an obligation (formal or informal) to do so, or might reasonably be expected to do so.

Therefore, as the on-site accommodation (which is owned by the Company) is provided to the Company's director by the Company (the director's employer), the third condition (i.e. a benefit is provided by an employer, an associate of the employer or a third party under an arrangement with an employer) of the definition of a 'fringe benefit' as defined in subsection 136(1) of the FBTAA is satisfied.

The benefit is provided in respect of the employment of the employee

As per subsection 136(1) of the FBTAA, the term 'in respect of' - in relation to the employment of an employee - includes by reason of, by virtue of, or for or in relation directly or indirectly to, that employment.

Subsection 148(1) of the FBTAA stipulates that a benefit will be provided in respect of the employment of an employee:

• whether or not the benefit also relates to some other matter or thing

• whether the employment is past, present or future

• whether or not the benefit is surplus to the recipient's requirements

• whether or not the benefit is also provided to another person

• whether or not the benefit is offset by any inconvenience or disadvantage

• whether or not the benefit is provided or used, or required to be provided or used, in connection with any employment

• whether or not the provision of the benefit is in the nature of income, and

• whether or not the benefit is provided as a reward for services rendered, or to be rendered, by the employee.

In J & G Knowles & Associates Pty Ltd v Federal Commissioner of Taxation (2000) 96 FCR 402; 2000 ATC 4151; (2000) 44 ATR 22 (Knowles), the full Federal Court - in examining the meaning of 'in respect of' an employee's employment - held that the phrase required a 'nexus, some discernible and rational link, between the benefit and employment', though noted that 'what must be established is whether there is a sufficient or material, rather than a causal, connection or relationship between the benefit and the employment'. A similar view was also held in Essenbourne Pty Ltd v FC of T 2002 ATC 5201 and Starrim Pty Ltd v FCT (2000) 102 FCR 194; [2000] FCA 952; 2000 ATC 4460; (2000) 44 ATR 487.

The full Federal Court in Knowles also suggested that it would be useful to ask 'whether the benefit is a product or incident of the employment'.

To establish whether a sufficient or material connection exists between the provision of the accommodation and the employment of the employee, it is necessary to consider the circumstances in which it has been provided. The Company's director has been provided with on-site accommodation which allows the director to conduct caretaking duties as defined in the Caretakers Agreement between the Body Corporate and the Company. Given this connection between the on-site accommodation provided and the director's duties, it is clear that the accommodation was provided in respect of employment.

Therefore, the connection between the benefit received by the Company's director and the director's employment is material and sufficient, and not merely causal. If it were not for the Caretakers Agreement between the Body Corporate and the Company, the director of the Company would not have received the on-site accommodation benefit.

On the basis of the above discussion, the benefit (the provision of property for personal use as residential premises) provided to the director (employee) of the Company (employer) would be considered to be 'in respect of the employee's employment'.

As such, the fourth condition (i.e. a benefit is provided in respect of the employment of the employee) of the definition of a 'fringe benefit' as defined in subsection 136(1) of the FBTAA is satisfied.

The benefit is not specifically excluded from the definition of a fringe benefit

With respect to paragraphs (f) to (s) of the definition of a 'fringe benefit' in subsection 136(1) of the FBTAA, the relevant paragraph to consider is paragraph (g) which provides that an exempt benefit will not be a fringe benefit.

In considering whether the on-site accommodation provided by the Company to the Company's director falls within any of the exempt benefits listed in Part III of the FBTAA, it is necessary to initially determine the types of fringe benefits that may be applicable under the FBTAA. In the present circumstances, the benefit provided could constitute either a 'housing benefit' or a 'residual benefit'.

Housing benefit

Section 25 of the FBTAA defines a 'housing benefit' as:

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 (referred to in this section as the 'recipient') shall be taken to constitute a benefit provided by the provider to the recipient in respect of a year of tax.

Therefore, a housing benefit is a benefit that arises from a person being given a housing right. Subsection 136(1) of the FBTAA defines the term 'housing right' to mean:

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

The Company has given its director the right to occupy a residential unit that the Company owns (within the Development) and therefore the first aspect of 'accommodation right' would be met. However, to qualify as a housing right, the recipient - in this case, the director - must use the accommodation provided as their usual place of residence.

Miscellaneous Taxation Ruling MT 2030 Fringe benefits tax: living-away-from-home allowance benefits (MT 2030) discusses the meaning of 'usual place of residence'. Paragraphs 11 to 14 of MT 2030 state the following:

11. …"Place of residence" is defined in section 136 [of the FBTAA]. It means, in relation to a person, a place at which the person resides or a place at which the person has sleeping accommodation, whether on a permanent or temporary basis and whether or not on a shared basis.

12. A place of residence of a person is thus the place where he or she resides or has some form of sleeping accommodation. The customary meaning of the word "reside" is to dwell permanently or for a considerable time, or have one's abode for a time. In turn "residence" means the place, especially the house, in which one resides; a dwelling place; or a dwelling.

13. Various decisions of Taxation Boards of Review relating to the former section 51A of the Income Tax Assessment Act 1936, which authorised deductions for employees being paid a living-away-from-home allowance, deals with whether a particular employee was living away from his "usual place of abode" in order to perform his duties as an employee. In seeking assistance from the decisions in applying relevant provisions of the Act, it is considered that the words "residence" and "abode" may be taken as being synonymous. Accordingly, the decisions are useful in establishing principles for determining whether or not an employee may be regarded as living away from his or her usual place of residence for fringe benefits tax purposes.

14. 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…

Of further relevance are paragraphs 19 and 20 of MT 2030, which are outlined below:

19. An underlying theme of the [Taxation Boards of Review cases relating to the former section 51A of the Income Tax Assessment Act 1936] is a general presumption that a person's usual place of residence will be close to the place where he or she is permanently employed. Correspondingly, an employee who changes his or her place of residence because of a change in the location of a permanent job, whether by reason of a transfer with the same employer or a change of employment, would not usually be living away from home on moving to a new place of residence close to the new job location. That would be the case notwithstanding that the new place of residence was a temporary one pending the obtaining of suitable long term accommodation.

20. 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…

The above paragraphs of MT 2030 state the following general principles:

• There is a general presumption that an employee's usual place of residence is near where the employee is permanently employed.

• To be treated as living away from their usual place of residence, an employee needs to demonstrate that he or she has only moved temporarily to the new location to undertake the relevant work and will return, or there is a legitimate expectation of a return, to live at the employee's former place of residence on the cessation of the work at the new location.

• Whether an employee is living away from his or her usual place of residence depends on all of the facts of the particular case and is not solely dependent on whether the person is merely living away from his or her 'point of origin'.

In Roads and Traffic Authority of NSW v FC of T 93 ATC 4508; (1993) 26 ATR 76, it was held that where an employee is required by the employer, as an incident of their employment, to live close to their place of work, will give weight to an employee's place of residence.

In this case, the work of the Company's director requires the director (the employee) to be close to where the director is working (that is, to reside on-site and be on-call 24 hours a day, seven days a week). It is considered that the director is living in the accommodation provided by the Company (the employer) to be in close proximity to the current workplace. This indicates that the director's usual place of residence is the accommodation that is owned by the Company (the residential unit located in the Development) to which the director was given the right to occupy.

In terms of whether an appointment requiring an employee to live away from home is for a fixed term or indefinite, in Case 106 12 CTBR(NS) 106, a pilot was posted to London for a fixed two year term. While he was there, he received an allowance to allow him to maintain his standard of living while he was residing there. The Board of Review held that he was living away from home while in London and that the allowance constituted a living away from home allowance.

The director's employment with the Company is a permanent position. The employment is not temporary or for a finite duration. This indicates that the director's usual place of residence is the on-site accommodation provided by the Company.

Further, based on the facts, the majority of the director's time is spent at the accommodation provided by the Company. This indicates that the director's usual place of residence is the accommodation provided by the Company.

Therefore, it is considered that the on-site accommodation provided by the Company is the director's usual place of residence and, as such, all the conditions of a 'housing benefit' have been satisfied. The on-site accommodation provided to the director by the Company will thus be a 'housing benefit', unless exempted.

Residual benefit

Section 45 of the FBTAA defines a 'residual benefit' as:

A benefit is a residual benefit for the purpose of this Act if the benefit is not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 11 (inclusive).

The accommodation benefit being provided to the director will be a residual benefit if, in this case, it is not a housing benefit (as it is clear that the other benefit categories do not apply) and the director is living away from home.

As discussed above, the benefit provided to the Company's director constitutes a housing benefit. Therefore, as the benefit is not a residual benefit, the residual benefit exemption in subsection 47(5) of the FBTAA does not apply.

Housing benefit exemption

Division 6 of the FBTAA does not provide for any specific exemptions for housing benefits. Division 13 of the FBTAA, which contains miscellaneous benefit exemptions, contains an exemption for 'remote area housing benefits' in section 58ZC of the FBTAA. There are no other sections in the FBTAA which contain exemptions for housing benefits.

Section 58ZC of the FBTAA outlines a number of conditions, of which a housing benefit must meet all if it is to be exempt. The first of these conditions, as per paragraph 58ZC(2)(a) of the FBTAA, states:

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;…

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 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 location of the Development is 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.

However, the ATO maintains a list of eligible urban areas on its website, including a list of remote and non-remote towns for the purposes of subsection 140(1) of the FBTAA. That list specifically stipulates that the location of the Development is an 'eligible urban area' and that it is a 'non-remote area'.

Therefore, the accommodation benefit that the Company has provided to its director would not satisfy the condition stipulated in paragraph 58ZC(2)(a) of the FBTAA. As such, the benefit is not a remote area housing benefit.

The on-site accommodation benefit provided by the Company thus does not qualify as an exempt remote area housing benefit. There are also no other exemptions for housing benefits under which the benefit could qualify.

Therefore, the on-site accommodation benefit provided by the Company will be a housing benefit under the FBTAA. It is not a living away from home residual fringe benefit, nor an exempt housing benefit. This means that the on-site accommodation benefit will not be an exempt benefit and as such, the fifth condition (i.e. the benefit provided is not specifically excluded) of the definition of a 'fringe benefit' as defined in subsection 136(1) of the FBTAA is satisfied.

Regardless of the fact that the Company's director is required to live on-site/be on-call as a condition of employment, and that the residential unit was also used as a staff room, to hold Body Corporate meetings and to launder the various tenanted apartments' linen, this does not affect the way in which the FBT law is applied to this arrangement. In particular, it does not alter the nature of the benefit that is being provided in that the provision of on-site accommodation to the Company's director is of a private nature and represents a housing fringe benefit under section 25 of the FBTAA.

Conclusion

Each of the relevant conditions of the definition of a 'fringe benefit' as defined in subsection 136(1) of the FBTAA are satisfied. Therefore, the provision by the Company of on-site accommodation (the residential unit) within the Development to the Company's director for use as residential premises at no cost gives rise to a 'fringe benefit' as defined in subsection 136(1) of the FBTAA.

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