Edited version of your written advice

Authorisation Number: 1051263228165

Date of advice: 3 August 2017

Ruling

Subject: Fringe benefit tax - remote area housing benefit

Question 1

Is the provision of the house to the employee an exempt remote area housing benefit under section 58ZC of the Fringe Benefits Tax Assessment Act 1986?

Answer

Yes

This ruling applies for the following periods:

Year ended 31 March 2018

The scheme commences on:

January 2017

Relevant facts and circumstances

The taxpayer owns a business which conducts transport and retailing activities.

The business’ head office is based in 'Base’, while the business activities are conducted in 'Remote Town’. The partners of the business reside in Base.

The taxpayer does not maintain a shop front in Remote Town. All sales and distribution are conducted from a custom built van.

The business presently services an area covering approximately 1100 kilometres.

From the beginning of 2017, the taxpayer has employed a family member to manage the business activities. The terms of this Letter of Engagement require that they reside in Remote Town. The taxpayer pays the family member, as manager, an arms-length salary and provides a house in Remote Town rent free. The manager is the only employee in your business.

The taxpayer stated that it is necessary to provide a remuneration package which includes the provision of a suitable rent free house to attract and retain a manager, and to match that offered by other employers in the area in similar industries. It is also necessary to provide the employee with a property so that the van can be parked securely.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 25

Fringe Benefits Tax Assessment Act 1986 section 58

Fringe Benefits Tax Assessment Act 1986 subsection 58ZC(1)

Fringe Benefits Tax Assessment Act 1986 subsection 58ZC(2)

Fringe Benefits Tax Assessment Act 1986 paragraph 58ZC(2)(a)

Fringe Benefits Tax Assessment Act 1986 paragraph 58ZC(2)(b)

Fringe Benefits Tax Assessment Act 1986 paragraph 58ZC(2)(d)

Fringe Benefits Tax Assessment Act 1986 paragraph 58ZC(2)(e)

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 subsection 140(1)

Reasons for decision

Issue 1

Question 1

Summary

The provision of a house to the employee in Remote Town in the circumstances described, is an exempt remote area housing benefit as all the requirements of subsection 58ZC(2) of the Fringe Benefits Tax Administration Act 1986 (FBTAA) are satisfied.

As such, the housing benefit is not subject to FBT.

Detailed reasoning

Housing benefits

A housing benefit arises where an employee is provided with the right to use a unit of accommodation, and the lease or licence which grants that right exists at a time when that unit of accommodation is the usual place of residence of the employee (section 25 of the FBTAA).

The term 'unit of accommodation’ is defined, for FBT purposes, in subsection 136(1) of the FBTAA and includes 'a house’.

The provision of the right to use the house in Remote Town to the Employee as their usual place of residence constitutes provision of a housing benefit.

Remote area housing benefits

Under subsection 58ZC(1) of the FBTAA, a housing benefit that is a 'remote area housing benefit’ is an exempt benefit. An exempt benefit is not a fringe benefit (subsection 136(1) of the FBTAA), and as such, is not subject to FBT.

Under subsection 58ZC(2) of the FBTAA, four requirements must be satisfied for a housing benefit to be a 'remote area housing benefit’

Accommodation must be located in a remote area

Paragraph 58ZC(2)(a) of the FBTAA requires that for the whole of the tenancy period the unit of accommodation was not at a location in, or adjacent to, an eligible urban area. Where a location is not 'in, or adjacent to, an eligible urban area’, it is a remote area.

The parameters defining 'eligible urban area’ and 'adjacent to an eligible urban area are set out in subsection 140(1) of the FBTAA.

Assistance for determining if a location is in a remote area is provided on the ATO website in the document Fringe benefits tax – remote areas (search at www.ato.gov.au using the quick code QC 25906), which contains two lists.

List 1 in Fringe benefits tax – remote areas lists eligible urban, remote and non-remote areas and is the relevant list for your circumstances. Remote Town is included in List 1 as a remote area for FBT purposes.

The taxpayer has provided the housing benefit since early 2017. From this time, the relevant unit of accommodation has been the house located in Remote Town.

As Fringe benefits tax – remote areas specifies Remote Town is a remote area, it is 'not at a location in, or adjacent to, an eligible urban area, and paragraph 58ZC(2)(a) of the FBTAA is satisfied.

The usual place of employment is the remote area

Paragraph 58ZC(2)(b) of the FBTAA, requires that for the whole of the tenancy period the accommodation was occupied by a person who was a current employee of the employer and the usual place of employment of the employee was in the remote area.

As detailed in the facts, the house has been occupied by the Employee since commencement of the employment arrangement. Throughout this time, the Employee was a current employee and their usual place of employment was in Remote Town.

As such, paragraph 58ZC(2)(b) is satisfied.

Provision of accommodation is necessary

Paragraph 58ZC(2)(d) of the FBTAA requires that it was necessary for the employer to provide residential accommodation for the employee because:

(i) the nature of the employer’s business was such that employees were likely 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 employer’s industry to provide free or subsidised residential accommodation for employees.

Subparagraphs 58ZC(2)(d)(i) and (ii) are not applicable in this case, therefore, it is necessary to consider if subparagraph 58ZC(2)(d)(iii) is satisfied.

In relation to subparagraph 58ZC(2)(d)(iii) of the FBTAA, 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 employee? (TD 94/97) explains:

2. A benefit will be accepted as being customary where it is normal or common for employees of that class or job description in that industry to be provided with the same or similar benefits. It is not necessary that all or even the majority of employees in the industry receive the benefit. Where the provision of the benefit is unique, rare or unusual within an industry it would not be accepted as being customary.

The taxpayer stated that it was necessary to provide a remuneration package which included the provision of a suitable accommodation to that offered by other employers in the area in similar situation. The taxpayer also stated that it was necessary to provide an accommodation that has sufficient parking areas and security features.

We accept that it would be customary for an employer in the transport or retail industry to offer free or subsidised housing in order to attract and retain an employee of that type to a remote area such as Remote Town. Similarly, it would not be unusual for such an employer to provide an employee with suitable housing where the terms of employment require secure storage at the employee’s residence.

As such, paragraph 58ZC(2)(d) of the FBTAA is satisfied.

The arrangement is bona fide

Paragraph 58ZC(2)(e) of the FBTAA requires that the recipients overall housing right was not granted:

(i) under a non-arm’s length arrangement, or

(ii) for purposes that include enabling the employer to obtain the remote area housing benefit exemption in section 58ZC of the FBTAA.

Within subsection 136(1) of the FBTAA, the expression non-arm's length arrangement is defined to mean an arrangement other than an arm's length arrangement. The term arm's length arrangement is not defined in the FBTAA. However section 136(1) defines arm's length transaction to mean a transaction where the parties to the transaction are dealing with each other at arm's length in relation to the transaction.

The expression at arm's length is defined in The CCH Macquarie Concise Dictionary of Modern Law , 1988, CCH Australia Ltd/ Macquarie Library Pty Ltd, Sydney as meaning that the parties to a transaction are not connected in such a way as to bring into question the ability of one to act independently of the other.

Further, the term has been considered in ATO ID 2005/156 Fringe Benefit Tax Exempt benefit: remote area housing – non-arm’s length arrangement (ATO ID 2015/156). ATO ID 2005/156 concludes that even where the employer and employee are not at arm’s length, a recipients overall housing right can be granted as part of an arm’s length arrangement.

That the employee is the partners’ family member may indicate a non-arm’s length relationship between employee and employer. However, it is not sufficient to look solely at the relationship between the parties, without also examining the nature of the particular arrangement between them (Barnsdall .v FCT (1988) 81 ALR 173). The parties must deal with each other as arm’s length parties would normally do.

The employee is receiving the housing benefit because of their duties of employment. The employment is based in the remote area of Remote Town where it is difficult to attract and retain employees in similar industries. Further, the taxpayer stated that the employer would provide the same remuneration package to anyone who is in the same position as the current employee.

We consider that the arrangement was entered into independently of the parties’ personal relationship and the overall housing right was not provided to the recipient under a non-arm’s length arrangement.

For the same reasons, we also consider that the housing benefit was not provided to the employee for the purpose of obtaining the remote area housing benefit exemption.

As such, paragraph 58ZC(2)(e) is satisfied.

Conclusion

As all of the requirements of subsection 58ZC(2) of the FBTAA are satisfied under the housing benefit arrangement described in the facts, the housing benefit is a remote area housing benefit, and is an exempt benefit under subsection 58ZC(1) that is not subject to FBT.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).