Edited version of your written advice

Authorisation Number: 1051299649092

Ruling

Subject: Relocation exemptions

Question 1

Will the reimbursement to the employee of the selling costs associated with the sale of the employee’s original Location A property be exempt benefits under section 58C of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes

Question 2

Will the reimbursement to the employee of the acquisition costs associated with the purchase of a proposed property near the employee’s place of employment in Location B be exempt benefits under section 58C of the FBTAA?

Answer

Yes

This ruling applies for the following periods:

Year ended 31 March 2016

Year ended 31 March 2017

Year ended 31 March 2018

Year ended 31 March 2019

Year ended 31 March 2020

The scheme commences on:

1 April 2015

Relevant facts and circumstances

On Date A Company A won a tender on a project located at address A in Location B.

At the time the contract was awarded Company A had no presence in Location B so they sent an employee from Location A to Location B to manage the project from address A.

At the time of being sent to Location A, the employee and the employee’s spouse jointly owned a property in Location A where they were residing. This property was treated by the employee and spouse as their main residence for capital gains tax purposes.

The employee’s spouse remained in Location A and on most weekends the employee returned to Location A.

It was the employee’s intent was to return to Location A to reside when the contract in Location B ended.

Company A subsequently won additional contacts in Location B and in Month A decided to open a permanent office in Location B. The employee was nominated to manage the new Location B office and accepted the offer to manage the new office located at address B.

In Month B the employee put their Location A property on the market and exchanged the contract of sale on Date B.

Location B Accommodation

In respect of this accommodation the employee was initially paid a living-away-from-home allowance.

The employee then lived in accommodation provided by Company A before the employee rented their own property.

The employee and the employee’s spouse intend to purchase a property in Location B by Date C.

Salary Sacrifice Arrangement (SSA)

It is the employee’s intent to enter into a SSA in respect of costs incurred in relocating to Location B.

In respect of the Location A property these will be costs in respect of agent’s commission, advertising, discharge of mortgage fees and legal fees.

In respect of the property to be purchased in Location B these will be costs in respect of legal fees, stamp duty, agent’s fees and borrowing costs.

The employee will supply Company A with all the invoices and other documentation for all the expenses he wished to be reimbursed under the SSA.

Relevant legislative provisions

Fringe benefits Tax Assessment Act 1986 section 58C

Fringe benefits Tax Assessment Act 1986 section 141A

Reasons for decision

All legislative references are to the FBTAA unless otherwise indicated.

Summary

Section 58C applies to exempt the reimbursement of expenses incurred in respect of the sale of the Location A property and the purchase of the Location B property.

Detailed reasoning

Section 58C exempts certain benefits in relation to sale and acquisition of a ‘home’ because an employee was required to change their usual place of residence in order to perform their duties of employment.

For the section to apply the pre-conditions set down in in subsection 58C(1) need to be satisfied.

Pre-conditions for exemption –subsection 58C(1)

Subsection 58C(1) states in part:

Where:

(a) during a particular period (in this subsection called the ``former home holding period''), an employee of an employer, or an associate of an employee of an employer, holds:

(i) a prescribed interest in land on which:

(A) there is a building constituting or containing a dwelling; . . .

(ii) a prescribed interest in a stratum unit in relation to a dwelling; or

(iii) a proprietary right in respect of a dwelling, being a flat or home unit;

(b) 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;

(c) the employer first notifies the employee at a time (in this subsection called the ``notice time'') during the former home holding period that the employee is required to perform the duties of that employment at the employee's new place of employment; and

(d) at the notice time, the employee occupied, or proposed to occupy, the dwelling, or proposed to occupy the proposed dwelling, as his or her usual place of residence; . .

Prescribed interest in Location A property?

The employee owned property in Location A where the employee was residing when sent to work at Location B. This would be a ‘prescribed interest‘.

Usual place of residence

In looking at whether the Location A property was the employee’s ‘usual place of residence’ chapter 11.2 of Fringe benefits tax: a guide for employers (employers guide) states in part:

. . .An employee's place of residence is the place at which they reside or have some form of sleeping accommodation, regardless of whether on a permanent or temporary basis, or on a shared basis. However, the question of whether an employee is living away from their usual place of residence involves a consideration of two places of residence - the place where the employee is living at the time, and some other place.

An employee is regarded as living away from their usual place of residence if they would have continued to live at the former place had the duties of their employment not required them to work temporarily in the new locality.

Example:

Former home continues to be usual place of residence

An employee is transferred by his employer from Sydney to Newcastle to help install a new item of plant. For the duration of this appointment, the employee's immediate family continues to live at his former address, where he returns every weekend. . .

In this case the employee was initially working in Location B to fulfil a contract and was working at Address A. It was the employee’s intent to return to Location A to live when the project ended. While working in Location B the employee’s spouse continued to reside in the Location A property and the employee returned to Location A most weekends.

Based on the example in the employers guide the apartment in Location A would have been the employee’s usual place of residence.

Required to change usual place of residence?

In respect of being ‘required’ to change residence ATO Interpretative Decision ATO ID 2013/8 Fringe Benefits Tax Employee required to change usual place of residence in order to perform duties of employment states in part:

Therefore, it is considered that the term 'required' as it is used in subparagraph 58B(1)(b)(iii) 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 Month A Company A decided to open a permanent office in Location B and the employee was offered a permanent position in the new office.

Had Company A not decided to open an office in Location B, the employee would have returned to Location A when the contract was completed.

However once the employee accepted the permanent position in Location B the decision was made to sell the Location A property and the employee and the employee’s spouse relocated to Location B.

Paragraphs 83 and 84 of Draft Taxation Ruling TR 2017/D6 Income tax and fringe benefits tax: when are deductions allowed for employees' travel expenses?, states:

An employee working away from home for an extended period who is accompanied by their family is likely to have relocated, and is therefore not living away from home.

The transfer of family belongings to the new location or the employee's children attending school at the new location would support this conclusion. In this case, accommodation and living costs at the new location are of a private nature and are not deductible

Following paragraphs 83 and 84 of TR 2017/D6 and ATO ID 2013/8, the employee’s usual place of residence changed from Location A to Location B in order to perform the duties of employment at the new Location B office.

Required to perform the duties of that employment at the employee's new place of employment?

Paragraph 58C(1)(c) states:

the employer first notifies the employee at a time (in this subsection called the ``notice time'') during the former home holding period that the employee is required to perform the duties of that employment at the employee's new place of employment

In looking at when employee was first notified of the new place of employment it would have to be at some point after Company A acquired a property to use as its Location B office.

The time that the employee was advised that this Location B office was to be the employee’s new permanent place of employment was during the ‘former holding period’ as the employee still had an interest in the Location A property.

At notice time the employee occupied Location A property as usual place of residence?

When the employee was notified of the new place of employment at Address B the Location A property was being occupied as the employee’s usual place of residence

Conclusion subsection 58C(1)

As all the pre-conditions have been met subsection 58C(1) will be satisfied.

Exemption in respect of sale of the Location A property subsection 58C(2)

Subsection 58C(2) 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.

Incidental to the sale of that interest or right

Section 141A of the FBTAA provides a list the expenses that are ‘incidental to the sale of the interest or right’ and chapter 20.4 of the Employers guide states in part:

Costs incidental to the sale and/or purchase of a house are stamp duty, advertising, legal fees, agent commission, discharge of a mortgage, expenses of borrowing, or any similar capital expenses.

In respect of the Location A property, Company A will pays costs in respect of agent’s commission, advertising, discharge of mortgage fees and legal fees under the proposed SSA.

These expenses are all ‘incidental to the sale of the interest or right’.

Contract for the sale of the interest or right within 2 years of commencement of employment at new place of employment

The contract for sale was entered into on Date B.

The employee was advised in Month A that the employee had to work at the new Location B office.

Although the exact start date was not provided the 2 year limit would not have expired when the contract for sale had been completed.

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?

Under the SSA the employee will be required to provide the relevant documentary evidence.

The benefit is not provided under a non-arm's length arrangement?

There is nothing to indicate the proposed SSA will not be an arm’s length arrangement.

Conclusion subsection 58C(2)

As all the pre-conditions have been met the exemption will apply to the payment of the expenses relating to the sale of the Location A property.

Exemption in respect of the acquisition of the Location B property –subsection 58C(3)

Subsection 58C(3) states:

Where:

(a) at a particular time, the employee or an associate of the employee acquires:

(i) a prescribed interest in land on which:

(A) there is a building constituting or containing another dwelling;

(B) the employee or associate proposes to construct, or complete the construction of, a building constituting or containing another dwelling;

(ii) a prescribed interest in a stratum unit in relation to another dwelling; or

(ii) a proprietary right in respect of another dwelling, being a flat or home unit;

(b) the employee or associate acquires 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 that employment at the employee's new place of employment;

(c) the employee or associate entered into a contract for the acquisition of the interest or right on a day (the contract day) within 4 years after the new employment day;

(ca) if, on the contract day, the employee or associate holds an interest or right in another dwelling in a situation where:

(i) if that interest or right were sold within 2 years after the new employment day; and

(ii) if a benefit of a kind referred to in subsection (2) were provided in relation to that interest or right;

the benefit would be an exempt benefit under subsection (2) - not more than 2 years have elapsed since the new employment day;

(d) immediately after the completion of the acquisition, the employee occupied the other dwelling, or proposed to occupy the other proposed dwelling, as his or her usual place of residence;

(e) any 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 acquisition of that interest or right;

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

(iii) an expense payment benefit where the recipients expenditure is in respect of the act of connecting or re-connecting a telephone service to the other dwelling or proposed dwelling;

(iv) a residual benefit where the recipients benefit is constituted by the act of connecting or re-connecting a telephone service to the other dwelling or proposed dwelling;

(v) an expense payment benefit where the recipients expenditure is in respect of the act of re-connecting gas or electricity to the other dwelling or proposed dwelling;

(vi) a residual benefit where the recipients benefit is constituted by the act of re-connecting gas or electricity to the other dwelling or proposed dwelling;

(f) if subparagraph (e)(iii) or (iv) applies - immediately before the change, a telephone service was provided to the unit of accommodation that was the employee's usual place of residence before the change;

(g) if subparagraph (e)(i), (iii) or (v) 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

(h) 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.

The employee or an associate of the employee acquires a prescribed interest

The employee and the employee’s spouse intend to purchase a property in Location B by Date C. Once they purchase the property they will have acquired the required prescribe interest.

Required to change usual place of residence?

This has been dealt with when looking at the pre-requisites in paragraph 58C(1)(b).

The employee or associate entered into a contract for the acquisition of the interest or right within 4 years after the new employment day

The new employment date will be the date the employee started at the Location B office.

Although the exact start date was not provided, if the Location B property is purchased by Date C this condition will be satisfied.

If, on the contract day, the employee or associate holds an interest or right in another dwelling

This paragraph does not apply as the Location B property is being purchased after the Location A property was sold.

Immediately after the completion of the acquisition, the employee occupied the other dwelling, or proposed to occupy the other proposed dwelling, as his or her usual place of residence

There is nothing to indicate that once the Location B property is purchased (or constructed) that it will not be immediately occupied as the employee’s usual place of residence.

Any of the following benefits is provided in respect of that employment of the employee

Under the proposed SSA the expenses to be paid in respect of the Location B property are legal fees, stamp duty, agent’s fees and borrowing costs.

As explained when looking at the expenses being paid in respect of the Location A property these are all expenses incidental to the acquisition of that interest or right.

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?

Under the SSA the employee will be required to provide the relevant documentary evidence.

The benefit is not provided under a non-arm's length arrangement?

There is nothing to indicate the proposed SSA will not be an arm’s length arrangement.

Conclusion subsection 58C(3)

As all the pre-conditions have been met the exemption would apply to the payment of the expenses relating to the purchase of the Location B property.

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