Edited version of your written advice

Authorisation Number: 1051475658100

Date of advice: 21 January 2019

Ruling

Subject: Temporary accommodation relating to relocation

Question 1

Having regard for the employee’s flexible work arrangement, does the local office to where the employee lives constitute a ‘new place of employment’ for the employee for the purposes of section 61C of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

No

Question 2

Does the temporary accommodation to be provided to the employee in the local office to where the employee lives satisfy the remaining eligible reduction requirements pursuant to section 61C of the FBTAA 1986?

Answer

No

This ruling applies for the following periods:

1 April 2018 to 31 March 2019

1 April 2019 to 31 March 2020

The scheme commences on:

October 2018

Relevant facts and circumstances

The employer has multiple business premises across Australia.

Prior to being relocated the employee resided and maintained their usual place of residence abroad.

The employee has been permanently transferred to Australia. If the employee had not accepted the transfer they would have remained abroad.

The transfer letter provided to the employee states that the transfer is an offer of employment in a capital city of Australia.

The employee and his family are seeking to establish their usual place of residence in a different capital city to where the employment is located.

The transfer letter provides for a flexible work arrangement whereby the employee will work alternate weeks in the one capital city and then the other capital city (where they will be living), constituting 50/50 in both offices. (This is subject to a trial period of three months).

The employer is intending to provide the employee and their family with short-term temporary accommodation in the capital city which is not where the offer of employment has been given, for a period of no more than six months while the employee locates long-term place of residence.

The employee will provide the employer with the required declaration.

The employer will not be providing temporary accommodation for the employee in the city where the offer of employment has been made.

The flexible working arrangement is for a three month trial period only.

At the end of the trial period the flexible working arrangement will either:-

● Continue in the same or modified form subject to further review;

● The trial will be extended; or

● End the flexible working arrangement.

If the flexible working arrangement is ended for whatever reason it is the expectation that the employee will work full-time in the city where the offer of employment has been made.

If the employee does not wish to work full time in the office where the offer of employment has been made then the employee’s employment will terminate by reason of their resignation.

Relevant legislative provisions

Section 61C of the Fringe Benefits Tax Assessment 1986

Reasons for decision

Question 1

Summary

Section 61C of the FBTAA has many conditions that need to be met to enable the reduction in relocation expenses to be allowed. A factual examination of the employment offer makes it clear that the intention of the employer is to offer the employee a permanent transfer to a specific capital city in Australia.

Detailed reasoning

Section 61C of the FBTAA applies to reduce the taxable value of certain types of fringe benefits which meets the cost of temporary accommodation for an employee who changes their usual place of residence in the course of their employment (relocation or permanent transfer).

Subsection 61C(1) of the FBTAA sets out the conditions that must be satisfied

If the temporary accommodation benefit falls within the scope of subsection 61C(1) of the FBTAA, then the combined effect with either subsection 61C(2) or subsection 61C(3) may operate to reduce the taxable value of the fringe benefit if several conditions are satisfied.

First we must determine if the temporary accommodation benefit falls within the scope and meets the conditions of subsection 61C(1) of the FBTAA. These conditions are set out in paragraphs (a) to (e) of subsection 61C(1).

SECTION 61C REDUCTION OF TAXABLE VALUE - TEMPORARY ACCOMMODATION RELATING TO RELOCATION

61C(1) [Conditions for application of reduction] Where:

(a) any of the following fringe benefits is provided in, or in respect of, a year of tax in respect of the employment of an employee of an employer:

(i) an expense payment fringe benefit where the recipients expenditure is in respect of:

(A) a lease or licence in respect of a unit of accommodation occupied or used for the temporary accommodation of family members; or

(B) a lease or licence in respect of goods primarily for domestic use by family members, being domestic use in connection with a unit of accommodation occupied or used for the temporary accommodation of family members;

(ii) a housing fringe benefit where the housing right is in respect of a unit of accommodation occupied or used for the temporary accommodation of family members;

(iii) a residual fringe benefit where the recipients benefit:

(A) is constituted by the subsistence of a lease or licence in respect of a unit of accommodation occupied or used for the temporary accommodation of family members; or

(B) is constituted by the subsistence of a lease or licence in respect of goods primarily for domestic use by family members, being domestic use in connection with a unit of accommodation occupied or used for the temporary accommodation of family members;

(b) the temporary accommodation is required solely because the employee is required to change his or her usual place of residence in order to perform the duties of that employment;

(c) if the unit of accommodation is located at or near the employee ' s former usual place of residence - the temporary accommodation was required because the unit of accommodation that was the employee ' s former usual place of residence became unavailable, or unsuitable, for residential use by family members due to removal, storage or other arrangements relating to the change in the usual place of residence of the employee;

(d) if the unit of accommodation is located at or near the employee ' s new place of employment - the employee, or an associate of the employee, either before, on, or as soon as reasonably practicable after, the day (in this section called the " relocation day " ) on which the employee commenced to perform the duties of that employment at the employee ' s new place of employment, commenced sustained reasonable efforts to acquire, or to acquire the right to occupy or use, a unit of accommodation intended by the employee or associate, as the case may be, to provide a long-term place of residence for the employee; and

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

the following provisions have effect.

The relevant condition in this situation is paragraph 61C(1)(d) of the FBTAA which discusses the temporary accommodation being provided at or near the employee’s ‘new place of employment’. In this case it is essential to discuss the meaning of ‘new place of employment’ to be able to determine if the city that the employee is choosing to live in (different from where the offer of employment is) is considered the employees ‘new place of employment’. Subsection 136(1) of the FBTAA does not define ‘place of employment’. Subsection 136(1) of the FBTAA does, however, define employment as:

employment, in relation to a person, means the holding of any office or appointment, the performance of any functions or duties, the engaging of any work, or the doing of any acts or things that results, will result or has resulted in the person being treated as an employee.

The Explanatory Memorandum to the Taxation Laws Amendment (Fringe Benefits and Substantiation) Act 1987 does not give any guidance as to the meaning of ‘new place of employment’.

We acknowledge that the temporary accommodation has been provided solely because the employee is required to change their usual place of residence in order to perform the duties of that employment at their new place of employment.

The question arises due to the fact that this employee has a flexible work arrangement and is able to work from two different employment locations, as to which city meets the requirements of subsection 61C(1)(d) of the FBTAA.

In order to do this we will examine the facts of the case:-

● The offer of employment letter states that the permanent transfer for the employee is to a specific capital city in Australia;

● The flexible working arrangement (at the employee’s request) is on a trial basis only and at this stage offers no permanency;

● Should the flexible working arrangement be terminated at any time it is the expectation that the employee will work on a full-time basis in the city that the offer of employment has been made;

● If the employee will not work full-time in that city it is the expectation of the employer that the employment contract will terminate by way of the employee resigning.

We can conclude from an examination of the employee’s ‘Employment Offer’ that it is the employer’s intention for the employee’s new place of employment to be in a specific capital city in Australia. The employee has requested, and been temporarily approved to work under a flexible working agreement and will work 50/50 in one capital city one week and then in another capital city the next week. Under the circumstances, the Commissioner does not accept that the capital city where the job offer was not made would constitute the employee’s new place of employment, as all documentation states that the job offer is located in another city and it is in this city where the employee is expected to perform their duties should the flexible work arrangement not continue.

Therefore subsection 61C(1)(d)of the FBTAA is not met and the capital city where the employee would like to live is not considered the employee’s new place of employment.

Question 2

Summary

As the expenses are being paid for accommodation near the office where the employee wants to live and not where his new employment is located these expenses do not meet the eligibility requirements of section 61C of the FBTAA.

Detailed reasoning

The taxable value of a fringe benefit which comes within subsection 61C(1) of the FBTAA may be reduced under subsection 61C(3), which applies to accommodation near the new place of residence.

As determined above, the city where the employee wants to live is not considered the employee’s new place of employment. Therefore the value of the fringe benefit, being accommodation costs associated with the relocation of the employee, is not eligible for the reduction available under this section of the FBTAA.

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