Edited version of your written advice

Authorisation Number: 1051511765357

Date of advice: 07 May 2019

Ruling

Subject: Remote area housing benefits

Question 1

Will the provision of temporary accommodation at a motel by the Employer to current employees be an exempt remote area housing benefit under section 58ZC of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes

Question 2

Will the reimbursement of the motel accommodation expenses by the Employer to employees be an exempt remote area housing benefit under section 58ZC of the FBTAA?

Answer

No

Question 3

If the answer to Question 2 is ‘No’, is the reimbursement of the motel accommodation expenses by the Employer to its employees, treated as the reimbursement of remote area housing rent and eligible for a 50% reduction in taxable value pursuant to subsection 60(2A) of the FBTAA?

Answer

Yes

This ruling applies for the following period

Year ending 31 March 2019

Year ending 31 March 2020

The scheme commences on

1 April 2018

Relevant facts and circumstances

1. The Employer has a number of employees.

2. The usual place of employment of an employee is in a remote area for FBT purposes.

3. The nature of the Employer’s business is such that employees are liable to move frequently between rural and remote areas from one residential location to another. While moving locations, an employee may take up temporary accommodation.

4. During the time that the employee is in the accommodation, the accommodation will be their usual place of residence.

5. The accommodation is located in a remote area for FBT purposes.

6. The employees remain employees of the Employer throughout the relocation process, employed under the same employment agreement/contract.

7. To assist employees in relocation to remote areas, the Employer may offer the following arrangements:

Arrangement 1

8. The Employer organises and provides accommodation to the employee and their family for the relocation via a third party provider.

9. The Employer pays the necessary expenses directly to the third party provider. The employee does not incur any accommodation expenses.

Arrangement 2

10. Employees obtain accommodation directly from an unrelated third party.

11. The employee incurs accommodation expenses from their accommodation in the remote area

12. The Employer reimburses the employee’s accommodation expenses that arise as a result of the relocation of the employee and their family.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 25

Fringe Benefits Tax Assessment Act 1986 section 58ZC

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(1A)

Fringe Benefits Tax Assessment Act 1986 subsection 60(2A)

Reasons for decision

Question 1

Summary

13. The provision of temporary accommodation at a motel by the Employer to current employees under Arrangement 1 will be an exempt remote area housing benefit under section 58ZC of the FBTAA.

Detailed reasoning

Is a housing benefit provided?

14. A housing benefit arises under section 25 of the FBTAA where a housing right is granted by a person (the provider) to another person (the recipient).

15. 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 licence subsists at a time when the unit of accommodation is the person’s usual place of residence.

16. The terms ‘lease’ and ‘license’ are not defined in the FBTAA. On their ordinary meaning, these terms would include the granting of a right to use the specified land for accommodation purposes.

17. Subsection 136(1) of the FBTAA defines a ‘unit of accommodation’ to include, among other things, accommodation in a motel.

18. The FBTAA does not specify what is meant by a ‘usual place of residence’. The definition of ‘housing right’ contemplates that a person can only have one ‘usual place of residence’ at any one time.

19. A ‘place of residence’ of a person is defined in subsection 136(1) of the FBTAA to mean:

(a) a place at which the person resides; or

(b) a place at which the person has sleeping accommodation;

whether on a permanent or temporary basis and whether or not on a shared basis.

20. Although the FBTAA does not specify what amounts to a ‘usual place of residence’, it is an important concept. In the context, of the definition of ‘place of residence’ usual can be taken as meaning habitual or customary.

21. Whether a place is an employee’s usual place of residence is a question of fact based on all the circumstances.

22. In Arrangement 1 the Employer provides motel accommodation to the employee which will be the employee’s usual place of residence. Accordingly, this will satisfy the definition of a ‘housing benefit’ as defined in section 25 of the FBTAA.

Is the housing benefit provided exempt from FBT?

23. Under subsection 58ZC(1) of the FBTAA, a housing benefit that is a ‘remote area housing benefit’ is exempt from FBT.

24. 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.

25. In order to determine whether housing benefits provided to 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 will be satisfied.

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

26. 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.

27. 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.

28. The ATO maintains a list of eligible urban areas on its website.

29. 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.

30. The ATO’s website specifically classifies certain towns as ‘remote areas’. The list of towns that are remote areas is not exhaustive and towns not specifically listed as such will be classified as remote areas where they are not in or adjacent to an ‘eligible urban area’.

31. For the purposes of this Private Ruling during the whole of the tenancy period the employees do not reside within, or adjacent to, an eligible urban area.

32. Thus, the conditions in paragraphs 58ZC(2)(a) will be satisfied.

33. As the employees do not reside within, or adjacent to, an eligible urban area, the condition in paragraph 58ZC(2)(a) of the FBTAA will be satisfied.

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

34. Based on the facts provided, it is accepted that during the relevant tenancy period, employees who occupy the unit of accommodation referred to in Arrangement 1 will be current employees of the Employer, and the usual place of employment is not located within, or adjacent to, an eligible urban area.

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

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

36. Subparagraph 58ZC(2)(d)(i) will be satisfied where the nature of the employer's business is such that the employees are liable to be frequently required to change their places of residence.

37. It is common for employees employed in remote areas to frequently change their place of residence to other remote areas.

38. Thus the condition in paragraph 58ZC(2)(d) will be satisfied.

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

39. 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.

40. Under Arrangement 1, the Employer will contract with a third party, organise and pay for accommodation in an arm’s length transaction. They will then provide the accommodation to the employee at no cost to the employee. Therefore, it is accepted that the Employer will grant housing benefits to its employees under Arrangement 1 under an arm’s length arrangement.

41. Paragraph 58ZC(2)(e) of the FBTAA also requires consideration of whether Arrangement 1 is entered into by the Employer and its employees for the purpose of enabling the Employer to obtain the benefit of the application of section 58ZC of the FBTAA.

42. 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.

43. 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.

44. The Commissioner considers that there are no overt acts by which one could predicate that Arrangement 1 has been implemented by any of the parties for the purpose of allowing the Employer to enjoy the benefits of the tax exemption. The arrangement can be explained as being one of ordinary business dealings within the teaching industry.

45. In particular, where the Employer and certain employees enter into Arrangement 1, such arrangements are entered into by each of the relevant parties for the purpose of enabling the Employer to provide the benefit of housing to its employee whilst the employee remains currently employed.

46. Therefore, it is accepted that when Arrangement 1 is entered into by the Employer and its employees, it is not entered into for the purpose of obtaining the benefit of section 58ZC of the FBTAA.

47. As such, the condition in paragraph 58ZC(2)(e) of the FBTAA will be satisfied.

Conclusion

48. In circumstances where the Employer and certain employees enter into a housing arrangement under Arrangement 1, a ‘housing benefit’ is provided pursuant to section 25 of the FBTAA.

49. 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 Employer to an employee in respect of Arrangement 1 is exempt from FBT pursuant to subsection 58ZC(1) of the FBTAA.

Question 2

Summary

50. The reimbursement of the motel accommodation expenses by the Employer to employees will not be an exempt remote area housing benefit under section 58ZC of the FBTAA as no housing benefit has been provided to their employees.

Reasoning

51. Under subsection 58ZC(1) of the FBTAA, a ‘housing benefit’ that is a ‘remote area housing benefit’ is exempt from FBT.

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

53. 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.

54. Under Arrangement 2, the Employer does not provide the employee with a lease or licence to occupy or use a unit of accommodation; the employee obtains their own accommodation and the Employer then reimburses them.

55. The reimbursement of the accommodation is not a housing benefit and thus not a ‘remote area housing benefit’ under section 58ZC. Therefore, no exemption from FBT is available for this reimbursement under section 58ZC.

Question 3

Summary

56. The reimbursement of the accommodation expenses by the Employer to its employees can be treated as the reimbursement of remote area housing rent and is eligible for a 50% reduction in taxable value pursuant to subsection 60(2A) of the FBTAA.

Detailed reasoning

57. 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.

Paragraph 60(2A)(a)

58. Section 20 relevantly provides that an expense payment benefit will be provided where a person (the provider) reimburses another person (the recipient), in whole or in part, in respect of an amount of expenditure incurred by the recipient.

59. Thus, the reimbursement under Arrangement 2 will be considered an expense payment benefit under section 20.

60. Where the recipient is an employee of the provider, paragraph 60(2A)(a) will be satisfied.

61. As the Employer is reimbursing expenses incurred by its employee, paragraph 60(2A)(a) is satisfied.

Paragraph 60(2A)(b)

62. In determining whether the amount of the reimbursement by the Employer for accommodation expenses is ‘in respect of a remote area housing rent connected with a unit of accommodation’, it is necessary to consider subsection 142(1A), which sets out the requisite conditions.

63. 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)

64. Under Arrangement 2, employees will rent their accommodation directly from an unrelated third party. The accommodation will be the employee’s usual place of residence for the time they occupy it. The Employer will then reimburse the employee for this expense.

65. To satisfy subparagraph 142(1A)(a)(i) the unit of accommodation must not be at a location in, or adjacent to, an eligible urban area. According to the facts, the accommodation is situated in a remote area, which necessarily means that the unit of accommodation was not located in, or adjacent to an eligible urban area.

66. Subsection 142(1A)(a)(ii) is also satisfied as the employee is a current employee of the Employer and their usual place of employment is not at a location in, or adjacent to, an eligible urban area.

67. Therefore, paragraph 142(1A)(a) will be satisfied.

Paragraph 142(1A)(b)

68. 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.

69. The nature of the Employer’s business is such that employees working as employees in rural/remote areas are liable to frequently change their place of residence.

70. Thus paragraph 142(1A)(b) will be satisfied.

Paragraph 142(1A)(d)

71. Where the provision of housing services is provided by an unrelated third party, the arrangement will prima facie be considered to be at arm’s length. The transactions under Arrangement 2 will be conducted at arm’s length, thus satisfying subparagraph paragraph 142(1A)(d)(i).

72. The Commissioner does not consider that either of the arrangements described were entered for a purpose that included enabling the Employer to obtain the benefit of the application of section 60. Thus paragraph 142(1A)(d)(ii) will be satisfied.

73. Thus, paragraph 142(1A)(d) will be satisfied.

Paragraph 60(2A)(c)

74. Subsection 136(1) of the FBTAA defines a ‘unit of accommodation’ to include a house, flat or home unit, and accommodation in a hotel or motel.

75. The FBTAA does not specify what is meant by a ‘usual place of residence’. The definition of ‘housing right’ contemplates that a person can only have one ‘usual place of residence’ at any one time.

76. A ‘place of residence’ of a person is defined in subsection 136(1) as:

(a) a place at which the person resides; or

(b) a place at which the person has sleeping accommodation;

whether on a permanent or temporary basis and whether or not on a shared basis.

77. In this context, the ‘usual’ place of residence can be taken as meaning habitual or customary.

78. Where the place of residence is considered the employee’s usual place of residence, paragraph 60(2A)(c) will be satisfied.

79. For the time the employee occupies the accommodation, the accommodation will be their usual place of residence, thus satisfying paragraph 60(2A)(c).

Paragraph 60(2A)(d)

80. As discussed above, the Commissioner considers the arrangement to be at arm’s length.

81. Further, the Commissioner does not consider that either of the arrangements described were entered for a purpose that included enabling the Employer to obtain the benefit of the application of section 60.

82. Therefore, paragraph 60(2A)(d) will be satisfied.

Conclusion

83. In circumstances where employees (being employees of the Employer) enter into a housing arrangement under Arrangement 2, the reimbursement, being an expense payment benefit, will be reducible by 50% pursuant to subsection 60(2A).

84. Note: Unlike the reduction contained in subsection 60(2) of the FBTAA the 50% reduction contained in subsection 60(2A) of the FBTAA refers to 50% of the employee's expenditure (the gross rent) not to 50% of the taxable value.

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