Edited version of private advice

Authorisation Number: 1051518132823

Date of advice: 31 May 2019

Ruling

Subject: Remote area housing benefits

Question

Are housing benefits provided by the Employer to certain employees (the 'Relevant Employees') exempt benefits under section 58ZC of the Fringe Benefits Tax Assessment Act 1986?

Answer

Yes.

This ruling applies for the following period:

1 April 2018 to 31 March 2022

The scheme commences on:

1 April 2018

Relevant facts and circumstances

The Employer is registered as a charity with the Australian Charities and Not-for-profits Commission (ACNC), and is located in Australia.

The Employer offers units of accommodation on its work premises at Locations A, B and C (in State A) to a certain number of its employees (collectively referred to as the 'Relevant Employees'):

·         Employee X

·         It is a requirement, and it is customary within the industry, to designate a residence for employees in this position to occupy during their appointment.

·         Employee X is a current employee and the residence at Location A in State A is provided free of charge.

·         Other Employees

·         The Other Employees are current employees and are provided with accommodation free of charge at Location A, Location B (approximately 15 kilometres from Location A) and Location C (approximately 50 kilometres from Location A) in State A that are each more than 100 kilometres by the shortest practical route from an urban area that in the 1981 Census had a population of 130,000 or more.

The Relevant Employees are required to live in the accommodation as part of their employment.

The usual places of employment are at the same location as the accommodation that is provided to them.

Each unit of accommodation provided to the Relevant Employees is unfurnished, and is the usual place of residence for each of the Relevant Employees.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 25

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

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

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 140(1A)

Reasons for decision

Is a housing benefit provided?

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

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'.

Subsection 136(1) of the FBTAA defines a 'unit of accommodation' to include a house, flat or home unit, and accommodation in house, flat or home unit.

The FBTAA does not define 'usual place of residence'. However, in subsection 136(1) of the FBTAA, it does define a 'place of residence' 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.

In the absence of a legislative reference, it is relevant to refer to the ordinary meaning of 'usual'. The Macquarie Dictionary Online defines 'usual' to mean:

1. habitual or customary: his usual skill.

2. such as is commonly met with or observed in experience; ordinary: the usual January weather.

3. in common use; common: say the usual things.

noun

4. that which is usual or habitual.

phrase

5. as usual, as is (or was) usual; in the customary or ordinary manner: he will come as usual.

As provided in the ATO's Fringe benefits tax - a guide for employers publication (the Guide), an employee is regarded as living away from their 'usual place of residence' if they are required to do so in order to perform their employment-related duties and could have continued to live at the former place if they did not have to work temporarily in a different locality.

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

Based on the facts provided, the Employer is providing some of its current employees (the Relevant Employees) with accommodation on its work premises at Location A and on other work premises outside of Location A - at Locations B and C - and those employees will occupy such premises as their usual place of residence at the relevant time.

Therefore, such arrangements constitute 'housing benefits' pursuant to section 25 of the FBTAA.

Is the housing benefit provided exempt from FBT?

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

The conditions for a housing benefit to be a 'remote area housing benefit' are set out in subsection 58ZC(2) of the FBTAA, which are summarised below.

1.    For the whole of the tenancy period, the unit of accommodation is in a 'remote area' (that is, it is not located in or adjacent to an 'eligible urban area'). (Paragraph 58ZC(2)(a) of the FBTAA)

2.    For the whole of the tenancy period, the accommodation is occupied by a person who is your (the Employer's) current employee, and the usual place of employment of the employee is in the remote area. (Paragraph 58ZC(2)(b) of the FBTAA)

3.    It would be concluded that it must be necessary for you (the Employer) to provide accommodation for employees or to arrange to provide such accommodation because: (Paragraph 58ZC(2)(d) of the FBTAA)

·         the nature of your business is such that employees are liable to move frequently from one residential location to another

·         there is insufficient suitable residential accommodation otherwise available at or near the place or places where the employees are employed, or

·         it is customary for employers in that industry to provide free or subsidised accommodation for employees.

4.    The benefit was not provided to the employee under either: (Paragraph 58ZC(2)(e) of the FBTAA)

·         a non-arm's length arrangement, or

·         an arrangement that was entered into by any of the parties for the purpose, or partial purpose, to obtain the concession.

Each of these conditions are examined individually below.

1.    The relevant units of accommodation are to be located in a 'remote area'

The ATO's publication on its website entitled Fringe benefits tax - remote areas states that a 'remote area' is a location that is not in, or adjacent to, an 'eligible urban area'. An eligible urban area is an urban centre which in the 1981 Census had a population of a size as set out below.

As provided in Chapter 10.8 of the Guide, and in paragraph 140(1)(b) of the FBTAA, accommodation is classified as being 'near or adjacent to an eligible urban area' (and therefore not remote) where it is situated either:

·         less than 40 kilometres from an eligible urban area with a census population of 14,000 to less than 130,000, or

·         less than 100 kilometres from an eligible urban area with a census population of 130,000 or more.

However, as stated in the Guide and as provided for in subsection 140(1A) of the FBTAA, there is an extension of the 'remote area housing exemption' for some regional employers. These employers, referred to as 'certain regional employers', are defined in both the Guide and the ATO's Fringe benefits tax - remote areas publication to include 'a charitable institution'.

For 'certain regional employers', an employee's housing will no longer be considered adjacent to an eligible urban area (and will therefore be 'remote') where it is situated less than 40 kilometres via the shortest practical surface route from the centre point of an eligible urban area of less than 130,000 people. For eligible urban areas of 130,000 or more, an area adjacent to an eligible urban area (and therefore not 'remote') will remain as being within 100 kilometres via the shortest practical surface route from that eligible urban area's centre point.

The ATO's Fringe benefits tax - remote areas publication provides two lists - List 1 and List 2 - each of which are a list of 'eligible urban areas', 'towns in a remote area' and 'towns not in a remote area' in each State and Territory. These lists are not exhaustive. As stated in that publication, List 1 is used by all other employers and certain regional employers who provide non-housing benefits to their employees, and List 2 is used by certain regional employers who provide housing benefits (or along with 'remote area residential fuel') to their employees.

As the Employer is registered as a charity with the Australian Charities and Not-for-profits Commission (ACNC), the Employer is considered to be a 'certain regional employer'. Therefore, as the Employer is a 'certain regional employer' providing housing benefits, List 2 is relevant in the Employer's circumstances.

It is important to note that the ATO is currently reviewing Lists 1 and 2 to ensure the areas currently listed are correctly identified as either 'remote' or 'non-remote'. As part of this review, the ATO will consider replacement guidance. However, in the meantime, the Employer can continue to rely on the current List 2 in managing its tax affairs while the ATO undertakes this review.

The ATO's Fringe benefits tax - remote areas publication also provides three classifications to assist in determining whether an area is considered remote for FBT purposes if the relevant area(s) do not appear in List 1 or List 2. Of the three classifications outlined in that publication, it is considered that Classification 3 is relevant to the Employer's circumstances, which states:

With respect to the units of accommodation provided to the Relevant Employees located on the Employer's work premises at Location A in State A, List 2 in the ATO's Fringe benefits tax - remote areas publication specifically identifies Location A in State A as being a 'remote area'.

In terms of the accommodation provided to the Relevant Employees at Location B (approximately 15 kilometres from the Employer's grounds at Location A) and Location C (approximately 50 kilometres from the Employer's grounds at Location A) in State A, it is necessary to consider the conditions in Classification 3 above.

The first two conditions have previously been established, as the Employer is a 'certain regional employer' providing a housing benefit. The last condition is whether the units of accommodation provided to the Relevant Employees at Locations B and C in State A are at least 100 kilometres from an urban centre that in the 1981 Census had a population of 130,000 or more.

The Commissioner notes that the nearest eligible urban area (having a population in excess of 130,000 in the 1981 population Census) is more than 100 kilometres from the units of accommodation provided to the Relevant Employees at Locations B and C in State A.

As such, all of the conditions in Classification 3 are satisfied in respect of the units of accommodation provided to the Relevant Employees at Locations B and C, thus designating these units of accommodation as being in a remote area.

Therefore, as each of the units of accommodation provided by the Employer to each of the Relevant Employees at Locations A, B and C in State A are located in a remote area, paragraph 58ZC(2)(a) of the FBTAA is satisfied.

2.    Unit of accommodation must be occupied by a current employee for the whole tenancy period, and the usual place of the employee's employment is in the remote area

The Relevant Employees, who are current employees of the Employer, each occupy their respective units of accommodation for the relevant tenancy period. Their usual place of employment is in the same location as their respective units of accommodation, which is located in an area classified as being a 'remote area'.

Therefore, paragraph 58ZC(2)(b) of the FBTAA is satisfied.

3.    It must be necessary for the employer to provide the unit of accommodation

Paragraph 58ZC(2)(d) of the FBTAA states that one of the conditions for a housing benefit to be a 'remote area housing benefit' if it would be concluded that it was necessary for an employer to provide, or arrange for the provision of, residential accommodation for their employees 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; ...

The Employer has indicated that subparagraphs 58ZC(2)(d)(i) and 58ZC(2)(d)(ii) of the FBTAA do not apply to their situation. It is subparagraph 58ZC(2)(d)(iii) of the FBTAA that must be satisfied.

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 employees? explains what is meant by the phrase 'customary for employees in the industry' in subparagraph 58ZC(2)(d)(iii). Paragraph 2 of TD 94/97 states:

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 Employer provides the accommodation to Employee X because it is customary for organisations in the same industry as the Employer to designate a residence for employees similar to Employee X to occupy during the term of their appointment.

The Commissioner considers that this would also apply to the accommodation provided to the Other Employees, as it is likely that free or subsidised accommodation would also be provided to people in similar positions at other organisations in the same industry as the Employer.

It is considered necessary to provide the accommodation because it is customary. Therefore, the condition in subparagraph 58ZC(2)(d)(iii) of the FBTAA is satisfied.

4.    The unit of accommodation was not provided under a non-arm's length arrangement or under an arrangement for the purpose of obtaining the concession

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) of the FBTAA by noting the following:

·         Subsection 136(1) of the FBTAA 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.

It is accepted that the Employer will grant the respective housing benefits to its Relevant Employees under an arm's length arrangement, as these employees are receiving the housing benefits because of their duties of employment. Their respective positions require that they are provided with accommodation. There is no indication that the benefits are provided under a non-arm's length arrangement.

Paragraph 58ZC(2)(e) of the FBTAA also requires that the units of accommodation were not provided under an arrangement entered into for the purpose of enabling the Employer to obtain the benefit of the application of section 58ZC of the FBTAA.

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.

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.

The Commissioner considers that there are no overt acts by which one could predicate that the provision of housing benefits by the Employer to the Relevant Employees was under an arrangement for the purpose of obtaining the tax exemption under section 58ZC of the FBTAA.

Therefore, the condition in paragraph 58ZC(2)(e) of the FBTAA is satisfied.

Conclusion

A 'housing benefit' is provided to each of the Relevant Employees pursuant to section 25 of the FBTAA.

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 remote area housing benefits provided by the Employer to the Relevant Employees are exempt from FBT pursuant to subsection 58ZC(1) of the FBTAA.

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