Edited version of private advice

Authorisation Number: 1052259931265

Date of advice: 24 June 2024

Ruling

Subject: FBT - accommodation

Question 1

Will the provision by the Employer of accommodation to the Caretaker constitute a 'housing fringe benefit' as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes.

Question 2

If the answer to Question 1 is 'Yes', for the purposes of calculating the taxable value of the housing fringe benefit under section 26 of the FBTAA, can the taxable value be discounted on the basis that the market rental value of the unit of accommodation is adversely affected by the location of the accommodation?

Answer

Yes.

This ruling applies for the following periods:

Fringe Benefits Tax (FBT) Year Ended 31 March 2023

FBT Year Ended 31 March 2024

FBT Year Ending 31 March 2025

FBT Year Ending 31 March 2026

FBT Year Ending 31 March 2027

FBT Year Ending 31 March 2028

The scheme commenced on:

1 April 2022

Relevant facts and circumstances

The Employer employs a caretaker ('the Caretaker') to maintain the grounds of a cemetery owned by the Employer.

The Caretaker resides in a dwelling located inside the cemetery's grounds that is owned by the Employer and provided to the Caretaker, with rent paid at a rate that is at a discount to the market value of other comparable dwellings in the area. This is to take into account the location and associated conditions adversely impacting the liveability of the accommodation.

There is a lease in place in respect of the dwelling which grants the Caretaker the right to use the accommodation, and the lease which grants that right exists when the accommodation is the Caretaker's usual place of residence. The Caretaker does not reside in any other dwelling.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 25

Fringe Benefits Tax Assessment Act 1986 Section 26

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Reasons for decision

Question 1

Will the provision by the Employer of accommodation to the Caretaker constitute a 'housing fringe benefit' as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Summary

The provision by the Employer of accommodation to the Caretaker constitutes a 'housing fringe benefit' as defined in subsection 136(1) of the FBTAA.

Detailed reasoning

Subsection 136(1) of the FBTAA defines a 'housing fringe benefit' to mean a fringe benefit that is a housing benefit. The meaning of a 'fringe benefit' and a 'housing benefit' are considered separately below.

A 'fringe benefit' is defined in subsection 136(1) of the FBTAA, which holds that the following conditions must be satisfied:

1.    A benefit is provided at any time during the year of tax.

2.    The benefit is provided to an employee or an associate of the employee.

3.    The benefit is provided by:

a.    their employer; or

b.    an associate of the employer; or

c.     a third party other than the employer or an associate under an arrangement between the employer or associate of the employer and the third party; or

d.    a third party other than the employer or an associate of the employer, if the employer or an associate of the employer:

                                          i.    participates in or facilitates the provision or receipt of the benefit; or

                                         ii.    participates in, facilitates or promotes a scheme or plan involving the provision of the benefit; and the employer or associate knows, or ought reasonably to know, that the employer or associate is doing so;

4.    The benefit is provided in respect of the employment of the employee.

5.    The benefit is not one that is specifically excluded as per paragraphs (f) to (s) of the definition of a fringe benefit in subsection 136(1) of the FBTAA.

In order to determine whether the provision by the Employer of the dwelling to the Caretaker constitutes a 'fringe benefit' as defined in subsection 136(1) of the FBTAA, a discussion is provided below in respect of whether each element or condition of the definition of a 'fringe benefit' is satisfied.

A benefit is provided

Subsection 136(1) of the FBTAA provides a broad definition of a 'benefit' as including:

any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or is to be, provided under:

(a) an arrangement for or in relation to:

(i) the performance of work (including work of a professional nature), whether with or without the provision of property; ...

The Caretaker was provided with the right to occupy the dwelling on cemetery grounds with rent paid at a rate that is at a discount to the market value of other comparable dwellings in the area. As discussed below, the accommodation was provided in respect of employment and would therefore be taken to have been received as part of an arrangement relating to the performance of work. Given this situation, the provision of the dwelling on cemetery grounds falls within the definition of a 'benefit' in subsection 136(1) of the FBTAA.

As such, the first condition (i.e. the provision of a 'benefit') of the definition of a 'fringe benefit' - as defined in subsection 136(1) of the FBTAA - is satisfied.

The benefit is provided to an employee or an associate of the employee

An 'employee' is defined in subsection 136(1) of the FBTAA to mean a current, future or former employee.

As the benefit (the use of a dwelling on cemetery grounds) is provided to the Caretaker - who is an employee of the Employer - the second condition (i.e. a benefit is provided to an employee) of the definition of a 'fringe benefit' as defined in subsection 136(1) of the FBTAA is satisfied.

The benefit is provided by an employer, an associate of the employer or a third party

'Employer' is defined in subsection 136(1) of the FBTAA to mean a current, future or former employer.

Therefore, as the right to use the dwelling on cemetery grounds is provided to the Caretaker by the Employer, who is the Caretaker's employer, the third condition (i.e. a benefit is provided by an employer, an associate of the employer or a third party under an arrangement with an employer) of the definition of a 'fringe benefit' as defined in subsection 136(1) of the FBTAA is satisfied.

The benefit is provided in respect of the employment of the employee

As per subsection 136(1) of the FBTAA, the term 'in respect of' - in relation to the employment of an employee - includes by reason of, by virtue of, or for or in relation directly or indirectly to, that employment.

Subsection 148(1) of the FBTAA stipulates that a benefit will be provided in respect of the employment of an employee:

•         whether or not the benefit also relates to some other matter or thing

•         whether the employment is past, present or future

•         whether or not the benefit is surplus to the recipient's requirements

•         whether or not the benefit is also provided to another person

•         whether or not the benefit is offset by any inconvenience or disadvantage

•         whether or not the benefit is provided or used, or required to be provided or used, in connection with any employment

•         whether or not the provision of the benefit is in the nature of income, and

•         whether or not the benefit is provided as a reward for services rendered, or to be rendered, by the employee.

In J & G Knowles & Associates Pty Ltd v Federal Commissioner of Taxation (2000) 96 FCR 402; 2000 ATC 4151; (2000) 44 ATR 22 (Knowles), the full Federal Court - in examining the meaning of 'in respect of' an employee's employment - held that the phrase required a 'nexus, some discernible and rational link, between the benefit and employment', though noted that 'what must be established is whether there is a sufficient or material, rather than a causal, connection or relationship between the benefit and the employment'. A similar view was also held in Essenbourne Pty Ltd v FC of T 2002 ATC 5201 and Starrim Pty Ltd v FCT (2000) 102 FCR 194; [2000] FCA 952; 2000 ATC 4460; (2000) 44 ATR 487.

The full Federal Court in Knowles also suggested that it would be useful to ask 'whether the benefit is a product or incident of the employment'.

To establish whether a sufficient or material connection exists between the provision of the dwelling on the cemetery's grounds and the employment of the Caretaker, it is necessary to consider the circumstances in which it has been provided. The Caretaker has been provided with accommodation which allows the Caretaker to conduct their employment duties - that is, to maintain the grounds of the cemetery. Given this connection between the accommodation provided and the Caretaker's duties, it is clear that the accommodation is provided in respect of employment.

Therefore, the connection between the benefit received by the Caretaker and the Caretaker's employment is material and sufficient, and not merely causal. If it were not for the employment relationship between the Employer and the Caretaker, the Caretaker would not have received the benefit.

On the basis of the above discussion, the benefit (that is, the right to use the dwelling located on the cemetery's grounds) provided to the Caretaker (employee) by the Employer would be considered to be 'in respect of the employee's employment'.

As such, the fourth condition (i.e. a benefit is provided in respect of the employment of the employee) of the definition of a 'fringe benefit' as defined in subsection 136(1) of the FBTAA is satisfied.

The benefit is not specifically excluded from the definition of a fringe benefit

With respect to paragraphs (f) to (s) of the definition of a 'fringe benefit' in subsection 136(1) of the FBTAA, the relevant paragraph to consider is paragraph (g) which provides that an exempt benefit will not be a fringe benefit.

In considering whether the accommodation provided by the Employer to the Caretaker falls within any of the exempt benefits listed in Part III of the FBTAA, it is necessary to initially determine the types of fringe benefits that may be applicable under the FBTAA. In the present circumstances, the relevant benefit is considered to be a 'housing benefit'.

A 'housing benefit' is defined in subsection 136(1) of the FBTAA as meaning a benefit referred to in section 25 of the FBTAA.

Under section 25 of the FBTAA, a 'housing benefit' will arise where a person grants a 'housing right' to another person, as follows:

The subsistence during the whole or a part of a year of tax of a housing right granted by a person (in this section referred to as the provider) to another person (referred to in this section as the recipient) shall be taken to constitute a benefit provided by the provider to the recipient in respect of the year of tax.

A 'housing right' is defined in subsection 136(1) of the FBTAA as meaning a lease or licence being granted to a person to occupy or use a unit of accommodation as that person's current usual place of residence:

housing right, in relation to a person, means a lease or licence granted to the person to occupy or use a unit of accommodation, insofar as that lease or licence subsists at a time when the unit of accommodation is the person's usual place of residence.

A 'unit of accommodation' is defined in subsection 136(1) of the FBTAA as including a house, flat or home unit, accommodation in a hotel, hostel, motel or guesthouse, accommodation in a bunkhouse or other living quarters, accommodation in a ship, vessel or floating structure, and a caravan or mobile home.

Having regard to each of the above definitions, the Commissioner considers that, in the current circumstances:

•         the type of dwelling on the cemetery's grounds falls within the definition of a 'unit of accommodation' as defined in subsection 136(1) of the FBTAA

•         as per the Facts, there is a lease in place which grants the Caretaker the right to occupy or use the dwelling, and that lease subsists at a time when the dwelling is the Caretaker's usual place of residence. As such, a 'housing right' as defined in subsection 136(1) of the FBTAA is provided by the Employer to the Caretaker, and

•         on the basis it is considered that a 'housing right' is provided by the Employer to the Caretaker, the definition of a 'housing benefit' in turn is also satisfied as per the definition of that term in section 25 and subsection 136(1) of the FBTAA.

As such, it is concluded that a 'housing benefit' is provided by the Employer to the Caretaker.

Having established that the relevant benefit that would apply in the current circumstances is a 'housing benefit', the only exempt benefit listed in Part III of the FBTAA that is of relevance is a 'remote area housing benefit' under section 58ZC of the FBTAA. However, as the ATO does not consider the location of the cemetery to be a 'remote area', this exempt benefit is not applicable in the current circumstances. There are no other exemptions for housing benefits under which the benefit could qualify.

Therefore, the accommodation benefit provided by the Employer to the Caretaker is not specifically excluded from the definition of a 'fringe benefit'. This means that the fifth condition (i.e. the benefit provided is not specifically excluded from the definition of a fringe benefit) is satisfied.

As all of the above conditions in the definition of a 'fringe benefit' are satisfied, the benefit provided to the Caretaker constitutes a 'fringe benefit' as per the definition of that term in subsection 136(1) of the FBTAA.

It has also been established above that the benefit provided to the Caretaker constitutes a 'housing benefit' as defined in subsection 136(1) of the FBTAA. As such, given the benefit provided to the Caretaker is both a 'fringe benefit' and a 'housing benefit', the provision by the Employer of accommodation to the Caretaker constitutes a 'housing fringe benefit' as defined in subsection 136(1) of the FBTAA.

Question 2

If the answer to Question 1 is 'Yes', for the purposes of calculating the taxable value of the housing fringe benefit under section 26 of the FBTAA, can the taxable value be discounted on the basis that the market rental value of the unit of accommodation is adversely affected by the location of the accommodation?

Summary

The Commissioner accepts that the location of the Caretaker's accommodation on the cemetery's grounds would have a material effect on what might otherwise be the market rental value.

Accordingly, the Commissioner considers that:

•         the accommodation provided to the Caretaker should initially be valued according to principles described in Miscellaneous Taxation Ruling 2025 Fringe Benefits Tax: Guidelines for Valuation of Housing Fringe Benefits (MT 2025) by reference to comparable units of accommodation in the closest residential area, and

•         consistent with MT 2025, a discount of X% may then be applied to take into account the adverse factors particular to the accommodation provided to the Caretaker.

Detailed reasoning

Section 26 of the FBTAA prescribes how to determine the taxable value of non-remote housing fringe benefits provided within a State or Territory of Australia. Paragraph 26(1)(c) of the FBTAA states that the taxable value of a housing fringe benefit provided in respect of the employment of an employee in relation to a year of tax is:

(a)  ...

(b)  ...

(c)   in any other case - the amount calculated in accordance with the formula:

AB ÷ C

where:

A is the statutory annual value of the recipients current housing right;

B is the number of whole days in the tenancy period; and

C is the number of days in the year of tax;

reduced by the recipient's rent.

The statutory annual value of the recipient's current housing right in the base year is determined in accordance with paragraph 26(2)(a) of the FBTAA which states in part:

26(2) [Statutory annual value of current housing right]

For the purposes of the application of subsection (1) in relation to a housing fringe benefit in relation to an employer in relation to a year of tax (in this subsection referred to as the current year of tax), the statutory annual value of the recipients current housing right is:

(a)  if the current year of tax is a base year of tax in relation to the recipients current housing right - the amount calculated in accordance with the formula:

AB ÷ C

where:

A is the market value of the recipients current housing right;

B is the number of days in the current year of tax; and

C is the number of whole days in the tenancy period; ...

With specific regard to the determination of the market value of housing benefits ('A' in the above statutory formula), paragraphs 13 to 15 of MT 2025 provides that:

13. ....the right to occupy the unit of accommodation is to be valued according to what it would command for rent in an open market situation, without taking into account any special employment conditions or associated expenses of the occupant that might be paid by another person. The object is to ascertain the market rental value by reference to the property that is occupied, and to disregard any matters particular to the person or persons who occupy it.

14. In normal valuation practice, the market rental is what a willing but not anxious person would be prepared to pay the owner to occupy the particular premises in their existing condition if they were put on the open market for rent. Ordinarily, market rental is to be ascertained by comparison with similar properties, on the basis that the best evidence of the market rental value of a property is to be found by examining the rents obtained for comparable properties in the locality.

15. In making that comparison, it is necessary to take into account the general physical condition of the unit of accommodation, including the number of rooms, the standard of the facilities, (e.g., heating, cooling, cooking), the existence and condition of inclusions such as furniture, carpets, drapes and blinds, and so on. Another factor that affects the rental value is the location and setting of the unit, i.e., whether or not it is in an inner or outer suburb of a city or in a country town, on a rural property, how far it is from community amenities, whether it is affected by industrial noise and pollution, and so on. [Emphasis added]

Having regard to the principles in paragraphs 13 to 15 of MT 2025, paragraphs 51 and 52 of MT 2025 relevantly provides the Commissioner's view in respect of accommodation provided to employees of Funeral Directors - in particular, the effect that the accommodation's location may have on what would otherwise be the market rental value:

Accommodation provided by Funeral Directors

51. Funeral directors often employ a person to live within, or immediately adjacent to, the mortuary premises and to carry out tasks relating to the operation of the business.

52. It is accepted that the location of such accommodation and related conditions have a material effect on what might otherwise be the market rental value. Accordingly, the accommodation should initially be valued according to principles previously described by reference to comparable units of accommodation in the closest residential area, but a discount of 40% may then be applied to take account of the adverse factors particular to such accommodation.

The Commissioner considers that the view provided in paragraphs 51 and 52 of MT 2025 (for accommodation provided by Funeral Directors) is analogous to housing provided within a cemetery, and that the primary focus in the current circumstances should be on whether the market rental value of the dwelling located on the cemetery's grounds is adversely affected by its location.

The Commissioner accepts that the location of the Caretaker's accommodation on the grounds of the cemetery would have a material effect on what might otherwise be the market rental value.

Accordingly, the Commissioner considers that:

•         the accommodation provided to the Caretaker should initially be valued according to principles described in MT 2025 by reference to comparable units of accommodation in the closest residential area, and

•         consistent with MT 2025, a discount of X% may then be applied to take into account the adverse factors particular to the accommodation provided to the Caretaker.

This view is specific to the circumstances outlined in this Ruling. The Commissioner is not providing a view on the appropriate discount to market value that could be used for any other purpose.

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