Edited version of private ruling

Authorisation Number: 1011509310171

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Ruling

Subject: Fringe benefits tax: Remote area housing benefits

Subject

Remote area housing benefits

This ruling applies to

The taxpayer

Issue 1

Remote Area Housing Benefits - loan interest.

Question 1

Is the taxable value of an expense payment fringe benefit resulting from the payment by the taxpayer of Employee 1's mortgage loan interest for residential accommodation in the Area, under the terms of a valid salary sacrifice arrangement, reduced under subsection 60(2) of the Fringe Benefits Tax Assessment Act 1986?

Advice/Answers

Yes.

This ruling applies for the following period

Year ended 31 March 2008

Year ended 31 March 2009

Year ended 31 March 2010

Year ended 31 March 2011

Year ended 31 March 2012

The scheme commences on:

1 December 2007.

Relevant facts

· The taxpayer is seeking a ruling for one of its employees (Employee 1), who is relocating to the Area under a 5 year fixed-term contract.

· The taxpayer stated that the Area is the primary place of employment and residence for Employee 1.

· The taxpayer stated that the employee would use the residence at the Area as their usual place of residence during the occupation period.

· The taxpayer proposes to offer Employee 1 the ability to salary sacrifice 50% of the interest amount on mortgage repayments for the remote area housing loans. The pre-tax salary of the relevant employee would be reduced by 50% of the interest payable on the loan.

· The taxpayer stated that the remote area housing loan is made under an arm's length agreement.

· The taxpayer stated that the loan arrangement is not entered into for the purpose of gaining the benefit of the concession of section 60 of the FBTAA.

· The taxpayer advises that a number of taxpayers in similar sectors offer remote area housing benefits to their employees.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 20.

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

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

Fringe Benefits Tax Assessment Act 1986 subsection 136(1).

Fringe Benefits Tax Assessment Act 1986 subsection 142(1).

Fringe Benefits Tax Assessment Act 1986 subsection 142(1A).

Fringe Benefits Tax Assessment Act 1986 subsection 142(2E).

Reasons for decision

Issue 1

Question 1

Is the taxable value of an expense payment fringe benefit resulting from the payment by taxpayer of Employee 1's mortgage loan interest for residential accommodation in the Area, under the terms of a valid salary sacrifice arrangement, reduced under subsection 60(2) of the Fringe Benefits Tax Assessment Act 1986?

Summary

The payment by the taxpayer for the housing loan interest of Employee 1 will constitute remote area housing loan interest as all the necessary requirements under subsection 142(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) have been met.

The taxable value of the expense payment fringe benefit resulting from the payment of the housing loan interest of Employee 1, by the taxpayer, will qualify for reductions in taxable value under subsection 60(2) of the FBTAA as all the necessary conditions have been met.

Detailed reasoning

Subsection 60(2) of the FBTAA provides for a 50% reduction of taxable value of expense payment fringe benefits in respect of remote area housing loan interest payments where all the following conditions set out in subsection 60(2) are met:

60(2)  [Recipient of expense payment fringe benefit]

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 recipients expenditure is in respect of interest in respect of a remote area housing loan connected with a dwelling;

(c) the recipient occupied or used the dwelling as his or her usual place of residence during a period (in this section referred to as the "occupation period") during which the interest 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 the purposes that included the purpose, of enabling the employer to obtain the benefit of the application of this section';

60(2)(a) Expense payment fringe benefit in respect of employee's housing loan

In basic terms, an expense payment benefit, under section 20 of the FBTAA, occurs where an employer reimburses an employee for expenses incurred by the employee or where an employer pays a third party in satisfaction of expenses incurred by an employee. Also, in basic terms, a fringe benefit, as defined in subsection 136(1) of the FBTAA, is a benefit provided to an employee by an employer in respect of the employee's employment and such benefit is not otherwise exempted.

This condition is met as the taxpayer proposes to pay the residential housing loan interest of Employee 1 under the terms of a valid salary sacrifice arrangement.

60(2)(b) Recipients expenditure for interest for remote area housing loan for a dwelling

Subsection 136(1) of the FBTAA defines a 'dwelling' as meaning a unit of accommodation constituted by, or contained in a building, being a unit that consists, in whole or in substantial part, of residential accommodation.

The taxpayer proposes to pay the interest expenditure for the residential housing loan incurred by Employee 1.

Subsection 142(1) of the FBTAA, in basic terms, sets out the requirements for a 'remote area housing loan' as being a housing loan that also meets all of the following requirements:

142(1) [Remote area housing loan]

during the whole of the period in the year of tax when the employee occupied or used the dwelling as his or her usual place of residence:

(i) the dwelling 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…

The common conditions in 142(2E) of the FBTAA are as follows:

(a) it is customary for the 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 the 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.

142(1)(a)(i) Dwelling in remote area as employee's usual place of residence

Practice Statement PS LA 2000/6 provides a list of cities and towns within Australia that are considered to be remote areas. The Area in question is listed as a remote area.

The relevant dwelling is in a remote area as it will be located in the Area.

The dwelling is the usual place of residence of Employee 1.

Hence, this condition is met.

142(1)(a)(ii) Current employee is usually employed not in, nor near, an eligible urban area

PS LA 2000/6 provides a list of cities and towns within Australia that are considered to be remote areas. The Area is listed as a remote area.

The taxpayer has confirmed that Employee 1's primary place of employment is at the Area.

This condition is satisfied.

142(1)(b) The common conditions in subsection 142(2E) of the FBTAA are met

The taxpayer advises that a number of taxpayers in similar situations offer remote area housing benefits to their employees, and believes it is customary for taxpayers in similar situations to provide free or subsidised residential accommodation to employees in remote locations to attract staff.

It is accepted that, especially in remote areas, it is customary for employers to provide housing assistance, as defined, to their current employees.

It is considered, therefore, that the 'common conditions' are met in this case.

60(2)(c) The dwelling is the employee's usual place of residence during the period the interest accrued

The taxpayer confirmed that Employee 1 will use the dwelling as his/her usual place of residence during the occupation period which the interest will accrue.

This condition is met.

60(2)(d) The housing loan is entered into under bona-fide circumstances

It is noted that the loan agreement is entered into at an arm's length between all parties. The reimbursement provided under the arrangement is not entered into for the purpose of gaining the benefit or concession of section 60 of the FBTAA.

This condition is satisfied.

Conclusion

The payment by the taxpayer for the housing loan interest of Employee 1 will constitute remote area housing loan interest as all the necessary requirements under subsection 142(1) of the FBTAA have been met.

The taxable value of the expense payment fringe benefit resulting from the payment of the housing loan interest of Employee 1, by the taxpayer, will qualify for reductions in taxable value under subsection 60(2) of the FBTAA as all the necessary conditions have been met.

Further issues for you to consider

N/A.

ATO view documents

Fringe benefits tax: a guide for employers (NAT 1054).

Other references (non ATO view, such as court cases)

PS LA 2000/6 Fringe benefits tax: what is considered to be remote for the purposes for the remote area housing benefit.