Edited version of private ruling

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Ruling

Subject: Fringe benefits tax - remote area housing - exemption

Question 1

Does the payment of a rent allowance by an employer to an employee satisfy the conditions under section 58ZC of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) to allow the payment to be treated as an exempt remote area housing benefit?

Answer: No.

This ruling applies for the following period:

Year ending 31 March 2011

The scheme commences on:

01 April 2010

Relevant facts and circumstances

The taxpayer's business is located in a remote area of Australia.

The property currently being rented by the employee is also located in a remote area.

The taxpayer currently only has one employee.

The employee commenced employment with the taxpayer in mid 2010.

The employee had been in the location for a period of months prior to commencing employment.

The employee has leased a residence for themselves and currently pays approximately $xxx per week in rent.

The residence rented by the employee is their usual place of residence.

The taxpayer is currently paying the employee an additional rent allowance, and is deducting tax from the allowance.

The taxpayer is looking to assist in paying part of the rent by contributing $xxx towards the cost.

The taxpayer has advised they would be willing to take over the lease from the employee either by way of a novation of the existing rental agreement, or by terminating the existing lease between the employee and the landlord and entering a new lease between the taxpayer and the landlord directly.

It is customary for employers in this location to pay or subsidise rent as there is a lack of suitable accommodation in the area.

Further, due to the high cost of renting in the area, it is necessary for employers to pay or subsidise rent to attract people to work in the area.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 58ZC

Fringe Benefits Tax Assessment Act 1986 section 25

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 section 140

Reasons for decision

Summary

The rent allowance being paid by the employer to the employee does not meet the necessary requirements under section 58ZC of the FBTAA to be treated as an exempt remote area housing benefit.

Detailed reasoning

Subsection 58ZC(1) of the FBTAA states:

(1) A housing benefit that is a remote area housing benefit is an exempt benefit.

Housing benefit

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

Section 25 of the FBTAA provides that a benefit will arise where a housing right is granted by the provider (employer) to the recipient (employee) during the whole or part of the tax year.

'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 usual place of residence at that particular time.

'Unit of accommodation' is defined in subsection 136(1) of the FBTAA to include a house, flat or home unit or alternatively, the provision of accommodation in any of those places.

Remote area housing benefit

Subsection 58ZC(2) of the FBTAA requires the following conditions to be satisfied before a housing benefit provided in respect of an employee's employment in a remote area can qualify as an exempt remote area housing benefit:

(2) 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 recipient's 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.

Unit of accommodation not in, or adjacent to, an eligible urban area

Subsection 140(1) of the FBTAA sets out what is an eligible urban area and what is a location that is adjacent to an eligible urban area (using the 1981 Census population figures).

Paragraph 140(1)(a) of the FBTAA provides that an 'eligible urban area' is a reference to an area that is an urban centre with a census population of not less than 14,000 (or 28,000 for an urban centre located in Zone A or B for income tax purposes).

Paragraph 140(1)(b) of the FBTAA defines a location that is adjacent to an eligible urban area to be either:

(i) situated less than 40 kilometres, by the shortest practical surface route, from a centre point of an eligible urban area and with a census population of less than 130,000; or

(ii) situated less than 100 kilometres, by the shortest practical surface route, from the centre point of an eligible urban area with a census population of at least 130,000.

Practice Statement PS LA 2000/6 provides guidance on whether a location will be considered to be remote for the purposes of the remote area housing benefit. Attachment 1 to PS LA 2000/6 contains a listing of towns establishing whether or not they are in or adjacent to an eligible urban area, as defined by in paragraph 140(1)(b) of the FBTAA.

The unit of accommodation is located in Australia. The location is listed as a remote town as defined under paragraph 140(1)(b) of the FBTAA in Attachment 1 to PS LA 2000/6.

It is accepted the location is in a remote area and, consequently, this condition is satisfied.

Current employee is usually employed not in, or adjacent to, an eligible urban area

The taxpayers business is located in a remote area. The employee is a current employee of the taxpayer.

As it has been already determined above that the location is a remote area, this condition is satisfied.

Residential accommodation provided by employer for required reasons

Although it may be common practice for employers in the remote area to pay for or subsidise employee rents as there is a lack of suitable accommodation in the area and also to attract people to work in the area. The taxpayer has not had to provide, or to arrange for the provision of, residential accommodation for the employee.

The employee had already obtained a residential lease for themselves prior to commencing employment with the taxpayer.

The employer currently pays the employee a rent allowance that is taxed, to subsidise the employees rent.

The condition that it is necessary for the employer to provide residential accommodation has not been satisfied.

Employee's overall housing right granted under bona-fide circumstances

Despite the employer indicating a willingness to make alternative arrangements in relation to the employees current lease agreement, no specific details have been supplied.

The employer has not granted a housing right to the employee. A housing right does not include the reimbursement or payment of rent where the expenditure is incurred by the employee.

As a result this condition has not been met.

Conclusion

The payment of a rent allowance by the taxpayer to the employee will not constitute a remote area housing benefit under section 58ZC of the FBTAA as all the necessary conditions have not been met.