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Edited version of private ruling
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Ruling
Subject: Fringe benefits tax - exempt benefits
Question 1
Will the reimbursement of incidental costs incurred by an employee relating to the sale of a residential property as a result of relocation be exempt under section 58C of the Fringe Benefits Tax Assessment Act 1986?
Answer: No.
Question 2
Will the reimbursement of incidental costs incurred by an employee relating to the acquisition of a residential property as a result of relocation be exempt under section 58C of the Fringe Benefits Tax Assessment Act 1986?
Answer: No.
This ruling applies for the following period:
1 April 2011 to 31 March 2012
The scheme commences on:
30 June 2011
Relevant facts and circumstances
Company A owns greater than 50% of companies B and C and 100% of company D.
The employee was originally employed by company B and lived overseas.
The employee was offered a permanent employment position with company C and relocated to Australia to perform duties of employment.
Then the employee entered into a contract to acquire a residential property in Australia. It became the employee's usual place of residence.
Later the employee entered a contract to sell the residential property overseas.
Company C did not reimburse the employee for any incidental costs relating to the sale or acquisition of the residential properties.
It was agreed between company A and the employee that the employee's knowledge and skills would be better utilised at company D, a related company of company C.
The employee remained in Australia and commenced employment with company D.
Company D is considering reimbursing the employee for the incidental costs incurred on the sale and acquisition of the residential properties.
Relevant legislative provisions
Fringe Benefits Tax Assessment Act 1986 Section 58C.
Reasons for decision
While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.
All references made in these reasons for decision are to the Fringe Benefits Tax Assessment Act 1986 unless otherwise stated.
Question 1
Summary
The proposed reimbursement of incidental costs incurred by the employee relating to the sale of his residential property as a result of relocation will not be exempt under section 58C.
Detailed reasoning
An employer reimbursing an employee for expenses that the employee has incurred is an expense payment benefit.
A benefit will be a fringe benefit in accordance with subsection 136(1) where:
The benefit is provided to an employee or an associate of the employee by
· the employer
· an associate of the employer, or
· a third party in association with the employer
and the benefit is provided in respect of the employee's employment.
However, an exempt benefit is specifically excluded from the definition of a fringe benefit.
Section 58C exempts certain benefits where an employee has relocated their usual place of residence in order to perform the duties of their employment.
For a benefit to be exempt under section 58C certain preconditions in subsection 58C(1) must be met.
In order to determine if these preconditions have been met, it is necessary to determine who would be the employer referred to in this subsection.
Company D is the current employer of the employee and the entity proposing to provide the benefit to the employee.
The employee's employment with company D is under a separate arrangement from the employment with company C. The two companies may be associates but for the purposes of FBT they are two separate employers.
The benefit will be provided by company D in respect of the employee's current employment. The fact that company D are considering providing the benefit a significant amount of time after the employee commenced employment confirms this.
Company C as the former employer did not reimburse the employee for any incidental costs relating to the sale or acquisition of his residential properties.
Therefore subsection 58C(1) should be read in the context of company D being the employer and not company C.
As a result paragraph (d) will not be satisfied because at the time that the employee was employed by company D the employee was not living at the overseas residence as their usual place of residence.
Since not all of the preconditions in subsection 58C(1) are satisfied, any reimbursement of costs incidental to the sale of the employee's residential property will not be exempt.
Question 2
Summary
The proposed reimbursement of incidental costs incurred by the employee relating to the purchase of his residential property as a result of relocation will not be exempt under section 58C.
Detailed reasoning
See the detailed reasoning for question one. The preconditions for the exemption in subsection 58C(1) have not been met.