Edited version of private ruling

Authorisation Number: 1011727823591

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Ruling

Subject: Fringe benefits tax: reimbursement of costs of selling and purchasing residences

Question 1

Is the reimbursement you are to provide an employee in relation to the sale of their original residence an exempt benefit under subsection 58C(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

No.

Question 2

Is the reimbursement you are to provide an employee in relation to the purchase of their new residence an exempt benefit under subsection 58C(3) of the FBTAA?

Answer

No.

Question 3

Is the reimbursement you are to provide an employee in relation to the removal costs incurred in moving their residence an exempt benefit under subsection 58B(1) of the FBTAA?

Answer

No.

This ruling applies for the following period:

Year ended 31 March 2011

The scheme commences on:

1 April 2010

Relevant facts and circumstances

In the particular year you employed an employee.

At the time of his appointment, he was living approximately 75 kilometres from your office. The travelling time was approximately one and a quarter hours.

Your employee entered into the contract for the sale of his residence in some months after commencing work.

Your employee entered into a contract for the purchase of a residence in a suburb close to your office in a recent year.

There is no enforceable requirement for your employees to live within a specified distance of your office. However, you encourage your employees to live in the local community.

You are considering entering a salary sacrifice arrangement with the employee to reimburse him for the following costs associated with the sale of the original residence:

· stamp duty;

· legal fees;

· agent commission;

· costs of discharging the mortgage.

You are also considering reimbursing the employee for the following costs associated with the purchase of the new residence:

· stamp duty;

· legal fees; and

· expenses of borrowing.

In addition, you are considering reimbursing the employee for the removal costs incurred in moving.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 58B

Fringe Benefits Tax Assessment Act 1986 Section 58B(1)

Fringe Benefits Tax Assessment Act 1986 Section 58C

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

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

Fringe Benefits Tax Assessment Act 1986 Subsection 58C(3)

Reasons for decision

Will the reimbursement of the expenses incurred by the employee in relation to the sale of the original residence and the purchase of the new residence be an exempt benefit under section 58C of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Summary

Section 58C of the FBTAA exempts from fringe benefits tax benefits relating to certain incidental costs, such as stamp duty, incurred in the sale or purchase of a dwelling by an employee who changes his or her usual place of residence in the course of employment or in order to commence employment.

For the exemption to apply the pre-conditions set out in subsection 58C(1) of the FBTAA must be satisfied. If the conditions set out in subsection 58C(1) of the FBTAA are satisfied then subsection 58C(2) of the FBTAA can be considered in relation to the costs incurred in the sale of the previous residence and subsection 58C(3) can be considered in relation to the costs incurred in the purchase of the new residence.

One of these prerequisites is that the dwelling was sold, or proposed to be sold, solely because the employee is required to change his or her usual place of residence in order to perform the duties of his or her employment.

The information provided does not provide a basis for concluding that there was a requirement for the employee to sell his original residence in order to perform the duties of his employment.

Therefore, the prerequisite conditions of subsection 58C(1) of the FBTAA are not met. Accordingly:

· the reimbursement of the expenses incurred by the employee in relation to the sale of the original residence will not be an exempt benefit under subsection 58C(2) of the FBTAA; and

· the reimbursement of the expenses incurred by the employee in relation to the purchase of the new residence will not be an exempt benefit under subsection 58C(3) of the FBTAA.

Detailed reasoning

Section 58C of the FBTAA exempts from fringe benefits tax benefits relating to certain incidental costs, such as stamp duty, incurred in the sale or purchase of a dwelling by an employee who changes his or her usual place of residence in the course of employment or in order to commence employment.

For the exemption to apply the pre-conditions set out in subsection 58C(1) of the FBTAA must be satisfied. If the conditions set out in subsection 58C(1) of the FBTAA are satisfied then subsection 58C(2) of the FBTAA can be considered in relation to the costs incurred in the sale of the previous residence and subsection 58C(3) can be considered in relation to the costs incurred in the purchase of the new residence.

Section 58C(1) of the FBTAA states:

[Sale or acquisition of dwelling] Where -

(a) during a particular period (in this subsection called the "former home holding period"), an employee of an employer, or an associate of an employee of an employer, holds -

(i) a prescribed interest in land on which -

(A) there is a building constituting or containing a dwelling;

(B) the employee or associate proposes to construct, or complete the construction of, a building constituting or containing a dwelling;

(ii) a prescribed interest in a stratum unit in relation to a dwelling; or

(iii) a proprietary right in respect of a dwelling, being a flat or home unit;

(b) the employee or associate sells the interest or right solely because the employee is required to change his or her usual place of residence in order to perform the duties of his or her employment;

(c) the employer first notifies the employee at a time (in this subsection called the "notice time") during the former home holding period that the employee is required to perform the duties of that employment at the employee's new place of employment;

(d) at the notice time, the employee occupied, or proposed to occupy, the dwelling, or proposed to occupy the proposed dwelling, as his or her usual place of residence; and

(e) the employee or associate entered into a contract for the sale of the interest or right within 2 years after the day on which the employee commenced to perform the duties of that employment at the employee's new place of employment;

…

In considering the conditions contained within subsection 58C(1).

(a) Did the employee hold during the "former home holding period" an interest in land on which there is a dwelling, stratum unit, flat or home unit, or propose to construct a dwelling?

During the "former home holding period" the employee held an interest in land on which there is a dwelling. Therefore, this condition is satisfied.

(b) Did the employee sell the interest or right solely because he was required to change his usual place of residence in order to perform the duties of his employment?

Section 58C(1)(b) of the FBTAA contains three elements, namely,

(1) Was the employee required to change his or her usual place of residence?

(2) Was the required relocation to enable the employee to carry out duties of employment?

(3) Was the sale of property solely because the employee is required to relocate and is required to relocate in order to perform the duties of employment?

(1) Was the employee required to change his usual place of residence?

The meaning of the word "required" was discussed by the Administrative Appeals Tribunal in Compass Group (Vic) Pty Ltd (as trustee for White Roche & Associates Hybrid Trust) v FC of T [2008] AATA 845; 2008 ATC 10-051 as follows;

The ordinary meanings of the word "require" include:

"…1a to need something; b to wish to have something. 2 to demand, exact or command by authority. 3 to have as a necessary or essential condition for success, fulfilment etc …"

The word "require" does not contemplate choice.

Application to your circumstances

The employee commenced his employment duties with you in the particular year. The employee entered into a contract for the sale of his former residence some months later. The employee therefore continued to live at his former residence for approximately X months after commencing that employment.

You did not require the employee to change his usual place of residence in order for him to perform his duties of employment. There is no condition of employment in the employee's duty statement that he is required to live within a certain distance of his place of employment.

Further, the distance and travelling time to your office from the employee's former residence is not sufficient to create a requirement as the employee was able to perform his duties of employment while living at his former usual place of residence for a period of X months.

Therefore, the facts as provided do not show that the employee was required to change his usual place of residence.

(2) Was the required relocation to enable the employee to carry out duties of employment?

A required relocation to enable an employee to carry out duties of employment implies that in a practical sense the relocation was required because otherwise the duties of employment could not be carried out.

You require that the employee carry out his duties of employment at your office during office hours regardless of where he lives. Provided the employee was on duty when required, it was not relevant where he lived. The employee carried out his duties of employment for X months while living at his former usual place of residence. It was therefore possible, and actually happened, for the employee to carry out his duties of employment while living at the former usual place of residence.

Therefore, the relocation was not required to enable the employee to carry out his duties of employment.

(3) Was the sale of property solely because the employee is required to relocate and is required to relocate in order to perform the duties of employment?

As discussed above, you did not require that the employee change his location of residence, nor was he required to live within a certain distance of your office. Nor was the relocation required to enable the employee to carry out his duties of employment as he was able to perform his duties of employment while residing at his former residence for X months before relocating.

This indicates that even if there was a requirement to relocate so as to be able to perform the duties of employment it was not the sole reason. From the information provided it appears that the employee made the choice to change his usual place of residence for personal reasons.

Therefore, it is concluded that the employee did not sell his former residence solely because was required to change his usual place of residence in order to perform his duties of employment. There was another reason for the relocation which appears to be a personal or private choice.

This condition is not satisfied.

(c) Did the employer first notify his employee during the former home holding period that the employee is required to perform the duties of that employment at the employee's new place of employment?

The employee resided at his former residence until it was sold in the particular year. You first notified the employee during the period that he held the residence, that he was required to perform the duties of his employment at his new place of employment.

This condition is satisfied.

(d) Did the employee occupy, or propose to occupy, at the notice time, the dwelling, or propose to occupy the proposed dwelling, as his usual place of residence?

At the notice time, when you first notified the employee of the position the employee occupied the dwelling as his usual place of residence.

This condition is satisfied.

Summary

All of the conditions of section 58C(1) of the FBTAA are satisfied except (b) as the employee changed his place of residence due to personal choice rather than solely as a requirement of employment. Hence section 58C(1) of the FBTAA does not apply and the accompanying subsections 58C(2) and 58C(3) of the FBTAA also do not apply. Hence the reimbursement of relocation expenses in this situation will not be an exempt benefit.

It should also be noted that subsection 58C(3) which contains the conditions to be satisfied in relation to the acquisition of a property also contains a requirement for the employee to:

acquire the interest or right solely because the employee is required to change his or her usual place of residence in order to perform the duties of that employment at the employee's new place of employment.

For the same reasons set out above in relation to paragraph 58C(1)(b) this requirement will not be satisfied.

Will the reimbursement of the costs incurred in moving the employee's household items from the former residence to the new residence be an exempt benefit?

In general terms, section 58B provides an exemption for the reimbursement of expenditure that is in respect of the removal or storage of household effects of the employee where the conditions in paragraphs 58B(1)(b), (c) and (d) are satisfied.

These paragraphs state:

(b) the removal or storage is required solely because:

(i) the employee is required to live away from his or her usual place of residence in order to perform the duties of that employment;

(ii) the employee, having lived away from his or her usual place of residence in order to perform the duties of that employment, is required to return to his or her usual place of residence:

(A) in order to perform those duties; or

(B) because the employee has ceased to perform those duties; or

(iii) the employee is required to change his or her usual place of residence in order to perform the duties of that employment;

(c) the removal or storage is required to enable a family member to:

(i) if subparagraph (b)(i) applies - take up residence, or to continue to reside, at or near the place where the employee performs the duties of that employment while living away from his or her usual place of residence;

(ii) if subparagraph (b)(ii) applies - take up residence at the employee's usual place of residence; or

(iii) if subparagraph (b)(iii) applies - take up residence, or to continue to reside, at the employee's new usual place of residence;

(d) if subparagraph (b)(iii) applies:

(i) the removal takes place, or the storage commences to be provided, within 12 months after the day on which the employee commenced to perform the duties of that employment at the employee's new place of employment; and

(ii) the benefit is not provided under a non-arm's length arrangement;

(e) if subparagraph (a)(i) applies - documentary evidence of the recipients expenditure is obtained by the recipient and that documentary evidence, or a copy, is given to the employer before the declaration date; and

(f) the removal or storage was not provided in connection with travel undertaken by the employee in the course of performing the duties of that employment;

Is paragraph (b) satisfied?

Paragraph (b) requires the sole reason for the removal to be because:

(i) the employee is required to live away from his usual place of residence in order to perform the duties of employment; or

(ii) the employee having lived away from his usual place of residence is required to return to his usual place of residence; or

(iii) the employee is required to change his usual place of residence in order to perform his duties of employment.

As the employee has changed his usual place of residence the only subparagraph that can apply is subparagraph (iii). However, for the same reasons discussed above in relation to section 58C the conditions contained within this subparagraph will not be met.

Therefore, the exemption in section 58B will not apply to the removal expenses.