Edited version of private ruling

Authorisation Number: 1011861090203

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: remote area housing assistance

Question 1

Would the exemption contained in section 58ZC of the Fringe Benefits' Tax Assessment Act 1986 (FBTAA) apply to the housing leased by the employer which is provided to employees to reside in?

Answer

Yes

Question 2

Does the 50% reduction in taxable value contained in subsection 60(2A) of the FBTAA apply to the rent paid by the employer in respect of accommodation leased by an employee?

Answer

Yes

Question 3

Does the 50% reduction in taxable value contained in subsection 60(2) of the FBTAA apply to any payments towards the interest component of an employee's home loan?

Answer

Yes

Question 4

Does the 50% reduction in taxable value contained in subsection 60(2) of the FBTAA apply to any payments towards the principal component of an employee's home loan?

Answer

No

This ruling applies for the following periods:

Year ended 31 March 2012

Year ended 31 March 2013

Year ended 31 March 2014

Year ended 31 March 2015

The scheme commences on:

1 July 2011

Relevant facts and circumstances

The employer is based in Location A and operates in that location and surrounding districts.

Location A is listed as a remote location in PS LA 2000/6 Fringe benefits tax: what is considered to be remote for the purposes of the remote area housing benefit.

Details of the employer's industry were provided and the applicant has stated that it is customary in the industry in which the employer operates for employers to provide employees with housing.

Housing assistance is not currently offered to employees however they are thinking of offering the following types of assistance:

· if the employee does not own a home or leases a home then the employer will provide housing to that employee

· if the employee is leasing a house then they will pay the employee's rent on their behalf

· if the employee owns their home then they make a payment towards the interest incurred on the employee's home loan ; or

· they will make a payment offsetting some of the principal of the employee's home loan.

Housing assistance through the provision of housing, payment on rent or payment towards a housing loan will only be provide to employees in respect of housing that is the employee's usual place of residence.

Relevant legislative provisions

FBTAA section 25

FBTAA section 58ZC

FBTAA section 60

FBTAA subsection 60(2)

FBTAA subsection 60(2A)

FBTAA section 140

FBTAA subsection 142(1)

FBTAA subsection 142(1A)

FBTAA subsection 136(1)

Reasons for decision

Question 1

Summary

Section 58ZC of the FBTAA will apply to exempt all housing benefits provide to employees.

Detailed reasoning

Section 58ZC of the FBTAA will apply to exempt a housing benefit where:

· for the whole of the tenancy period, the unit of accommodation is in a remote area (that is, it is not located in or adjacent to an eligible urban area)

· for the whole of the tenancy period, the accommodation is occupied by a person who is a current employee, and the usual place of employment of the employee is in the remote area, and

· it is necessary for you to provide accommodation for employees or to arrange to provide such accommodation because:

· the nature of the employer's business is such that employees are liable to move frequently from one residential location to another

· there is insufficient suitable residential accommodation otherwise available at or near the place or places where the employees are employed, or

· it is customary for employers in that industry to provide free or subsidised accommodation for employees.

A housing benefit arises when an employee is provided with the right to use a unit of accommodation and the lease or licence which grants that right exits at a time when the unit of accommodation is the usual place of residence.

This is the case here as the housing will only be provided to an employee if the house will be used as their usual place of residence. However, if the right to use that unit of accommodation is not the employee's usual place of residence then the benefit is a residual benefit to which the exemption contained in subsection 47(5) of the FBTAA may apply.

In addition the housing being provide will be situated in Location A which is considered remote for the purpose of this exemption.

Finally, we need to look at whether it is necessary to provide the accommodation. Of the three points there is no evidence to suggest that the employment involves employees moving frequently, nor is there any evidence to suggest that there is insufficient suitable accommodation available. In fact as the employer intends to provide housing which they currently do not do which suggest that suitable accommodation is available.

Therefore we need to look at the last point being whether it is customary for employers in that industry to provide free or subsidised accommodation for employees.

The issue of whether something is customary in an industry was addressed in Taxation Determination TD 94/97 Fringe benefits tax: what does the phrase 'customary for employers in the industry' mean in relation to the provision of fringe benefits to employees?. Paragraphs 2 and 3 state:

A benefit will be accepted as being customary where it is normal or common for employees of that class or job description in that industry to be provided with the same or similar benefits. It is not necessary that all or even the majority of employees in the industry receive the benefit. Where the provision of the benefit is unique, rare or unusual within an industry it would not be accepted as being customary.

In defining the employer's industry, this Office will accept categorisation based on any recognised industry classification system. Examples of these are the industry codes for business income used by this Office (listed in the company income tax return instructions), and Australian and New Zealand Standard Industrial Classification (ANZSIC) codes.

The information provided demonstrates that it can be accepted that in this industry it is common for their employees to be offered housing assistance as part of their employment package.

Therefore the required conditions set down in section 58ZC of the FBTAA have been satisfied and the provision of the housing benefit will be exempt.

However it should be noted that this exemption does not extend to the provision of residential fuel (including electricity) provided in connection with the housing (see ATO Interpretative Decision ATO ID 2004/276 Fringe Benefits Tax Exempt benefits: remote area housing and residential fuel). These are separate benefits to which section 59 of the FBTAA would apply to reduce the taxable value by 50%.

Where free water is provided to an employee in accordance with a residential tenancy agreement between you and the employee, the water will form part of the housing benefit on which the remote area housing fringe benefit is based. Therefore, the provision of water in this instance is also exempt from FBT (see ATO Interpretative Decision ATO ID 2005/158 Fringe Benefits Tax Exempt Benefits: remote area housing and water).

Question 2

Summary

Subsection 60(2A) of the FBTAA will apply to reduce the taxable value of any fringe benefit relating to the payment of employee's housing rent by 50%.

Detailed reasoning

Section 60 of the FBTAA provides for a reduction in the taxable value of certain fringe benefits relating to remote area housing.

Subsection 60(2A) provides for a 50% reduction in taxable value for any remote area housing rent paid in behalf of an employee. This reduction will apply where:

· the employer pays rent on behalf of an employee and that rent is in respect of the subsistence of a lease or licence on a unit of accommodation

· the unit of accommodation and the employee's usual place of employment is located in a remote area and is the employee's usual place of residence

· the employee is a current employee; and

· the shared conditions are met.

In this case the employer will pay the employee's rent where the employee has leased a property to reside in and will only pay the rent if the house is the employee's usual place of residence. The employee is also employed in a remote area.

In looking at the shared conditions required for this concession to apply, we look at whether it is necessary to provide subsidised accommodation. This necessary test is the same as that undertaken in determining whether section 58ZC of the FBTAA applies. As explained in the answer to question 1 it is customary for employers in the employer's industry to provide free or subsidised accommodation for employees. Therefore the shared conditions have been satisfied.

Subsection 60(2A) will apply to reduce the taxable value of the benefit by 50%. However this reduction applies to 50% of the amount actually paid by the employer. Although it refers to loan interest and not rent this is explained in ATO Interpretative Decision ATO ID 2003/157 Fringe Benefits Tax Remote area housing: reduction of taxable value - remote area housing loan interest, by electing to only pay 50% of the interest expense incurred will not reduce the taxable value of the benefit to nil.

For example if the rent is $500 and the employer pays $250 (or half) of that total rent the reduction in taxable value is $1,25. This would leave a taxable value of $125 in respect of the benefit provided.

Question 3

Summary

Subsection 60(2) of the FBTAA will apply to reduce the taxable value of any payments towards interest incurred on an employee's home loan by 50%

Detailed reasoning

Where the employee already has their own home the employer will make a payment towards their home loan interest expense.

The payment of home loan interest is covered by subsection 60(2) of the FBTAA and will apply where:

· the employer provides an expense payment fringe benefit for interest accrued by your employee on a remote area housing loan connected with a dwelling

· that employee occupied or used the dwelling as their usual place of residence during part of the FBT year (the occupation period) when the interest accrued, and

· the shared conditions are met.

If these conditions are met then the employer is entitled to a reduction of 50% of the taxable value of the expense payment fringe benefit that relates to the occupation period.

A remote area housing loan is defined in subsection 142(1) of the FBTAA and is:

· a housing loan relating to a dwelling that is situated in a remote area,

· where the employee is a current employee and

· the usual place of employment is in a remote area.

In this case:

· the payment is interest on a housing loan

· the house and place of employment are located in a remote area for the purposes of the FBTAA; and

· the benefit will not be provided if the home is not the employee's usual place of residence.

As explained above the shared conditions are satisfied.

Therefore the taxable value (being the home loan interest paid on behalf of the employee) will be reduced by 50%. As explained above the reduction is 50% amount of amount of interest actually paid.

Note: When paying interest on behalf of an employee you need to make a payment directly into the loan account. A payment into 'mortgage offset facility' accounts will not satisfy this requirement. These payments are not considered to be fringe benefits but are considered to be payments of salary and wages. For more information see ATO Interpretative Decision 2002/614 Fringe Benefits Tax: Expense payment fringe benefit - payments made to a home mortgage offset facility account.

Question 4

Summary

Subsection 60(2) of the FBTAA will not apply to reduce the taxable value of any payments towards the principal of on an employee's home loan.

Detailed reasoning

The employer is contemplating paying some of the principal of employees' home loans.

The concessions available in section 60(2) of the FBTAA in respect of a remote area home loan only apply to interest incurred on that remote area housing loan.

Section 60 of the FBTAA covers a number of benefits relating to remote area housing that are eligible for a 50% reduction in taxable value of the relevant fringe benefit. However this is a definitive list and does not include any payment made towards the principal of a home loan.

Therefore there is no reduction available in respect of any payment made by an employer in respect of the principal of a remote area home loan.