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Ruling

Subject: Fringe benefits tax; remote area housing

Question 1

Does the provision of residential property to employees of the employer constitute housing benefits referred to in section 25 of the Fringe Benefits Tax Assessment Act 1986?

Answer

Yes

Question 2

If the answer to Question 1 is yes, are the housing benefits provided to the employees of the employer exempt remote area housing benefits under section 58ZC of the Fringe Benefits Tax Assessment Act 1986?

Answer

Yes

This ruling applies for the following period:

Period ending 30 June 2014

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The employer requires its employees to work at a location where housing is very limited and expensive.

In order to attract and retain suitably qualified senior staff, the employer entered into a residential lease for premises that are to be used to accommodate the employees of the employer.

The residential premises are provided to the employees as their usual place of residence.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 25,

Fringe Benefits Tax Assessment Act 1986 section 58ZC,

Fringe Benefits Tax Assessment Act 1986 section 136(1) and

Fringe Benefits Tax Assessment Act 1986 section 140.

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.

Question 1

Subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) defines 'housing benefit' as a benefit referred to in section 25.

Section 25 of the FBTAA stipulates that the existence of a 'housing right' granted to a person during a year of tax constitutes a benefit to that person.

Subsection 136(1) of the FBTAA defines a 'housing right' as the granting of a lease or licence to occupy or use a 'unit of accommodation' as the person's usual place of residence.

A 'unit of accommodation' is defined in subsection 136(1) of the FBTAA to include:

· a house, flat or home unit

· accommodation in a house, flat or home unit

· accommodation in a hotel, motel, guesthouse, bunkhouse or other living quarters

· accommodation in a ship, vessel or floating structure, and

· a caravan or mobile home.

The residences provided to the employees of the employer are 'units of accommodation' as defined in subsection 136(1) of the FBTAA.

The accommodation is not provided to the employees by way of a formal agreement such as a lease or sub-lease. The employer leases the accommodation and allows the employees to occupy and use the accommodation.

The definition of 'licence' in the Macquarie Dictionary, [Multimedia], version 5.0.0, includes 'formal permission or leave to do or not to do something'.

Taking into account the employer/employee relationship between the employer and the employees, the purpose for which the accommodation has been leased and the permission given to the employees to occupy the accommodation, the employees have been granted licences to occupy and use the units of accommodation.

The employees live at the location in order to perform their duties and the accommodation is their usual place of residence.

This means that the employees have been provided with 'housing rights' which constitute 'housing benefits' referred to in section 25 of the FBTAA.

Question 2

Where a housing benefit qualifies as a remote area housing benefit, the benefit is an exempt benefit under section 58ZC of the FBTAA.

Subsection 58ZC(2) of the FBTAA explains, a housing benefit qualifies as a remote area housing benefit if each of the following conditions are satisfied.

(a) 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)

(b) for the whole of the tenancy period, the accommodation is occupied by a current employee and the usual place of employment of the employee is in the remote area

(c) it is necessary for the employer to provide accommodation for employees or to arrange to provide such accommodation for at least one of the following reasons

· the nature of the employers 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, and

(d) the accommodation is not provided under a non-arm's length arrangement or for the purpose of obtaining the exemption.

The accommodation and employment are located in a remote area

Subsection 140(1) 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) and a location adjacent to an eligible urban area is:

· situated less than 40 kilometres, by shortest practicable surface route from the centre point of an eligible urban area with a census population of less than 130,000, or

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

Subsection 140(3) of the FBTAA defines 'census population' in relation to an urban area to refer to the results of the population count taken for the 30 June 1981 census.

Practice Statement PS LA 2000/6 provides an explanation of the requirements for the remote area housing exemption under section 58ZC of the FBTAA and includes attachments which contain listings of towns that the ATO has determined to be in remote and non-remote areas for FBT purposes.

The employer provides the accommodation to its employees who perform their duties at a location which is listed in Attachment 1 of PS LA 2000/6 as being a remote area.

Provision of the accommodation is necessary

Due to the difficulty of obtaining suitable accommodation in the remote location it is necessary for the employer to arrange for accommodation for its employees.

The arrangement is arm's length

Subparagraph 58ZC(2)(e)(i) of the FBTAA requires that the recipients overall housing right was not granted to the employee under a non-arm's length arrangement.

Within subsection 136(1) of the FBTAA, the expression 'non-arm's length arrangement' is defined to mean an arrangement other than an arm's length arrangement. The term 'arm's length arrangement' is not defined in the FBTAA. However subsection 136(1) of the FBTAA defines 'arm's length transaction' to mean a transaction where the parties to the transaction are dealing with each other at arm's length in relation to the transaction.

The expression 'at arm's length' is defined in The CCH Macquarie Concise Dictionary of Modern Law , 1988, CCH Australia Ltd/ Macquarie Library Pty Ltd, Sydney as meaning that the parties to a transaction are not connected in such a way as to bring into question the ability of one to act independently of the other.

In Granby Pty Ltd v. FCT (1995) 30 ATR 400; 95 ATC 4240, where the expression 'dealing with each other at arm's length' in section 160ZH of the Income Tax Assessment Act 1936 was in question, Lee J said (at ATR 403; ATC 4243):

The expression "dealing with each other at arm's length" involves an analysis of the manner in which the parties to a transaction conducted themselves in forming that transaction. What is asked is whether the parties behaved in the manner in which parties at arm's length would be expected to behave in conducting their affairs. Of course, it is relevant to that enquiry to determine the nature of the relationship between the parties, for if the parties are not parties at arm's length the inference may be drawn that they did not deal with each other at arm's length.

Even though the employer and the employees are not at arm's length, the employer has provided accommodation to its senior staff members because they are required to work in a remote location where suitable accommodation is not readily available. It is considered that the employees overall housing rights have been granted under an arm's length arrangement. As the overall housing right of the employees are not granted under a non-arm's length arrangement, subparagraph 58ZC(2)(e)(i) of the FBTAA is satisfied.

The arrangement is not for the purpose of obtaining the exemption

Subparagraph 58ZC(2)(e)(ii) of the FBTAA requires that the recipients overall housing right was not granted under an arrangement entered into by 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 section 58ZC of the FBTAA.

Under subparagraph 58ZC(2)(e)(ii) of the FBTAA, the granting of the 'recipients overall housing right' to the recipient under an 'arrangement' refers to the granting of the lease or licence to the employee to use the house or unit of accommodation as the usual place of residence under an arrangement, scheme or undertaking.

In Newton v. Federal Commissioner of Taxation (1958) 98 CLR 1; (1958) 11 ATD 442; (1958) 7 AITR 298, the Privy Council examined the meaning of the word 'purpose'.

Lord Denning said at page number CLR 8; ATD 445; AITR 304,

The word "purpose" means, not motive, but the effect which is sought to achieve - the end in view.

Lord Denning also said (at the same page),

In order to bring an arrangement within the section, you must be able to predicate by looking at the overt acts by which it was implemented that it was implemented in that particular way so as to avoid tax. If you cannot so predicate, but have to acknowledge that the transactions are capable of explanation by reference to ordinary business or family dealing, without necessarily being labelled as a means to avoid tax, then the arrangement does not come within the section.

In this arrangement which provides or grants the 'recipient's overall housing right', the arrangement is entered into by each of the parties for the purpose of enabling the employer to provide the benefit of housing to its employees as an ordinary business requirement of the employer. There are no overt acts by which one could predicate that the arrangement has been implemented by any of the parties for the purpose of allowing the employer to enjoy the benefits of the tax exemption. The arrangement can be explained as being one of an ordinary business dealing of the employer.

Accordingly, the recipient's overall housing right was not granted to the employees under an arrangement described in subparagraph 58ZC(2)(e)(ii) of the FBTAA.

In this case the conditions under 58ZC(2) are satisfied. Therefore the housing benefits provided are exempt housing benefits under section 58ZC of the FBTAA.