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Ruling

Subject: Fringe benefits: remote housing

Question 1

Will the grant of a lease or licence to occupy residential accommodation in the Remote area under the terms of a valid salary sacrifice arrangements be an exempt benefit under subsection 58ZC(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes

Question 2

Can the taxable value of the expense payment fringe benefit that results from the payment of the employee's mortgage loan interest for residential accommodation in Remote area under the terms of a valid salary sacrifice arrangement be reduced under subsection 60(2) of the FBTAA?

Answer

Yes

Question 3

Can the taxable value of the expense payment fringe benefit that results from the payment of the employee's rent for residential accommodation in Remote area under the terms of a valid salary sacrifice arrangement be reduced under subsection 60(2A) of the FBTAA?

Answer

Yes

This ruling applies for the following periods:

Year ended 31 March 2013

Year ended 31 March 2014

Year ended 31 March 2015

Year ended 31 March 2016

The scheme commences on:

1 April 2012

Relevant facts and circumstances

You have current employees who work in a remote area.

You experience difficulties in attracting skilled workers to your worksite in a remote area and have found that there is a shortage of suitable housing for your workers in that remote area.

You and your predecessor organisations have provided accommodation in remote areas since the early 1990's. In the recent past, the provision of such accommodation has been subject to your Housing Benefits Policy.

You propose to enter into valid salary sacrifice arrangements with some of your current employees at your worksite in a remote area to provide these employees with either residential accommodation in housing you own or lease, or reimburse the employee's residential housing loan interest or reimburse the employee's residential rent, as applicable, in a remote area.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 20

Fringe Benefits Tax Assessment Act 1986 Section 25

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

Fringe Benefits Tax Assessment Act 1986 Subsection 58ZC(2)(d)(iii)

Fringe Benefits Tax Assessment Act 1986 Subsection 60(2)

Fringe Benefits Tax Assessment Act 1986 Subsection 60(2A)

Fringe Benefits Tax Assessment Act 1986 Paragraph 140(1)(b)

Fringe Benefits Tax Assessment Act 1986 Paragraph 142(2E)(a)

Fringe Benefits Tax Assessment Act 1986 Paragraph 142(2E)(b)(iii)

Reasons for decision

Will the grant of a lease or licence to occupy residential accommodation in the Remote area under the terms of a valid salary sacrifice arrangements be an exempt benefit under subsection 58ZC(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Subsection 58ZC(1) of the FBTAA states that 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 states that a benefit will arise where a person grants a housing right to another person.

'Housing right' is defined in subsection 136(1) of the FBTAA as meaning a lease or licence being granted to a person to occupy a unit of accommodation as that person's current usual place of residence.

'Unit of accommodation' is defined in subsection 136(1) of the FBTAA to include (amongst other things) accommodation in a house, flat or home unit.

You provide some of your current employees with accommodation at residential premises you either own or lease and those employees will occupy such premises as their usual place of residence at the relevant time. Therefore, for the purposes of the FBTAA, such arrangements will constitute housing benefits being provided by you to those employees.

Remote area housing benefit

Subsection 58ZC(2) of the FBTAA sets out what constitutes a remote area housing benefit and requires that all of the following conditions be met (as relevant to this particular case);

(a) during the whole of the tenancy period, the unit of accommodation was not a location in, or adjacent to, an eligible area; and

(b) during the whole of the tenancy period, the employee was a current employee of the employer and the usual place of employment of the employee was not a location in, or adjacent to, an eligible urban area; and

(c) Repealed

(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 its employees 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 the place or places at which the employees of the employer were employed, sufficient suitable residential accommodation for those employees (other than 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 the section.

(a) Accommodation not in, nor near, an eligible urban area (that is, in a remote 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 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 one that:

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

(ii) was 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.

Consequently, for the purposes of this case, a location will be in a remote area (and not near nor in an eligible urban area), for the purposes of section 140(1) of the FBTAA, where it is at least 40 kilometres from a town with a census population of 130,000 (or 28,000 for an urban centre located in Zone A or B for income tax purposes) or at least 100 kilometres from a town with a census population of 130,000 or more.

It is accepted that accommodation provided in Remote area is in a remote area, and this condition is satisfied.

(b) Current employee is usually employed not in, nor near, an eligible urban area

All your relevant employees will be current employees who will usually work near Remote area.

As it has already been determined that Remote area is in a remote area, this condition is satisfied.

(c) Residential accommodation provided by employer for one of the three required reasons

Paragraph 58ZC(2)(d) contains a requirement for it to be necessary for you to provide or arrange for the provision of residential accommodation for your employees because:

· the nature of your business requires employees to frequently change their places of residence; or

· there was not sufficient accommodation near the place at which the employees were employed (other than accommodation provided by you or on your behalf); or

· it is customary for employers in your industry to provide accommodation to their employees free of charge or less than the market value.

Guidance as to the meaning of the phrase 'customary for employers in the industry' is provided 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? (TD 94/97) Paragraph 2 of TD 94/97 states:

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.

You and your predecessor organisations have been providing accommodation to employees in remote areas since the early 1990's. Given this provision of accommodation it is accepted that it is customary for employers in your industry to provide accommodation to their employees.

Further, you have found that there is a shortage of suitable housing for your workers in Remote area.

Therefore, this condition is satisfied.

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

Given the shortage of accommodation in the area and the longstanding policy to provide accommodation to your employees it is accepted the housing right was not granted under a non-arm's length arrangement, or an arrangement entered into for the purpose of enabling you to obtain the benefit of the application of this section.

This conclusion is not affected by the fact that some of the arrangements may involve a salary sacrifice arrangement.

Summary on remote area housing benefit

The provision of residential accommodation by you in housing you either own or lease at Remote area to the relevant employees will constitute remote area housing benefits as all the necessary conditions have been met.

Can the taxable value of the expense payment fringe benefit that results from the payment of the employee's mortgage loan interest for residential accommodation in Remote area under the terms of a valid salary sacrifice arrangement be reduced under subsection 60(2) of the FBTAA?

Subsection 60(2) of the FBTAA provides for a 50% reduction of the taxable value of expense payment fringe benefits in respect of remote area housing loan interest payments where all the following conditions are met:

Where -

(a) the recipient of an expense payment fringe benefit in relation to an employer in relation to a year of tax is an employee of the employer;

(b) the recipients expenditure is in respect of a remote area housing loan connected with a dwelling;

(c) the recipient occupied or used the dwelling as his or her usual place of residence during a period (in this section referred to as the "occupation period") during which the interest accrued; and

(d) the fringe benefit was not provided 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;

the amount that, but for this subsection would be the taxable value of the fringe benefit in relation to the year of tax shall be reduced by 50% of so much of that amount as relates to the occupation period.

(a) Expense payment fringe benefit in respect of employee's housing loan interest

In basic terms, an expense payment benefit, under section 20 of the FBTAA, is either where an employer (or associate) reimburses an employee (or associate) for expenses incurred by the employee (or associate) or where an employer (or associate) pays a third party in satisfaction of expenses incurred by an employee (or associate). Also, in basic terms, a fringe benefit, as defined in subsection 136(1) of the FBTAA, is a benefit provided to an employee (or associate) by an employer (or associate) in respect of the employee's employment and such benefit is not otherwise exempted.

This condition is met as you propose to reimburse the residential housing loan interest of some of your current employees under the terms of valid salary sacrifice arrangements.

(b) Recipients expenditure for interest for remote area housing loan for a dwelling

Subsection 136(1) of the FBTAA defines a 'dwelling' as meaning a unit of accommodation constituted by, or contained in, a building that consists, in whole or in substantial part, of residential accommodation.

Subsection 142(1) of the FBTAA, in basic terms, sets out the requirements for a 'remote area housing loan' as being a housing loan that also meets all of the following requirements:

(i) The employee occupies or uses the dwelling as his or her usual place or residence and the dwelling was not at a location in, or adjacent to, an eligible urban area;

(ii) The employee was a current employee of the employer and the usual place of employment of the employee was not at a location in, or adjacent to, an eligible urban (that is, the relevant employment is in a remote area);

(iii) The common conditions set out in subsection 142(2E) of the FBTAA are satisfied in relation to the occupation period. The aforementioned common conditions are:

(a) it was customary for employers in the industry in which the employee was employed to provide housing assistance to their employees at the relevant times.

(b) It would be concluded that it was necessary for the employer to provide or arrange for the provision of housing assistance to its employees because either:

1. There was not, at or near, the place where the employees were employed sufficient suitable residential accommodation for them (other than that provided by or on behalf of the employer).

2. It was customary for the employers in the industry in which the employee was employed to provide housing assistance to their employees at the relevant times.

(iv) The loan was not made to the employee pursuant to a non-arm's length arrangement nor under an arrangement that was entered into by any of the parties to enable the employer to obtain the benefit of the application of section 60 of the FBTAA.

(i) Employee uses dwelling in remote area as employee's usual place of residence

As discussed above, all of the relevant dwellings will be in a remote area as they will be located in Remote area.

All of the dwellings will be the usual place of residence of the relevant employees.

This condition is met.

(ii) Current employee is usually employed not in, nor near, an eligible area

As discussed above, this condition will be met as the place of employment is in Remote area.

(iii) The common conditions as set out in subsection 142(2E) of the FBTAA are met

As discussed above, it is both customary and necessary for you to provide housing assistance.

(iv) The housing loan was entered into under bona-fide circumstances

There is nothing to indicate the loan made to the employee by an arm's length financial institution was not made under a non-arm's length arrangement or was entered into for the purpose of enabling you to obtain the benefit of section 60.

(c) The recipient occupied or used the dwelling as his or her usual place of residence

The dwelling will be the usual place of residence of the employees.

(d) The fringe benefit was provided under bona-fide circumstances

As discussed above, given the shortage of accommodation in the area and the longstanding policy to provide accommodation to your employees it is accepted the fringe benefit was not granted under a non-arm's length arrangement, or an arrangement entered into for the purpose of enabling you to obtain the benefit of the application of this section.

This conclusion is not affected by the fact that some of the arrangements may involve a salary sacrifice arrangement.

Summary on remote area housing loan interest

The reimbursement by you of the housing loan interest of the relevant employees will constitute remote area housing loan interest as all the necessary requirements have been met.

Can the taxable value of the expense payment fringe benefit that results from the payment of the employee's rent for residential accommodation in Remote area under the terms of a valid salary sacrifice arrangement be reduced under subsection 60(2A) of the FBTAA?

Subsection 60(2A) of the FBTAA provides for a 50% reduction of the taxable value of expense payment fringe benefits in respect of remote area housing rent where all the following conditions are met:

(a) The recipient of the relevant expense payment fringe benefit in relation to an employer in relation to a year of tax is an employee of the employer;

(b) The recipient's expenditure is in respect of remote area housing rent connected with a unit of accommodation;

(c) The recipient occupied or used the unit of accommodation as his or her usual place of residence during the period the rent accrued; and

(d) The fringe benefit was not provided under a non-arm's length arrangement or under an arrangement that was entered into by any of the parties to the arrangement to enable the employer to obtain the benefit of the application of the subsection.

(a) Expense payment fringe benefit in respect of employee's housing rent

This condition is met as you propose to reimburse the rent for residential housing incurred by some of your current employees under the terms of valid salary sacrifice arrangements.

(b) Recipients expenditure for remote area housing rent for unit of accommodation

'Unit of accommodation" is defined in subsection 136(1) of the FBTAA to include (amongst other things) accommodation in a house, flat or home unit. As already noted above, the relevant expenditure to be reimbursed by you will be the rent for residential housing incurred by some of your current employees.

The necessary requirements for the existence of 'remote area housing rent' are set out in subsection 142(1A) of the FBTAA, basically as follows:

(i) The employee occupies or uses the unit of accommodation as his or her usual place of residence and the unit of accommodation was not at a location in, or adjacent to, an eligible urban area;

(ii) The employee was a current employee of the employer and the usual place of employment of the employee was not a location in, or adjacent to, an eligible urban area (that is, the relevant employment is in a remote area);

(iii) The common conditions set out in subsection 142(2E) of the FBTAA are satisfied in relation to the occupation period.

(iv) The lease or licence was not granted to the employee pursuant to a non-arm's length arrangement nor under an arrangement that was entered into by any of the parties to enable the employer to obtain the benefit of the application of section 60 of the FBTAA.

(i) Employee uses unit of accommodation in remote area as usual place of residence

As discussed above, the accommodation located in Remote area is in a remote area.

This condition is met.

(ii) Current employee is usually employed not in, nor near, an eligible urban area

As discussed above, this condition is met as the place of employment is in Remote area which is in a remote area.

(iii) The common conditions as set out in subsection 142(2E) of the FBTAA are met

As discussed above, these requirements are met.

(iv) The lease or licence was granted under bona-fide circumstances

There is nothing to indicate the loan made to the employee by an arm's length financial institution was not made under a non-arm's length arrangement or was entered into for the purpose of enabling you to obtain the benefit of subsection 60(2A).

(c) The recipient occupied or used the dwelling as his or her usual place of residence

The dwelling will be the usual place of residence of the employees.

(d) The fringe benefit was provided under bona-fide circumstances

As discussed above, given the shortage of accommodation in the area and the longstanding policy to provide accommodation to your employees it is accepted the fringe benefit was not granted under a non-arm's length arrangement, or an arrangement entered into for the purpose of enabling you to obtain the benefit of the application of this section.

This conclusion is not affected by the fact that some of the arrangements may involve a salary sacrifice arrangement.

Summary on remote area housing loan interest

The reimbursement by you of the housing rent of the relevant employees will constitute remote area housing rent as all the necessary requirements have been met.