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Ruling

Subject: Fringe Benefits Tax. Exempt benefit - Remote area housing.

Question

Will a Fringe Benefits Tax liability arise from the provision of accommodation to your management staff?

Answer

No.

This ruling applies for the following period:

1 April 2012 to 31 March 2013.

The scheme commences on:

Not yet commenced.

Relevant facts and circumstances

You own the management rights for a holiday resort, ('the resort').

The contract for the management rights for the resort contains a qualification that the management rights need to be administered from a particular unit at the resort ('the unit').

The unit is owned by a related trust ('the trust').

Presently the trust rents the unit to the managers.

The unit is the managers' usual place of residence.

The rent the managers are currently paying does not cover the costs the trust is incurring in relation to the unit.

You loan the trust funds to cover the additional costs.

You propose that you will lease the unit from the trust and then rent it to the managers.

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

Fringe Benefits Tax Assessment Act 1986 section 140

Fringe Benefits Tax Assessment Act 1986 subsection 140(1B)

Question 1

Detailed reasoning

Will a fringe benefits tax liability arise from the provision of accommodation to your management staff?

Under the arrangement you will provide the use of accommodation to your management employees.

The provision of accommodation may be a housing fringe benefit or may be a residual fringe benefit.

What is a housing benefit?

Section 25 of the FBTAA sets out the circumstances in which a housing benefit will be provided. It states:

The subsistence during the whole or a part of a year of tax of a housing right granted by a person (in this section referred to as the "provider") to another person (in this section referred to as the "recipient") shall be taken to constitute a benefit provided by the provider to the recipient in respect of the year of tax.

'Housing right' is defined under subsection 136(1) of the FBTAA to mean:

a lease or licence granted to the person to occupy or use a unit of accommodation insofar as that lease or licence subsists at a time when the unit of accommodation is the person's usual place of residence.

Therefore a housing benefit will be provided where the accommodation is the employee's usual place of residence. Where the accommodation is not the employee's usual place of residence the benefit will be a residual benefit.

You have advised that the unit is the managers' usual place of residence. Therefore, you will be providing your management employees with a housing benefit.

The provision of accommodation may be an exempt benefit under subsection 58ZC where the accommodation is located in a remote area and is the employee's usual place of residence.

Subsection 58ZC(2) states:

A housing benefit in relation to an employer for a year of tax and for a unit of accommodation, being a benefit provided to an employee of the employer in respect of the employee's employment, is a remote area housing benefit if:

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

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

(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 employees of the employer 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 or places at which the employees of the employer were employed, sufficient suitable residential accommodation for those employees (other than residential accommodation provided by or on behalf of the employer); or

(iii) it is customary 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 recipients 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 this section.

Therefore, the provision of accommodation will be a remote area housing benefit if the following conditions are satisfied:

· employee is provided with a housing benefit

· the unit of accommodation is located in a remote area

· for the whole of the tenancy period the unit of accommodation is occupied by the employee who's usual place of employment is in a remote area

· one of the following three conditions must also be met:

· the nature of your business is such that employees are liable to move frequently from one residential location to another, or

· 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.

· the accommodation is not provided under a non-arm's length arrangement or, as part of an arrangement entered into for the purpose, or for purposes that included the purpose, of enabling you to obtain benefit of the application of the exemption?

Will you be providing a housing benefit?

As discussed above you will be providing your employees with a housing benefit.

Will the unit of accommodation be located in a remote area?

A unit of accommodation is treated as being in a remote area if it is not in, or adjacent to, an eligible urban area. Section 140 of the FBTAA sets out the criteria for a location to be considered a remote area. In summary the criteria are:

For most employers, accommodation is in a remote area if it is not in or near an urban centre. Accommodation is classified as being near or adjacent to an eligible urban area and therefore not remote where it is situated:

· less than 40 kilometres from an eligible urban area with a census population of 14,000 to less than 130,000, or

· less than 100 kilometres from an eligible urban area with a census population of 130,000 or more.

If the accommodation is in Zone A or B (for income tax purposes), to be remote it must be located:

· at least 40 kilometres from an eligible urban area with a census population of 28,000 to less than 130,000, and

· at least 1000 kilometres from an eligible urban area with a census population of 130,000 or more.

The ATO fact sheet Fringe benefits tax - remote areas, provides lists of towns that are in remote areas according to these criteria. You are not one of the employers listed in subsection 140(1B) of the FBTAA and so list one is to be applied to your circumstances.

The town that the resort is in is listed as being located in a remote area.

Is the employee a current employee, and is the employee's usual place of employment in a remote area?

The managers are current employees. As the managers' usual place of employment is at the resort in the remote area their usual place of employment is in a remote area.

Is it necessary for you to provide residential accommodation to the employees?

Of the three conditions listed the most applicable condition is the last condition.

Is it customary in the industry for employers to provide free or subsidised housing?

The meaning of the phrase 'customary for employers in the industry' is discussed 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?

Paragraph 2 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.

It is accepted that it is customary for resorts that require their managers to live on site and be available for 24 hours to provide accommodation.

Will the accommodation to be provided under a non-arm's length arrangement or, as part of an arrangement entered into for the purpose, or for purposes that included the purpose, of enabling you to obtain the remote area housing benefit exemption?

ATO Interpretative Decision ATO ID 2005/156 Fringe Benefits Tax: Exempt Benefits: remote area housing - non-arm's length arrangement discusses what is meant by the expression non-arm's length arrangement and states:

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 section 136(1) 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.

In your situation it is necessary to provide accommodation to your employees as the contract for the management rights for the resort contains a qualification that the management rights are administered from a particular unit at the resort.

We therefore agree that the accommodation was not provided under a non-arm's length arrangement or for a purpose that allows you to obtain a benefit from the application of subsection 58ZC(2) of the FBTAA.

Conclusion

Your proposal meets all of the requirements of section 58ZC(2) of the FBTAA. The provision of the housing benefit to your management employees is an exempt benefit.