Edited version of your private ruling

Authorisation Number: 1012445722029

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Ruling

Subject: Fringe Benefits Tax - Remote Housing - Interest on Loans

Issue 1

Question 1

Are the taxable values of expense payment fringe benefits resulting from the payments by you of Employee 1 and Employee 2's mortgage loan interest for residential accommodation in a Town 1, under the terms of valid salary sacrifice arrangements, reduced under sub-section 60(2) of the Fringe Benefits Tax Assessment Act 1986 ("FBTAA")?

Answer

Yes

This ruling applies for the following periods

Year ending 31 March 2013.

Year ending 31 March 2014.

Year ending 31 March 2015.

The scheme commences on

20 November 2012.

Relevant facts and circumstances

You are seeking a ruling for 2 of your employees who have relocated to Town 1 for work.

The location of the employees' primary place of employment is at Town 2 and their employment status is as a permanent employee.

Employee 1 and Employee 2 using the loan agreements are salary sacrificing 50% of the interest amount on loans, affecting the pre-tax salary to reduce by 50% of the interest payable on the loan.

The residence is located in Town 1.

The employees will use the residence as his or her usual place of residence during the occupation period.

The remote area housing loans are made at arm's length agreements.

The remote area housing loans are not entered into for the purpose of gaining the benefit or concession from section 60 of the FBTAA.

You advise that a number of regional government authorities offer remote area housing benefits to their employees.

Assumptions

None.

Relevant legislative provisions

Section 20 of the Fringe Benefits Tax Assessment Act 1986.

Section 60 of the Fringe Benefits Tax Assessment Act 1986.

Section 136 of the Fringe Benefits Tax Assessment Act 1986.

Subsection 142(1) of the Fringe Benefits Tax Assessment Act 1986.

Does Part IVA apply to this ruling?

Not considered.

Reasons for decision

Question 1

Are the taxable values of expense payment fringe benefits resulting from the payments by you of Employee 1 and Employee 2's mortgage loan interest for residential accommodation in a Town 1, under the terms of valid salary sacrifice arrangements, reduced under sub-section 60(2) of the Fringe Benefits Tax Assessment Act 1986 ("FBTAA")?

Summary

The payment by you for the housing loan interest of Employee 1 and Employee 2 will constitute remote area housing loan interest as all the necessary requirements under subsection 142(1) of the FBTAA have been met.

The taxable value of the expense payment fringe benefit resulting from the payments of the housing loan interest of Employee 1 and Employee 2, by you, will qualify for reductions in taxable value under subsection 60(2) of the FBTAA as all the necessary conditions have been met.

Detailed reasoning

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

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;

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

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

The fringe benefit was not provided under: -

A non-arm's length arrangement; or

An arrangement that was entered into by any of the parties to the arrangement for the purpose, or for the purposes that include the purpose, of enabling the employer to obtain the benefit of the application of this section;

Condition 1: expense payment fringe benefit (paragraph 60(2)(a) of the FBTAA)

Subsection 136(1) of the FBTAA defines an "expense payment fringe benefit" as a "fringe benefit" that is an "expense payment benefit." In basic terms, a "fringe benefit", as also defined in subsection 136(1) of the FBTAA, is a benefit provided to an employee by an employer in respect of the employee's employment and such benefit is not otherwise exempted. An "expense payment fringe benefit" is defined in section 20 of the FBTAA and occurs in one of the following situations: -

where the employer reimburses an employee for expenses they incur; or

where the employer pay a third party in satisfaction of expenses incurred by an employee.

You propose to pay 50% of the loan interest payments of Employee 1 and Employee 2 under valid salary sacrifice arrangements.

Condition 1 is satisfied.

Condition 2: the recipient's expenditure is in respect of interest for a remote area housing loan connected with a dwelling (paragraph 60(2)(b) of the FBTAA)

Subsection 136(1) defines "dwelling" as

a unit of accommodation constituted by, or contained in a building, being a unit that consists, in whole or in substantial part, of residential accommodation.

"Unit of accommodation" is defined as including: -

(a)  a house, flat or home unit;

(aa)  accommodation in a house, flat or home unit;

(b)  accommodation in a hotel, hostel, motel or guesthouse;

(c)  accommodation in a bunkhouse or any living quarters;

(d)  accommodation in a ship, vessel or floating structure; and

(e)  a caravan or other mobile home.

You propose to pay the rental payments incurred by Employee 1 and Employee 2 in connection with a dwelling.

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

(1)  In this Act, a reference, in relation to a year of tax in relation to an employee of an employer, to a remote area housing loan connected with a dwelling is a reference to a housing loan relating to the dwelling where:

a) during the whole of the period (in this sub-section referred to as the occupation period ) in the year of tax when the employee occupied or used the dwelling as his or her usual place of residence:

(i) the dwelling was situated in a State or internal Territory and was not at a location in, or adjacent to, an eligible urban area; and

(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 area;

b) the common conditions set out in sub-section (2E) are satisfied in relation to the occupation period; and

c) the loan was not made to the employee pursuant to:

(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 section 60.

The common conditions in subsection 142(2E) of the FBTAA are as follows: -

(a)  it is customary for employers in the industry in which the employee was employed during that period or at that time, as the case may be, to provide housing assistance for their employees;

(b)  it would be concluded that it was necessary for the employer, during the year of tax, to provide or arrange for the provision of housing assistance 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;

(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 for employers in the industry in which the employee was employed during that period or at that time, as the case may be, to provide housing assistance for their employees.

Under paragraph 142(2E)(a) of the FBTAA employers must provide housing assistance for their employees during their period of employment. "Housing assistance" is defined in subsection 142(3)(c) of the FBTAA as follows: -

(c ) the making of payments in discharge or reimbursement of expenditure incurred by a person in respect of interest incurred in respect of a housing loan in relation to a dwelling.

142(1)(a)(i) Dwelling in remote area is employee's usual place of residence

Practice Statement PS LA 2000/6 provides a list of cities and towns within Australia that are considered remote areas. Town 1 is listed as a remote area.

The relevant dwellings are in a remote area as they are located in Town 1 and the dwelling is the usual place of residence for employee 1 and employee 2.

This condition is met.

142(1)(a)(ii) Current employee is usually employed not in, nor near, an eligible urban area

You have confirmed that employee 1 and 2's primary place of employment is at Town 1. As explained above, Town 1 is listed as a remote area in PSLA 2000/6.

This condition is satisfied.

142(1)(b) The common conditions in subsection 142(2E) of the FBTAA are met

The research and data provided by you about the other employers in the industry indicate that it is customary for employers in the industry to provide free or subsidised residential accommodation to employees particularly to attract staff.

It is accepted that, especially in remote areas, it is customary for employers to provide housing assistance, as defined, to their current employees.

Housing assistance includes the payment of mortgage loan interest.

The loan agreements are entered into under bona-fide circumstances. The remote area housing loans are made at an arm's length agreement. The remote area housing loans are not entered into for the purpose of gaining the benefit or concession from section 60 of the Fringe Benefits Tax Assessment Act 1986.

It is considered, therefore, that the common conditions are met in this case.

Condition 2 is satisfied.

Condition 3: the dwelling is the employee's usual place of residence during the period of the loan (paragraph 60(2)(c) of the FBTAA)

You confirmed that Employee 1 and Employee 2 will use the units of accommodation as his/her usual place of residence during the occupation period which the loan interest payments accrue.

Condition 3 is satisfied.

Condition 4: The loan agreement is entered into under bona-fide circumstances (paragraph 60(2)(d) of the FBTAA)

It is noted that the loan agreements are entered into at an arm's length between all parties. The reimbursement provided under the agreements are not entered into for the purpose of gaining the benefit or concession from section 60 of the FBTAA.

Condition 4 is satisfied.

Conclusion

The payment by you for the housing loan interest of Employee 1 and Employee 2 will constitute remote area housing loan interest as all the necessary requirements under sub-section 142(1) of the FBTAA have been met.

The taxable value of the expense payment fringe benefit resulting from the payment of the housing loan interest of Employee 1 and Employee 2, by you, will qualify for reductions in taxable value under sub-section 60(2) of the FBTAA as all the necessary conditions have been met.

Other references (non ATO view, such as court cases)

Practice Statement PS LA 2000/6: Fringe benefits tax: what is considered to be remote for the purposes of remote housing benefit.