Edited version of your private ruling

Authorisation Number: 1012502293074

Ruling

Subject: FBT-Provision of accommodation

Question 1

When calculating the taxable value of a residual fringe benefit arising from the use of the employer owned residential property by the employee director, is the benefit considered to have been provided for the period the employee director used/occupied the residential property or for the whole year?

Answer 1

The whole year

This ruling applies for the following period(s)

01 April 2012 to 31 March 2014

Relevant facts and circumstances

The employer company (the company) purchased a residential property for capital investment purposes. The company is precluded from renting out the property due to restrictive covenants in place.

The company director occupies the property a number of nights at a time, for a total of two weeks in the year. Because the company is unable to rent/lease the property due to restrictive covenants in place the property is not provided to any other parties and remains vacant the rest of the year.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 45

Fringe Benefits Tax Assessment Act 1986 Section 50

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 Section 51

Reasons for decision

Residual fringe benefits

A residual fringe benefit is defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) to mean a fringe benefit that is a residual fringe benefit>

"Benefit" is defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 to include any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility. It specifically includes a right, benefit, privilege, service or facility that is, or is to be, provided under:

(a) an arrangement for or in relation to:

(i) the performance of work (including work of a professional nature), whether with or without the provision of property

(ii) the provision of, or of the use of facilities for, entertainment, recreation or instruction, or

(iii) the conferring of rights, benefits or privileges for which remuneration is payable in the form of a royalty, tribute, levy or similar exaction

(b) a contract of insurance, or

(c) an arrangement for or in relation to the lending of money.

The provision of the right, privilege to the use of the property to the director will fall within section 45 FBTAA definition of residual benefits because it satisfies the subsection 136(1) FBTAA definition of benefit and is not specifically covered by any of the other specific categories of benefits in Div 2 to 11 FBTAA.

The term benefit specifically includes any right, privilege, service or facility that is or will be provided under an arrangement relating to the provision of the use of facilities for entertainment, recreation or instruction. Accordingly, the company's employee's right to use the residential property will constitute a benefit for fringe benefits tax purposes.

The expression 'fringe benefit' is also defined in subsection 136(1) of the FBTAA. In accordance with the definition, the benefit provided by the company in its capacity as an employer to its director will constitute a fringe benefit.

In accordance with section 45 of the FBTAA, a fringe benefit is a residual fringe benefit if it is not specifically covered by any of the other categories of benefits in Divisions 2 to 11 of the FBTAA.

In your case the fringe benefit is not specifically covered by any of the categories of benefits in Divisions 2 to 11 of the FBTAA.

Accordingly, the provision of the right, privilege to the use of the property by the company to its director for the full year will give rise to residual fringe benefits. It is noted that it is not the actual use that is the residual fringe benefit but the availability to be able to use it for the full year that gives rise to the residual fringe benefit.

Taxable value

For valuation purposes, there are two types of residual fringe benefits: in-house residual fringe benefits and external residual fringe benefits. Each type has specific valuation rules.

In-house residual fringe benefits

A residual fringe benefit is valued as an in-house residual fringe benefit if you (or an associate) provide the benefit and it is identical or similar to rights, services or facilities you (or an associate) provide to the public in the ordinary course of business. Examples include professional advice provided free or at a discount by a law firm to its employees, and video recorders hired out to employees of a television rental firm at a discount.

External residual fringe benefits

Any residual fringe benefit that is not an in-house residual fringe benefit is an external residual fringe benefit.

Commonly, an external residual fringe benefit arises where:

· you provide the residual fringe benefit but the benefit is not of a kind provided to the public in the ordinary course of business - for example, a hairdresser provides his employees with health insurance cover under a group policy taken out for the benefit of the employees

· you arrange for the residual fringe benefit to be provided by a third party - for example, a solicitor arranges for an accountant to provide discounted services to the solicitor's employees.

The director's right to use the residential property does not fit the definition of an in-house residual fringe benefit, as the property is not available for use by the general public. Therefore the right is an external residual fringe benefit.

Taxable value of external residual fringe benefits

Where you purchased the service, right or privilege under an arm's length transaction, the taxable value is the cost price to you, less any employee contribution.

If the above rule doesn't apply, the taxable value is the amount the employee could reasonably be expected to pay to obtain the benefit under an arm's length transaction, reduced by any amount paid by the employee.

Where the period during which the benefit is provided extends past the end of the FBT year, you apportion the taxable value between the two years on a pro rata basis.

The property is made available for use by the director for the full year any time of the year even though the director only uses it approximately for two weeks in total in the year. In order to obtain a similar benefit/right the director would have to lease/rent a similar property in the area for the full year.

Therefore, the residual fringe benefit is considered to have been provided for the whole year and the taxable value can not be apportioned on a pro rata basis only for the number of days occupied.