Edited version of your private ruling

Authorisation Number: 1012546467194

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Ruling

Subject: Fringe benefits tax; remote area housing

Issue 1

Question 1

Can the value of an expense payment benefit that arises from the reimbursement of rental expenses incurred by employees on 457 visas for four units of accommodation in remote areas, be reduced by the taxpayer under subsection 60(2A) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

No

This ruling applies for the following period(s)

1 April 2013 to 31 March 2014

1 April 2014 to 31 March 2015

1 April 2015 to 31 March 2016

The scheme commences on

! April 2013

Relevant facts and circumstances

The taxpayer provides a range of housing benefits to its current employees who work in remote areas under a salary sacrifice arrangement.

It currently provides remote area housing benefits as an expense payment fringe benefit where it reimburses an employee for rent incurred by the employee for a unit of accommodation. Evidence of monthly payments and the lease are required by the employee.

The taxpayer advertised overseas for skilled labour.

It employed workers from various countries on sponsored temporary entry visa (subclass 457) which provide permission for the worker to remain in Australia working for the employer until the visa expires.

Four foreign employees were offered open ended, ongoing contracts.

A salary packaging application form for each employee was provided.

These four employees are receiving reimbursement for rent for residences they lease in the remote listed areas.

None of the four employees has applied for permanent residence status or previously been in receipt of a living away from home allowance.

None of the four employees maintains a residence in another part of Australia.

The four employees are living in the remote area with their families.

All are leasing a unit of accommodation near to their place of work in the remote location.

Some employees own homes overseas.

The taxpayer advised that:

· The rental accommodation for each employee is provided by an independent third party.

· The taxpayer provides no other ongoing benefits to the employees other than the remote area housing assistance.

The taxpayer considers the four employees are living in remote area housing as their usual place of residence because:

· All employees are offered permanent full time jobs with the taxpayer.

· They are here with their family

· Majority of the 457 visa employees apply for and are granted permanent residency status in Australia.

· Employees are not maintaining another residence elsewhere in Australia.

· They were not previously in receipt of a living away from home allowance.

The taxpayer stated that it is customary in their particular industry to provide remote area housing benefits to all their employees required to live in remote areas.

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 60(2A)

Fringe Benefits Tax Assessment Act 1986, subsection 136(1)

Fringe Benefits Tax Assessment Act 1986, section 140

Fringe Benefits Tax Assessment Act 1986, subsection 142 (1A)

Fringe Benefits Tax Assessment Act 1986, subsection 142(2E)

Anti-avoidance rules

Not applicable

Reasons for decision

Issue 1

Question 1

You provide housing assistance to your employees on a 457 visa under a sacrifice arrangement whereby your employees rent accommodation and you reimburse the employees the cost of the expense.

Section 20 of the FBTAA describes when a reimbursement made to an employee will constitute an expense payment benefit. Section 20 states:

Where a person (in this section referred to as the provider):

(a) makes a payment in discharge, in whole or in part, of an obligation of another person (in this section referred to as the recipient) to pay an amount to a third person in respect of expenditure incurred by the recipient; or

(b) reimburses another person (in this section also referred to as the recipient), in whole or in part, in respect of an amount of expenditure incurred by the recipient;

the making of the payment referred to in paragraph (a), or the reimbursement referred to in paragraph (b), shall be taken to constitute the provision of a benefit by the provider to the recipient.

The reimbursements you will provide to your employees under the arrangement will be expense payment benefits according to the requirements of subsection 20(b) 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 rental payments where all the conditions in that subsection are satisfied.

Subsection 60(2A) of the FBTAA states:

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 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 a period (in this subsection called the ``occupation period'') during which the rent 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 the recipients expenditure as relates to the occupation period.

In summary the conditions to be met are:

(a) the employee is in receipt of an expense payment fringe benefit

(b) the employee's expenditure is in respect of remote area housing rent for a unit of accommodation

(c) the accommodation was the employee's usual place of residence

(d) the benefit was not provided under:

(i) a non-arm's length arrangement, or

(ii) an arrangement entered into by any of the parties for purposes that included the purpose of enabling the employer to obtain the benefit of the application of the reduction.

(a) Will the benefit be an expense payment fringe benefit?

You are reimbursing your employees for a rental expense they have incurred. We have already established that where you reimburse an employee for an expense they have incurred, you will be providing an expense payment fringe benefit pursuant to section 20 of the FBTAA.

(b) Will the employee's expenditure be in respect of remote area housing rent for a unit of accommodation?

A 'unit of accommodation' is defined in section 136(1) of the FBTAA 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.

Your employees are each living in a unit of accommodation that is a house or a unit.

You are reimbursing your employees for their rental expenses in respect of their accommodation in remote areas.

Subsection 142(1A) of the FBTAA sets out the conditions to be met for rent of accommodation to qualify as remote area housing rent. Subsection 142(1A) states:

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 rent connected with a unit of accommodation is a reference to rent or other consideration payable in respect of the subsistence of a lease or licence in respect of the unit of accommodation where:

(a) during the whole of the period (in this subsection referred to as the ("occupation period'') in the year of tax when the employee occupied or used the unit of accommodation as his or her usual place of residence:

(i) the unit of accommodation 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 subsection (2E) are satisfied in relation to the occupation period; and

(c) (Omitted by No 95 of 1988)

(d) the lease or licence was not granted 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 section 60.

In simpler terms, the conditions to be met under subsection 142(1A) are as follows:

(a) the unit of accommodation must be the employee's usual place of residence

(i) the residence must be in a remote area

(ii) the employee's usual place of employment must be in a remote area

(b) the common conditions set out in subsection (2E) are satisfied, and

(c) (Omitted. This condition no longer applies)

(d) the benefit was not provided:

(i) under a non-arm's length arrangement, or

(ii) under an arrangement entered into by any of the parties for purposes that included the purpose of enabling the employer to obtain the benefit of the application of the reduction.

Paragraph 142 (1A)(a)

Is the unit of accommodation the employee's usual place of residence?

The FBTAA does not define 'usual place of residence'. However, in subsection 136(1) of the FBTAA it does define a 'place of residence' to mean:

(a) a place at which the person resides; or

(b) a place at which the person has sleeping accommodation;

whether on a permanent or temporary basis and whether or not on a shared basis.

Each employee and their families reside in a place of residence that is their respective rented unit of accommodation.

Miscellaneous Taxation Ruling MT 2030 Fringe benefits tax: living-away-from-home allowance benefits provides the Commissioner's view of a 'usual place of residence' at paragraphs 11 -25.

Paragraph 14 provides the following general rule:

14. …. A person is regarded as living away from a usual place of residence if, but for having to change residence in order to work temporarily for his employer at another locality, the employee would have continued to live at the former place. It would be relevant in reaching that view that there is an intention or expectation of the employee returning to live at the former place of residence on cessation of work at the temporary job locality. This would be relevant even if the employee is living in temporary quarters close to a temporary job site.

Paragraphs 15 to 18 provide a brief description of the decisions from some cases which illustrate what is a usual place of residence. It is then concluded at paragraph 20 that:

Employees who move to a new locality to take up a position of limited duration with an intention to return to the old locality at the end of the appointment would generally be treated as living away from their usual place of residence.

As an example of the application of this general rule, paragraph 22 states:

Examples of employees on appointments of finite duration who will generally be living away from their usual place of residence employed in Australia on a temporary basis … Provided the appointment is for a limited period and the employee can be expected in the normal course to return to the same city or district of the home country to live, the employee may be treated as living away from his or her usual place of residence.

In applying this general rule to the circumstances of your employees, they have all moved to a new locality (Australia) to take up a position of limited duration. All have come to Australia on a 457 visa which limits the period of time they can be in Australia. Therefore, unless there is strong evidence which indicates the employees will be residing in their Australian residence for an extended period of time at the conclusion of their 457 visas, they will be treated as living away from their usual place of residence.

However a conclusion that an employee is living at their usual place of residence is based on the facts of each employee.

Employee 1

Arrived in Australia on a temporary entry 457 visa. His employment contract required him to remain at his base of employment for two years at which point his employer may support an application for permanent residence status in Australia. He owns accommodation overseas.

The facts as provided indicate Employee 1 has moved to Australia for a limited period of time. Further, there is nothing to indicate that Employee 1 will not be leaving Australia at the conclusion of his 457 visa.

In the absence of some evidence which indicates Employee 1 will be residing in the Australian residence for an extended period of time or will not be leaving Australia at the conclusion of the 457 visa, Employee 1 is considered to be living away from the usual place of residence.

Employee 2

Arrived in Australia on a temporary entry 457 visa. His employment contract requires him to remain at his base of employment for two years at which point his employer may support an application for permanent residence status. He owns a home overseas.

The facts as provided indicate Employee 2 has moved to Australia for a limited period of time. Further, there is nothing to indicate that Employee 2 will not be leaving Australia at the conclusion of his 457 visa.

In the absence of some evidence which indicates Employee 2 will be residing in the Australian residence for an extended period of time or will not be leaving Australia at the conclusion of the 457 visa, Employee 2 is considered to be living away from the usual place of residence.

Employee 3

Arrived in Australia on a temporary entry 457 visa. His employment contract expects him to remain at the remote work base for two years. He owns a home overseas.

The facts as provided indicate Employee 3 has moved to Australia for a limited period of time. Further, there is nothing to indicate that Employee 3 will not be leaving Australia at the conclusion of his 457 visa.

In the absence of some evidence which indicates Employee 3 will be residing in the Australian residence for an extended period of time or will not be leaving Australia at the conclusion of the 457 visa, Employee 3 is considered to be living away from the usual place of residence.

Employee 4

Arrived in Australia on a temporary entry 457 visa. His employment contract expects him to remain at the remote work location for two years

The facts as provided indicate Employee 4 has moved to Australia for a limited period of time. Further, there is nothing to indicate that Employee 4 will not be leaving Australia at the conclusion of his 457 visa.

In the absence of some evidence which indicates Employee 4 will be residing in the Australian residence for an extended period of time or will not be leaving Australia at the conclusion of the 457 visa, Employee 4 is considered to be living away from the usual place of residence.

Sub paragraphs 142 (1A)(a)(i) and (ii)

Is the employee's unit of accommodation and usual place of employment in a remote area?

Our fact sheet Fringe benefits tax - remote areas provides a list of towns which are considered to be either located in a remote area or a non-remote area pursuant to section 140 of the FBTAA. Each employee is working in a remote area. They all lease accommodation near the site where they are based. The employees all reside in remote areas. They therefore fulfil the conditions of paragraphs 142(1A)(a)(i) and (ii) that require the employment and accommodation to be in a remote area.

Paragraph 142 (1A)(b)

Are the common conditions set out in subsection 142 (2E) met?

This subsection requires it to be customary within an industry to provide housing assistance to employees during their employment or to be able to conclude that it is necessary for an employer to provide accommodation because the nature of the employment requires the employee to frequently change his/her places or residence or there is insufficient suitable accommodation near the employee's workplace or it is customary at that time and in that industry for employers to provide housing assistance for their employees.

There may be several underlying reasons why a particular employer, located in a remote area, may consider it necessary to provide housing benefits to employees including the retention of existing employees or to make it more attractive for suitable potential employees to want to take up employment with that particular employer.

Nonetheless, to satisfy the requirements of subsection 142 (2E) of the FBTAA, the reason that the employer finds it necessary to provide residential accommodation for employees must be because it was customary in the industry in which the recipient was employed to provide residential accommodation for their employees.

Taxation Determination TD 94/97 provides guidance on what the phrase 'customary for employers in the industry' means in relation to the provision of fringe benefits. TD 94/97 states:

2. 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 have stated that it is customary for you to provide housing assistance to all your employees who work in your industry in remote areas. The provision of such assistance is neither unique, rare, or unusual within your industry.

Consequently, where you provide residential housing assistance to your employees in remote areas this will satisfy the requirements of paragraph 142 (2E)(a) and therefore paragraph 142(1A)(b) of the FBTAA.

Paragraph 142(1A)(d)

Is the accommodation provided under a non-arm's length arrangement, or under an arrangement entered into by any of the parties for purposes that included the purpose of enabling you to obtain the benefit of the application of the reduction?

ATO Interpretative Decision ATO ID 2005/156 Fringe Benefits Tax: Exempt Benefits: remote area housing - non-arm's length arrangement (ATO ID 2005/156) 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.

Under your current arrangement, you are providing housing assistance to attract employees to work in remote locations where you are finding it difficult to retain staff and where it is customary in the industry in which the employees work to receive housing assistance. The employees have entered into a lease for a unit of accommodation with an independent third party in each case. Therefore it is accepted that a lease under this arrangement will not be granted under a non-arm's length arrangement

For the purpose of obtaining the benefit:

Guidance on what is meant by an arrangement that was entered into by any of the parties of the arrangement for the purpose, or for purposes that included the purpose, of enabling the employer to obtain the benefit of the section, is provided in ATO Interpretative Decision ATO ID 2010/182 Fringe Benefits Tax: exempt benefits - remote area housing benefits - salary sacrifice arrangement (ATO ID 2010/182). Although ATO ID 2010/182 discusses the phrase in regards to obtaining the benefit of section 58ZC of the FBTAA, the interpretation is applicable to this situation as the phrase is used in the same way in both section 58ZC and section 60.

In discussing the meaning of the phrase ATO ID 2010/182 states:

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 its employee. 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 ordinary business dealings as it is customary in the employer's industry.

The proposed arrangement is one that is customary in your particular industry. You use the arrangement to hire foreign workers in order to overcome the difficulty you are experiencing in recruiting and retaining staff to work in the remote areas in which you operate. As discussed in ATO ID 2010/182 there are no overt acts that imply that the arrangement is being implemented by any of the parties for the purpose of allowing you to obtain the benefit of section 60. The arrangement can be explained as being one of ordinary business dealings as customary in the industry of the class of skilled employees who will be receiving the assistance.

The common conditions contained in subsection 142(2E) that are required by paragraph 142(1A)(b) are satisfied as are conditions in paragraph 142(1A)(d).

However, the requirements of subsection 142(1A) are not met as your four employees are not living at their usual place of residence.

All the conditions must be fulfilled however, for the reimbursed expenditure to your four employees to be considered to be in respect of remote area housing rent connected with a unit of accommodation.

(c)Will the employee occupy or use the dwelling as their usual place of residence?

The units of accommodation leased by the four employees where they and their families reside are not regarded as their usual place of residence for the same reasons as discussed above under paragraph 142(1A)(a)

(d)Is the accommodation provided under a non-arm's length arrangement or as part of an arrangement entered into by any of the parties for the purpose, or for purposes that included the purpose, of enabling you to obtain the benefit of the application of this section?

For the same reasons discussed above under paragraph 142(1A)(d) this condition is met.

Conclusion

The taxable value of the expense payment fringe benefit arising from the reimbursement of the rental expenses incurred by your four employees on 457 visas for four units of accommodation will not qualify for reductions in taxable value as per subsection 60(2A) of the FBTAA as the units of accommodation are not the employees' usual place of residence.