Edited version of your private ruling

Authorisation Number: 1012577802121

Ruling

Subject: Fringe benefits tax - housing fringe benefits

Question 1

Will the provision of housing accommodation in a remote area be an exempt benefit under subsection 58ZC(1) of the FBTAA?

Answer

Yes

This ruling applies for the following periods:

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:

1 April 2013

Relevant facts and circumstances

You are an employer located in a town in Australia. Your town is listed as a town in a remote area in the ATO fact sheet Fringe benefits tax - remote areas.

The provision of subsidised housing to staff is considered customary within your industry and you have previously and are currently providing subsidised housing to staff.

You are leasing a unit of housing accommodation which you have made available to an employee to reside in.

The employee has entered a salary sacrifice arrangement (SSA) and will forgo part of their total remuneration, in return for the right to use the house.

The SSA is an effective SSA as described in Taxation Ruling TR 2001/10 Income tax: fringe benefits tax and superannuation guarantee: salary sacrifice arrangements.

The employee's usual place of residence is the unit of housing accommodation provided for the tenancy period.

The employee's usual place of employment for the tenancy period is in the same location as your business.

The employee is a current employee.

Relevant legislative provisions

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)

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

Reasons for decision

Question 1

Will the provision of accommodation to an employee be an exempt benefit under subsection 58ZC(1) of the FBTAA?

The provision of accommodation may be an exempt benefit under subsection 58ZC(1) of the FBTAA 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

(c) …

(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 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 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 requirements are satisfied:

1. the employee is provided with a housing benefit

2. the unit of accommodation is located in a remote area

3. 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

4. one of the following conditions must be met:

• the nature of your business is such that employees are liable to frequently change their place of residence

• there is insufficient suitable residential accommodation otherwise available at or near the place or places where the employees are employed

• it is customary for employers in the industry to provide free or subsidised accommodation for their employees, and

5. 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 the employer to obtain the benefit of the application of the exemption provided in subsection 58ZC.

1. Are you providing 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.

Subsection 136(1) of the FBTAA provides the following definition of a 'housing right':

housing right, in relation to a person, means 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.

Your employee will be occupying the unit of accommodation as their usual place of residence during the occupation period.

2. Is the unit of accommodation located in a remote area?

The concept of an 'eligible urban area' is necessary in determining whether an area is a remote area. Section 140 of the FBTAA sets out the criteria for determining what an eligible urban area is.

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 either:

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

(ii) situated less than 100 kilometres, by the shortest practicable surface route, from the centre point of an eligible urban area with a census population of at least 130,000.

The ATO fact sheet Fringe benefits tax - remote area contains a list of towns which have been determined to be either located in a remote area or a non-remote area. The town in which your employee is residing is listed as being located in a remote area.

3. Is the employee's usual place of employment located in a remote area?

The employee's usual place of employment is in the same location as their accommodation, which, as discussed above, is located in a remote area.

4. Is it necessary for the employer to provide residential accommodation to the employees?

Paragraph 58ZC(2)(d) of the FBTAA requires that it must be necessary for the employer to provide or arrange for the provision of the accommodation because one of the following three conditions is satisfied:

• the nature of the employer's business is such that employees are liable to frequently change their place of residence

• there is insufficient suitable residential accommodation otherwise available at or near the place or places where the employees are employed

• it is customary for employers in the industry in which the employees are employed, to provide accommodation for their employees free of charge or for rent or other consideration that is less than market value.

You have stated that it is customary within their industry to provide subsidised housing to staff under a SSA.

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? (TD 94/97).

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.

It is accepted that it is customary for employees within your industry to be in receipt of accommodation from their employer. Therefore, according to paragraph 58ZC(2)(d) of the FBTAA, it is necessary for the employee to provide or arrange for the provision of the accommodation.

5. Is the accommodation 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 the employer to obtain the remote area housing benefit exemption?

Non-arm's length:

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 the proposed arrangement you will be providing accommodation to an employee who works in a remote location where it is customary in the industry in which the employee works to receive accommodation. Therefore it is accepted that a lease or licence under the arrangement proposed 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 section 58ZC of the FBTAA, 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).

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 arrangement is one that is customary in the industry in which the employee works. 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 the employer to obtain the housing benefit exemption. The arrangement can be explained as being one of ordinary business dealings as customary in the industry of the class of employees who will be receiving the assistance.

Thus, the accommodation provided under this proposed arrangement will not be provided under a non-arm's length arrangement or for a purpose, or purposes that includes the purpose, of enabling the employer to obtain the remote area housing benefit exemption.

Conclusion

Your arrangement meets all of the requirements of subsection 58ZC(2) of the FBTAA. The provision of the housing benefits to your employee under the proposed arrangement will be exempt benefits as per subsection 58ZC(1).

ATO view documents

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

ATO Interpretative Decision ATO ID 2010/182 Fringe Benefits Tax: exempt benefits - remote area housing benefits - salary sacrifice arrangement (ATO ID 2010/182)

Fringe benefits tax - a guide for employers (NAT 1054)

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)

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

ATO fact sheet Fringe benefits tax - remote areas

Law Administration Practice Statement PS LA 2000/6 Fringe benefits tax: what is considered to be remote for the purposes of the remote area housing benefit (PS LA 2000/6)