Edited version of your private ruling

Authorisation Number: 1012617170502

Ruling

Subject: FBT

Question 1

Is the provision of subsidised housing to Gov1 employees who compete with non-employees for the housing considered to be a fringe benefit under subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) and therefore subject to fringe benefits tax?

Answer

No

This ruling applies for the following periods:

1 April 2013 - 31 March 2014

1 April 2014 - 31 March 2015

1 April 2015 - 31 March 2016

The scheme commences on:

1 April 2013

Relevant facts and circumstances

The entity is a government body (Gov1).

• Gov1 is represented by a government department (Gov2) and has established an initiative through which it proposes to head lease residential premises to be rented to low and middle income key service industry workers at subsidised rents.

• The purpose of the initiative is to attract and retain skilled workers in a particular area in Australia.

• To be considered for the subsidised housing, prospective tenants must meet the eligibility criteria.

• Eligibility criteria includes meeting the gross household income limit and being employed in a key service industry.

• It is not a requirement that a prospective tenant be a Gov1 employee to be eligible for the subsidised housing.

• As a result of meeting the eligibility requirements and being selected for the subsidised housing, some of the tenants may be Gov1 employees.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Reasons for decision

The definition of a 'fringe benefit' can be found in subsection 136(1) of the FBTAA and is taken to mean:

A benefit:

(a) provided at any time during the year of tax; or

(b) provided in respect of the year of tax

being a benefit provided to the employee or to an associate of the employee by:

(c) the employer; or

(d) an associate of the employer; or

(e) a person (in this paragraph referred to as the arranger) other than the employer or an associate of the employer under an arrangement covered by paragraph (a) of the definition of arrangement between:

i. the employer or an associate of the employer; and

ii. the arranger or another person; or

(ea) a person other than the employer or an associate of the employer, if the employer or an associate of the employer:

i. participates in or facilitates the provision or receipt of the benefit; or

ii. participates in, facilitate or promotes a scheme or plan involving the provision of the benefit;

and the employer or associate knows, or ought reasonably to know, that the employer or associate is doing so;

in respect of the employment of the employee, but does not include:

(f)….

Therefore, a fringe benefit must be provided in respect of the employment of the employee.

The words 'in respect of' are defined in subsection 136(1) of the FBTAA as:

in relation to the employment of an employee, includes by reason of, by virtue of, or for or in relation directly or indirectly to, that employment.

Miscellaneous Taxation Ruling MT 2016 Fringe benefits tax: benefits not taxable unless provided in respect of employment provides guidance on the words 'in respect of employment'. It states at paragraphs 2-3:

2. An essential element of the definition of fringe benefit is that the benefit must be one provided in respect of the employment of the employee. Unless a benefit is provided in the context of an employer-employee relationship the tax has no application.

3. Section 148 qualifies the meaning that is to be given to reference in the Act to benefits provided 'in respect of' the employment of an employee.

Paragraph 7 of MT 2016, provides examples of benefits brought within the scope of fringe benefits tax:

a) the value of accommodation and meals provided in the family home where children of a primary producer work on the family farm

b) similarly, the value of broad provided free in the family home to a son who is apprenticed to his father as a motor mechanic

c) birthday presents given to children who work in small businesses run by their parents

d) a wedding gift given by parents to an adult child who had some years earlier worked after school in the family business'

e) an interest free loan or a concessional loan given to such a child for the purpose of buying a matrimonial home;

f) the rental value of a farm homestead occupied by a family whose private company conducts the farming business sin which they work and holds the title to the homestead.

Paragraph 12-13 of MT 2016 states:

12. In each of the examples in paragraph 7(a) to (f) above, the facts as presented lead strongly to the conclusion that the benefits and gifts were given in an ordinary family setting and would have been a normal incidence of family relationships. It would not be concluded that they were to any extent provided in respect of either past or current employment of the recipient members.

13. That is not to be taken as implying that all benefits provided to children or other family members who are employed in a family business will be outside the scope of the tax. For example, the private use of a motor vehicle provided to a relative employed as a travelling salesman in a business conducted by a family company could ordinarily be expected to be treated as a fringe benefit provided in an employment context rather than a family one.

In J&G Knowles & Associates v FC of T 2000 ATC 4151 (Knowles), the phrase 'in respect of' was held to require a 'nexus, some discernible and rational link, between the benefit and employment'. However it could not be said that any causal relationship between the benefit and the employment was a sufficient link so as to result in a taxable transaction. What must be established was whether there was a sufficient or material, rather than a, causal connection or relationship between the benefit and the employment.

Following MT 2016 and the court's decision in Knowles, it is the context, in which the benefit is provided to the employee that it important in determining whether a fringe benefit will arise. If the employee receives the benefit because of their employment, there will be a nexus and a discernible and rational link between the benefit and the employment.

In this case, Gov1 through Gov2 has established the subsidised housing initiative to attract and retain workers in a particular area in Australia. Prospective tenants must satisfy the eligibility requirements to be considered for subsidised housing. There is no requirement that they must be employed by Gov1 to receive the benefit.

It is considered that there is no nexus or discernible and rational link between the subsidised housing and employment as a Gov1 employee. Rather, as a result of the subsidised housing initiative being open to people who meet the eligibility requirements, some recipients will be employed by Gov1. The subsidised housing is not provided in an employer-employee relationship and there is no direct or indirect connection to employment with Gov1.

Therefore, the provision of subsidised housing to Gov1 employees under the initiative is not a fringe benefit because it is not provided in respect of employment.