Edited version of your written advice

Authorisation Number: 1012778258752

Ruling

Subject: Fringe Benefits Tax

Question 1

Does the employers provision of a lease for a self-contained unit, constitute a 'housing right', pursuant to section 25 of the Fringe Benefit Tax Assessment Act 1986 (FBTAA 1986) where it is the employees or their associates usual place of residence?

Answer

Yes

This ruling applies for the following period:

Year ending 31 March 2015

The scheme commences on:

1 April 2014

Question 2

Does the employers provision of a lease to a self-contained unit, constitute a 'housing right', pursuant to section 25 of the FBTAA 1986 where it is not the employees or their associates usual place of residence?

Answer

No

This ruling applies for the following period:

1 April 2014 to 31 March 2015

The scheme commences on:

1 April 2014

Question 3

Where there is a 'housing right' being provided by the taxpayer, is it a 'non-remote housing fringe benefit' for the purposes of section 26 of the FBTAA 1986?

Answer

Yes

This ruling applies for the following period:

1 April 2014 to 31 March 2015

The scheme commences on:

1 April 2014

Question 4

Where there is a 'non-remote housing fringe benefit' is the taxable value provided by the taxpayer to its employees calculated pursuant to sub-paragraph 26(1)(b)(iv) of the FBTAA 1986 as being the market value multiplied by .75?

Answer

No

This ruling applies for the following period:

1 April 2014 to 31 March 2015

The scheme commences on:

1 April 2014

Question 5

Where the accommodation is not the employee's usual place of residence, is the benefit an in-house period residual fringe benefit in accordance with its definition in subsection 136(1) of the FBTAA 1986?

Answer

No

This ruling applies for the following period:

1 April 2014 to 31 March 2015

The scheme commences on:

1 April 2014

Question 6

Where the accommodation is not the employee's usual place of residence, is the benefit an external period residual fringe benefit in accordance with its definition in subsection 136(1) of the FBTAA 1986?

Answer

Yes

This ruling applies for the following period:

1 April 2014 to 31 March 2015

The scheme commences on:

1 April 2014

Question 7

Where the answer to question 6 is yes, will the period residual fringe benefit be taxable in accordance with section 51 of the FBTAA 1986?

Answer

Yes

This ruling applies for the following period:

1 April 2014 to 31 March 2015

The scheme commences on:

1 April 2014

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The College is an institution operating a school for day and boarding students located in A and B.

The College is a registered charity with the Australian Charities and Not-for-Profits Commission (ACNC).

The College is in the business of providing education and dormitory accommodation to students.

The College provides employees with self-contained units to live in during the school year. Some of the units are attached to the dormitory houses and some are standalone blocks of units. In some cases the spouse of an employee will reside at the premises also.

For some employees the college accommodation is their usual place of residence, while for other employees it is not.

During school holiday breaks, when not used for school purposes, the boarding house accommodation is occasionally leased to external third parties.

The College, in valuing accommodation relies on commercial rental charges and for premises which are provided by real estate agents and the College relies on advice from such agents to set an appropriate rental charge which is market based.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 25

Fringe Benefits Tax Assessment Act 1986 section 26

Fringe Benefits Tax Assessment Act 1986 section 45

Fringe Benefits Tax Assessment Act 1986 section 51

Fringe Benefits Tax Assessment Act 1986 subsection 58ZC(2)

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 subsection 149(1)

Fringe Benefits Tax Assessment Act 1986 subparagraph 26(1)(b)(iv)

Reasons for decision

Question 1

Does the employers provision of a lease to a self-contained unit, constitute a 'housing right', pursuant to section 25 of the Fringe Benefit Tax Assessment Act 1986 (FBTAA) where it is the employees or their associates usual place of residence?

Answer

Yes

What is a benefit, as defined in subsection 136(1)?

A benefit is defined in subsection 136(1) of the FBTAA 1986 as:

…any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility and, without limiting the generality of the foregoing, 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 College is providing accommodation facilities to employees in the form of self-contained units. It is provided under an arrangement in relation to the employees' performance. As this fulfils the definition given in subsection 136(1) of the FBTAA 1986, the provision of accommodation to employees' is considered a 'benefit' within its ordinary meaning.

Is the benefit 'provided' by the employer?

Subsection 136(1) of the FBTAA 1986 defines 'provide' in relation to a benefit to include 'allow, confer, give, grant or perform'. The act of making accommodation available for employees falls within the term 'provide'. The College has provided the benefit to their employees in allowing them accommodation on the schools premises.

It is considered a benefit is being provided to employees by the College, the employer.

Is a benefit provided by the employer to an associate of the employee?

The FBTAA 1986 directs the definition of associate to the meaning which is given in section 318 of the ITAA 1936. At subsection 318(1) it is stated that an associate of a natural person (referred to as the primary entity) is:

(a) a relative of the primary entity;

(b) a partner of the primary entity or a partnership in which the primary entity is a partner;

(c) if a partner of the primary entity is a natural person otherwise than in the capacity of trustee - the spouse or a child of that partner;

While the benefit is provided to employees of the College, there is occasion that a spouse of the employee resides at the same location. Therefore the benefit is being provided by the employer to an associate of the employee.

Is the benefit a housing benefit? 

Section 25 of the FBTAA 1986 provides that a housing benefit will arise when a recipient is provided with the right to use a unit of accommodation by a provider and the accommodation is the recipient's usual place of residence;

'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'.

A housing right is defined in subsection 136(1) of the FBTAA 1986 as:

…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.

Therefore, a housing fringe benefit will arise if all of the following conditions are satisfied:

• The staff member is an employee or an associate of an employee.

• The staff member is provided with the right to use a unit of accommodation.

• The accommodation is the staff member's usual place of residence.

Are the staff members receiving accommodation employees?

The benefit of accommodation is established as being provided to the employee and an associate of the employee as the result of the employees' employment. 

The staff member is provided with the right to use a unit of accommodation.

A unit of accommodation for fringe benefits purposes is stated in subsection 136(1) of the FBTAA 1986 to include a house, flat or home unit, accommodation in a hotel, hostel, motel or guesthouse, accommodation in a bunkhouse or other living quarters, accommodation in a ship, vessel or floating structure and a caravan or mobile home.

The College is providing accommodation to employees in various locations within the boarding school residences. The accommodation ranges from self- contained units within the boarding houses to stand alone residences.

The employees have all been provided with the right of accommodation by the College.

The accommodation is the staff member's usual place of residence.

In considering whether the College is an employee's usual place of residence, it is necessary to consider what is meant by the term place of residence. Subsection 136(1) of the FBTAA 1986 defines a place of residence as:

(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.

An employee's place of residence is the place at which they reside or have some form of sleeping accommodation, regardless of whether on a permanent or temporary basis, or on a shared basis. However, the question of whether an employee is living away from their usual place of residence involves a consideration of two places of residence - the place where the employee is living at the time, and some other place.

An employee is regarded as living away from their usual place of residence if they would have continued to live at the former place had the duties of their employment not required them to work temporarily in the new locality.

The type of fringe benefit to arise from this situation is dependent on the facts of the employee. This is explored in further detail below.

What is the usual place of residence?

The term usual place of residence is not defined within the FBTAA 1986, but it is discussed in Miscellaneous Taxation Rulings MT 2021 and 2030.

MT 2030 states that as a general rule, a person's usual place of residence will be close to the place where he or she is permanently employed. Therefore, if an employee moves from their former place of residence to commence employment duties at the College without any intention of returning to their former residence, the College will be their usual place of residence.

However, if the employee has another place of residence which they intend to return to at the end of their appointment, the College may not be their usual place of residence. Both MT 2021 and MT 2030 state that as a general rule, an employee who moves 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 will be treated as living away from their usual residence.

Cases where the accommodation is the employee's usual place of residence

The College have advised that there are instances where the accommodation provided is the employees' usual place of residence.

Therefore, a housing fringe benefit will arise under section 25 of the FBTAA 1986 where the College has provided the accommodation to the employee and their associate and resides at the provided accommodation as their usual place of residence.

Question 2

Does the employers provision of a lease to a self-contained unit, constitute a 'housing right', pursuant to section 25 of the FBTAA 1986 where it is not the employees or their associates usual place of residence?

Answer

No

Accommodation which is not the employee's usual place of residence

The College have advised that there are instances where the accommodation provided is not the employees' usual place of residence.

Therefore, for employees and their associates where the accommodation provided is not the employees' usual place of residence section 25 of the FBTAA 1986 does not apply and it is not a housing fringe benefit.

NB. However, it may give rise to a residual fringe benefit. This is discussed further in detail below.

Question 3

Where there is a 'housing right' being provided by the Taxpayer, is it a 'non-remote housing fringe benefit' for the purposes of section 26 of the FBTAA 1986?

Answer

Yes

A housing benefit is considered to be a remote area housing benefit where it meets subsection 58ZC(2) of the FBTAA 1986. Essentially a location is considered remote if it is not in, or adjacent to, an eligible urban area.

In this case the benefits are provided in A and B. Neither of these locations are considered to be remote in accordance with subsection 58ZC(2) of the FBTAA 1986. Therefore they are considered 'non-remote'.

A and B are in non-remote locations for the purposes of subsection 58ZC(2) of the FBTAA 1986. Where housing right exists for the employees of the College at either location the taxable values for the benefits are determined in accordance with section 26 of the FBTAA 1986.

Question 4

Where there is a 'non-remote housing fringe benefit' is the taxable value provided by the Taxpayer to its employees calculated pursuant to sub-paragraph 26(1)(b)(iv) of the FBTAA 1986 as being the market value multiplied by .75?

Answer

No

Subsection 26(1) of the FBTAA 1986 provides three separate valuation rules for non-remote area housing fringe benefits. The method used to calculate the taxable value of a housing fringe benefit will depend upon:

(a) where the recipients unit of accommodation is not located in a State or internal Territory - so much of the market value of the recipients current housing right as exceeds the recipients rent;

(b) where:

(i) paragraph (a) does not apply;

(ii) the recipients unit of accommodation is a caravan or mobile home or is in a hotel, motel, hostel or guesthouse; and

(iii) during the whole or a part of the tenancy period, the provider carried on a business consisting of or including the provision to outsiders, in respect of identical or similar caravans or mobile homes or in respect of identical or similar units of accommodation in the hotel, motel, hostel or guesthouse, of leases or licences that are identical or similar to the recipients overall housing right;

the amount calculated in accordance with the formula AB, where:

A is the market value of the recipients current housing right; and

B is:

(iv) in a case where, if the fringe benefit were not a housing fringe benefit, it would be an in-house residual fringe benefit - 0.75; and

(v) in any other case - 1;

reduced by the recipients rent; and

(c) in any other case - the amount calculated in accordance with the formula:

AB
C

where:

A is the statutory annual value of the recipients current housing right;

B is the number of whole days in the tenancy period; and

C is the number of days in the year of tax;

reduced by the recipients rent.

As all the accommodations are located in A and B, it is only necessary to consider the alternative methods for valuing accommodation provided in a non-remote area of Australia. Subsection 26(1)(a) of the FBTAA 1986 will not apply.

Subsection 26(1)(b) of the FBTAA 1986 applies where the recipients unit of accommodation is a caravan, mobile home, or a hotel, motel, hostel or guesthouse. In addition, the person providing the benefit must carry on a business which consists of, or includes providing identical or similar accommodation to the public.

The College provides its boarding students with dormitory accommodation. At each of the boarding locations the accommodation provided to the employees is self-contained units. It is not considered that self-contained units are similar or identical to dormitory accommodation. Hence, the employees do not met the type of accommodation as required for subsection 26(1)(b)(ii) to apply.

Furthermore, subsection 26(1)(b)(iii) of the FBTAA 1986 states that the provider must be in the business of providing identical or similar accommodation to the public. It is accepted that there are various arms-length transactions which occur outside of school terms where the facilities are offered to the public. Fundamentally, however, it is business of providing dormitory accommodation and education to students which is the Colleges' ongoing concern.

Therefore, for the reasons provided, the taxable value of non-remote housing fringe benefits in subsection 26(1)(b)(iii) of the FBTAA 1986 will not apply. As neither paragraph 26(1)(a), or 26(1)(b) of the FBTAA 1986 apply, the appropriate valuation method is contained within paragraph 26(1)(c) of the FBTAA 1986 for employees where the College is their usual place of residence.

Question 5

Where the accommodation is not the employee's usual place of residence, is the benefit an in-house period residual fringe benefit in accordance with its definition in subsection 136(1) of the FBTAA 1986?

Answer

No

Residual benefit

Section 45 of the FBTAA 1986 states that a benefit is a residual benefit if the benefit is not a benefit under any of Subdivisions 2 to 11 (inclusive) of Subdivision A of the FBTAA 1986.

The benefit that arises in respect of the relevant accommodation provided to the employees of the College where it is not their usual place of residence is considered a residual benefit under section 45 of the FBTAA 1986. This is because the accommodation does not fall within any other category of benefits under Subdivision A of Divisions 2 to 11 of the FBTAA 1986.

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.

Is it an in-house residual fringe benefit?

In-house residual fringe benefits are defined in subsection 136(1) of the FBTAA 1986 as:

… in relation to an employer, means a residual fringe benefit in relation to the employer:

(a) where both of the following conditions are satisfied:

(i) the provider is the employer or an associate of the employer;

(ii) at or about the comparison time, the provider carried on a business that consisted of or included the provision of identical or similar benefits principally to outsiders; …

Paragraph (a) of the above definition requires the provider to be the employer or an associate of the employer. This requirement is satisfied. Paragraph (a) also requires the provider to have carried on a business consisting of the provision of similar or identical benefits to outsiders.

'outsider' is defined to mean, in relation to the employment of an employee of an employer, persons other that employees and persons who are not in various associate and arranger relationships.

It is considered that the students of the College, who reside in the dormitory accommodation and attend the school are 'outsiders' as defined.

The College provides their employees with self-contained units to live in during the school year. The College is in the business of providing education and dormitory accommodation to outsiders (students of the school).

In your correspondence it is argued that the College is providing a 'unit of accommodation' which includes both dormitory and self-contained style accommodation benefits and it is at this level that the in-house concession should apply. Furthermore the definition has been cited and includes in subsection 136(1) of the FBTAA 1986;

unit of accommodation includes:

(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.

It is acknowledged that a unit of accommodation as it is defined is being provided to outsiders as well as the College employees. While this is not disputed, the definition of an in-house benefit requires further restriction. That is, the employer is required to be in the business of providing identical or similar benefits to an outsider.

The College must be providing identical or similar benefits to the students (as outsiders) as that which is being provided to employees, in order to meet the definition of an 'in-house residual fringe benefit'.

An identical benefit as defined in subsection 136(1) of the FBTAA 1986 in relation to the 'recipients benefit' in relation to a residual fringe benefit, means another benefit that is the same in all respects, except for differences (if any) that are minimal or insignificant and do not affect the value of the other benefit. The provided accommodation for students is dormitory accommodation, and for the senior students a single room is provided. This is not identical to a self-contained unit or a standalone residence like that which is provided to the employee.

'Similar' is not defined in the FBTAA 1986, ITAA 1997 or ITAA 1936. Therefore it takes its ordinary meaning per the Macquarie Dictionary Online;

…having likeness or resemblance, especially in a general way.

The comparison therefore is whether dormitory accommodation has a likeness or resemblance to a self-contained unit, especially in a general way. Again, in the absence of a definition in taxation legislation, the ordinary meanings are clarified in the Macquarie Dictionary as

'dormitory' …a room for sleeping, usually large and containing many beds, sometimes in cubicles, for the inmates of a school or other institution

and

'unit' … one of a number of dwelling apartments in the same building, each owned under separate title, frequently by the occupier.

Similarity is drawn that both items are accommodation, however dormitory accommodation involves large communal living areas and shared sleeping conditions whereas a unit provides private living space and sleeping conditions.

Guidance as to what is considered similar is also provided in the FBT guide for employers. At paragraph 18.4 an example regarding how a material difference in how a benefit is used is provided as;

… an employer who charters boats to the public provides a boat for a trip by the employee's family under significantly different conditions of use from those that ordinarily apply to the public, such that there is a material difference in the value of the benefit.

Whether there is a material difference to the value of benefit being provided to the public is at the forefront of the argument. In the above example the employer who charters boats to the public and then provides a different type of experience for an employee's family is considered to be providing a materially different benefit. In terms of a residual benefit, it is the use of the boat under certain conditions which is the benefit. In determining whether there is an 'identical overall benefit' you therefore need to compare the use of the boat under those conditions and the use of the boat under the other conditions. It is the conditions that need to be compared in determining any material difference.

Drawing on this guidance, a self- contained unit provided to the College employee is materially different to the shared living condition being provided to an 'outsider'. To an important degree the benefit is differing in character to what the College is providing in the ordinary course of its business. That is, the type of benefit being provided to the students of the school is communal living in a structured environment as compared to the private, unsupervised accommodation evident in a self-contained unit.

Therefore for the reasons given above, it is considered that the provision of accommodation provided to employees, where it is not their usual place of residence, is not an in-house residual fringe benefit. The College is carrying on a business which does not include the provision of similar benefits principally to outsiders.

Question 6

Where the accommodation is not the employee's usual place of residence, is the benefit an external period residual fringe benefit in accordance with its definition in subsection 136(1) of the FBTAA 1986?

Answer

Yes

Subsection 136(1) of the FBTAA 1986 defines a period residual fringe benefit to mean a residual fringe benefit that is provided during a period.

In determining whether the use of accommodation was provided during a period subsection 149(1) of the FBTAA 1986 provides that a benefit shall be taken to be provided during a period if it is provided for a period of more than 1 day and is not deemed by a provision of the FBTAA 1986 to be provided at a particular time, or on a particular day.

In this case, as the accommodations were provided to the employees for periods of time and provided for use for periods exceeding one day. Therefore it is an external residual fringe benefit.

Question 7

Where the answer to question 6 is yes, will the period residual fringe benefit be taxable in accordance with section 51 of the FBTAA 1986?

Answer

Yes

The method to value an external residual fringe benefit is set out in section 51 of the FBTAA 1986. Section 51 provides three alternative valuation methods. The relevant method depends upon whether:

Subject to this Part, the taxable value of an external period residual fringe benefit in relation to an employer in relation to a year of tax is:

(a) where the provider was the employer or an associate of the employer and the recipients overall benefit was purchased by the provider under an arm's length transaction - the amount paid or payable by the provider in respect of the recipients current benefit;

(b) where the provider was not the employer or an associate of the employer and the employer, or an associate of the employer, incurred expenditure to the provider under an arm's length transaction in respect of the provision of the recipients current benefit - the amount of that expenditure; or

(c) in any other case - the notional value of the recipients current benefit;

reduced by the amount of the recipients contribution insofar as it relates to the recipients current benefit.

Conditions (a) and (b) do not apply as the College did not purchase the self-contained unit in respect of the specific employee. Therefore condition (c) will apply as the notional value of the current benefit less the employee's contribution (if any). 

Notional value is defined in subsection 136(1) of the FBTAA 1986 to mean:

the amount that the person could reasonably be expected to have been required to pay to obtain the property or other benefit from the provider under an arms length transaction.

The College is providing an external residual period fringe benefit to employees and their associates. The taxation methodology in this case is determined under section 51(c) of the FBTAA 1986 which requires the provider to use a nominal value of what the rent could reasonably be expected to be at the location less any amount contributed by the employee.