Edited version of your written advice

Authorisation Number: 1012894933298

Date of advice: 15 October 2015

Ruling

Subject: Fringe benefits tax- remote area housing assistance

Question 1

Will subparagraphs 60(2)(d)(ii) or 60(2A)(d)(ii) of the Fringe Benefit Tax Assessment Act 1986 (FBTAA) apply to certain expense payment fringe benefits in respect of remote area housing loan interest and remote area housing rent?

Answer

No. The provision of remote area housing benefits under salary sacrifice arrangements is not being entered into for the purposes of enabling the employer to obtain a benefit.

Question 2

Does paragraph 142(2E)(a) of the FBTAA apply to certain expense payment fringe benefits in respect of remote area housing?

Answer

It is accepted that it is customary for schools to provide housing assistance in remote areas in order to recruit and retain staff.

Question 3

Does subparagraph 142(2E)(b)(iii) of the FBTAA apply to certain expense payment fringe benefits in respect of remote area housing?

Answer

It is accepted that it is customary for schools to provide housing assistance in remote areas in order to recruit and retain staff.

Question 4

Can the taxable value of expense payment fringe benefits be reduced by 50% by the application of subsections 60(2), 60(2A) or 60(4) of the FBTAA?

Answer

Provided that the relevant conditions are met, the taxable value of expense payment fringe benefits may be reduced by 50% by the application of subsections 60(2), 60(2A) or 60(4) of the FBTAA.

This ruling applies for the following period:

1 April 2015 to 31 March 2016

Relevant facts and circumstances

The employer, a school located in a remote area, is proposing to enable existing and future employees who reside in a remote area for the purposes of continuing employment with the school to receive a reimbursement of all or part of their expenditure incurred in respect of remote area housing. The reimbursement will be made by way of an agreement involving an effective salary sacrifice arrangement (SSA) between the school and eligible employees.

The specific remote area benefits available to employees will be limited to expense payment fringe benefits in relation to:

• expenditure in respect of remote area housing loan interest

• expenditure in respect of remote area housing rent connected with a unit of accommodation

• expenditure in respect of remote area residential property

The employer states that the following common conditions would be satisfied:

• The employee lives in the house which is his or her usual place of residence.

• The employee is a current employee of the employer.

• The dwelling is situated in a remote area.

• The usual place of employment is not in, or adjacent to, an eligible urban area.

• The employer reimburses all or part of the expenditure incurred.

• The reimbursement is a "expense payment fringe benefit" as defined In subsection 136(1) of the FBTAA.

• The terms of the SSA are agreed upon and documented before any benefits are paid.

• The employer is a school.

• The provision of housing assistance to employees is customary in remote areas.

• The employer wishes to offer a salary sacrifice of remote area housing to help attract and retain employees.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986

Section 20

Paragraph 20(a)

Paragraph 20(b)

Section 23

Section 60

Subsection 60(2)

Subsection 60(2A)

Subsection 60(4)

Subsection 136(1)

Section 140

Section 142

Subsection 142(1)

Subsection 142(1A)

Subsection 142(2C)

Subsection 142(2E)

Paragraph 142(2E)(a)

Paragraph 142(2E)(b)(iii)

Reasons for decision

Issue 1

Remote area

A location is considered remote for the purposes of paragraph 142(1A)(a) if it is situated in a State or internal Territory and was not at a location in, or adjacent to, an eligible urban area.

Section 140 of the FBTAA provides a definition of the term 'eligible urban area' and sets out the criteria for a location to be considered a remote area. Chapter 19 of ATO Fringe benefits tax - a guide for employers (NAT 1054) summarises the requirements applicable to most employers for a location to be considered remote as follows:

It is located in a remote area if it is not in or near an urban centre. This means the accommodation must be located at least 40 kilometres from a town with a census population between 14,000 and 130,000, and at least 100 kilometres from a town with a census population of 130,000 or more (population figures based on the 1981 Census).

If the accommodation is in Zone A or B (for income tax purposes), it must be located at least 40 kilometres from a town with a census population between 28,000 and 130,0000, and at least 100 kilometres from a town with a census population of 130,000 or more.

Where the shortest practical surface route between a locality and an eligible urban area includes a route by water, the distance travelled by water is doubled for the purposes of working out how remote that locality is from the eligible urban area.

Lists of towns that are in remote areas according to these criteria can be found in the ATO fact sheet Fringe benefits tax - remote areas. List one of the ATO fact sheet and attachment one of PS LA 2000/6 is the relevant list for your circumstances.

The employer intends to offer housing assistance to employees who will live and work in the town. The town is listed as a remote area on the relevant lists in the ATO fact sheet. Therefore the requirements of subparagraphs 142(1A)(a)(i), 142(2)(a)(i) and 142(2C)(g)(i) of the FBTAA are satisfied.

Expense payment fringe benefits

The term expense payment fringe benefit is defined in subsection 136(1) of the FBTAA to mean a fringe benefit that is an expense payment benefit. The term expense payment benefit is also defined in subsection 136(1) of the FBTAA by reference to section 20 of the FBTAA. Section 20 of the FBTAA determines that an expense payment benefit may arise in either of two ways, that being either a payment by the employer to a third party on behalf of the employee (paragraph 20(a) of the FBTAA) or the employer reimburses the employee for expenses incurred (paragraph 20(b) of the FBTAA).

Section 23 of the FBTAA provides the method of valuation for an external expense payment fringe benefit as follows:

Subject to this part, the taxable value in relation to a year of tax of an external expense payment fringe benefit provided during the year of tax is the amount of the payment referred to in paragraph 20(a), or the reimbursement referred to in paragraph 20(b), as the case requires, reduced, in a case to which paragraph 20(a) applies, by the amount of the recipients contributions.

Therefore, the taxable value of an external expense payment fringe benefit is the amount of either the provider's reimbursement to the recipient, or the providers payment to a third party reduced by any recipients contribution.

Under subsections 60(2), 60(2A) and 60(4) of the FBTAA an employer is entitled to apply a 50% reduction in the taxable value of certain expense payment fringe benefits where the recipient's expenditure is in respect of remote area housing.

Question 1

Summary

The provision of remote area housing benefits under salary sacrifice arrangements is not being entered into for the purposes of enabling the employer to obtain a benefit.

Detailed reasoning

Subparagraphs 60(2)(d)(ii) and 60(2A)(d)(ii) of the FBTAA are identically worded and require that the fringe benefit is not provided under:

(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;

Arrangement

The term 'arrangement' is defined in subsection 136(1) of the FBTAA as:

(a) any agreement, arrangement, understanding, promise or undertaking, whether express or implied, and whether or not enforceable, or intended to be enforceable, by legal proceeding; and

(b) any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise.

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 your situation as the phrase is used in the same way in both section 58ZC and section 60 of the FBTAA.

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 salary sacrifice arrangement is one that is customary in the industry in which the relevant employees work. You intend to offer the arrangement in order to overcome the difficulty you are having in recruiting and retaining staff. 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 of the FBTAA. The arrangement can be explained as being one of ordinary business dealings as customary in the employer's industry.

Question 2

Summary

It is accepted that it is customary for schools to provide housing assistance in remote areas in order to recruit and retain staff.

Detailed reasoning

Paragraphs 142(1A)(b), 142(2)(b) and 142(2C)(h) of the FBTAA require that the common conditions set out in subsection 142(2E) of the FBTAA be satisfied at the time the recipient's expenditure was incurred in respect of remote area housing. This subsection concerns the provision of free or subsidised housing being customary in the industry in which the employee is employed and the necessity for the employer to provide housing assistance to employees due to the shortage of suitable residential accommodation.

In particular, paragraph 142(2E)(a) of the FBTAA states that the provision of housing assistance must be customary in the industry in which the employee is employed:

142(2E) [Common conditions]

For the purposes of the application of this section to a fringe benefit in relation to a year of tax in relation to an employee of an employer, the common conditions in relation to a particular period or in relation to a particular time are as follows:

(a) it is customary for employers in the industry in which the employee was employed during that period or at that time, as the case may be, to provide housing assistance for their employees;

Paragraph 2 of Taxation Determination TD 94/97 states that:

'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.

The employer has provided evidence that housing assistance for teachers is normal or common under the Government school system, the Catholic school and the Independent school system.

It is accepted that it has been a long standing practice for schools to provide school teachers with free or subsidised accommodation in remote areas. The provision of housing assistance to employees in remote areas is not considered to be unique, rare or unusual.

Therefore the condition in paragraph 142(2E)(a) is satisfied.

Question 3

Summary

It is accepted that it is customary for schools to provide housing assistance in remote areas in order to recruit and retain staff.

Detailed reasoning

Subparagraph 142(2E)(b)(iii) of the FBTAA has similar requirements to that of paragraph 142(2E)(a) of the FBTAA.

Subparagraph 142(2E)(b)(iii) of the FBTAA provides that:

For the purposes of the application of this section to a fringe benefit in relation to a year of tax in relation to an employee of an employer, the common conditions in relation to a particular period or in relation to a particular time are as follows:

(a) …

(b) it would be concluded that it was necessary for the employer, during the year of tax, to provide or arrange for the provision of housing assistance for employees of the employer because:


(i) …


(ii) …


(iii) it is customary for employers in the industry in which the employee was employed during that period or at that time, as the case may be, to provide housing assistance for their employees.

Paragraph 2 of Taxation Determination TD 94/97 states that:

'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 has been a long standing practice for schools to provide school teachers with free or subsidised accommodation in remote areas. The provision of housing assistance to employees in remote areas is not considered to be unique, rare or unusual.

Therefore the requirements of subparagraph 142(2E)(b)(iii) of the FBTAA are satisfied.

Question 4

Summary

Provided that the conditions detailed below are met, the taxable value of expense payment fringe benefits may be reduced by 50% by the application of subsections 60(2), 60(2A) or 60(4) of the FBTAA.

Detailed reasoning

Under subsections 60(2), 60(2A) and 60(4) of the FBTAA an employer is entitled to apply a 50% reduction in the taxable value of certain expense payment fringe benefits where the recipient's expenditure is in respect of remote area housing.

Remote area housing assistance (section 60 of the FBTAA)

Where you subsidise certain costs your employees may incur in acquiring accommodation in remote areas, you may be eligible for a housing assistance concession. You may qualify for a 50% reduction of the taxable value of the benefit arising from the housing assistance if you satisfy certain conditions.

For the purposes of the concessions, housing assistance is:

• the payment or reimbursement of the interest accrued on a housing loan (expense payment fringe benefit)

• the payment or reimbursement of rent (expense payment fringe benefit)

• the payment or reimbursement of the cost of acquiring land, or house and land (expense payment fringe benefit)

• the making of a housing loan (loan fringe benefit)

• the provision of land, or house and land (property fringe benefit), and

• the payment an employee receives related to them being granted a repurchase option on the house, or to the repurchase of their house (property fringe benefit).

Payment or reimbursement of the interest accrued on a housing loan

Subsection 60(2) of the FBTAA, provides for a 50% reduction of the taxable value of expense payment fringe benefits in respect of remote area housing loan interest payments where all the following conditions are met:

• The recipient of the relevant expense payment fringe benefit is your employee.

• The recipient's expenditure is in respect of interest in respect of a remote area housing loan connected with a dwelling.

• The recipient occupied or used the dwelling as his or her usual place of residence during the period the interest accrued.

• The fringe benefit was not provided under a non-arm's length arrangement or under an arrangement that was entered into by any of the parties to the arrangement to enable you to obtain the benefit of the application of the subsection.

Example:

The employee owns land on which there is a house where the employees lives. The employee has a housing loan which was used to purchase the land and house.

The dwelling is in a remote area. The employee is a current employee and works in a remote area. It is customary to provide 'housing assistance' to employees in the industry.

The loan is a 'remote area housing loan connected with a dwelling'.

The employee incurs $10,000 in interest in relation to the housing loan. The employer reimburses half of the $10,000 interest expense incurred. The reimbursement is an expense payment fringe benefit.

There is no 'recipients contribution' made by the employee to the employer.

Expense payment fringe benefit $5,000

Less 'recipients contribution' nil

Taxable value before reduction $5,000

Less reduction of 50% of taxable value

of expense payment fringe benefit $2,500

Reduced taxable value $2,500

Payment or reimbursement of rent

Subsection 60(2A) of the FBTAA, provides for a reduction of the taxable value of expense payment fringe benefits by 50% of the gross rent incurred by the employee in respect of remote area housing rent where all the following conditions are met:

• The recipient of the relevant expense payment fringe benefit is your employee.

• The recipient's expenditure is in respect of remote area housing rent connected with a unit of accommodation.

• The recipient occupied or used the unit of accommodation as his or her usual place of residence during the period the rent accrued.

• The fringe benefit was not provided under a non-arm's length arrangement or under an arrangement that was entered into by any of the parties to the arrangement to enable you to obtain the benefit of the application of the subsection.

Example:

The employee leases the dwelling in which she lives and it is her usual place of residence. The employee pays rent to the landlord. The dwelling is in a remote area.

The employee is a current employee and works in a remote area. It is customary to provide 'housing assistance' to employees in the industry.

During the year the employee incurs rent of $10,000. The employer reimburses half of the rent expense incurred. The reimbursement is an expense payment fringe benefit.

There is no 'recipients contribution' made by the employee to the employer.

Expense payment fringe benefit $5,000

Less 'recipients contribution' nil

Taxable value before reduction $5,000

Less reduction of 50% of Gross rent $5,000

Reduced taxable value Nil

Payment or reimbursement of the cost of acquiring land, or house and land

Subsection 60(4) of the FBTAA, provides for a 50% reduction of the taxable value of expense payment fringe benefits in respect of remote area residential property where the following conditions are met:

• The recipient of the relevant expense payment fringe benefit is your employee.

• The recipient's expenditure is in respect remote area residential property.

To be "recipient's expenditure in respect of remote area residential property", the expenditure must relate to:

• The employee's acquisition of land on which he or she intends to build a house

• The building of a house on land held by the employee

• The acquisition of land on which there already is a house, or

• The extension of a house on the employee's land

The meaning of "recipient's expenditure in respect of remote area residential property" is explained in detail in subsection 142(2C) of the FBTAA.

Example:

The employee incurs expenditure in acquiring land on which he intends to build a house.

The land is in a remote area. The employee is a current employee and works in a remote area. It is customary to provide 'housing assistance' to employees in the industry.

The employer provides a reimbursement of $20,000 to the employee. The reimbursement is an expense payment fringe benefit.

There is no 'recipients contribution' made by the employee to the employer.

Expense payment fringe benefit $20,000

Less 'recipients contribution' nil

Taxable value before reduction $20,000

Less reduction of 50% of taxable value

of expense payment fringe benefit $10,000

Reduced taxable value $10,000