Edited version of your written advice

Authorisation Number: 1012933700213

Date of advice: 13 January 2016

Ruling

Subject: Exempt benefits - relocation and the sale and acquisition of home

Question 1

Will the reimbursement to the employee of the selling costs associated with the sale of the employee's original family residence in Location A be exempt benefits under section 58C of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes

Question 2

Will the reimbursement to the employee of the acquisition costs associated with the purchase of a proposed family residence near the employee's place of employment in Location B be exempt benefits under section 58C of the FBTAA?

Answer

Yes

Question 3

Will the answer to question 2 change if the property near the employee's place of employment in Location B is purchased jointly by the employee and his/her spouse?

Answer

No

Question 4

Will the answer to question 2 change if the property near the employee's place of employment in Location B is purchased solely by the employee's spouse?

Answer

No

This ruling applies for the following periods:

Year ended 31 March 2016

Year ended 31 March 2017

Year ended 31 March 2018

Year ended 31 March 2019

Year ended 31 March 2020

The scheme commences on:

1 April 2015

Relevant facts and circumstances

The employee's place of employment is in Location B.

The employee was offered this employment while he/she was living and working (for an unrelated entity to his/her current employee) in Location A.

The employee resigned from his/her employment in Location A and relocated with his/her family to Location B to commence work with his/her new employer.

The distances between Locations A and B meant that the employee could not commute daily between the two locations.

The employee owned the home in Location A and intends to sell it within 2 years of commencing his/her employment in Location B.

The employee intends to purchase a home In Location B within 4 years of commencing his/her employment in Location B and will move into his/her home as soon as it is purchased.

The employee wishes to seek reimbursement from his/her employer via a salary sacrifice arrangement (SSA) some of his/her costs associated with relocation.

In respect of expenses associated with the sale of the home in Location A these are:

• Agent's commission

• Advertising

• Discharge of mortgage fees ; and

• Legal fees in relation to the sale of the home

In respect of expenses associated with the purchase of the home in Location B these are:

• Legal fees

• Stamp duty

• Agent's fees; and

• Borrowing costs

The employee will provide his/her employer with copies of invoices and other documents of the expenses he/she wishes to be reimbursed under the SSA.

Relevant legislative provisions

Fringe benefits Tax Assessment Act 1986 section 58C

Fringe benefits Tax Assessment Act 1986 subsection 136(1)

Fringe benefits Tax Assessment Act 1986 section 141A

Income Tax Assessment Act 1936 section 318

Income Tax Assessment Act 1997 section 995-1

Reasons for decision

Section 58C of the FBTAA exempts certain benefits that relation to sale and acquisition of a 'home' because an employee was required to change their usual place of residence in order to perform their duties of employment.

For the section to apply the pre-conditions set down in in subsection 58C(1) need to be satisfied. In addition for the sale of the Location A home subsection 58C(2) must be satisfied and for the purchase of the Location B home subsection 58C(3) must be satisfied.

Pre-conditions for exemption -subsection 58C(1)

Subsection 58C(1) of the FBTAA states in part:

Where:

(a) during a particular period (in this subsection called the ``former home holding period''), an employee of an employer, or an associate of an employee of an employer, holds:

(i) a prescribed interest in land on which:

(A) there is a building constituting or containing a dwelling; . . .

(ii) a prescribed interest in a stratum unit in relation to a dwelling; or

(iii) a proprietary right in respect of a dwelling, being a flat or home unit;

(b) the employee or associate sells, or proposes to sell, the interest or right solely because the employee is required to change his or her usual place of residence in order to perform the duties of his or her employment;

(c) the employer first notifies the employee at a time (in this subsection called the ``notice time'') during the former home holding period that the employee is required to perform the duties of that employment at the employee's new place of employment; and

(d) at the notice time, the employee occupied, or proposed to occupy, the dwelling, or proposed to occupy the proposed dwelling, as his or her usual place of residence; . . .

In looking at paragraph (a) the employee owned the home in Location A where he/she and his/her family were residing so this paragraph will be satisfied.

In looking at paragraph (b) and the term 'usual place of residence' paragraph 19 of Miscellaneous Taxation Ruling MT 2030 Fringe benefits tax: living-away-from-home allowance benefits states:

An underlying theme of the cases is a general presumption that a person's usual place of residence will be close to the place where he or she is permanently employed. Correspondingly, an employee who changes his or her place of residence because of a change in the location of a permanent job, whether by reason of a transfer with the same employer or a change of employment, would not usually be living away from home on moving to a new place of residence close to the new job location. That would be the case notwithstanding that the new place of residence was a temporary one pending the obtaining of suitable long term accommodation.

In respect of being 'required' to change residence ATO Interpretative Decision ATO ID 2013/8 Fringe Benefits Tax Employee required to change usual place of residence in order to perform duties of employment states in part:

Therefore, it is considered that the term 'required' as it is used in subparagraph 58B(1)(b)(iii) does not mean that the change of usual place of residence must be compulsory. Rather, the change may be one that is necessary in the circumstances in order for the employee to perform the duties of their employment.

The employee was offered a position in Location B and to perform his/her duties of employment, the employee was required to relocate as he/she could not commute between Locations A and B daily.

In accepting the position the employee had to acquire a residence near his/her new place of employment. Therefore it was necessary for the employee to change residence in order to perform the duties of employment in Location B.

There is no evidence to suggest that the Location A home would have been sold if the employee had not accepted the position and moved to Location B.

In respect of paragraphs (c) and (d) the employee was employed by a different employer and living in the home in Location A which would have been his/her 'usual place of residence' when offered employment in Location B.

Therefore we can conclude that all the pre-conditions set down in subsection 58C(1) of the FBTAA will be satisfied.

Exemption in respect of sale of Location A property subsection 58C(2)

Subsection 58C(2) of the FBTAA states:

Where:

(a) either of the following benefits is provided in respect of that employment of the employee in, or in respect of, a year of tax:

(i) an expense payment benefit where the recipients expenditure is incidental to the sale of that interest or right;

(ii) a residual benefit where the recipients benefit is incidental to the sale of that interest or right;

(aa) the employee or associate entered into a contract for the sale of the interest or right within 2 years after the day (the new employment day) on which the employee commenced to perform the duties of that employment at the employee's new place of employment;

(b) if, apart from this paragraph, this subsection would apply in relation to 2 or more dwellings or proposed dwellings in relation to the change in the employee's usual place of residence - the employer of the employee elects that this subsection apply in relation to only one of those dwellings or proposed dwellings;

(c) if paragraph (b) applies - the benefit relates to the dwelling or proposed dwelling in respect of which the election is made;

(d) if subparagraph (a)(i) applies - documentary evidence of the recipients expenditure is obtained by the recipient and that documentary evidence, or a copy, is given to the employer before the declaration date; and

(e) the benefit is not provided under a non-arm's length arrangement;

the benefit is an exempt benefit in relation to the year of tax.

In respect of paragraph (a) the following expenses will be paid under the SSA:

• Agent's commission

• Advertising

• Discharge of mortgage fees

• Legal fees in relation to the sale of the home

Section 141A of the FBTAA lists the expenses that are 'incidental to the sale of the interest or right' and paragraph 141A(1)(b) states:

(a) in all cases - the recipients expenditure is in respect of any of the following matters:

(a) stamp duty;

(i) advertising;

(iii) legal services;

(iv) agent's services;

(v) discharge of a mortgage;

(vi) expenses of borrowing;

(i) any similar matter;

being a matter of a capital nature that is incidental to the acquisition or sale of the interest or right; and

Therefore the proposed expenses to be covered by the SSA are incidental to the sale of the Location A home and paragraph (a) would be satisfied.

In respect of paragraph (aa) the employee has stated that the contract for the sale will be entered into within the 2 year time limit.

Paragraphs (b) and (c) do not apply in this case as we are only dealing with one property.

In respect of paragraph (d) the employee will provide the required documentary evidence.

In respect of paragraph (e) there is nothing to indicate the SSA will not be made at arm's length.

Therefore the exemption would apply to the payment of the expenses relating to the sale of the Location A home.

Exemption in respect of the acquisition of the Location B property -subsection 58C(3)

Subsection 58C(3) of the FBTAA states:

Where:

(a) at a particular time, the employee or an associate of the employee acquires:

(i) a prescribed interest in land on which:

(A) there is a building constituting or containing another dwelling;

(B) the employee or associate proposes to construct, or complete the construction of, a building constituting or containing another dwelling;

(ii) a prescribed interest in a stratum unit in relation to another dwelling; or

(ii) a proprietary right in respect of another dwelling, being a flat or home unit;

(b) the employee or associate acquires the interest or right solely because the employee is required to change his or her usual place of residence in order to perform the duties of that employment at the employee's new place of employment;

(c) the employee or associate entered into a contract for the acquisition of the interest or right on a day (the contract day) within 4 years after the new employment day;

(ca) if, on the contract day, the employee or associate holds an interest or right in another dwelling in a situation where:

(i) if that interest or right were sold within 2 years after the new employment day; and

(ii) if a benefit of a kind referred to in subsection (2) were provided in relation to that interest or right;

the benefit would be an exempt benefit under subsection (2) - not more than 2 years have elapsed since the new employment day;

(d) immediately after the completion of the acquisition, the employee occupied the other dwelling, or proposed to occupy the other proposed dwelling, as his or her usual place of residence;

(e) any of the following benefits is provided in respect of that employment of the employee in, or in respect of, a year of tax:

(i) an expense payment benefit where the recipients expenditure is incidental to the acquisition of that interest or right;

(ii) a residual benefit where the recipients benefit is incidental to the acquisition of that interest or right;

(iii) an expense payment benefit where the recipients expenditure is in respect of the act of connecting or re-connecting a telephone service to the other dwelling or proposed dwelling;

(iv) a residual benefit where the recipients benefit is constituted by the act of connecting or re-connecting a telephone service to the other dwelling or proposed dwelling;

(v) an expense payment benefit where the recipients expenditure is in respect of the act of re-connecting gas or electricity to the other dwelling or proposed dwelling;

(vi) a residual benefit where the recipients benefit is constituted by the act of re-connecting gas or electricity to the other dwelling or proposed dwelling;

(f) if subparagraph (e)(iii) or (iv) applies - immediately before the change, a telephone service was provided to the unit of accommodation that was the employee's usual place of residence before the change;

(g) if subparagraph (e)(i), (iii) or (v) applies - documentary evidence of the recipients expenditure is obtained by the recipient and that documentary evidence, or a copy, is given to the employer before the declaration date; and

(h) the benefit is not provided under a non-arm's length arrangement;

the benefit is an exempt benefit in relation to the year of tax.

As per the Full Federal Court decision in Commissioner of Taxation v. Indooroopilly Children Services (Qld) Pty Ltd [2007] FCAFC 16; 2007 ATC 4236; 65 ATR 369 is where the FBTAA refers to 'the employee' a particular employee is required to be identified.

The employee is the identified employee and to satisfy this paragraph either the employee or an associate of his/her must acquire the interest in the Location B home. An associate is a defined term under subsection 136(1) of the FBTAA to have the same meaning as section 318 of the Income tax Assessment Act 1936 and includes a relative. The definition of a relative in section 995-1 of the Income tax Assessment Act 1997 includes a person's spouse.

Therefore if either the employee or his/her spouse acquires (or they jointly acquire) the Location B home paragraph (a) will be satisfied.

In looking at paragraph (b) the home will be acquired because the employee was required to relocate to Location B. This resulted in a change in his/her usual place of residence. There is no evidence to suggest that the Location B home would have been purchased if the employee had not moved to Canberra.

In respect of paragraph (c) the employee has stated that the contract of acquisition will be entered into before the four year time limit expires.

Paragraph (ca) deals with the 2 year time limit on the sale of the home. As explained above the employee has stated that this will be satisfied.

In respect of paragraph (d) the employee has stated that he will move into the home as soon as it is purchased.

In respect of subparagraph (e)(i) the following expenses will be paid under the SSA

• Legal fees

• Stamp duty

• Agent's fees; and

• Borrowing costs

These expenses are listed in paragraph 141A(1)(b) of the FBTAA detailed earlier as being incidental to the purchase of the interest or right in a property.

Paragraph (f) does not apply in this case.

In respect of paragraphs (g) and (h) as stated above the employee will provide the required documentary evidence and there is nothing to indicate the SSA will not be made at arm's length.

Therefore the exemption would apply to the payment of the expenses relating to the purchase of the Location B home.

Additional information - paragraph 58C(3)(ca)

Paragraph 58C(3)(ca) requires that the a contract for sale of former home be entered into within 2 years of the date the employee commences employment at their new locality.

It also allows the employer to claim the exemption for the expenses in respect of the home in the new locality before the old home is sold if the new home is purchased before the 2 year time limit has expired.

In other words the paragraph assumes that the contract of sale will be entered into within the required 2 years and doesn't require the employer to wait until the old home is sold before they can claim the exemption.

However should the employer claim the exemption and then the contract for sale of the old home isn't entered into within the 2 year limit then subsection 58C(5) of the FBTAA will apply.

The effect of this subsection is to cancel the exemption that was claimed. However it makes the benefits taxable in the year of tax in which the two-year period expires.