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Edited version of your written advice
Authorisation Number: 1013019730241
Date of advice: 26 May 2016
Ruling
Subject: Fringe benefits tax: Exempt benefits - other exempt benefits
Question 1
Does the commencement date (new employment day) pertaining to the time frames contained in paragraph 58C(2)(aa) and paragraph 58C(3)(c) of the Fringe Benefits Tax Assessment Act 1936 (FBTAA) mean that an employee who enters into a contract for sale or purchase prior to this date fails to satisfy the conditions upon which the reimbursement of incidental sale/purchase costs are exempt for Fringe benefits tax (FBT) purposes under subsections 58C(2) and 58C(3) of the FBTAA, notwithstanding that the conditions in subsection 58C(1) of the FBTAA have been satisfied?
Answer
No.
This ruling applies for the following period:
Period ended 31 March 2016
The scheme commences on:
1 April 2015
Relevant facts and circumstances
Employees of your organisation who are required to relocate as a result of a transfer or promotion within the State will typically commence looking for a property to purchase prior to commencing their new role. They will also commonly place their original home on the open market for sale prior to relocating.
Circumstances may arise whereby they are able to enter into a formal contract to sell and/or buy prior to relocating. Provided certain internal policy requirements are satisfied, your organisation will reimburse the employee for incidental costs associated with the sale and purchase (e.g. stamp duty, legal costs, agent commissions, advertising, etc.).
These actions are in accordance with 58C(1)(b) in that the employee or associate sells or proposes to sell, the interest or right solely because the employee is required to change his or her residence in order to perform the duties of his or her employment.
Relocation example
An employee working in Location A in the north-west of the State was successful in obtaining a promotion to a position in Location B in the eastern part of the State. As a consequence the employee and his wife purchased a residential property to live in at Location C which was within commuting distance of Location B. They sold their original residential property at Location A.
In summary:
Date |
Event |
September 2015 |
Notice of employee's promotion published in an internal circular (but subject to appeal). The official commencement date is November 2015. |
October 2015 |
Employee receives written advice confirming promotion to new job at Location B. |
October 2015 |
Employee signs a contract for the purchase of a new property at Location C. |
November 2015 |
The employee commences employment in the new job at Location B. |
November 2015 |
Employee signs contract for sale of his place of residence at Location A. |
November 2015 |
Settlement of sale of property at Location A. |
December 2015 |
Settlement of purchase of property at Location C. |
Relevant legislative provisions
Fringe Benefits Tax Assessment Act 1986
Section 58C
Subsection 58C(1)
Paragraph 58C(2)(aa)
Paragraph 58C(3)(c)
Reasons for decision
For the purposes of section 58C of the FBTAA, paragraph 58C(2)(aa) provides that the employee must enter 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 duties of employment at the employee's new place of employment...
In relation to purchasing an interest or right, paragraph 58C(3)(c) of the FBTAA provides that the employee or associate must enter into a contract for the acquisition on a day '…within 4 years after the new employment day'.
In relation to the issue of timing, the wording of paragraph 58C(2)(aa) of the FBTAA, and through the term 'new employment day' also paragraph 58C(3)(c) of the FBTAA, may be considered as providing a time limit within which the sale and purchase may take place.
It was noted in the minutes from the National Tax Liaison Group FBT Sub-committee meeting of 21 February 2002 (FBT NTLG minutes), that concerns had been raised about former paragraph 58C(1)(e) of the FBTAA:
…the employee or associate entered into a contract for the sale of the interest or right within 2 years after the day on which the employee commenced to perform the duties of that employment at the employee's new place of employment…
and that the interpretation of the wording 'after the day on which they commenced to perform the duties of employment' required clarification.
The following response (in part) was provided by the ATO at the meeting:
…In any case the ATO accepted that the paragraph can be read to mean that so long as a contract for sale is entered into no later than two years after the first day on which the employee commenced employment, the concession would be available. That really means that the contract for sale can be entered into after the new employment contract is signed and before the commencement of the new employment…
…The ATO agrees that the law merely has a 'sunset' provision for the last date on which the contract can be entered into. It cannot be said that a contract entered into prior to the commencement of employment is not made within two years from the commencement of the employment.
In chapter 20.4 of the Fringe benefits tax: a guide for employers it provides the following ATO view in relation to "Relocation - sale or acquisition of dwelling" as follows:
The exemption applies to the home that is sold only if all of the following apply:
• the sale is made solely because the employee changed their usual place of residence in order to carry out employment-related duties
• the house was owned when you notified the employee of the change to the new locality
• the house was the employee's usual place of residence
• the sale contract was made within two years of commencing duty at the new locality.
The exemption applies to the home that is purchased only if all of the following apply:
• the employee owned a home at the former locality
• the purchase was made solely because of the relocation to another job locality
• the new home was occupied as the employee's usual place of residence
• the contract to purchase was made within four years of commencing duty at the new location. (emphasis added)
This view confirms the interpretation in the FBT NTLG minutes that as long as the contract to sell/purchase was made within the 2 or 4 year time limit of the employee commencing at the new location then the benefit will be an exempt benefit, provided the other conditions are met.
Consequently, in considering the timing of a relevant event, paragraph 58C(2)(aa) and paragraph 58C(3)(c) of the FBTAA provide a time limit within which that event must occur.
In relation to your circumstances, as the employee entered into the purchase contract within 4 years of the new employment day then paragraph 58C(3)(c) of the FBTAA would be satisfied. Provided all other relevant conditions in relation to the sale or acquisition of a dwelling as a result of relocation are satisfied then any FBT benefit provided would be exempt.