Edited version of private advice

Authorisation Number: 1051517202199

Date of advice: 17 June 2019

Ruling

Subject: Fringe Benefits Tax - Remote Area Housing and Expense Payment Benefits

Question 1

If Town A and Town B and their surrounding townships are recognised as a remote area pursuant to sub-section 140(1) of the Fringe Benefits Tax Assessment Act 1986 ('FBTAA'), will the Company satisfy the necessary criteria required for the purposes of accessing the Fringe Benefits Tax ('FBT') concessions available under sections 59, 60, 60A and 61 of the FBTAA?

Answer

Yes

Question 2

Where the Company's employees request to salary sacrifice benefits under the sections listed in Question 1 above, can the taxable value of the benefits be reduced or exempted under the relevant subsection (where the relevant criteria are satisfied) under the following circumstances:

a)            The employee incurred the costs in prior FBT years;

b)            The Company subsequently enters into a prospective salary sacrifice arrangement with the employee to recoup the costs from the employee via pre-tax deductions; and

c)            The Company reimburses the employee for the costs in the current FBT period.

Answer

Yes

This ruling applies for the following periods:

Year ending 31 March 20WW

Year ending 31 March 20WX

Year ending 31 March 20WY

Year ending 31 March 20WZ

The scheme commences on:

1 April 20WV

Relevant facts and circumstances

1.         The Company operates a business near Town A in rural Australia.

2.         Town A is located within XX kilometres Town B.

3.         For the purposes of this ruling, references to the 'Town A/B area' going forward will be understood to encompass the entire Town A and Town B area as well as four other closely located towns.

4.         The company proposes to revise its remuneration and reward policies to include the following remote area benefits:

a)            Remote area housing benefits:

Eligible employees to be provided with accommodation assistance in the form of one of the following (where the associated accommodation/dwelling is the employee's usual place of residence):

·                    Reimbursement for interest costs associated with an employee's residential housing loan interest relating to accommodation located the Town A/B area; or

·                    Reimbursement of the employee's residential rent expenses relating to a unit of accommodation in the Town A/B area; or

·                    Reimbursement of the employee's expenditure in respect of remote area residential property that includes an interest in land in the Town A/B area.

b)            Remote area residential fuel - including gas, electricity and firewood.

c)            Remote area holiday transport fringe benefits - including via vehicle, train or plane.

5.         As the Company operates in specific rural regions (ie the Town A/B area) which are considered remote, it is necessary for the Company to provide subsidised remote area related fringe benefits to certain employees in order to attract and retain quality staff within the organisation.

6.         The employees to whom the remote area-related benefits may be provided will be current employees of the Company at the time of the provision of the benefit and carry out their duties in the Town A/B area.

7.         The proposed arrangements will only be provided to current employees who occupy or use the relevant dwelling as their usual place of residence

8.         Any remote area related benefits will be provided due to the employment relationship between the Company and the employee.

9.         The Company is considering entering into effective salary sacrifice arrangements in relation to these benefits.

Assumptions

·         The proposed arrangements are not provided under a non-arm's length arrangement, or an arrangement for the purpose or purposes of enabling the Company to obtain the benefit of any relevant section of the FBTAA.

·         It is customary in the Company's industry for employers to provide remote area related benefits to employees to attract and retain various classes of employees at remote locations where their operations occur.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 20

Fringe Benefits Tax Assessment Act 1986 Section 59

Fringe Benefits Tax Assessment Act 1986 Subsection 59(1)

Fringe Benefits Tax Assessment Act 1986 Subsection 59(2)

Fringe Benefits Tax Assessment Act 1986 Subsection 59(3)

Fringe Benefits Tax Assessment Act 1986 Section 60

Fringe Benefits Tax Assessment Act 1986 Subsection 60(2)

Fringe Benefits Tax Assessment Act 1986 Subsection 60(2A)

Fringe Benefits Tax Assessment Act 1986 Subsection 60(4)

Fringe Benefits Tax Assessment Act 1986 Section 60A

Fringe Benefits Tax Assessment Act 1986 Section 61

Fringe Benefits Tax Assessment Act 1986 Section 62

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 Section 140

Fringe Benefits Tax Assessment Act 1986 Subsection 140(1)

Fringe Benefits Tax Assessment Act 1986 Subsection 142(1)

Fringe Benefits Tax Assessment Act 1986 Subsection 142(1A)

Fringe Benefits Tax Assessment Act 1986 Subsection 142(2C)

Fringe Benefits Tax Assessment Act 1986 Subsection 142(2E)

Fringe Benefits Tax Assessment Act 1986 Section 143

Fringe Benefits Tax Assessment Act 1986 Subsection 143(1)

Income Tax Assessment Act 1936 Schedule 2

Reasons for decision

Question 1

If Town A and Town B and their surrounding townships are recognised as a remote area pursuant to sub-section 140(1) of the Fringe Benefits Tax Assessment Act 1986 ('FBTAA'), will the Company satisfy the necessary criteria required for the purposes of accessing the Fringe Benefits Tax ('FBT') concessions available under sections 59, 60, 60A and 61 of the FBTAA?

Summary

Yes.The 'TownA/B area' is recognised as a remote area pursuant to subsection 140(1), and the Company will satisfy the necessary criteria for accessing the Fringe Benefits Tax ('FBT') concessions available under sections 59, 60, 60A and 61.

Detailed reasoning

I.              Section 60 - Reduction of Taxable Value - Remote Area Housing

The effect of section 60 is to reduce by 50% the taxable value of certain types of benefits relating to the provision of housing assistance to employees in remote areas.

Subsection 60(2) - Interest on a loan

Nature of housing assistance: The Company reimburses employees for interest incurred on the employee's home loan in relation to their usual place of residence located in the Town A/B area.

Subsection 60(2) provides a reduction of 50% of the taxable value of the fringe benefit in respect of a loan provided by an employer to an employee to purchase a dwelling located in a remote area and used as their usual place of residence.

To qualify for the reduction, the conditions of subsection 60(2) must be satisfied.

Subsection 60(2) provides:

60(2) [Recipient of expense payment benefit]

Where:

(a)          the recipient of an expense payment fringe benefit in relation to an employer in relation to a year of tax is an employee of the employer;

(b)          the recipients expenditure is in respect of interest in respect of a remote area housing loan connected with a dwelling;

(c)          the recipient occupied or used the dwelling as his or her usual place of residence during (in this section referred to as the "occupation period" ) during which the interest accrued; and

(d)          the fringe benefit was not provided under:

(i)            a non-arm's length arrangement; or

(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;

the amount that, but for this subsection, would be the taxable value of the fringe benefit in relation to the year of tax shall be reduced by 50% of so much of that amount as relates to the occupation period.

Paragraph 60(2)(a) The recipient of an expense payment fringe benefit in relation to an employer in relation to a year of tax is an employee of the employer

An 'expense payment fringe benefit' is defined in section 136(1) to mean a fringe benefit that is an expense payment benefit. An 'expense payment benefit' is defined in section 136(1) to mean a benefit referred to in section 20.

Section 20 sets out the circumstances in which an expense payment benefit will be taken to be provided:

20 EXPENSE PAYMENT BENEFITS

Where a person (in this section referred to as the provider):

(a) makes a payment in discharge, in whole or in part, of an obligation of another person (in this section referred to as the recipient ) to pay an amount to a third person in respect of expenditure incurred by the recipient; or

(b) reimburses another person (in this section also referred to as the recipient ), in whole or in part, in respect of an amount of expenditure incurred by the recipient;

the making of the payment referred to in paragraph (a), or the reimbursement referred to in paragraph (b), shall be taken to constitute the provision of a benefit by the provider to the recipient.

An expense payment benefit may arise in either of two ways. The first is where an employer pays a third party in satisfaction of expenses incurred by an employee; the second is where an employer reimburses an employee for expenses incurred by the employee.

An expense payment fringe benefit will therefore arise at the time an employer reimburses an employee in respect of an amount of expenditure incurred by the employee.

Application to the Company: An expense payment benefit will arise when the Company reimburses the interest expenditure incurred by employees on the remote area housing loans. Given the reimbursement will only be given to current employees, paragraph 60(2)(a) will be satisfied as the recipient of the expense payment fringe benefit will be employees of the Company.

Paragraph 60(2)(b) The recipient's expenditure is in respect of interest for a remote area housing loan connected with a dwelling.

What constitutes a dwelling

Subsection 136(1) defines a 'dwelling' as a unit of accommodation constituted by, or contained in a building, being a unit that consists, in whole or in substantial part, of residential accommodation.

Subsection 142(1) - What constitutes a remote area housing loan

Subsection 142(1) sets out the criteria that must be satisfied for a loan to be considered a 'remote area housing loan connected with a dwelling'.

Subsection 142(1) provides:

142(1) [Remote area housing loan]

In this Act, a reference, in relation to a year of tax in relation to an employee of an employer, to a remote area housing loan connected with a dwelling is a reference to a housing loan relating to the dwelling where:

(a)          during the whole of the period (in this subsection referred to as the "occupation period") in the year of tax when the employee occupied or used the dwelling as his or her usual place of residence:

(i)            the dwelling was situated in a State or internal Territory and was not at a location in, or adjacent to, an eligible urban area; and

(ii)           the employee was a current employee of the employer and the usual place of employment of the employee was not at a location in, or adjacent to, an eligible urban area;

(b)          the common conditions set out in subsection (2E) are satisfied in relation to the occupation period; and

(c)          (Omitted by No 95 of 1988)

(d)          the loan was not made to the employee pursuant to:

(i)            a non-arm's length arrangement; or

(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 section 60.

The definition of an 'eligible urban area' is provided in section 140 of the FBTAA.

Subsection 140(1) provides:

140(1)

In this act

(a)          a reference to an eligible urban area is a reference to:

(i)           an area that:

(A) is situated in an area described in Schedule 2 to the Income Tax Assessment Act 1936; and

(B) is an urban centre with a census population of not less than 28,000; and

(ii)          an area that:

(A) is not situated in an area described in Schedule 2 to the Income Tax Assessment Act 1936; and

(B) is an urban centre with a census population of not less than 14,000; and

(b)          a reference to a location that is adjacent to an eligible urban area is a reference to a location that, as at the date of commencement of this section:

(i)            was situated less than 40 kilometres, by the shortest practicable surface route, from the centre point of an eligible urban area with a census population of less than 130,000; or

(ii)           was situated less than 100 kilometres, by the shortest practicable surface route, from the centre point of an eligible urban area with a census population of not less than 130,000.

Under paragraph 142(1)(a), the employee's accommodation must be in a location which is considered to be in a 'remote area', that is, the accommodation must not be in or adjacent to an eligible urban area as defined in subsection 140(1).

Paragraph 140(1)(a) provides that an 'eligible urban area' is a reference to an area that is an urban centre with a census population of not less than 14,000 (or 28,000 for an urban centre located in Zone A or B in Schedule 2 to the ITAA 1936 for income tax purposes).

Paragraph 140(1)(b) defines a location that is 'adjacent to an eligible urban area' to include one that is (i) situated less than 40km from an urban centre with a census population of less than 130,000; or (ii) situated less than 100 km from an urban centre with a census population of 130,000 or more.

Under this provision, an area will be treated as 'remote' where it is at least 40 kilometres from an eligible urban centre with a population of 14,000 or more (or 28,000 for an urban centre located in either Zones A or B for income tax purposes) and at least 100 kilometres from an eligible urban centre with a population of 130,000 or more.

All population figures are based on the 1981 census population figures.

Application to the Company:

a)            The proposed arrangement will only be provided to current employees who occupy or use the relevant dwelling as their usual place of residence.

All of the relevant towns in the Town A/B area where it is proposed that the Company's employee's dwellings will be situated, or will be the employee's usual place of employment, will be more than 40km from an eligible urban centre with a population of 14,000 or more (or 28,000 for an urban centre located in either Zones A or B for income tax purposes), and are at least 100 kilometres from an eligible urban centre with a population of 130,000 or more.

Accordingly, the requirements of subsection 140(1) and paragraph 142(1)(a) will be met.

b)            The common conditions set out in subsection 142(2E) are satisfied - see analysis below.

c)            This ruling assumes that he proposed arrangements are not provided under a non-arm's length arrangement, or an arrangement for the purpose or purposes of enabling the Company to obtain the benefit of any relevant section of the FBTAA.

Accordingly, the requirements of paragraph 142(1)(d) will be met.

Paragraph 142(1)(b)

Paragraph 142(1)(b) requires the common conditions contained in subsection 142(2E) to be satisfied in relation to the occupation period.

Subsection 142(2E) provides:

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;

(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)            the nature of the employer's business was such that employees of the employer were liable to be frequently required to change their places of residence;

(ii)           there was not, at or near the place or places at which the employees of the employer were employed, sufficient suitable residential accommodation for those employees (other than residential accommodation provided by or on behalf of the employer);or

(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.

Application to the Company: The relevant expenditure to be reimbursed by the Company will be the interest for remote area housing loans incurred by certain current employees. This ruling assumes that it is customary in the Company's industry for employers to provide remote area fringe benefits to attract and retain various classes of employees at remote locations where their operations occur. Therefore, the Company will satisfy the conditions in subsection 142(2E).

Conclusion in relation to paragraph 60(2)(b)

Accordingly, the Company will satisfy the conditions in subsection 142(1), and will therefore satisfy the requirements of paragraph 60(2)(b).

Paragraph 60(2)(c) The recipient occupied or used the dwelling as his or her usual place of residence during an occupation period during which the interest accrued

Paragraph 60(2)(c) requires that the recipient occupied or used the dwelling as his or her usual place of residence during an occupation period during which the interest accrued.

Application to the Company: The proposed arrangements will only be provided to current employees who occupy or use the relevant dwelling as their usual place of residence. Accordingly, the Company will satisfy Paragraph 60(2)(c).

Paragraph 60(2)(d) The loan was made at arm's-length and not for the purpose/s of the employer obtaining a benefit

Paragraph 60(2)(d) requires that the loan be made to the employee at arm's length, and not under an arrangement for the purpose or purposes of enabling the employer to obtain the benefit of section 60 of the FBTAA.

Application to the Company: This ruling assumes that proposed arrangements are not provided under a non-arm's length arrangement, or an arrangement for the purpose or purposes of enabling the Company to obtain the benefit of any relevant section of the FBTAA. Accordingly, the Company will satisfy paragraph 60(2)(d).

Subsection 60(2) Conclusion: The Company has satisfied the provisions of subsection 60(2) for the purposes of reducing the taxable value of fringe benefits in respect of interest incurred on a remote area housing loan.

Subsection 60(2A) - Recipient of remote area housing rent

Nature of housing benefit: The Company reimburses employees for expenses associated with residential rent in the Town A/B area.

Subsection 60(2A) provides a reduction of 50% of the taxable value of the fringe benefit.

Subsection 60(2A) provides:

a)            the recipient of the relevant expense payment fringe benefit in relation to an employer in relation to a year of tax is an employee of the employer;

b)            the recipient's expenditure is in respect of remote area housing rent connected with a unit of accommodation;

c)            the recipient occupied or used the unit of accommodation as his or her usual place of residence during the period the rent accrued; and

d)            the fringe benefit was not provided under:

(i)            a non-arm's length arrangement; or

(ii)           under an arrangement that was entered into by any of the parties to the arrangement to enable the employer to obtain the benefit of the application of the subsection.

the amount that, but for this subsection, would be the taxable value of the fringe benefit in relation to the year of tax shall be reduced by 50% of so much of the recipients expenditure as relates to the occupation period.

Paragraph 60(2A)(a) An expense payment fringe benefit of an employee

An expense payment fringe benefit has previously been discussed in the analysis of subsection 60(2).

Application to the Company: An expense payment benefit will arise when the Company reimburses the rent expenditure incurred by employees on the remote area housing. Given the reimbursement will only be given to current employees, this section is satisfied as the recipient of the expense payment fringe benefit will be a current employee of the Company.

Paragraph 60(2A)(b) Expenditure on remote area housing rent connected with a unit of accommodation

Subsection 136(1) defines a 'unit of accommodation' as an accommodation in a house, flat or home unit.

Subsection 142(1A) sets out the requirements for the existence of 'remote area housing rent connected with a unit of accommodation'.

Subsection 142(1A) provides:

In this Act, a reference, in relation to a year of tax in relation to an employee of an employer, to remote area housing rent connected with a unit of accommodation is a reference to rent or other consideration payable in respect of the subsistence of a lease or licence in respect of the unit of accommodation where:

a)            during the whole of the period (in this subsection referred to as the ''occupation period'') in the year of tax when the employee occupied or used the unit of accommodation as his or her usual place of residence:

(i)            the unit of accommodation was situated in a State or internal Territory and was not at a location in, or adjacent to, an eligible urban area; and

(ii)           the employee was a current employee of the employer and the usual place of employment of the employee was not at a location in, or adjacent to, an eligible urban area;

b)            the common conditions set out in subsection (2E) are satisfied in relation to the occupation period; and

c)            (Omitted by No 95 of 1988)

d)            the lease or licence was not granted under:

(i)            a non-arm's length arrangement; or

(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 section 60.

Application to the Company:

a)            The Company's current employees will satisfy the provisions of subparagraphs 142(1A)(a)(i) and (ii) provided they occupy or use the relevant unit of accommodation during the occupation period as their usual place of residence in a remote area, being the Town A/B area.

b)            As discussed previously in the analysis of subsection 60(2), this ruling assumes that it is customary in the Company's industry for employers to provide remote area fringe benefits to attract and retain various classes of employees at remote locations where their operations occur. Therefore it is accepted that the Company has met the common conditions set out in subsection 142(2E).

c)            As discussed previously in the analysis of subsection 60(2), this ruling assumes that the proposed arrangements are not provided under a non-arm's length arrangement, or an arrangement for the purpose or purposes of enabling the Company to obtain the benefit of any relevant section of the FBTAA. Accordingly, the Company will satisfy paragraph 142(1)(d).

Application to the Company: This condition will be satisfied at the time the Company reimburses employees for the rent expenses incurred by the employees on housing rent associated with their remote area housing.

Paragraph 60(2A)(c) The recipient occupied or used the dwelling as his or her usual place of residence

Application to the Company: It is accepted that the dwelling will be the usual place of residence of the employees.

Paragraph 60(2A)(d) The expense payment benefit was made at arm's-length and not for the purposes of the employer obtaining a benefit

Application to the Company: This ruling assumes that the remote housing assistance will not be provided under a non-arm's length arrangement, or an arrangement for the purpose or purposes of enabling the Company to obtain the benefit of any relevant section of the FBTAA.

Subsection 60(2A) Conclusion: The Company has satisfied the provisions of subsection 60(2A) for the purposes of reducing the taxable value of fringe benefits in respect of remote area housing rent.

Subsection 60(4) - Expense payment fringe benefit in respect of remote area residential property

Nature of housing assistance: The Company reimburses employees for expenditure in respect of remote area residential property.

Subsection 60(4) provides that a payment for the acquisition of an interest in land (residential property) or the construction/renovation of a building on land located in a remote area and used by an employee as his or her usual place of residence is subject to a 50% reduction.

Subsection 60(4) provides that where:

a.            the recipient of an expense payment fringe benefit in relation to an employer in relation to a year of tax is an employee of the employer; and

b.            the recipient's expenditure is in respect of remote area residential property.

the amount that, but for this subsection, would be the taxable value of the fringe benefit in relation to the year of tax shall be reduced by 50%.

Paragraph 60(4)(a) The recipient of an expense payment fringe benefit in relation to an employer in relation to a year of tax is an employee of the employer

Application to the Company: As previously covered in the analysis of subsection 60(2), this condition will be satisfied as the recipient of an expense payment fringe benefit will be a current employee of the Company.

Paragraph 60(4)(b) The recipient's expenditure is in respect of remote area residential property

A 'remote area residential property,' is a reference to property that consists of an estate or interest in land as set out under subsection 142(2C).

Subsection 142(2C)

Subsection 142(2C) provides rules for determining eligibility for the subsection 60(4) reduction in taxable value. This subsection sets out the criteria which determine when the recipient's expenditure is in respect of remote area residential property.

Subsection 142(2C) provides:

In this Act, a reference, in relation to an expense payment fringe benefit in relation to a year of tax in relation to an employee of an employer, to recipients expenditure in respect of remote area residential property is a reference to recipients expenditure that is incurred wholly:

a.            to enable the employee to acquire an estate or interest in land on which a dwelling was subsequently to be constructed or to acquire an estate or interest in land and construct, or complete the construction of, a dwelling on the land;

b.            to enable the employee to construct, or complete the construction of, a dwelling on land in which the employee holds an estate or interest;

c.            to enable the employee to acquire an estate or interest in land on which there is a dwelling; or

d.            to enable the employee to extend a dwelling, being a dwelling constructed on land in which the employee holds an estate or interest, by adding a room or part of a room to the dwelling, as the case may be;

where:

e.            if paragraph (a) or (b) applies:

(i)            at the time the recipients expenditure was incurred, the employee proposed to occupy or use the dwelling as his or her usual place of residence; and

(ii)           the Commissioner is satisfied that the employee has pursued sustained reasonable efforts to:

(A) commence the construction, or commence the completion of the construction, of the building constituting or containing the dwelling within 6 months after the time the recipients expenditure was incurred; and

(B) occupy or use the dwelling concerned as his or her usual place of residence within 18 months after the time the recipients expenditure was incurred;

f.             if paragraph (c) or (d) applies - as soon as reasonably practicable after the time the recipients expenditure was incurred, the dwelling concerned was occupied or used by the employee as his or her usual place of residence;

g.            at the time the recipients expenditure was incurred:

(i)            the land was situated in a State or internal Territory and was not at a location in, or adjacent to, an eligible urban area; and

(ii)           the employee was a current employee of the employer and the usual place of employment of the employee was not at a location in, or adjacent to, an eligible urban area;

h.            the common conditions set out in subsection (2E) are satisfied in relation to the time the recipients expenditure was incurred; and

i.              the fringe benefit was not provided to the employee under:

(i)            a non-arm's length arrangement; or

(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 section 60 or Division 14Aof Part III.

Application to the Company:

The Company has stated that it intends to reimburse employees for expenditure which may be incurred under any of the paragraphs 142(2C)(a), (b), (c) or (d).

Where paragraphs 142(2C)(a) or (b) apply, the provisions of paragraph 142(2C)(e) will need to be addressed:

a)            Provided employees of the Company propose to occupy or use the dwelling constructed on the land purchased as their usual place of residence, at the time the expenditure was incurred, this condition will be satisfied.

b)            Provided also that the Commissioner is satisfied that employees of the Company commence construction of the dwelling within 6 months and occupy or use the dwelling within the required 18 month period of purchase, this condition will be satisfied.

Where paragraphs 142(2C)(c) or (d) apply, and it can be shown that the employees of the Company occupied the dwelling as their usual place of residence, as soon as is reasonably practicable after the expenditure is incurred, paragraph 142(2C)(f) will be satisfied.

The condition in paragraph 142(2C)(g) will be satisfied provided that at the time the expenditure is incurred, the land was located in a remote area (the Town A/B area), and the employee was a current employee of the Company in a location that is a remote area (the Town A/B area).

As discussed previously in the analysis of sections 60(2), the common conditions set out in subsection 142(2E) are satisfied. Accordingly, paragraph 142(2C)(h) is thereby satisfied.

This ruling assumes that the remote housing assistance will not be provided under a non-arm's length arrangement, or an arrangement for the purpose or purposes of enabling the Company to obtain the benefit of any relevant section of the FBTAA. Accordingly, paragraph 142(2C)(j) is satisfied.

Subsection 60(4) Conclusion: The Company will satisfy the provisions of subsection 60(4) for the purposes of reducing the taxable value of fringe benefits in respect of remote area residential property, where they satisfy the criteria in paragraph 142(2C).

II.            Section 59 - Reduction of Taxable Value - Remote Area Residential Fuel

The effect of section 59 is to reduce the taxable value of certain types of benefits relating to the provision of residential fuel to employees in remote areas.

Residential fuel is defined in subsection 136(1) of the FBTAA as any form of fuel (including electricity) for use for domestic purposes.

Where electricity, gas and other fuel is supplied or paid for by the employer in relation to a remote area housing benefit, the taxable value of the fuel benefit may be reduced by 50% (after taking account of the reduction for certain in-house benefits under section 62).

To qualify for a reduction under section 59, a number of requirements must be met. The primary requirement is that the recipient concerned is also the recipient of a 'remote area housing' fringe benefit.

Subsection 59(2) - Recipient obliged to repay remote area housing loan

Subsection 59(2) provides:

Where:

a.            any of the following conditions are satisfied:

(i)            the recipients expenditure in relation to an expense payment fringe benefit in relation to an employer in relation to an employee in relation to a year of tax is in respect of the supply of residential fuel;

(ii)           the recipients property in relation to a property fringe benefit in relation to an employer in relation to an employee in relation to a year of tax is residential fuel;

(iii)          the recipients benefit in relation to a residual fringe benefit in relation to an employer in relation to an employee in relation to a year of tax is the benefit of the consumption of residential fuel;

b.            the residential fuel is for use in connection with a dwelling during a period in the year of tax or, in a case to which subparagraph (a)(i) applies, a preceding year of tax, when the recipient of the fringe benefit occupied or used the dwelling as his or her usual place of residence and was under an obligation to repay the whole or a part of a remote area housing loan connected with the dwelling; and

c.            the fringe benefit was not provided under:

(i)            a non-arm's length arrangement; or

(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;

the amount that, but for this subsection and section 62, would be the taxable value of the fringe benefit in relation to the year of tax shall be reduced by 50%.

Application to the Company:

Paragraph 59(2)(a) Expenditure relating to an expense payment fringe benefit, a property fringe benefit, or a residual fringe benefit in respect of residential fuel

The Company will provide an expense payment fringe benefit under the proposed arrangement to reimburse employees for the whole or part of the cost of electricity, gas or other residential fuel.

Accordingly, condition (i) of this provision is satisfied.

Paragraph 59(2)(b) Residential fuel used in connection with a remote area dwelling

Provided the residential fuel is used in connection with a dwelling that an employee of the Company occupies or uses as their usual place of residence, and is under an obligation to repay the whole or part of a remote area housing loan, connected with the dwelling, then this condition will be met.

Additionally, the definition of a remote area housing loan has already been considered in the analysis of subsection 142(1) which formed part of the subsection 60(2) analysis, and it was considered that housing benefits were provided as remote area housing loans.

Paragraph 59(2)(c) The reimbursement of residential fuel arrangement was made at arm's-length and not under an arrangement for the purposes of the employer obtaining a benefit

This ruling assumes that he proposed arrangements are not provided under a non-arm's length arrangement, or an arrangement for the purpose or purposes of enabling the Company to obtain the benefit of any relevant section of the FBTAA.

Subsection 59(2) Conclusion: The Company satisfies the provisions of subsection 59(2).

Subsection 59(3) - Accommodation connected with remote area housing rent

Remote area housing rent connected with a unit of accommodation has already been defined in the analysis provided on subsection 142(1A), which formed part of the subsection 60(2A) analysis. Broadly, it is the payment or reimbursement of rent to an employee that relates to a unit of accommodation located in a remote area and used by the employee as their usual place of residence.

Subsection 59(3) provides:

Where

(a) any of the following conditions are satisfied:

(i)            the recipients expenditure in relation to an expense payment fringe benefit in relation to an employer in relation to an employee in relation to a year of tax is in respect of the supply of residential fuel;

(ii)           the recipients property in relation to a property fringe benefit in relation to an employer in relation to an employee in relation to a year of tax is residential fuel;

(iii)          the recipients benefit in relation to a residual fringe benefit in relation to an employer in relation to an employee in relation to a year of tax is the benefit of the consumption of residential fuel;

(b) the residential fuel is for use in connection with a unit of accommodation during a period in the year of tax or, in a case to which subparagraph (a)(i) applies, in a preceding year of tax, during which:

(i)            the recipient of the fringe benefit occupied or used the unit of accommodation as his or her usual place of residence; and

(ii)           remote area housing rent connected with the unit of accommodation accrued; and

(c) the fringe benefit was not provided under:

(i)            a non-arm's length arrangement; or

(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;

the amount that, but for this subsection and section 62, would be the taxable value of the fringe benefit in relation to the year of tax shall be reduced by 50%.

Application to the Company:

Paragraph 59(3)(a) Expenditure relating to an expense payment fringe benefit, a property fringe benefit, or a residual fringe benefit in respect of remote area housing rent

The Company will provide an expense payment fringe benefit under the proposed arrangement to reimburse employees for the whole or part of the cost of electricity, gas or other residential fuel. Accordingly, condition (i) of this provision will be satisfied.

Paragraph 59(3)(b) The recipient expenditure is in respect of housing rent in connection with a unit of accommodation

Provided the residential fuel is used in connection with a dwelling that an employee of the Company occupies or uses as their usual place of residence, and remote area rent accrued in connection with the dwelling, then this condition will be met.

Additionally, the definition of remote area housing rent connected to a unit of accommodation has already been considered in the analysis of subsection 142(1A) which formed part of the subsection 60(2A) analysis, and it was considered that housing benefits were provided when the Company reimbursed employees for rent expenses associated with their remote area housing.

Paragraph 59(3)(c) The reimbursement of residential fuel arrangement was made at arm's-length length and not under an arrangement for the purposes of the employer obtaining a benefit

This ruling assumes that the proposed arrangements are not provided under a non-arm's length arrangement, or an arrangement for the purpose or purposes of enabling the Company to obtain the benefit of any relevant section of the FBTAA.

Subsection 59(3) Conclusion: The Company satisfies the provisions of subsection 59(3)

III.           Section 60A - Reduction of Taxable Value - Remote Area Holiday Transport Fringe Benefits subject to a ceiling.

Section 61 - Reduction of Taxable Value - Remote Area Holiday Transport Fringe Benefits not subject to a ceiling.

Employees working in remote areas may be reimbursed for the costs of, or may be provided with, transport in connection with extended recreation leave of more than three days.

Section 60A and section 61 provide a reduction in the taxable value of fringe benefits where transport, accommodation or meals are provided to an employee or family members in connection with having a holiday of not less than three days.

To obtain the reduction in the taxable value of fringe benefits under sections 60A and 61, the Company must provide a remote area holiday transport fringe benefit as defined in section 143.

Subsection 143(1) - Remote area holiday transport

Subsection 143(1) provides:

For the purposes of this Act:

a.            the recipients expenditure in relation to an expense payment fringe benefit;

(aa) the recipients property in relation to a property fringe benefit; or

b.            the recipients benefit in relation to a residual fringe benefit;

in relation to an employer, in relation to an employee, in relation to a year of tax shall be taken to be in respect of remote area holiday transport if:

c.            in the case of an expense payment fringe benefit - the recipients expenditure is in respect of the provision of transport, or meals or accommodation in connection with transport;

(ca) in the case of a property benefit - the recipients property consists of meals in connection with transport;

d.            in the case of a residual fringe benefit - the recipients benefit consists of:

(i)            the provision of transport or accommodation in connection with transport; or

(ii)           the receipt of an allowance in respect of the cost of obtaining transport, or of obtaining meals or accommodation in connection with transport;

e.            the transport, accommodation or meals is for a family member;

f.             apart from temporary absences, the employee performs the duties of his or her employment at a place in a State or internal Territory but not at a location in, or adjacent to, an eligible urban area;

g.            the transport is provided wholly or principally to enable the family member to have a holiday for a period of not less than 3 days;

h.            if the transport is for the employee:

(i)            the transport is provided while the employee is on recreation leave, being recreation leave of not less than 3 working days; and

(ii)           at the completion of that recreation leave, the employee resumes the duties of that employment at the place referred to in paragraph (f);

i.              either of the following subparagraphs applies:

(i) the transport is between:

(A) a place at or near the place referred to in paragraph (f); and

(B) another place;

(ii) the transport is for the spouse, or a child, of the employee, being a spouse or a child of the employee who does not live with the employee at or near the place referred to in paragraph (f), and the transport is between:

(A) a place where the spouse or child, as the case may be, meets the employee; and

(B) another place;

j.              if the transport is for the spouse, or a child, of the employee - the transport is not provided to enable the spouse or child to accompany the employee:

(i) while the employee is undertaking travel in the course of performing the duties of his or her employment; and

(ii) where the circumstances referred to in subsection 26-30(2) of the Income Tax Assessment Act 1997 do not apply; and

k.            either of the following conditions is satisfied:

(i) the benefit is provided pursuant to the provisions of an industrial instrument relating to the employment of the employee;

(ii) it is customary for employers in the industry in which the employee is employed to provide benefits of the same kind as the benefit provided to the recipient and to provide such benefits in similar circumstances to those that applied in relation to the provision of the benefit to the recipient.

Application to the Company:

a.            This condition will be satisfied as the Company have stated that they intend to pay for, or reimburse, the costs associated with transport or meals or accommodation in connection with the remote area holiday transport.

b.            This condition will be satisfied where the Company either pays or reimburses costs in relation to the transport, accommodation or meals of family members.

c.            This condition will be satisfied as the Company have stated that all employees eligible for remote area holiday transport will perform their duties of employment in the Town A/B area (being a remote area).

d.            This condition is satisfied as the Company have stated that the remote area holiday transport is to be provided to a family member, to enable them to have a holiday of not less than three days.

e.            This condition will be satisfied as the Company have stated that the remote area holiday transport is to be provided while the employee is on recreational leave for a period of not less than 3 days, and at the completion of the recreational leave, the employee will resume duties of employment as per paragraph (f), and the transport is intended to allow the employee to travel between the Town A/B area and another location.

b.    (j) Condition (i) will be satisfied as the transport is intended to allow the employee to travel between the Town A/B area and another location.

a.    Condition (ii) will also be satisfied, as the Company have stated that where the transport is provided to a family member, it will be provided to enable them to travel between a place where they meet the employee and another location.

(ja)(i) and (ii) On the basis that the Company will have satisfied paragraph (g) above, this condition will also be satisfied.

(k)(ii) This ruling assumes that it is customary in the Company's industry for employers to provide remote area fringe benefits to attract and retain various classes of employees at remote locations where their operations occur. It is accepted that this condition is satisfied.

Accordingly the Company satisfies the definition of remote area holiday transport in subsection 143(1).

Subsection143(2) - Remote area holiday transport fringe benefit

To obtain the reduction under section 60A and section 61, the benefit provided in respect of remote area holiday transport must be a remote area holiday transport fringe benefit.

Subsection 143(2) provides:

For the purposes of this Act, where:

(a)          the recipients expenditure in relation to an expense payment fringe benefit;

(b)          the recipients property in relation to a property fringe benefit; or

(c)          the recipients benefit in relation to a residual fringe benefit;

is in respect of remote area holiday transport, the fringe benefit shall be taken to be a remote area holiday transport fringe benefit

Application to the Company:

The Company will provide an expense payment fringe benefit under the proposed arrangement to reimburse employees the costs of transport in connection with extended recreation leave of more than three days. Accordingly, subsection 143(2) will be satisfied.

Subsection 143(1) conclusion: The Company satisfies the provisions of section 143 for the purposes of reducing the taxable value of fringe benefits under section 60A and section 61.

Question 2

Where the Company employees request to salary sacrifice benefits provided under the sections listed in Question 1 above, can the taxable value of the benefits be reduced or exempted under the relevant subsection (where the relevant criteria are satisfied) under the following circumstances:

a)            The employee incurred the costs in prior FBT years;

b)            The Company subsequently enters into a prospective salary sacrifice arrangement with the employee to recoup the costs from the employee via pre-tax deductions; and

c)            The Company reimburses the employee for the costs in the current FBT period.

Summary

Yes. Where the Company's employees request to salary sacrifice benefits provided under the sections listed in Question 1, the taxable value of the benefits can be reduced under those relevant subsections for the circumstances contained in a), b) and c) above.

Detailed reasoning

The Commissioner's view on salary sacrifice agreements is provided in Taxation Ruling TR 2001/10 Fringe benefit tax and superannuation guarantee: salary sacrifice arrangement.

TR 2001/10, paragraph 19 states:

'Salary sacrifice arrangement' (SSA) - in this Ruling, the term salary sacrifice arrangement means an arrangement under which an employee agrees to forego part of his or her total remuneration, that he or she would otherwise expect to receive as salary or wages, in return for the employer or someone associated with the employer providing benefits of a similar value. The main assumption made by the parties is that the employee is then taxed under the income tax laws only on the reduced salary or wages and that the employer is liable to pay FBT, if any, on the benefits provided.

In addition, paragraph 21 states:

'Effective SSA' - an effective SSA involves the employee agreeing to receive part of his or her total amount of remuneration as benefits before the employee has earned the entitlement to receive that amount as salary or wages.

Thus, an arrangement between the employer and the employee detailing the amount of salary or wages to be sacrificed must be entered into before the actual performance of the service.

Under section 20, an expense payment fringe benefit will arise in relation to the reimbursement by the employer to the employee of an expense incurred by the employee. This benefit arises at the time the provider makes the reimbursement payment. There is no requirement that the reimbursement be made in the same year that the expense is incurred.

Application to the Company:

The reimbursement payment by the Company to an employee for the expenses paid by the employee in relation to remote area housing fringe benefits satisfies the circumstances specified in paragraph 20.

The proposed SSA will be considered effective, as it will be entered into prior to personal services being performed.

The benefit will arise at the time of the reimbursement regardless of whether the expenses reimbursed are prior year expenses.

The Company can access the relevant concessionary FBT treatment (referred to in Question 1) for the expense payment fringe benefits on the basis of the proposed arrangement.